Varazdin Development and Entrepreneurship Agency and University North

in cooperation with
Azerbaijan State University of Economics (UNEC)
Faculty of Management University of Warsaw
Faculty of Law, Economics and Social Sciences Sale - Mohammed V University in Rabat
Polytechnic of Medimurje in Cakovec

Economic and Social Development

55th International Scientific Conference on Economic and Social Development Development

Book of Proceedings Vol. 1/4

Editors:
Altay Ismayilov, Khatai Aliyev, Manuel Benazic

Baku, 18-19 June 2020

 Varazdin Development and Entrepreneurship Agency and University North
in cooperation with
Azerbaijan State University of Economics (UNEC)
Faculty of Management University of Warsaw
Faculty of Law, Economics and Social Sciences Sale - Mohammed V University in Rabat
Polytechnic of Medimurje in Cakovec

Editors:
Altay Ismayilov, Azerbaijan State University of Economics, Azerbaijan
Khatai Aliyev, Azerbaijan State University of Economics, Azerbaijan
Manuel Benazic, University of Pula, Croatia

Economic and Social Development

th
55 International Scientific Conference on Economic and Social Development Development

Book of Proceedings Vol. 1/4

55th International Scientific Conference on Economic and Social Development

was dedicated to Azerbaijan State University of Economics 90th anniversary

Baku, 18-19 June 2020

Title ◼ Economic and Social Development (Book of Proceedings Vol. 1/4), 55th International Scientific Conference on Economic and Social
Development Development

Editors ◼ Altay Ismayilov, Khatai Aliyev, Manuel Benazic

Scientific Committee / Programski Odbor ◼ Marijan Cingula (President), University of Zagreb, Croatia; Sannur Aliyev, Azerbaijan State
University of Economics, Azerbaijan; Ayuba A. Aminu, University of Maiduguri, Nigeria; Anona Armstrong, Victoria University, Australia;
Gouri Sankar Bandyopadhyay, The University of Burdwan, Rajbati Bardhaman, India; Haimanti Banerji, Indian Institute of Techno logy,
Kharagpur, India; Victor Beker, University of Buenos Aires, Argentina; Asmae Benthami, Mohammed V University, Morocco; Alla Bobyleva,
The Lomonosov Moscow State University, Russia; Leonid K. Bobrov, State University of Economics and Management, Novosibirsk, R ussia;
Rado Bohinc, University of Ljubljana, Slovenia; Elisabeth de Jesus Oliveira Brito, University of Aveiro, Portugal; Adnan Celik, Selcuk
University, Konya, Turkey; Angelo Maia Cister, Federal University of Rio de Janeiro, Brasil; Mirela Cristea, University of Cr aiova, Romania;
Taoufik Daghri, Mohammed V University, Morocco; Oguz Demir, Istanbul Commerce University, Turkey; T.S. Devaraja, University of
Mysore, India; Onur Dogan, Dokuz Eylul University, Turkey; Darko Dukic, University of Osijek, Croatia; Gordana Dukic, Univers ity of
Osijek, Croatia; Alba Dumi, Vlora University, Vlore, Albania; Galina Pavlovna Gagarinskaya, Samara State University, Russia; Mirjana
Gligoric, Faculty of Economics - Belgrade University, Serbia; Maria Jose Angelico Goncalves, Porto Accounting and Business School -
P.Porto, Portugal; Mehmet Emre Gorgulu, Afyon Kocatepe University, Turkey; Klodiana Gorica, University of Tirana, Albania; Aleksandra
Grobelna, Gdynia Maritime University, Poland; Liudmila Guzikova, Peter the Great Saint-Petersburg Polytechnic University, Russia; Anica
Hunjet, University North, Koprivnica, Croatia; Khalid Hammes, Mohammed V University, Morocco; Oxana Ivanova, Ulyanovsk State
University, Ulyanovsk, Russia; Irena Jankovic, Faculty of Economics, Belgrade University, Serbia; Myrl Jones, Radford Univers ity, USA;
Hacer Simay Karaalp, Pamukkale University, urkey; Dafna Kariv, The College of Management Academic Studies, Rishon Le Zion, Isr ael;
Hilal Yildirir Keser, Uludag University, Bursa, Turkey; Sophia Khalimova, Institute of Economics and Industrial Engineering o f Siberian
Branch of Russian Academy of Science, Novosibirsk, Russia; Marina Klacmer Calopa, University of Zagreb, Croatia; Igor Klopota n,
Medjimursko Veleuciliste u Cakovcu, Croatia; Vladimir Kovsca, University of Zagreb, Croatia; Goran Kozina, University North, Koprivnica,
Croatia; Dzenan Kulovic, Univeristy of Zenica, Bosnia and Herzegovina; Robert Lewis, Les Roches Gruyere University of Applied Sciences,
Bulle, Switzerland; Ladislav Lukas, Univ. of West Bohemia, Faculty of Economics, Czech Republic; Mustapha Machrafi, Mohammed V
University, Morocco; Pascal Marty, University of La Rochelle, France; Vaidotas Matutis, Vilnius University, Lithuania; Daniel Francois
Meyer, North West University, South Africa; Marin Milkovic, University North, Koprivnica, Croatia; Abdelhamid Nechad, Abdelmalek
Essaadi University, Morocco; Gratiela Georgiana Noja, West University of Timisoara, Romania; Zsuzsanna Novak, Corvinus Univer sity of
Budapest, Hungary; Tomasz Ochinowski, University of Warsaw, Poland; Barbara Herceg Paksic , University of Osijek, Croatia; Vera Palea,
Universita degli Studi di Torino, Italy; Dusko Pavlovic, Libertas International University, Zagreb, Croatia; Igor Pihir, Univ ersity of Zagreb,
Croatia; Dmitri Pletnev, Chelyabinsk State University, Russian Federation; Miroslaw Przygoda, University of Warsaw, Poland; Karlis
Purmalis, University of Latvia, Latvia; Nicholas Recker, Metropolitan State University of Denver, USA; Kerry Redican, Virgini a Tech,
Blacksburg, USA; Humberto Ribeiro, University of Aveiro, Portugal; Robert Rybnicek, University of Graz, Austria; Elzbieta Szymanska,
Bialystok University of Technology, Poland; Katarzyna Szymanska, The State Higher School of Vocational Education in Ciechanow , Poland;
Ilaria Tutore, University of Naples Parthenope, Italy; Sandra Raquel Alves, University of Aveiro, Portugal; Joanna Stawska, University of
Lodz, Poland; Claudia Miranda Veloso, University of Aveiro, Portugal; Ilko Vrankic, University of Zagreb, Croatia; Stanislaw Walukiewicz,
Bialystok University of Technology, Poland; Thomas Will, Agnes Scott College, USA; Li Yongqiang, Victoria University, Australia; Peter
Zabielskis, University of Macau, China; Silvija Zeman, Medjimursko Veleuciliste u Cakovcu, Croatia; Tao Zeng, Wilfrid Laurier University,
Waterloo, Canada; Snezana Zivkovic, University of Nis, Serbia.

Review Committee / Recenzentski Odbor ◼ Marina Klacmer Calopa (President); Ana Aleksic; Sandra Raquel Alves; Ayuba Aminu; Mihovil
Andjelinovic; Josip Arneric; Lidija Bagaric; Tomislav Bakovic; Sanja Blazevic; Leonid Bobrov; Ruzica Brecic; Anita Ceh Casni; Iryna
Chernysh; Mirela Cristea; Oguz Demir; Stjepan Dvorski; Robert Fabac; Ivica Filipovic; Sinisa Franjic; Fran Galetic; Mirjana G ligoric;
Tomislav Globan; Anita Goltnik Urnaut; Tomislav Herceg; Irena Jankovic; Emina Jerkovic; Dafna Kariv; Oliver Kesar; Hilal Yildirir Keser;
Martina Dragija Kostic; Tatjana Kovac; Vladimir Kovsca; Angelo Maia Cister; Katarina Marosevic; Vaidotas Matutis; Marjana Mer kac Skok;
Daniel Francois Meyer; Natanya Meyer; Josip Mikulic; Ljubica Milanovic Glavan; Guenter Mueller; Ivana Nacinovic Braje; Zlatko Nedelko;
Gratiela Georgiana Noja; Zsuzsanna Novak; Alka Obadic; Claudia Ogrean; Igor Pihir; Najla Podrug; Vojko Potocan; Dinko Primora c; Zeljka
Primorac; Sanda Renko; Humberto Ribeiro; Vlasta Roska; Souhaila Said; Armando Javier Sanchez Diaz; Tomislav Sekur; Lorena Skuflic;
Mirko Smoljic; Petar Soric; Mario Spremic; Matjaz Stor; Tomasz Studzieniecki; Lejla Tijanic; Daniel Tomic; Boris Tusek; Rebek a Daniela
Vlahov; Ilko Vrankic; Thomas Will; Zoran Wittine; Tao Zeng; Grzegorz Zimon; Snezana Zivkovic; Berislav Zmuk.

Organizing Committee / Organizacijski Odbor ◼ Domagoj Cingula (President); Djani Bunja; Marina Klacmer Calopa; Spomenko Kesina;
Erlino Koscak; Tomasz Ochinowski; Miroslaw Przygoda; Michael Stefulj; Rebeka Danijela Vlahov; Sime Vucetic.

Publishing Editor ◼ Spomenko Kesina, Mario Vrazic, Domagoj Cingula

Publisher ◼ Design ◼ Print ◼ Varazdin Development and Entrepreneurship Agency, Varazdin, Croatia / University North, Koprivnica,
Croatia / Azerbaijan State University of Economics, Baku, Azerbaijan / Faculty of Management University of Warsaw, Warsaw, Po land /
Faculty of Law, Economics and Social Sciences Sale - Mohammed V University in Rabat, Morocco / Polytechnic of Medimurje in Cakovec,
Cakovec, Croatia

Printing ◼ Online Edition

ISSN 1849-7535
The Book is open access and double-blind peer reviewed.
Our past Books are indexed and abstracted by ProQuest, EconBIZ, CPCI (Web of Science) and EconLit databases an d available for download
in a PDF format from the Economic and Social Development Conference website: http://www.esd -conference.com

© 2020 Varazdin Development and Entrepreneurship Agency, Varazdin, Croatia; University North, Koprivnica, Croatia; Azerbaij an
State University of Economics, Baku, Azerbaijan; Faculty of Management University of Warsaw, Warsaw, Poland; Faculty of Law,
Economics and Social Sciences Sale - Mohammed V University in Rabat, Morocco; Polytechnic of Medimurje in Cakovec, Cakovec,
Croatia. All rights reserved. Authors are responsible for the linguistic and technical accuracy of their contributions. Authors keep t heir
copyrights for further publishing.
CONTENTS

INTERNATIONAL ASPECTS OF TRANSPORT INFRASTRUCTURE

DEVELOPMENT .................................................................................................................1
Mehriban Samadova, Galina Grinenko, Alexander Troshin, Svetlana Ykimchuk

HUMAN RESOURCES IN DIGITAL ECONOMY ......................................................... 10

Anna Volkova, Dina Konstantinova, Marina Kudaeva, Yulia Masalova

ROBUST HOMEOSTASIS PARAMETERIZATION - THE REGULATOR OF THE

ECONOMIC SYSTEM OPERATING ACTIVITY .......................................................... 17
Mikhail Alekseev, Elizaveta Freydina, Lyudmila Rudi, Tatyana Vladimirova, Nataliya
Kravchenko, Nadezda Ulanova

DIGITAL BANK CONCEPT ............................................................................................ 30

Yuriy Shvetsov, Galina Tarasova, Vladimir Balikoev, Alexandra Shmyreva

INFORMATION AS AN OBJECT OF CIVIL RIGHTS ................................................. 35

Elena Khоlmova

THE IMPACT OF DIGITAL TRANSFORMATION ON THE FORMATION OF

MANAGEMENT TOOLS USED BY MODERN COMPANIES ..................................... 41
Akmaeva Rayasa, Abbasovа Sevinj

IMPROVING THE NORMATIVE LEGAL BASE FOR THE REGULATION OF

LABOR RELATIONS........................................................................................................ 48
Arabiya Mustafayeva

THE USE OF TOURISM SLOGANS AND LOGOS IN THE CASE OF EUROPEAN

CAPITALS – A POSSIBLE CLASSIFICATION ............................................................. 52
Arpad Papp-Vary, David Wolf, Mate Farkas, Szabolcs Szolnoki

PUBLIC AUDIT IN THE SYSTEM OF ENSURING REGION ECONOMIC SECURITY

(THE ASTRAKHAN REGION EXAMPLE) .................................................................... 74
Perepechkina Elena, Samarets Tatyana, Mamedova Aida, Kasumova Lala, Babashirinova
Esmira

CYCLICAL FLUCTUATION IN MONEY LAUNDERING: CASE STUDY OF

AZERBAIJAN, TAJIKISTAN, UKRAINE AND KAZAKHSTAN ................................. 83
Atik Kerimov, Anton Boyko, Victoria Bozhenko

THE DIMENSION OF FINANCING OF NON-PROFIT ORGANIZATIONS IN

SLOVAK REPUBLIC ........................................................................................................ 93
Dagmar Hraskova

GREEN INTELLECTUAL CAPITAL AND COMPANY PERFORMANCE .............. 100

Eldar Khanlarov, Serhiy Lyeonov, Lyudmila Starchenko
THE IMPACT OF TIME MANAGEMENT ON FINANCE OF SLOVAK NON-PROFIT
ORGANIZATIONS .......................................................................................................... 110
Emilia Gresakova

TOOLS FOR STRATEGIC RESEARCH OF THE NATIONAL SECURITY SYSTEM -

METHODOLOGY FOR RESEARCH USING SIMULATION BUSINESS GAME .... 117
Venelin Terziev, Mitko Stoykov

ELECTRONIC SERVICES AS SUPPORTING FACTOR OF QUALITY OF LIFE IN

DIGITAL ECONOMY ..................................................................................................... 126
Zuzana Stofkova

MULTINATIONAL BANKING IN THE TIMES OF CORONAVIRUS OUTBREAK:

TRENDS AND CHALLENGES ...................................................................................... 135
Fahri Murshudli, Roksolana Zapotichna

MARKETING OF SOCIAL TOURISM ......................................................................... 147

Farhad Rahmanov, Nataliia Letunovska, Oleksii Lyulyov

RESEARCH OF INDICATORS OF QUALITY OF RIVER CANCER, (ASTACUS

LEPTODACTYLUS) FISHED FROM MINGECHAUR RESERVOIR ....................... 161
Farida Guliyeva

THE ROLE OF BIOKIBERNETICS IN THE HUMAN IMMUNOLOGICAL SYSTEM

........................................................................................................................................... 165
Vladimir Nikolayevich Golubev, Farzaliyev Elsevar Baba Oglu

HOW TO INCREASE THE EFFICIENCY OF UTILIZATION OF CREDIT

RESOURCES BY THE PRODUCTION SECTOR ........................................................ 169
Javadov Ramiz Javad, Feyzullayev Mushfig Ahad

MANAGERIAL DISRUPTIVE STRATEGIES IN THE GLOBAL MUSIC INDUSTRY:

BUILDING OF THE COMPETITIVE ADVANTAGES OF SPOTIFY AND PANDORA
DIGITAL STREAMING CORPORATIONS ................................................................. 183
Josko Lozic

CLUSTERING AS A DRIVER OF REGIONAL ECONOMIC COMPLEXES

INNOVATIVE DEVELOPMENT IN CONDITIONS OF KNOWLEDGE ECONOMY
FORMATION .................................................................................................................. 195
Elena Kostuchenko, Sevinj Abbasovа, Vladimir Klyunya

REMUNERATION STRUCTURE ACCORDING TO OCCUPATIONS IN POLAND IN

2018 ................................................................................................................................... 204
Agata Gomolka

GLOBAL ENERGY SECURITY AS A GLOBAL PUBLIC BLESS ............................. 212

Rauf Qusxani, Maksimov Ivan, Matsuy Elena, Kryukova Ekaterina

ABOUT SOME ASPECTS AND FEATURES OF FORMATION OF THE DOMESTIC

MARKET OF MERGERS AND ABSORPTIONS ......................................................... 220
Kogan Marina, Svetlana Mammadova, Lala Hamidova, Leman Kashiyeva
REGIONAL DIFFERENCES IN THE WAGES OF AGRICULTURAL WORKERS
AND THEIR REGULATION .......................................................................................... 227
Mirzabayova Mehriban Samaddin

SUSTAINABLE GROWTH AND COUNTRY GREEN BRAND: VISUALIZATION

AND ANALYSIS OF MAPPING KNOWLEDGE ......................................................... 234
Naila Akhundova, Tetyana Pimonenko, Yana Us

DIGITAL EDUCATIONAL SERVICES IN THE CONDITIONS OF GLOBAL

CHALLENGES: ANTI-CRISIS INSTRUMENT OR NEW REALITY ........................ 244
Natig Gadim-Oglu Hajiyev, Pogodina Irina Vladimirovna, Avdeev Danila Alekseevich,
Mamedov Sabir Niyazovich, Sugra Ingilab Humbatova

MORTGAGE LENDING MARKET: CHALLENGES AND PROSPECTS................. 250

Aydin Rafiyev, Natalya Solovjeva, Natalia Melnikova

EDUCATION FOR SUSTAINABLE DEVELOPMENT AS A TOOL TO REACH HIGH

QUALITY IN TEACHING .............................................................................................. 260
Farhad Rahmanov, Nadiya Kostyuchenko, Denys Smolennikov, Farhad Huseynov

NEW AGE OF MARKETING - NEUROMARKETING ............................................... 269

Leonarda Jez, Ana Mulovic Trgovac, Ante Roncevic

EARNINGS MANAGEMENT: THEORETICAL BACKGROUND AND

BIBLIOMETRICS ANALYSIS OF THE ISSUE ........................................................... 277
Anna Siekelova

RATIONALITY OF PUBLIC INFLATION EXPECTATIONS ................................... 287

Avaz Alakbarov, Anna Buriak, Anna Lasukova

CENTRAL BANK INDEPENDENCE MEASURING ................................................... 296

Azer Babayev, Tetyana Vasilyeva, Victoria Dudchenko

CHANGE FROM PERSONNEL MANAGEMENT TO HUMAN RESOURCE

MANAGEMENT IS AN EPISTEMOLOGICAL NECESSITY OR RHETORIC
CHANGE? ........................................................................................................................ 306
Hasan Tutar, Teymur Sarkhanov

POVERTY ALL OVER THE ROMANIAN RURAL AREA - SHORT MONOGRAPH

OF SOME RURAL LOCALITIES IN ROMANIA WITH THE LOWEST POVERTY
LEVEL .............................................................................................................................. 314
Cristina Stroe

THE APPLICATION OF REMOTE SENSING DATA FOR WHEAT YIELD

PREDICTION .................................................................................................................. 326
Anna Pavlova

INTERNATIONAL BANKING BUSINESS' EXPANSION IN DEVELOPING

MARKETS: PRE AND POST-CRISIS FRAMEWORKS ............................................. 333
Fahri Murshudli, Sergii Sheludko
IMPACT OF INNOVATIONS ON THE STANDARD OF LIVING IN THE CONTEXT
OF THE CRISIS AND FALLING EXPORT PRICES FOR ENERGY RESOURCES 344
Farhad Rahmanov, Inna Bagautdinova, Irina Degtyareva

APPLICATION OF SQDCME OPERATIONAL MANAGEMENT SYSTEM IN

EDUCATIONAL ORGANIZATIONS ............................................................................ 354
Irina Chistnikova, Yana Mochalova, Svetlana Ivashchenko, Kerimova Tahira, Dilavarov Farid

LABOR MARKET MANAGEMENT MECHANISMS IN GEORGIA ACCORDING TO

CURRENT TRENDS ....................................................................................................... 361
Nino Paresashvili, Rusudan Kinkladze, Ketevan Chitaladze, Zumrud Nadjafova, Teona
Edzgveradze

NETWORK HUMAN CAPITAL AS A FACTOR OF INTER-REGIONAL

INTERACTION IN THE CONTEXT OF DIGITAL TRANSFORMATION: RUSSIAN
AND FOREIGN EXPERIENCE ..................................................................................... 371
Elena Stryabkova, Leyla Hajiyeva, Elnur Aliyev, Аnna Kulik, Mikhail Kochergin

PROSPECTS FOR THE DEVELOPMENT OF INTERNATIONAL TRANSPORT

CORRIDORS IN MODERN GEO-ECONOMIC CONDITIONS ................................. 382
Mansur Barxudarov, Esmira Ahmadova, Kryukova Ekaterina

ASSESSMENT OF VALUE ADDED TAX GAPS: CROSS-COUNTRY ANALYSIS.. 390

Mirdamad Sadigov, Inna Tiutiunyk, Svitlana Pokhylko

BLOCKCHAIN TECHNOLOGY BASED SYSTEM-DYNAMIC SIMULATION

MODELING OF ENTERPRISE’S CYBER SECURITY SYSTEM .............................. 399
Mustafa Sadigov, Olha Kuzmenko, Hanna Yarovenko

SUSTAINABILITY ACCOUNTING & REPORTING ASSESSMENT SYSTEM: ROLE

IN INDEPENDENT VERIFICATION FOR STAKEHOLDERS INTERESTS ........... 409
Niyazi Ismayilov, Inna Makarenko, Serhiy Makarenko

THE IMPACT OF FINANCIAL CRISIS ON THE PERFORMANCE OF LARGE

CROATIAN BANK .......................................................................................................... 419
Ante Roncevic, Marina Gregoric, Dajana Maria Horvat

ECONOMETRIC ESTIMATION OF THE IMPACT OF INTEGRATION OF

EDUCATION AND SCIENCE ON SUSTAINABLE DEVELOPMENT (ON THE
EXAMPLE OF CIS COUNTRIES, UKRAINE AND GEORGIA) ................................ 429
Yadulla Hasanli, Sardar Shabanov, Salman Najafov, Oleksandr Krupskyi

THE CORONAVIRUS EPIDEMIC AS A WAY TO INFLUENCE TOTAL WORLD

ECONOMY'S TRANSFORMATION: ANALYSIS AND FORECAST ........................ 437
Sevda Mamedova, Inna Bagautdinova, Vitaly Vasiltsov

FORECASTIC CONTOURS OF THE DIGITAL ECONOMY IN THE FUTURE ..... 446

Sevinj Abbasovа, Inna Bagautdinova, Irina Degtyareva

SIGNIFICANT ISSUES OF ORGANIZATIONAL CONFLICT MANAGEMENT .... 457

Nino Paresashvili, Natiq Gurbanov, Badri Gechbaia, Ketevan Goletiani, Teona Edzgveradze
STRATEGY OF DISORGANIZATION OF LABOR AND HUMAN RESOURCE
MANAGEMENT POLICIES .......................................................................................... 465
Hasan Tutar, Teymur Sarkhanov

OPPORTUNITIES AND LIMITATIONS OF THE INDICATOR SYSTEM FOR

FINANCIAL DIAGNOSTICS AND BANKRUPTCY FORECASTING....................... 473
Svetlana Nadezhdina, Sergey Filatov, Tatyana Khramtsova, Alexander Shaposhnikov, Maria
Krasnova

THE CONCEPT OF A PROACTIVE APPROACH TO ANALYZING THE

EFFECTIVENESS OF INVESTMENTS IN NATURAL RESOURCES ...................... 482
Vladimir Kalugin, Elena Lavrinenko, Mehriban Aliyeva, Yana Bondareva

THE CURRENT STATE OF RUSSIA’S FISCAL POLICY FUTURE ......................... 489

Tunzala Gurbanova, Guzel Tokareva, Olga Shalina, Faniya Rastegaeva

SPATIAL DEVELOPMENT OF TERRITORIES BASED ON A SYSTEM OF KEY

PERFORMANCE INDICATORS ................................................................................... 499
Vafa Huseynova Arif, Marina Vladyka, Viktor Zakharov, Elena Gorbunova

HOW TO COMMUNICATE A PRICE TO THE CUSTOMERS ................................. 507

Zdenka Vidrova, Lubica Gajanova

FINANCIAL INNOVATION IN THE CONDITIONS OF DIGITALIZATION OF THE

ECONOMY ...................................................................................................................... 515
Ali Abbasov, Zahid Mamedov, Victoria Kovalenko

ON THE POSSIBILITY OF INCREASING THE ROLE OF EDB AND CENTRAL

BANKS OF EAEU COUNTRIES IN THE STIMULATION OF INTEGRATION
PROCESSES IN THE UNION TERRITORY ................................................................ 525
Zohrab Ibragimov, Elena Linkevich

HUMAN RESOURCES AS AN AREA FOR ENTERPRISE INNOVATION .............. 533

Zuzana Rosnerova, Boris Kollar

THE INNOVATIONS ROLE IN FACILITATING REGIONAL DEVELOPMENT... 543

Olga Nosova, Tetiana Nosova, Natiq Qurbanov, Damirov Yashar

INNOVATIVE MANAGEMENT PERSPECTIVE: ABM - ACTIVITY BASED

MANAGEMENT .............................................................................................................. 554
Olga Ponisciakova

RISK FACTORS FOR MALIGNANCY: SOCIAL AND PSYCHOLOGICAL ASPECTS

........................................................................................................................................... 562
Diana Tsiring, Yana Sizova

THE IMPACT OF COVID-19 CORONAVIRUS ON FINANCIAL MARKETS: A

QUALITATIVE APPROACH ......................................................................................... 567
Richard Ajayi, Fuzuli Aliyev, Teymur Sarkhanov
EASTERN MEDITERRANEAN GAS RESERVES: A RISING CRISIS FOR TURKEY
AND REGION .................................................................................................................. 572
Sayyad Sadri Alibabalu, Teymur Sarkhanov

EMISSIONS AND WASTE IN THE CONDITIONS OF SUSTAINABLE

DEVELOPMENT: SEARCH FOR THE ECOLOGICAL BALANCE ......................... 578
Sadiq Binyamin Oqlu Nazaraliyev, Baranova Alla Fedorovna, Pogodina Irina Vladimirovna,
Mamedov Sabir Niyazovich

FACTORS OF ATTRACTION AND HUMAN CAPITAL ACCUMULATION IN THE

FRAMEWORK OF A MACRO-REGION ..................................................................... 586
Mustafayeva Zohra Ismayil, Glotova Anastasia Sergeevna, Titova Irina Nikolaevna,
Druzhnikova Elena Petrovna

NEW APPROACHES OF HUMAN CAPITAL MANAGEMENT IN CONTEXT OF

EMOTIONAL INTELLIGENCE .................................................................................... 595
Peter Seemann, Zuzana Stofkova

ECONOMIC, SOCIAL, AND INSTITUTIONAL DETERMINANTS OF DOMESTIC

CONFLICT IN FRAGILE STATES ............................................................................... 603
Syed Muhammad All-e-Raza Rizvi, Marie-Ange Veganzones-Varoudakis

ECONOMIC GROWTH AND PUBLIC GOVERNANCE: FORESIGHT SCENARIOS

........................................................................................................................................... 613
Shahin Sadigov, Oleksii Lyulyov, Tetyana Vasylieva

IMPORT SUBSTITUTION AS FACTOR OF ECONOMIC SECURITY .................... 624

Rauf Gushkhani, Huseynova Shahla Akif, Meshkova Anna

TO THE QUESTION OF THE CONCEPT OF "CAREER GUIDANCE" IN THE

CONCEPT OF COMPETITIVENESS ........................................................................... 632
Svetlana Sotnikova, Olga Prokudina

E-COMMERCE FROM THE PERSPECTIVE OF VISEGRAD COUNTRIES .......... 641

Tatiana Corejova, Milan Garbier, Roman Chinoracky, Alexandra Valicova

MARKETING MIX AS PART OF MARKETING STRATEGY USED IN THE

SERVICE INDUSTRIES ................................................................................................. 649
Veronika Paurova, Margareta Nadanyiova

CHANGES IN WORK OF TRUCK DRIVERS FROM THE ASPECT OF SAFETY AND

PSYCHOSOCIAL RISKS................................................................................................ 658
Viera Sukalova

INTERNATIONAL SANCTIONS AS AN ECONOMIC SECURITY THREAT ......... 668

Ekaterina Vostrikova, Samedova Mehriban, Huseynova Shahla Akif, Aliyeva Mehriban, Leyla
Alikhanova

FINANCIAL SECTOR DEVELOPMENT: EFFICIENCY OF THE REGULATION

AND PUBLIC TRUST ..................................................................................................... 677
Zohrab Ibragimov, Maryna Brychko, Serhiy Lyeonov
FISCAL EFFECTIVENESS OF ENVIRONMENTAL TAXES: CASE OF EUROPEAN
COUNTRIES .................................................................................................................... 688
Avaz Alakbarov, Alina Vysochyna, Yaryna Samusevych

CURRENT TRENDS IN THE STATE AND DEVELOPMENT OF THE INSURANCE

SECTOR ........................................................................................................................... 698
Nizami Khudiyev, Natalia Putivtseva, Tatyana Zaitseva

EVALUATION OF THE FINANCIAL HEALTH OF NON-PROFIT

ORGANIZATIONS: A CASE STUDY IN THE SLOVAK REPUBLIC ....................... 708
Ivana Podhorska

FROM CULTURAL HERITAGE TO CULTURAL TOURISM IN OSIJEK-CROATIA:

CURRENT SITUATION AND DEVELOPMENT PERSPECTIVES ........................... 717
Marta Boric Cvenic, Hrvoje Mesic, Marija Tolusic

FINTECH IN ECONOMIC GROWTH: CROSS-COUNTRY ANALYSIS .................. 729

Shahin Sadigov, Tetyana Vasilyeva, Pavlo Rubanov

THE IMPACT OF FINANCIAL CRISIS ON THE BANKING DEVELOPMENT

(WORLD EXPERIENCE AND UKRAINE) ................................................................... 740
Zahid Mamedov, Ulyana Vladychyn, Sophia Lobozynska

THE IMPACT OF CURRENCY RESTRICTION ON THE FOREIGN EXCHANGE

MARKET (EXPERIENCE OF UKRAINE) ................................................................... 751
Azer Babayev, Iryna Skomorovych, Roya Khanlarova

IMPACT INVESTMENT: A SMART STRATEGY FOR SUSTAINABLE

DEVELOPMENT GOALS ACHIEVEMENT ................................................................ 761
Huseynova Vafa Arif, Julia Lyshchikova, Tatyana Dobrodomova

TRENDS OF THE ATTRACTIVENESS OF AZERBAIJAN TOURISTS IN GEORGIA

........................................................................................................................................... 770
Nino Abesadze, Otar Abesadze, Lala Amanova

OIL PRICES AND MACROECONOMIC INDICATORS OF OIL EXPORTING AND

OIL IMPORTING COUNTRIES .................................................................................... 778
Sugra Ingilab Humbatova, Manuela Tvaronaviciene, Natig Gadim‒Oglu Hajiyev

TRANSPORT COSTS AND THEIR POSITION IN THE LOGISTICS CHAIN ......... 790
Peter Majercak

TRANSNATIONALIZATION AND DIGITALIZATION OF BANKS AS MEANS OF

EVOLVING EFFICIENCY NOT ACCOUNTABILITY ............................................... 798
Fahri Murshudli, Boris Loguinov

CREATIVE ACCOUNTING AND ITS POSSIBLE NEGATIVE IMPACTS IN

SELECTED COUNTRIES OF THE CENTRAL EUROPE REGION .......................... 810
Boris Kollar
APPLICATION OF THE KOTHARI MODEL TO ASSESS THE EXISTENCE OF
EARNINGS MANAGEMENT IN ENTERPRISES IN THE CZECH REPUBLIC ...... 820
Lenka Strakova, Peter Adamko

THE PARADIGM OF HUMAN CAPITAL IN THE CONTEXT OF DIGITALIZATION

ACROSS COUNTRIES ................................................................................................... 829
Bayramova Sevinc Rafiq, Anna Kogteva, Natalya Gerasimova, Elena Veiss

BENCHMARKING AS A TOOL FOR IDENTIFYING THE DIRECTIONS OF SMART

SPECIALIZATION IN THE REGION ........................................................................... 838
Elnara Samedova, Elena Stryabkova, Mikhail Kochergin, Anna Kulik

THE METHODS OF MANAGING FOR RISK OF COMBATING MONEY

LAUNDERING (LEGALIZATION) OF PROCEEDS FROM CRIME AND THE
FINANCING OF TERRORISM ...................................................................................... 846
Atik Kerimov, Galina Azarenkova, Alexander Masharsky, Tetiana Tomarovych

HOUSEHOLD FINANCIAL BEHAVIOR IN COUNTRIES WITH TRANSITION

ECONOMIES: EFFECTS AND CONTRADICTIONS ................................................. 856
Azer Babayev, Bogdan Stetsenko

BRANDING OF CROATIAN ISLANDS ON SELECTED EXAMPLES...................... 864

Ivana Bekic, Nina Bozickovic, Zrinka Mrkonjic

BLOCKCHAIN TECHNOLOGY IN BANK’S ANTI-MONEY LAUNDERING......... 874

Atik Kerimov, Vitaliia Koibichuk, Serhii Mynenko

MARKETING AND MANAGEMENT STRATEGIES FOR ENHANCING GREEN

COMPETITIVENESS ..................................................................................................... 884
Eldar Khanlarov, Olena Chygryn, Oleksii Lyulyov

DEVELOPMENT OF METHODOLOGY AS PART OF APPLIED TOOLS FOR

STRATEGIC RESEARCH AND ASSESSMENT OF INSTITUTIONAL STABILITY
OF THE NATIONAL SECURITY SYSTEM ................................................................. 894
Venelin Terziev, Mitko Stoykov

DIGITALIZATION OF THE BANKING ENVIRONMENT: FORMATION OF

EFFECTIVE BANK ECOSYSTEMS.............................................................................. 905
Fahri Mourshoudli, Natalya Bykanova, Denis Evdokimov

LINKING BETWEEN FINANCIAL LITERACY AND EXTENDING OF FINTECH

SERVICES ........................................................................................................................ 915
Mirdamad Sadigov, Olena Pakhnenko, Serhiy Lyeonov
 55th International Scientific Conference on Economic and Social Development – Baku, 18-19 June, 2020

INTERNATIONAL ASPECTS OF TRANSPORT INFRASTRUCTURE

DEVELOPMENT

Mehriban Samadova
Associate Professor at
Azerbaijan State University of Economics (UNEC), Azerbaijan
[email protected]; [email protected]

Galina Grinenko
Belgorod State University of Technology, V.G. Shukhov, Russia
[email protected]

Alexander Troshin
Belgorod State University of Technology, V.G. Shukhov, Russia
[email protected]

Svetlana Ykimchuk
Belgorod National Research University, Russia

ABSTRACT
Transport is one of the largest basic sectors of the economy, an important part of the production
and social infrastructure. Transport communications are the material basis for state's
integration into the global economic system. Transport infrastructure and transport services
should meet the needs of providing countries, regions and industries with economic links, best
responding to the priorities of social and economic development. The emergence of new
communication routes, seaports, airports, and improved transport technologies opens up new
opportunities for the development of the world economy. In the development of world transport
system, it is necessary to consider the influence many different factors. The unification of the
international legal framework of transport activities; the increasing concentration of the
transportation and processing of cargoes in the system of international transport corridors and
portals. They form a single global transport infrastructure; high level of standardization of
transport equipment and technologies; integration of various types of transport, development
of intermodal transport; creation of multidisciplinary international transport integration
transport holdings business. It is possible to become one of the leaders of the global economy
only by switching to an intensive, innovative type of development. This path requires new
strategic decisions to develop the transport sector in the long term. The transport strategy
determines the state's position on creating conditions for social and economic development. An
important task is to improve the quality of transport services, reduce the total costs of society
that depend on transport, increase the competitiveness of the domestic transport system, and
strengthen the innovative, social and environmental orientation of the transport industry.
Increasing the competitiveness of the transport complex, developing the export of transport
services and realizing the transit potential contribute to strengthening state's position in the
global transport system. In the first part of the article, the logistics features of the formation of
transport macro systems and international transport corridors are considered. The second part
is devoted to the analysis of the main trends in the development of the world transport and
logistics system. In the third part, the influence of transport infrastructure development on the
economy of the region, as a whole, is shown on the example of a single country.
Keywords: international transport corridors, the transport infrastructure, the transport
services, the transport complex, the transport communications, the transport strategy

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 55th International Scientific Conference on Economic and Social Development – Baku, 18-19 June, 2020

1. INTRODUCTION
Transport is an important sector of the economy, an integral part of the production and social
infrastructure. Transport communications form the material basis of the state 's integration into
the global economic system. Transport infrastructure and transport services should meet the
needs of providing countries, regions and industries with economic links, best responding to
the priorities of social and economic development. The emergence of new communication
routes, seaports, airports, and improved transport technologies opens up new opportunities for
the development of the world economy. The global transport infrastructure is formed on the
basis of integration of services of various types of transport, development of intermodal
transport, cargo processing in the system of international transport corridors, creation of multi-
profile international transport holdings, integration of the transport business [1]. The
development of the world transport system is influenced by such factors as: international
unification of the legal framework for transport activities; high level of standardization of
transport equipment and technologies; creation of new international transport corridors.
Transportation is how a product is sold and purchased, i.e. it acts as a commodity and has a
consumer value. The movement of goods and people can be considered as a product of
transport, but it has its own characteristics:
1) transport Products do not have a material form, but they are material in nature, since
material resources are spent during the movement: rolling stock and maintenance equipment
are worn out, transport workers ' labor;
2) transport, as a product, must have reserves of capacity and carrying capacity in
transportation under any conditions. This feature of transport logistics corresponds to the
logistics function-warehousing;
3) transport products are additional transport costs that are associated with the movement of
goods, and related to the cost of circulation;
4) the cost of transport products is included in the final cost of transported products;
5) production of transport products takes place outside the transport company.

Transport should be used in such a way that the transport costs are the lowest, all other things
being equal, and the mode of transport used for transportation is the one that is most efficient
for this type of product and distance. Transport support covers the sphere of production,
circulation and consumption of products. For foreign trade, transport services are necessary in
order to fulfill an international contract of carriage with appropriate quality and certain
economic efficiency. Efficiency of transport services is determined by minimizing transport
and forwarding costs when considering various transport options. The quality of transportation
is determined by such indicators as: delivery time, cargo safety, cargo mass in transit, etc. All
large companies, and in the first place, transnational corporations participate in business outside
their own country. Logistics is used to move goods produced in one country for sale to another
country in order to make a profit. Logistics becomes international when the supply chain crosses
national borders. Global logistics is used for integrated operations carried out internationally.
The role of commercial logistics in modern competition is growing [2]. The world transport
and logistics system, is a complex of vehicles and companies, as well as communication routes
between countries, which is an element of the modern global economy. Within the framework
of regional economic integration, regional transport systems are being formed. Regional
transport systems are created with the aim of overcoming the technological and legal
differences between the national transport systems of countries belonging to the regional
association. Examples of regional integration associations are the −− Customs Union within the
framework of the Eurasian Economic Union; North American Free Trade Area - NAFTA
(North America Free Trade Agreement between Canada, Mexico and the USA.); European
Union.

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 55th International Scientific Conference on Economic and Social Development – Baku, 18-19 June, 2020

Within the framework of regional transport systems, steps are being taken to create transport
corridors to ensure the unhindered transportation of large volumes of goods in the main areas
of trade within the framework of the association; legal, technological and organizational
barriers are removed when vehicles cross national borders; uniform standards of national
transport systems, etc. are adopted. An international transport corridor is a corridor that
connects two or more neighboring states, and passes through several transit states. Examples of
international transport corridors:
• system of transport corridors of the European Union - TEN-T network (Transeuropean
Network - Transport);
• Pan-European system of transport corridors - covers mainly the region of Central and
Eastern Europe;
• The international transport corridor "TRACECA" - the transport corridor Europe - Caucasus
- Asia.

2. ANALYSIS OF THE MAIN TRENDS OF DEVELOPMENT OF THE WORLD

TRANSPORT AND LOGISTICS SYSTEM
The state and development trends of the global transport system directly depends on
international trade. The larger the volumes of exports and imports of individual states, the more
important is the development of transport infrastructure.

2.1. The current state of world trade

World trade is in slow mode. After a quick recovery from 1.3% growth in 2016 to 4.5% in
2017, the average growth in world exports and imports slowed to 2.8% in 2018. In 2019, growth
will slow down even more, and this indicator turned out to be 2.6 percent lower than the WTO
forecast. The slowdown in trade growth is often associated with increased technological tension
between China and the United States, with disruptions caused by this confrontation [3]. The
global economy has slowed, developing countries produce 60% of world GDP due to the
growth of East Asia, China and India. Inequality in income distribution is growing,
contradictions are accumulating, which are expressed in the form of complex inter-regional
trade agreements. By the end of 2020, according to IMF economists, world trade will stop
growing, having lost almost 700 billion dollars, or 0.8% of world GDP. Speaking in numbers,
they expected growth of world GDP in the amount of 97 trillion. USD, and received only 90
trillion. USD. However, not even its size is important here, but growth and speed (Figure 1).

50
45
40
35
30
25
20
15
10
5
0
2017 2 3 4 2018 2 3 4 2019 2

Annual growth rate (%),

Figure 1: Total, Annual growth rate of world trade (%), 01.2017 – 02.2019 [4]

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 55th International Scientific Conference on Economic and Social Development – Baku, 18-19 June, 2020

Deutsche Bank analysts have found yet another confirmation of the impending crisis. An alarm
for German bankers was the decline in the shares of the American logistics company FedEx.
The value of these shares has traditionally been seen as a leading indicator of a slowdown or
decline in world trade. FedEx net profit fell at the beginning of 2020 by almost 21.6%. The
reason was the weak performance of the delivery service. The fact is that FedEx has a large
geographical coverage, and the revenues of this American company are largely dependent on
the transportation of expensive goods. The trade and technological war between the United
States and China affected the carrier’s profits. Global container shipments are expected to
decline. A report by the International Monetary Fund (IMF) identifies risks to global supply
chains: further increase in tariffs between the US and China; an increase in US tariffs in the
automotive industry and BREXIT without agreement. These factors will weaken investment,
cause disruptions in global supply chains and seriously slow down global growth [4]. In 2020,
the global economy can show almost zero growth. This conclusion was reached by experts from
the Institute of International Finance (IIF). Experts explain their assessment by the large-scale
spread of coronavirus, which led to a drop in trade and production in the world. There is a high
likelihood of an economic downturn in the United States, Japan, and Eurozone countries. As a
result of the pandemic, there is an outflow of capital from financial markets, the volumes of
industrial production and trade, passenger and freight transportation are reduced. There is a
violation of economic relations and demand both within countries and in the international arena
[5].

2.2. Development trends of the global transport system as a service sector

The global market for services is a sphere of exchange of services between countries and is an
integral part of international economic relations. One of the most important laws of economic
development around the world is the relationship of economic growth and the increasing role
of services in the national economy. The service sector has grown into the largest sector of the
economy: it accounts for 62-74% of global GDP, as well as 63-75% of the total number of
employees, in addition, it contributes to the growth of technical equipment of labor, the
introduction of more advanced technologies. According to the World Bank, commodity exports
over 10 years, from 2006 to 2016, increased by 32% and currently stands at 16 trillion. dollars,
over the same period, world exports of services grew by 64% and reached 4.77 trillion. dollars.
After strong growth of 7.9 percent in 2017 and 7.7 percent in 2018, growth in global trade in
services slowed by 2.7 percent in 2019. In 2018, global trade in services was estimated at $ 5.8
trillion, representing a quarter of total exports and 7 percent of global GDP. In 2019, it reached
6.0 trillion US dollars. [6]

Service Exports Annual Imports Annual Balance

category Value growth Value growth Value
(Billions of rate (Billions of US$) rate (Billions of US$)
US$) % %
2013 2018 2013 2018 2013 2018
Total 1 394 1 738 9.3 1745 2118 8.1 352 380
services
Transport 306 346 8.4 573 579 9.6 267 232
Travel 473 559 7.2 423 648 6.7 50 89
Others 615 833 11.1 749 892 8.1 135 59
Table 1: Trade in services by service category (Developing economies)

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 55th International Scientific Conference on Economic and Social Development – Baku, 18-19 June, 2020

Service Exports Annual Imports Annual Balance

category Value growth Value growth Value
(Billions of rate (Billions of US$) rate (Billions of US$)
US$) 2018 2018
2013 2018 % 2013 2018 % 2013 2018
Total 3310 3970 6.8 2787 3327 7.0 523 642
services
Transport 590 624 6.4 571 606 8.1 19 18
Travel 693 844 7.0 605 701 7.7 89 144
Others 2026 2501 6.8 1612 2021 6.4 415 480
Table 2: Trade in services by service category (Developed economies)

In 2018, international sales of services accounted for more than 10 percent of GDP in many
countries in Europe, Central America, the Caribbean, and Southeast Asia. In contrast, in much
of South America, West and Central Africa, and West and East Asia, service exports accounted
for less than 3 percent of GDP. Transport and tourism services dominate the export of services
from developing countries. The role of transport in the service sector is constantly increasing.
For many products traded in global value chains, a one-day delay is equivalent to a 1 percent
tariff increase. Improving customs clearance procedures and border controls, increasing
competition in the field of transport and logistics services, improving the structure of ports and
managing them can reduce trade costs associated with time and uncertainty factors and mitigate
the impact of adverse factors due to geographical remoteness. The expansion of trade between
Asian countries as a result of the transfer of low-cost industries from China to other neighboring
countries in East and South Asia could help increase shipping. As China moves to more
sophisticated manufacturing operations within global value chains, new trade opportunities
open up for other countries [7]. Participation in agreements providing for deep integration can
give an impetus to institutional and economic policy reforms, especially if these measures are
complemented by technical and financial assistance. According to Johnson and Noguera 2017,
preferential trade agreements concluded by the European Union and other similar agreements,
especially deep ones, play an important role in reducing the ratio of bilateral value added to
gross exports, which indicates an increase in global decentralization of production [8]. Entering
markets through trade liberalization helps countries expand their markets and gain access to the
resources needed for production. So, for example, a large-scale reduction of tariffs carried out
unilaterally in Peru in the 2000s is associated with accelerated productivity growth, increased
volumes and diversification of exports within the framework of the GSCC [9, 10]. As the
relationship between the economy of goods and the economy of services is becoming closer, it
is necessary that the reform of the service policy — transport, and a number of business services
— be an integral part of the SSCP promotion strategy. [11] Liberalization of domestic and
foreign trade can solve the problem of the narrowness of the domestic market, freeing
companies and farms from limited domestic demand and domestic resources. Improving the
transport and communications infrastructure, as well as introducing competition in these
sectors, can eliminate the difficulties associated with geographical remoteness [12]. In many
countries, improved transport connectivity through improved transport infrastructure linking
manufacturing or agriculture to global markets could contribute to economic growth and
increased trade. These changes have a beneficial effect on the transport of containerized and
dry bulk cargo. At the same time, expanding land transportation between China and Europe,
which are already actively used for the delivery of expensive express cargoes that were
previously transported by sea, can lead to a reorientation of some cargo flows from sea transport
to rail. Pipelines built as part of the One Belt, One Way Initiative can also inhibit the growth of
maritime transport of related goods (Hellenic Shipping News, 2017) [7].

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 55th International Scientific Conference on Economic and Social Development – Baku, 18-19 June, 2020

One of the main risks in the field of trade policy is associated with an increase in protectionism.
In this regard, United States decisions to withdraw from the Trans-Pacific Partnership
Agreement, revise the North American Free Trade Agreement, and reevaluate other existing
trade agreements can be noted.[14]

3. PARTICIPATION OF RUSSIA IN THE INTERNATIONAL TRANSPORT AND

INFRASTRUCTURE PROJECTS
The intensification of global competition, which covers the markets for goods, services, and
capital, has led to the restructuring of the world economy. The balance between economic
centers is changing, and the role of regional economic unions is growing. This entails a change
in national and world freight flows, increases the requirements for the quality of transport
services. Russia seeks to become one of the leaders of the global economy, due to the transition
to an intensive, innovative type of development. This path requires the adoption of new strategic
decisions for the development of the transport complex for the long term. The main directions
of development of the transport and logistics system of Russia are defined in the Federal Target
Program "Development of the Transport System of Russia" and in the Transport Strategy of the
Russian Federation for the period until 2030. [15] Implementation of the measures outlined in
the Program ensures the development of a modern and efficient transport infrastructure,
increasing the competitiveness of the Russian transport system and realizing the country's
transit potential; increasing the competitiveness of international transport corridors. As a result
of the implementation of the Program: the volume of export of transport services will reach
16.8 billion US dollars. The volume of transit traffic will reach 2 million tons per year; cargo
transshipment in seaports will reach 966.1; the proportion of the length of sections of the
railway network, where there are restrictions on throughput and transport capacity, will be
reduced to 12 percent; the proportion of the length of public roads of federal importance that
meet regulatory requirements will increase to 85.3 percent [16]. Currently, 40 major road
construction projects are underway, with a total value of 2767.5 billion rubles. The largest of
them: the international highway "Meridian" (Shanghai - Hamburg). The transport corridor with
a length of more than 8.4 thousand km Europe - Western China should pass through the
territories of Germany, Poland, Belarus, Russia, Kazakhstan, China and be built by 2023. The
need for its construction is caused by an increase in trade between the EU countries and China,
which reached 467 billion euros. Currently, freight traffic between the EU and China is carried
out through the Suez Canal. (Figure 2).

Figure 2: «Meridian» Motorway (Shanghai - Hamburg)

The length of the sea route is 24 thousand km, and the delivery time takes 40-50 days. The new
land route will take on some of the goods that are delivered today via the Suez Canal and the

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 55th International Scientific Conference on Economic and Social Development – Baku, 18-19 June, 2020

Northern Sea Route, as well as via the Trans-Siberian Railway. Thanks to the international
«Meridian» project, it will be possible to reduce the speed of delivery of goods from Europe to
Asia by almost 5 times - up to 11 days and ensure a high level of security. The road will meet
the characteristics of the highest technical category with 4-lane traffic. Throughout its entire
length, it is planned to install electric lighting lines. The track will be fully paid. In 2015, a very
large project began of a radical reconstruction of the A-181 Scandinavia federal highway, as a
result of which this road connecting St. Petersburg with the border with Finland should receive
instead of the current two at once from 4 to 6 lanes with a dividing lane as well as multi-level
interchanges. The estimated cost of the project is 100 billion rubles. The deadline for the project
is 2022. The cargo turnover of the ports of the Far East basin is about 26.37% of the total cargo
turnover of the ports of Russia. All the main ports of the Far Eastern basin demonstrate an
increase in transshipment. The process of modernization of many ports is being carried out,
which will increase their throughput and increase cargo turnover. Currently, 85% of export and
45% of import freight traffic is carried out by sea transport of the Far East, by rail (respectively)
- 13% and 45%, by river - 2% and 5%. The most important priority in the development of
transport infrastructure at the moment, is the establishment of communication between the
territories of the Far East and northeast of China. The most important Far Eastern project was
the creation of the international transport corridors Primorye-1 and Primorye-2. The Primorye-
1 corridor connects the Chinese Harbin with the Russian ports of Vladivostok, Nakhodka and
Vostochny in the Primorsky Territory. Primorye-2 is a route from the border Chinese city of
Hunchun to the nearby Russian ports of Posyet and Zarubino. It is estimated that by 2030 the
freight turnover of the Primorye-1 and Primorye-2 corridors could reach 45 million tons. The
construction of the Hyperloop superfast transport system between the port of Zarubino and the
PRC border has begun. The investment project "The Big Port of Zarubino" with a total value
of 154 billion rubles involves the expansion of the existing port in Trinity Bay in the Primorsky
Territory, 18 km from the border with China. It is planned that grain, containers, bulk cargo,
rolling (ro-ro) and others will be loaded through the port. Up to 60% of the cargo turnover will
be in transit traffic from the northern provinces of the China to the southern ones. [1]

Large transport projects Number of projects Project cost billion rubles

Highways Projects 40 2767,5
Railways 20 1154,4
The largest bridges 5 269,2
Seaports 7 428,1
Airports 7 244,3
Pipelines 3 1850,0
Total: 6713,5
Table 3: Large transport and logistics projects in Russia

The Northern Sea Route is the shortest sea route between the European part of Russia and the
Far East. The legislation of the Russian Federation defines it as “the historically established
national unified transport communication of Russia in the Arctic”. The length of the Northern
Sea Route, from the Kara Gate to Providence Bay, is about 5600 km. An alternative to the
Northern Sea Route - transport arteries passing through the Suez or Panama Canals are 12,840
nautical miles. The development of a basic transport network is envisaged on the principles of
national transport corridors that are interfaced with European and Asian transport systems. The
introduction of a logistics approach to the implementation of the strategy will ensure the
acceleration and continuity of the movement of material flows, a 30% reduction in distribution
costs, and the compliance of the logistics service with international standards.

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 55th International Scientific Conference on Economic and Social Development – Baku, 18-19 June, 2020

4. CONCLUSION
The main trends that determine further prospects for the development of transport infrastructure
and transport services:
• Uncertainty of demand has a negative impact on the implementation of transport
infrastructure projects and the volume of transportation. This is due to the widespread risks
of a geopolitical and economic nature, the COVID-19 pandemic pursued by trade policy,
as well as some structural changes.
• The autarkic policies of many states and increasing protectionist sentiments can undermine
global economic growth, limit trade flows and change their direction.[5]
• There is a deterioration in the market for shipping. The reason is the strengthening of the
consolidation process in linear shipping in the form of mergers and alliances. Low demand
for transportation and excess supply of tonnage in a market dominated by mega containers.
• The participation of developing countries in global value chains has played a role in
increasing their share in global freight transport.
• By 2023, the aggregate average annual growth rate of dry bulk cargo transportation will
amount to 4.9%, and container cargo - 6%, in particular due to an increase in the import of
metal ores and a steady increase in transportation on non-main routes.
• The expansion of trade between Asian countries as a result of the transfer of low-cost
industries from China to other neighboring countries of East and South Asia can also
increase shipping. As China moves into more sophisticated manufacturing operations
within global supply chains, new trade opportunities open up for other countries.
• More than 100 major transport projects are currently being implemented in Russia. These
are projects in the field of construction of roads and railways, construction of seaports and
airports, bridges and pipelines
• The intensification of global competition in the markets for goods, services, and capital has
led to the restructuring of the world economy. The balance between economic centers is
changing, and the role of regional economic unions is growing. This entails a change in
national and world freight flows, increases the requirements for the quality of transport
services.

LITERATURE:
1. Grinenko Galina. 2018. “Strengthening positions of Russia in the world market of transport
and logistics services” IX International scientific-practical conference "Actual problems of
economic development", Belgorod, BSTU V.G. Shukhov.
2. Donald J. Bowersox, David J. Kloss. 2008. Logistics: integrated supply chain». M.: CJSC
"Olymp-Business".
3. WOLD TRADE STATISTICAL REVIEW. WTO, 2019
4. TRADE AND DEVELOPMENT REPORT 2019. UNCTAD (UNITED NATIONS
CONFERENCE ON TRADE AND DEVELOPMENT)
5. TRADE AS AN INSTRUMENT OF DEVELOPMENT IN THE EPOCH OF GLOBAL
PRODUCTION AND SALES CHAINS WORLD DEVELOPMENT REPORT 2020.
World Bank Groups 2020 International Bank for Reconstruction and Development / World
Bank
6. UNCTAD Handbook of Statistics 2019 - International trade in services
7. Review of Maritime Transport 2019 – Sustainable Shipping (UNCTAD/RMT/2019)
8. Johnson, Robert Christopher, and Guillermo Noguera. 2012. “Accounting for
Intermediates: Production Sharing and Trade in Value Added.” Journal of International
Economics 86 (2): 224–36. __. 2017. “A Portrait of Trade in Value-Added over Four
Decades.” Review of Economics and Statistics 99 (5): 896–911.

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9. Pierola, Martha Denisse, Ana Margarida Fernandes, and Thomas Farole. 2018. “The Role
of Imports for Exporter Performance in Peru.” World Economy 41 (2): 550–72.
10. Rocha, Nadia, and Deborah Winkler. 2019. “Trade and Female Labor Participation:
Stylized Facts Using a Global Dataset.” Background paper, World Bank-World Trade
Organization Trade and Gender Report, World Bank, Washington, DC.
11. Constantinescu, Ileana Cristina Neagu, Aaditya Mattoo, and Michele Ruta. 2018. “The
Global Trade Slowdown: Cyclical or Structural?” World Bank Economic Review.
Published electronically May 23.
12. Buelens, Christian, and Marcel Tirpák. 2017. “Reading the Footprints: How Foreign
Investors Shape Countries’ Participation in Global Value Chains.” Comparative Economic
Studies 59 (4): 561–84.
13. STATISTICS QUALITY ASSURANCE FRAMEWORK 2019. UNCTAD GENEVA
14. APEC (Asia–Pacific Economic Cooperation) and World Bank. 2018. “Promoting Open and
Competitive Markets in Road Freight and Logistics Services: The World Bank Group’s
Markets and Competition Policy Assessment Tool Applied in Peru, the Philippines, and
Vietnam.” Unpublished report, World Bank, Washington, DC.
15. Transport strategy of the Russian Federation for the period until 2030. Approved by the
Government of the Russian Federation, June 2014. www.mintrans.ru
16. Stryabkova Elena, Kochergin Maikl. 2019. “Growth centers in the polarized macro-regional
space: an example of the central-black-earth macro-region” reports of Belgorod State
University. Series: Economics. Computer science. 2019.Vol. 46. No. 2. S. 214-227.

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 55th International Scientific Conference on Economic and Social Development – Baku, 18-19 June, 2020

HUMAN RESOURCES IN DIGITAL ECONOMY

Anna Volkova
Novosibirsk State University of Economics and Management
Novosibirsk, Russia
[email protected]

Dina Konstantinova
Novosibirsk State University of Economics and Management
Novosibirsk, Russia
[email protected]

Marina Kudaeva
Novosibirsk State University of Economics and Management
Novosibirsk, Russia
[email protected]

Yulia Masalova
Novosibirsk State University of Economics and Management
Novosibirsk, Russia
[email protected]

ABSTRACT
In modern conditions of global scientific and technological progress and the formation of the
digital economy, labour relations are being transformed due to the changing nature and content
of labour, as well as the requirements for professional skills of workers. Under the influence of
digital technologies, business processes are being modified, leading, among other things, to
change in the use of human capital. The spread of digital technology, due to the development
of the internet, has led to a change in the nature and type of labour relations in different
countries. Remote and flexible work environment, which allows performing many types of work
outside of stationary workplaces, is becoming increasingly widespread. In the context of the
digital economy from the point of view of the efficient use of human resources in many
countries, requirements for flexibility in the organization of labour are a major priority. At the
same time, the level of automation of business processes varies in the global context; therefore,
the degree of reduction of manual and mechanized labour has a high differentiation. The
digitalization era requires employees not only to have traditional business and personal skills
for the job, but also to acquire skills that allow the efficient use of digital technologies and «soft
skills», allowing establishing effective communications.
Keywords: Digital economy, Human resources, Labour automation, Labour relations

1. INTRODUCTION
Under the current conditions of digital economy the digital transformation of working with
human resources is particularly important and timely. This research involves determining the
role of human resources in the digital economy, which transforms business processes and makes
changes in the content of work. In this regard, the features of employment and labour
organization in the new conditions were considered, and factors affecting the emergence of new
approaches to the use of human resources in the economy were studied. The main trends in the
formation of human capital at the level of organizations are analyzed, which allowed us to
justify the possibility of using human resources in new conditions.

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2. HUMAN RESOURCES IN THE DIGITAL ECONOMY

In this study, we understand human resources as a set of qualities of people, primarily, their
intellectual abilities, knowledge and skills, as well as education, health, etc., which determine
their ability to create tangible and intangible benefits [8]. Almost all scientists who monitor the
current state of the world labour market agree that the widespread use of information and
communication technologies in the economy creates serious challenges in terms of their impact
on employment. The prospects for the today's labour market are seen in systemic
transformations, which involve the creation of new jobs using digital technologies and the
replacement of human labour with robots, mainly in production processes. It should be noted
that earlier transitions from one economic model to another were also accompanied by changes
in the professional structure of society, the educational profiles of employees and the
specialization of companies. However, the digital economy has created new competitive
factors: communication networks, cognitive skills, research and development, complex goods
and services, new forms of education, and labour characteristics. At the same time, it is
characterized by a steady decline in the direct participation of human labour in the economy
and, and along with it, an increase in the demand for jobs that encourage the development,
introduction and use of digital technologies that booster the productivity of jobs directly or
indirectly related to them. Thus, technological changes taking place today contribute, on the
one hand, to increasing labour productivity, creating conditions for economic growth, and, on
the other, lead to irreversible shifts in the structure of employment of the population [2, 7, 9,
13, 14, etc.].

3. APPROACHES TO THE USE OF THE ORGANIZATION'S HUMAN RESOURCES

3.1. Applying flexible working hours and telework in the digital economy
Currently, an analysis of employment conditions affecting the ability to attract human resources
to the world economy is required. It should be noted that the conditions are formed under the
influence of a number of factors: changes in the size of the labour force; international
outsourcing of competencies; aging of the labour force; technological changes; constant
development of labour competencies [13, p. 11]. Digital platforms today allow using more
flexible employment mechanisms, including telework, which help to keep the work-life
balance, reduce cultural barriers, and equalize the professional opportunities for men and
women. However, in the future, this means abandoning the traditional employment model,
which supposes employment with salary payment and social security for employees [7, p.8],
and switching to non-standard forms of self-employment, such as partial, short-term self-
employment, freelancing, and other types. Thus, self-employment is identified as a separate
segment of the labour market, which is widely spread in the world economy and is considered
as a form of receiving payment directly from the customer. In the EU, the share of solo-self-
employed in the total number of self-employed does not fall below 50% with an average of
70% [2, p.26]. And in the US, experts estimate that only a quarter of the working-age population
currently has a full-time job with social guarantees and compensation. At the same time, for
some specialists, such employment is an opportunity to earn extra money, while for others it
provides stable and good income along with autonomy and possibility of teleworking, and
which requires a variety of competencies, which are not always professionally oriented. The
introduction of a tax on professional income in Russia will facilitate the transition of individual
participants in the labour market, including individual entrepreneurs, to the status of self-
employed in order to optimize their tax deductions. At the same time, foreign experience shows
that individual entrepreneurs with a university degree have other employment more often than
their less educated colleagues [2, p.28]. The share of people with a university degree in Russia
has been steadily increasing over the past two decades, so we can assume that this category of
employees tend to combine employment and self-employment.

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Thus, the binary division into employed — self-employed does not fully consider the fact the
emerging labour force flows in opposite directions, which allows us to distinguish a special
group of self-employed people who occupy an intermediate position between employment and
self-employment. This group in the world practice is called hybrid solo-self-employment, in
which self-employment is only a source of additional earnings for the employee, and education
has a significant impact on some aspects of hybrid self-employment, as mentioned above [2,
p.23]. It should be noted that this form is quite widespread in Russia. However, the results of
the study conducted by foreign experts show that only 10% of employees today are ready to
fully rely on projects related to flexible employment, and the percentage of generation Y with
full employment has increased sharply from 45% in 2016 to 66% in 2018 [6]. These data show
that stability, job and income security, as well as additional benefits received from the
employer, are still valuable for the population. At the same time, an increasing number of
specialists are ready to telework, which is facilitated by the introduction of digital technologies.
The analysis of scientific publications and expert opinions also makes it possible to highlight
another trend caused by technological progress in developed countries - the polarization of the
labour market. It means employment growth at opposite ends of the professional qualification
spectrum. Thus, at the same time, the need for highly paid specialists with a high level of
education, who are able to solve abstract tasks, and for low-skilled workers in low-paid jobs
performing manual operations is growing simultaneously [14, p. 39]. At the same time, those
jobs that require an average level of skills and routine operations that robots can perform are
disappearing. Therefore, a person will have to adapt to these conditions in the future and choose
the most suitable niche for themselves.

3.2. Changing the nature and content of work in terms of its organization in the digital
economy
The introduction of digital technologies in the activities of enterprises leads to the need for a
significant transformation of the majority of business processes, thereby radically changing the
nature and content of employees' work. Manual and machine-manual labour processes are
replaced by automated ones, while the person just controls and manages them. On the one hand,
this trend allows the employee to perform more complex/creative tasks that require non-
standard thinking and impose higher requirements on their qualifications. On the other hand, it
can lead to the replacement of some routine operations with others that involve performing non-
creative work on the maintenance of automated workplaces. As a result, in the conditions of
digitalization we can divide employees into two types: creators - those engaged in creative work
and technicians, who perform the functions of servicing new-generation systems. The
significant reduction in the number of jobs predicted by the world community due to the
robotization of labour processes is another trend in the field of labour organization due to
digitalization. So at the beginning of 2016, the World Economic Forum (WEF) report [16] made
a forecast that by 2020, 5 million jobs will be cut due to the development of robotics and
artificial intelligence. According to the results of a study by K. Frey and M. Osborn, 47% of
jobs in the United States will be made redundant due to automation by 2033, while the World
Bank forecasts a reduction of 77% of jobs for China [19]. At the same time, robots can replace
not only workers engaged in heavy physical labour, but also take on a number of managerial
functions. The results of surveys in different countries show that majority of the surveyed share
the opinion of international experts. In Russia, 55% of respondents are confident that robots
will soon replace people in most jobs, at the same time, in their opinion, robots can replace
mainly low-skilled workers, sales and service personnel [1, p.38-39]. And in foreign countries,
from 31% (Great Britain) up to 55% (Romania, Croatia) of the population believe that their
work can be fully or partially performed by robots [1, p.40]. The impact of the digital economy
not only changes the technological and functional division of labour described above, but it also

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significantly changes the professional structure of employees. For example, according to the
study of Boston Consulting Group (BCG) from 9 to 50% of all existing jobs will have
disappeared by 2025. And the Atlas of new professions compiled by the Agency For Strategic
Initiatives and the SKOLKOVO Business School predicts the emergence of 186 new jobs by
2030 and the disappearance of 57 outdated ones. At the same time, a number of new jobs will
be created at the intersection of different professional activities that previously did not overlap
in the pre-digital era (IT-medic, robotics Concierge, etc.). The jobs remaining in the labour
market will change inevitably as well. For example, a study by McKinsey in 2019 found that
the robotization of enterprises is impossible without retraining their employees, since they lack
the appropriate skills. PricewaterhouseCoopers (PWS) estimated that 39% of international
companies analyze the impact of artificial intelligence on the future demand for skills and
competencies [10, p.155]. Accordingly, the requirements for employees are changing, and there
is a need to master their new digital competencies.

3.3. Changing requirements for employee competencies in the digital economy

The digital economy imposes special requirements on the personnel competences. Many
scientists and research groups offer different approaches to the set of competencies relevant to
Industry 4.0. BCG presented the results of their Russia-2025: From Personnel To Talent study
[12]. Based on the methodologies of Sberbank, the Higher School of Economics, The Lominger
Competency Library, RosExpert, WorldSkills Russia, and Global Education Futures, a target
model of universal competencies was designed. The model facilitates the achievement of
efficiency in the modern world. The presented model includes cognitive, social-behavioural,
and digital skills. WEF analysts identified 10 key skills needed for the efficient performance in
Industry 4.0: integrated problem solving, critical thinking, creativity, people management,
coordination, interaction skills, emotional intelligence, judgment and speed of decision-making,
service orientation, ability to negotiate, and cognitive flexibility [15]. Burning Glass
Technologies developed the New Foundational Skills of the Digital Economy model: Human
Skills, Domain Knowledge, Digital Building Block Skills and Business Enabler Skills [17].
Thus, the list of competitive personnel competencies and skills in the digital economy is quite
diverse and extensive. Personnel competencies which cannot be automated and robotized will
be highly demanded under the conditions of the digital economy. Therefore, all existing
competence models emphasise the importance of soft skills, which will determine the
competitiveness of personnel. Soft skills are the core of universal competencies in the digital
economy. To ensure a high level of employee competitiveness, it is necessary to regularly
monitor the professional environment and maintain competencies at a high level. Thus, lifelong
learning and the formation of an environment conducive to such development become the key
to success in ensuring the competitiveness. Most households around the world have internet
access (99% in Korea and Japan, 94% in Germany, 77% in Russia). People use the internet
almost every day. Accordingly, in many countries the environment conducive to the
development of staff competencies is sufficiently favourable. Key competencies of the digital
economy can be freely formed and developed in open educational courses and other online
platforms. But in 2018, only 3% of the Russians used the internet for distance learning, while
in the US this figure was 20%, 14% in the UK, 9% in Japan, and 6% in France [1, p.28]. The
developed digital environment, which contributes to the development of professional
competencies, is still not used to its full potential to increase competitiveness. One of the
objective reasons is the lack of digital skills. For example, among the Russian population that
does not use the Internet regularly, 31.7% say that they do not have enough skills to work in
the global network. In comparison with European countries, Russians have the lowest level of
basic digital skills. For example, in Russia, the skill of working with spreadsheets is 19% less
developed than in Germany and France, and is 30% less developed than in Sweden and Finland

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[1, p.24-25]. The challenges of the digital economy emphasise the importance of investment
into the development of universal personnel competencies and the motivation for their
development. Hence, organizations will create a unique competitive advantage that
digitalization cannot provide.

3.4. HR analytics in the digital economy

In today's world, the company's success is determined by continuous innovation. According to
John Sullivan, the strategic shift towards innovation is challenging for most companies because
most HR functions are based on 20th-century principles: efficiency, risk avoidance, compliance
with rules, and guesswork-based solutions [3]. Most HR decisions are still made intuitively.
Thus, according to a study conducted by TalentCode in 2016, 2/3 of companies formed
competencies using expert analysis of interviews with managers [4]. As a result, decisions are
often flawed and inefficient. The transition to HR management based on HR analytics enables
informed decision-making, when the decisions are based on statistical and mathematical
analysis. This is extremely important, because all actions taken by the company are ultimately
the actions of certain people. A successful business is one in which the best, well-informed
management decisions are made with respect to personnel. The use of HR analytics increases
business confidence in HR specialists. HR services are increasingly involved in making
strategic decisions for business. The reasoning for such decisions is based on the use of
predictive analytics. Predictive analytics can be widely used in the transition from traditional
formalized data collection and processing systems to more flexible and adaptive ones.
According to a study conducted by the Rabota.ru website in Russia, only 56% of respondents
said that they use HR analytics in their work. Only 7% of companies have a position of an HR
analyst [11]. SHL Russia experts believe that "analytics is implemented and applied not because
the organization needs to find a solution to any current problem, but only as a fashion statement;
or because the IT systems used in the organization have the appropriate features." According to
a study conducted by SHL Russia, every third company in Russia meets internal resistance
when introducing HR analytics methods. The development of HR analytics in Russia is
hindered by the following obstacles:
• insufficient integration of complex platforms for personnel management (TMS) into IT
systems;
• lack of objective data, only 3% of respondents do not experience problems with data
collection and processing;
• lack of the necessary analytical skills of HR managers who are engaged in analytics, and
the experience of working with data in the organization [18].

According to experts PwC Russia, the following steps will contribute to the introduction of
artificial intelligence and HR analytics [5]:
1. Widespread use of artificial intelligence in routine processes in order to reduce time and
financial costs.
2. A new approach to professional development. The acquired knowledge must be quickly
applied in practice in order to turn it into real skills.
3. Risk management and responsible use of artificial intelligence. It is important not only to
benefit from the use of artificial intelligence technology, but also to demonstrate a
responsible approach to its use.
4. Integrating artificial intelligence into operational activities.
5. Changing the business model. The introduction of artificial intelligence technology is
usually not the most difficult moment. For most companies, the difficulties relate to
business and human resources aspects. This is why it is important for senior managers to
support artificial intelligence initiatives.

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4. CONCLUSION
The study confirmed the hypothesis that the transition to the digital economy has made
significant changes in the system of using human resources, developed in the era of the
industrial economy. Labour is increasingly moving away from standardization and unification,
and to make management decisions, there is a need to process a large amount of information,
which makes it advisable to implement HR analytics methods in human resource management.
The active deployment of digital technologies leads to a reduction in manual and mechanized
labour, significantly reduces the time for certain operations, increases the efficiency of decision-
making, and thus significantly changes the content of labour organization elements. At the same
time, there is a significant transformation of the labour market: an increasing number of the
working-age population begins to move from standard employment to its non-standard forms:
freelancing, home-based employment or teleworking, agency employment, etc. These forms of
employment require high-quality digital competencies, developed soft skills, which will allow
employees to be competitive in the new conditions.

LITERATURE:
1. Abdrakhmanova, G. I., Vishnevsky, K. O., Gokhberg, L. M. (2020). Digital economy:
2020: a brief statistical databook. [Tsifrovaya ekonomika: 2020: kratkiy statisticheskiy
sbornik]. Moscow: Higher School Of Economics.
2. Bögenhold, D., Klinglmair, R., Kandutsch, F. (2017). Solo Self-Employment, Human
Capital and Hybrid Labour in the Gig Economy. Foresight and STI Governance, 2017 (vol.
11, No 4), pp. 23–32.
3. Sullivan, J. (2013). How Google Became the #3 Most Valuable Firm by Using People
Analytics to Reinvent HR. Retrieved 30.03.2020 from https://www.ere.net/how-google-
became-the-3-most-valuable-firm-by-using-people-analytics-to-reinvent-hr/
4. Finkelstein, G. (2016). Data-based management [Upravleniye na osnove dannykh]. Ecopsi
Consulting. Retrieved 01.04.2020 from
https://ecopsy.ru/upload/iblock/ab0/ab0f8dbd461a96925b8117af1a02784d.pdf
5. Forecasts of the development of artificial intelligence technologies for 2020. PwC Russia.
Retrieved 01.04.2020 from https://www.pwc.ru/ru/publications/artificial-intelligence-
predictions-2020.html
6. Four myths about gigonomics. Retrieved 21.03.2020 from https://hbr-russia.ru/biznes-i-
obshchestvo/ekonomika/786166
7. Kergroach, S. (2017). Industry 4.0: New Challenges and Opportunities for the Labour
Market. Foresight and STI Governance, 2017 (vol. 11, No 4), pp. 23–32.
8. Leskina, O.N. (2-15). Quality of human resources and innovative development of Russia
[Kachestvo chelovecheskikh resursov i innovatsionnoye razvitiye Rossii] Ekonomicheskiye
nauki. Novainfo. (Economics), 2015 (No.30-1), Retrieved 21.03.2020 from
https://novainfo.ru/article/2919
9. Masalova, Yu. A. (2017). Strategic objectives of ensuring the quality of human resources
in the context of the digital economy [Strategicheskiye zadachi obespecheniya kachestva
chelovecheskikh resursov v kontekste tsifrovoy ekonomiki]. Voprosy upravleniya
(Management issues), 2017(No. 5 (48)), pp. 44-49.
10. Nikitaeva, A. Yu. (2019). Human resource development in the digital economy: strategic
perspective. [Razvitiye chelovecheskikh resursov v usloviyakh tsifrovoy ekonomiki:
strategicheskaya perspektiva]. Vestnik Volgogradskogo gosudarstvennogo universiteta.
(Bulletin of Volgograd State University). Economics, 2019 (Vol. 21, No. 4), pp. 152-161.
11. Research Website Rabota.ru. Retrieved 01.04.2020 from
https://www.rabota.ru/articles/career/hranalytics-rabota-ru-5156

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12. Russia 2025: from staff to talent. Retrieved 01.04.2020 from

https://www.bcg.com/Images/Russia-2025-report-RUS_tcm27-188275.pdf
13. Seidl da Fonseca, R. (2017). The Future of Employment: Evaluating the Impact of STI
Foresight Exercises. Foresight and STI Governance, 2017(vol. 11, No 4), pp. 23–32.
14. Sorgner, A. (2017). The Automation of Jobs: A Threat for Employment or a Source of New
Entrepreneurial Opportunities? Foresight and STI Governance, 2017 (vol. 11, No 4), pp.
23–32.
15. The 10 Skills You Need to Thrive in the Fourth Industrial Revolution. Retrieved 01.04.2020
from https://www.weforum.org/agenda/2016/01/the-10-skills-you-need-to-thrive-in-the-
fourthindustrial-revolution
16. The Future of Jobs. Retrieved 15.03.2020 from https://www.weforum.org/reports/the-
future-of-jobs
17. The New Foundational Skills of the Digital Economy. Developing the Professionals of the
Future. Retrieved 01.04.2020 from
https://www.burning-glass.com/wp-ontent/uploads/New_Foundational_Skills.pdf
18. Through the thorns to HR-analytics. Marketmedia. Retrieved 01.04.2020 from
https://marketmedia.ru/media-content/3_hr/
19. Zotin, A. (2018). The Economics of protest: the precariat the digital age [Jekonomika
protesta: prekariat cifrovoj jepohi] Kommersant, 2018. Retrieved 25.03.2020 from
https://www.kommersant.ru/doc/3674787

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 55th International Scientific Conference on Economic and Social Development – Baku, 18-19 June, 2020

ROBUST HOMEOSTASIS PARAMETERIZATION - THE

REGULATOR OF THE ECONOMIC SYSTEM OPERATING ACTIVITY

Mikhail Alekseev
Novosibirsk State University of Economics and Management, Russia
[email protected]

Elizaveta Freydina
Novosibirsk State University of Economics and Management, Russia
[email protected]

Lyudmila Rudi
Novosibirsk State University of Economics and Management, Russia
[email protected]

Tatyana Vladimirova
Siberian Transport University,
Novosibirsk State University of Economics and Management, Russia
[email protected]

Nataliya Kravchenko
Institute of Economics and Industrial Engineering of the Siberian Branch of the RAS,
Novosibirsk State University of Economics and Management, Russia
[email protected]

Nadezda Ulanova
Novosibirsk State University of Economics and Management, Russia
[email protected]

ABSTRACT
An approach to the construction of robust homeostasis, an information structure that closes the
homeostatic space, including the operational activities of the economic system, is described.
Methodological aspects of synthesis of parameters-indicators of operational activity for
construction of robust homeostasis are covered. Operating activities are represented by a set
of horizontal cycles consisting of interrelated processes and financial, material and information
flows that cover all the processes. Horizontal cycles determine their discreteness and are
referred to as operating activity cycles that are equal in their duration to the corresponding
working capital cycles. The principles of representation are formulated and the composition of
indicator parameters as operational activity regulators included into robust homeostasis is
presented. The formula of the information granule that makes up the robust limit is presented.
It is shown that the process of forming homeostases in the context of robust management fully
corresponds to the general principles of constructing information structures: mobility in time
and by filling them with data carriers, the possession of each indicator parameter with a certain
degree of freedom set by the robust limit.
Keywords: Indicator parameters, Operating cycle, Parameterization, Robust homeostasis,
Robust management mechanism

1. INTRODUCTION
The development of the theory of robust open complex systems management, which include
economic systems (any economic activity), is based on three hypotheses. The first hypothesis

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is that the existence and development of an economic system is largely determined by its ability
to adapt under the conditions of uncertainty and chaos. The second is the creation of adaptation
options, leading to the changes in the system intervention into sustainable operation and the
system development. And the third is that the influence of aggregate effects on the economic
system is limited by damping them with a robust management mechanism. Robust management
is performed in a built-up homeostatic space, with an adaptive homeostasis created initially,
and a robust one at the closing stage [1, 3]. Homeostases are special information structures
which parameters are accompanied by a procedure for updating data over time periods ( t  T )
based on monitoring the dynamics of situational changes in the external and internal
environment. The time factor is introduced into the notion of adaptive (AT) and robust (RT)
homeostases and defines the inevitability of changes in time of quantitative and qualitative
estimates of the parameters that make up their information granules. The concept of robust
management mechanism is based on the disclosure of its functions, which are characteristic of
configurator, an information tool designed by V. A. Lefebvre [14]. With a certain continuity to
the V. Lefebvre's definition of a configurator we have defined the robust management
mechanism: a configurator inscribed into the homeostatic space, synthesizing various ideas
about the strategic, tactical and operational actions of the management system and making their
reasonable selection to build a "floating equilibrium" that ensures the robust stability of the
economic system functioning and development. "Floating equilibrium" is a temporary
equilibrium state (time attractor) of a system in a built-up homeostatic space, which ensures the
adaptation of the economic system to the surrounding external and internal environment,
characterized by chaos and uncertainty [1, 3]. The design of a robust management mechanism
begins with the creation of AT- homeostasis – an information structure based on indicator
parameters of the state of the external environment and the economic system, and setting the
limits for each of them for possible changes, in which the robust stability of the economic
system is provided through flexible adaptation. The technology of AT- homeostasis design and
development of adaptation scenarios based on it is described in the articles by M. A. Alekseyev
and co-authors [1, 3]. The configurator is focused on achieving results of the economic system
activity, synthesized into an information structure –RT- homeostasis. The numerical values
should stay within the boundaries of the robust limits, as a certain reasonable norm of changes
in indicators that do not cause lossesin the system efficiency thanks to preventive adaptation
options. The management in the resulting homeostatic space is focused on operating activities,
which represent a complete set of interrelated processes for converting input resources into
products (or services), the implementation of which requires investment of certain funds.
Indicators that characterize the results of operating activities can be decomposed into those that
are determined directly on the basis of measuring the results of a processes set (basic) and those
that are calculated based on them. At construction of RT homeostasis priority is given to
indicators of operational activity, defined directly by measurement of results of functioning of
a complex of processes (basic) and calculated, received on their basis [16]. The task of the
article is to determine the composition of indicator parameters with an understandable meaning
of their values (numbers), choosing them from a set of indicators that characterize the financial
viability of the economic system and to digitize the information structure –RT-homeostasis.

2. KEY ASPECTS OF THE SYNTHESIS OF INDICATORS PARAMETERS OF

OPERATIONAL ACTIVITY IN THE SPACE OF ROBUST HOMEOSTASIS
Robust homeostasis, as the information structure of the robust management mechanism, closes
the formed homeostatic digitized space and acts as a regulator of output (endogenous)
parameters of the economic system activity by introducing robust limits for each parameter and
forming feedback. Robust management is primarily focused on operational activities as the
basic level of finished products manufacturing, which is performed through a chain of

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interrelated processes: procurement, technological, servicing, auxiliary and managerial. The

implementation of the basic principle of adaptation in the context of robust management is
inreaching the system’s floating equilibrium (a certain time attractor) trajectory, in which its
robust stability is preserved. In accordance with the principle of Stafford Beer: "the criterion of
an enterprise's performance is determined not by one single variable, but by a certain set of
variables with the help of which the management determines the goals of the enterprise." Based
on the generalised approaches to management parametric assessment, the principle of
parametric research is formulated, which consists of the following. Parameters that characterize
the efficiency and quality of management are formed by two subsets – management results and
characteristics of the management organization. The first subset allows us to make a conclusion
about the viability of the organization as a whole, about the efficiency of its operating activities
and about its position in the external environment. The second subset of indicators is called
"parameters of the management organization". These include: the capacity for knowledge and
skill level demonstrated through the implemented management model, the rationality of the
organizational structure, efficient use of human resources, the level of informatization and
computerization, and the costs of management system maintenance. Finding dependencies
between the selected sets of parameters establishing the influence of the management
organization on the efficiency growth of economic systems (firms) is a separate and distinct
issue of a parametric study of the economic system management. An important aspect of robust
homeostasis parameterization is to fix the conditions under which the system under study
functions, namely:
1. general parameters – production capacity and turnover, number of personnel, cost of fixed
assets;
2. stage of the organization's life cycle.

These conditions, according to the economy of scale and organization life cycle laws, determine
the space and level of action of the economic system, and, in this regard, the opportunities and
limitations in achieving certain indicators and properties of the system's functioning. The
relationship between the parameters of the selected groups in the form of a conceptual model
is shown in Figure 1.

Figure 1: Conceptual model of the parametric research of economic system management

General parameters of an organization are conservative values that vary discretely depending
on the organization's life cycle. Therefore, henceforth we accept the hypothesis that
parameterization of robust homeostasis is carried out in some given physical and temporal
space, bounded by general parameters. From the conceptual model shown on Fig. 1 it is clear
that system parameters as management results are influenced by a variety of internal factors
(management system structure) and the intensity of economic system development. Therefore,
the RT-homeostasis adjustment in conjunction with the system adaptation to complex reality

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becomes a regulatory function of management activities for a certain period of time. The
following rules introduced in the parameterization of RT-homeostasis should be considered.
First, priority is given to indicators expressed not by coefficients, but by directly measured
values, which is reflected in the operating plans, clearly perceived by operational managers.
The validity of this approach is also determined by a well-known feature of the numerical ratio
of quantities: there are five possible combinations of the numerator and denominator values to
increase their ratio, three combinations to decrease them, and in one case the ratio remains the
same [16]. For example, both revenue and cost are reducing in the same proportion, but the
profitability of the main activity remains unchanged and does not serve as a fact that determines
the problem situation. Second, as any economic object is an ordered system and its activities
are set by the plan based on the optimal balance of all kinds of resources on the periods of
time, eventually the underlying attractor of equilibrium or asymptotically stable state of the
managed system is built up. Experience has shown that when implementing a monthly plan,
as part of an annual plan, a procedure for correcting the plan is introduced on the second or
third day, the first aim is to try to bring it closer to the original attractor, and if it fails, then
the best solution is sought in the current situation. In the latter case, the modified plan is
developed. In essence, the system switches to a floating equilibrium built in the operational
mode. With robust management, the planned manoeuvrability of the system is developed, i.e.
adaptive actions that reduce or eliminate the loss of its efficiency. Based on the above, the
robust limit for indicator parameters will be determined by the expression:

X pl −  x  X i  X pl +  x
(1)

where X pl – the planned value of the indicator parameter;  x – the root-mean-square deviation
of the controlled variable X i ; a –the coefficient of compression of the variable spread X i , a
<1.

3. JUSTIFICATION OF INDICATOR PARAMETERS FOR THE ROBUST

HOMEOSTASIS FORMATION
To assess the economic efficiency of any business entity, a multi-stage or multi-level
framework of indicators based on the theory of financial analysis and accounting has been
created. To guide the operating manager in the created complex framework of indicators, we
need vectors that permeate the created arrays of indicators and collect data that should evaluate
the performance of the system at a particular level of management. As such vectors, the goals
of the economic system and indicators that characterize the fulfilment of the goals are taken to
justify the parameters of RT- homeostasis. The goals of the economic system aimed at
increasing competitiveness and its market attractiveness, focused on achieving the following
results, are considered as the key goals:
1) commercial efficiency;
2) operational performance efficiency;
3) financial viability;
4) availability of resources and maximum use of them.

The set goals determine what is achieved in the process of activity, as well as the tasks and
functions for their implementation. It should be noted that the selected goals are in accordance
with the goals which the balanced scorecard (BSC) developed by Robert S. Kaplan and David
P. Norton is focused on [12]. So, according to BSC: customer perspective – commercial
efficiency, internal business perspective – operational efficiency, financial perspective –
financial viability, innovation and learning perspective – availability of resources and their

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maximum use. To achieve the results it is necessary to develop a set of calendar plans, starting
from strategic planning and ending with operational planning for all types of activities. The
developed mechanism of robust management is focused on operational activities. The choice
of operational activity indicators parameters from the position of its robust stability and
introducing them into RT -homeostasis is based on the following provisions:
• first, defining the operating space;
• second, the provision of a rationale for the composition of indicator parameters from a set
of indicators for evaluating the functioning of the economic system, the meaning of the
values of which is perceived by managers, direct performers of operational processes;
• third, setting up the limits through information granules, within which changes in the
indicator values occur without violating the robust stability by manoeuvring planned
options for adapting operational activities at the stages of strategic and tactical planning;.

The space of operating activities is traditionally determined by the duration of the cash turnover
cycle, which is calculated using several options:
• the complex of processes from "the moment the money was paid by the consumer of the
finished products to the moment it was received" is referred to as the operating cycle [18,
p. 35];
• the cycle of the cash circulation, which begins "with placing an order for raw materials to
receiving customers' money for finished products" is referred to as the conversion cycle or
working capital cycle" [4, c. 19 ];
• the number of days required to turn the received inventory resources into finished products
and accounts receivable into cash is called the operating cycle (the process of placing an
order for raw materials and its delivery to the manufacturer is excluded) [4, c. 17].

It is obvious that in both versions of the operating activity assessment, the object is the same.
In the converted cycle the crediting period of the purchasing process is indentified (placing an
order for raw resources, paying for the order). Operating activity management begins with the
processes of ordering and purchasing (which is considered to be one of the main processes for
product quality management) and ends with the payment of consumers for the delivered
finished products, which determines the operating space. To avoid an ambiguous definition of
the financial chain of operating activities for products manufacturing, we will focus on the
concept of working capital cycle, which defines the space of operating activities. One of the
options to improve the operating efficiency of the production system is a comprehensive
approach to managing the cycle of activities described by the model of money-goods-money
for the result (M– G– M’). This approach ensures links to financial, operational, provisional,
servicing, auxiliary and managerial processes. The beginning of the promotion of an integrated
approach to operational management has been underway since the 70s of the last century. The
concept formulated by A. Feigenbaum [8], presents a new for that time methodological aspect:
management of continuous working (operational) processes "require what could be called the
horizontal (buyer-buyer) completion of managerial thinking". The first buyer is the
manufacturer of the finished product, and the second buyer is the direct buyer of the finished
product. Horizontal cycle by A. Feigenbaum starts from ordering resources from the supplier,
then paying its cost, delivering to the "input" of the system (logistics), converting resources to
get the finished product (production cycles), selling, shipping the finished product (logistics),
and receiving money (the final stage of the financial and material flow) for the completed result.
For the company, real money is generated within the framework of the horizontal operating
cycle (M - G - M’). The cycle model (M - G - M’) can be represented as a certain ring structure:
the cycle is formally closed by comparing M and M'. One of the instruments, implementing this
approach is the Japanese Kaizen system, the main tools of which are: process-based

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 55th International Scientific Conference on Economic and Social Development – Baku, 18-19 June, 2020

management with individual responsibility (Fig. 2), visible management, cross-functional

management that eliminates the narrowness of the decision-making horizon due to
departmentization and territoriality, and the Demining cycle. In general, governance in the
Kaizen system follows the concept of "gradual improvement affecting everyone"[13, p. 62].
Each operating process of the horizontal operating cycle is material, and is a carrier of products
(P), has a cost (M), is estimated by the time of execution (t), is characterized by fixing
information about it (I), its formula being (PMIt). A product is any result of a transformative
process action. The formula prescribes that the management of the horizontal cycle should be
based on a systematic consideration of the interconnections between material, financial and
information flows that go through the entire technological and logistics chains, equipped with
technical resources. The operating activity of an economic system is cyclical and is represented
by a set of synthesized "horizontal" cycles, which we refer to as operating activity cycles (OAC).
The duration of OAC coincides with the working capital cycle (WCC). Let us select the
indicators that determine the achievement of the set goals. The commercial goals of the
economic system are to achieve optimal compliance of the product volume, range and quality
with the market requirements. The main parameter that determines the result of commercial
activity should include: productivity of commercial activities (PCA) – the number, range and
quality of products which the society needs. In practice, the PCA indicator is defined as the
ratio of products sold to the volume of their production. Management of the parameters such as
the quantity of goods produced, their range and quality is carried out in conjunction with the
structure and dynamics of their demand, the product lifecycle on the market, the duration of
OAC, which includes the production cycle and supply chains of raw materials and finished
products, financial and information processes that serve the constructed operating system. The
volume of production of total finished products (Production volume, PV) is taken as the basic
value for inclusion into RT- homeostasis, which does not exclude its differentiation by product
groups, for example, identification of product groups "A", "B" and "C", and revenue from the
sale of finished products (S). Operating performance efficiency is defined as an indicator that
determines the conversion of production costs into revenue. To determine the operational
performance of the company, P. Drucker formulated the concept of activity-based costing [6].
The main message of this management accounting concept is that product manufacturing is a
complete set of interrelated processes; the implementation of each of them will require from
the company the investment of certain funds. According to this concept, managers of the
business should see the overall interconnectedness of the technological, financial, servicing and
providing processes that form the operating system in order to manage costs. Let us highlight
two factors that oblige businesses to manage their costs:
• "for the market, the only thing that matters is the economic reality – the cost of the entire
process, but not who owns what" [6, p. 16];
• switching from cost-lead pricing to price - lead costing, when the price the customer is
willing to pay determines the acceptable costs of the supplier and forces the company to
organize cost accounting for the operating system (4C marketing concept).

To justify the measurement of the operational performance (indicator parameters), we will

consider the following factors. The results of cost management are reflected in the cost of
finished products, the amount most tracked by operational managers. Therefore, the operating
cost of finished products (OC) is considered as a homeostatic parameter of operating activity,
which is equal to the ratio of the total cost of all processes to the production volume of finished
products within the managed OAC. The robust limit of acceptable changes in operating cost
will depend on the expected profit, the price of raw materials for production, and fixed costs.
When calculating the operating cost of finished products, there arises the issue of the cost of
each process in accordance with the structural model of its management (Fig. 2).

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Figure 2: Structural model of the process management

The owner of the process is defined as the type of activity that sets out the process's action plan
and operational management. Performers are employees implementing, correcting and restoring
the process. In management accounting, the transition to information technology will allow
calculating the operating cost for each OACi, i  N and its duration. The use of this information
allows us to differentiate the OACi, i  N by the value of the production cost, by the market
demand, to estimate the correlation between the operating cost and such a parameter as the
duration of OAC, which are directly correlated. It is a fact that operating cost and duration of
the OACi, i  N are variables. Each process of the complex operational chain of production is
measured by the result and duration. Both the result and the duration of any process belong to
the category of random variables [9,11]. Numerous scientific developments in the sphere of
technological processes and material and monetary resource management have been made to
overcome the variability of the operational process results and bring them into a "sustainable
mode". In all cases, to ensure the stability of the processes it is required to set the limits that
determine the range of permissible fluctuations of the measured value, which do not result in
losses to the company. A similar approach applies to the management of the operating cycle
time, (OCT). We introduce the OCT parameter into robust homeostasis when setting the limits
of acceptable deviation related to its planned value for product groups or for the aggregate
product as a whole. The financial viability of operating activities is estimated by the indicators
included into the "business activity" group [7, p. 506-507]. The parameter that affects the
efficiency of the capital turnover, altering its duration, primarily refers to the amount of
accounts receivable (AR), which increases along with the increase of its repayment duration
and taking into account the time value of money. There is a direct relationship between these
indicators. Marketing, sales departments, logistics (timely and safe delivery) and finance
departments are in charge of the amount of AR. The damage from accounts receivable to the
business economy is well understood by managers and the introduction of the amount of
accounts receivable into the RT-homeostasis for a t  T periodwithin the robust limit can be
considered as a regulator of relations with consumers in order to maintain the revenue at the
required level. The assessment of the accounts receivable for the t  T periodis based on the
detailed information about the amount and time of debt for each consumer for the operational
management of finished product deliveries. The lack of required funds resulting from the
accumulation of the accounts receivable is compensated by the accounts payable (AP). The
company's creditors are suppliers of goods, works, services, landlords and employees, the
budget and extra-budgetary funds, and buyers in case of advance payments for the upcoming
deliveries. The structure of accounts payable comprises short-term loans, own funds, delayed
payment for the supplied material resources, tax payments and wages, advance payments by
consumers for the upcoming product deliveries. As a result, a certain amount of debt with a
complex structure is accumulated, and its repayment is an optimization task for the financial
management and within its competence.

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 55th International Scientific Conference on Economic and Social Development – Baku, 18-19 June, 2020

The financial structure of a business establishes and monitors the ratio between accounts
receivable and accounts payable. The AR-AP ratio is a constantly changing value, so its value
should be closely monitored and diagnosed in a timely manner and optimization decisions on
changing the structure of accounts payable and receivables should be made. Decision making
is assigned to the financial or special analytical department. Based on the regulated connectivity
between AR and AP, the AR values introduced into RT - homeostasis for the t  T periodshould
be periodically updated. A number of publications [5, 17] consider the amount of coverage(AC)
obtained directly from the sales revenue (S) and the cost of the initial resources (variable costs
—costs that are transferred to the finished product in full, VC) as a controlling parameter of the
financial stability of operating activities. It follows that the amount of coverage depends on the
parameters (S, VC), which can be influenced directly by the management.
The expression for calculating the coverage amount is:

AC = S-VC = FC + OP, (2)

where FCis fixed costs, the type of costs that an enterprise incurs within OAC and which are
accepted as costs that are typical for all production cycles of a particular product group;OPis
operating profit.

From the expression (2), it follows that the calculation of the coverage amount allows us to
determine how much money an enterprise earns by producing and selling products in order to
cover fixed costs and make a profit. The variable values of the coverage amount are revenue
(sales volume and product price) and variable costs, which are a function of the production
volume and initial resources prices. The introduction of the amount of coverage expressed in
RUB into the RT- homeostasis does not disclose the extent of its impact on the performance of
operating activities. Therefore, for an operational management response to all components of
the coverage amount, it is proposed to introduce not the amount of coverage into RT -
homeostasis for the period t  T , but the coverage ratio (ACR), which determines the share of
the coverage amount in the revenue from the sale of total products or by its product groups. The
introduction of the ratio as an indicator parameter is justified by the fact that the determining
value of the coverage amount – revenue is determined by the RT - homeostasis information
granule. It is obvious that the higher the coverage ratio, the greater the increase in operating
profit. The operating profit (OP), obtained from the results of the main activity, allows us to
evaluate the effectiveness of supply and inventory management, technology, sales of finished
products, logistics, marketing, and other OAC. The OP value is determined by subtracting
operating overhead costs (rent payments, depreciation charges, fuel, electricity, etc.) from the
gross (or trading) profit.Operating profit allows us to distance from the influence of factors such
as the tax regime and interest rates on loans, the management of which is within the competence
of financial services and the economic system management, and is, as stated in [5, p.26-27], an
indicator that can be explained by the example of specific actions of managers and incurred
expenses. An increase in the operating profit indicates that the company's revenue exceeds
costs and is achieved by the management decisions, aimed, at least, at reducing variable costs,
not excluding fixed costs. The consequence of these provisions is the inclusion of operating
profit in a robust homeostasis.

4. THE GOAL OF "SECURING RESOURCES AND MAXIMIZING THEIR USE"

The production of any product is based on a specific technology, implemented by a complex of
interconnected equipment and various machinery, usually operating in an automated mode.
Each technical element of cyclical and conveyor technologies is periodically stopped for
maintenance according to the standards of planned preventive repairs (PPR).

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 55th International Scientific Conference on Economic and Social Development – Baku, 18-19 June, 2020

The discreteness of the equipment operation determines the variability of the total production
capacity. If we adhere strictly to the production standards and the time of equipment repair,
established by the types of planned preventive repairs, i.e. without managing this process, we
will get an operating system which is highly unstably equipped with workabletechnical
resources. For example Fig. 3a presents the distribution in time of the technological equipment
withdrawals from productive operation in accordance with the PPR plan and other operations
causing its shutdown. Fig. 3b shows the graph, describing the total capacity of the company's
operating system for the raw materials production, using six independently operating
complexes [10].

001
Planned
planned target
target
001

001

001

000

000

000
1 5 9 13 17 21 25 29 33

Symbols: - periods between repair; - the duration of PPR;

- time to prepare for repairs; – unplanned downtime
Figure 3: A fragment of the capacity distribution of a complex of working equipment in
time, built according to the PPR standards, and a graph of the total capacity (b)

From the graph in Fig. 3b it follows that without introducing a management effect into the
performance of the equipment PPR, the total capacity of the working equipment is characterized
by high variability regarding the planned task. The objective of the management is to evenly
distribute the total capacity of the equipment put into operation, which is achieved through the
flexibility of the maintenance and repair schedule and the use of backup equipment (adaptive
solutions). Based on the set objectives, the solution to the problem initially stays within the
limitsof the permissible change in the capacity of a complex of functional equipment with
respect to the planned capacity as the average value of potential capacity per unit of time ( Q pl
), which provides robust stability of the system regarding technical resources:

Qpl −  Q  Qi  Q pl + Q , (3)

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 55th International Scientific Conference on Economic and Social Development – Baku, 18-19 June, 2020

where  Q is a standard deviation of the total performance of the equipment complex,

determined when scheduling its shutdown on the PPR (Fig.3b); a isan indicator of variable
spread compression, a <1.

The visual availability of information on the technical capacity and volume of finished
productsOAC allows us to determine the efficiency of the technical resources usage by
comparing them. The introduction of the information granule into the robust homeostasis,
determining the limit of permissible change in the working equipment total capacity, meets the
goal of operating equipment that provides basic, robust stability of the system. Let's summarize
the selected parameters-indicators - fillers of RT homeostasis of the economic system in the
table, give information pellets, in which it is acceptable to change them due to the adaptive
capabilities of the system, and note their balance with the parameters of the indicators of
adaptive homeostasis (AT homeostasis) [1]. Output of the indicator beyond the limit of its
change established for the period means in some cases that the decision is taken as a "flight
from the negative", in others - "movement to the positive". The interconnection between AT-
homeostasis and RT-homeostasis is executed through a specific technology of decision-making
in a chain consisting of modules of strategic, tactical and operational planning and their
coordination based on direct and feedback links [1,3]. Modules of the robust management
mechanism are constantly being rebuilt and assembled, starting with a converged strategy
developed in the scenario planning environment, with the subsequent establishment of a
floating equilibrium of the economic system functioning in the digitized homeostatic space as
a territory facilitating the adaption of the economic system to the conditions of uncertainty of
the external and internal environment.

Indicator parameter Indicator parameter

RT-homeostasis Information granule formula AT-homeostasis

The volume of finished Volume of production,

products PVpl −  PV  PVi  PVpl +  PV capacity and market share with
expected and acceptable variability
Revenue from finished The price of finished products
products sales S pl −  S  Si  S pl +  S capacity and market share with the
expected variability
Operating cost of Price of finished products and
production OC pl −  OC  OCi  OC pl +  OC material and technical resources
with expected variability, product
quality
The duration of OAC OCTpl −  OCT  OCTi  OCTpl +  OCT The volume of production and the
amount of investment with
expected variability
Accounts receivable ARпл −  AR  ARi  ARпл +  AR Market share and capacity with
expected variability
The amount of AC pl −  AC  ACi  AC pl +  AC Price of finished products and
coverage material and technical resources
with expected variability
Operating profit OP rpl −  O Pr  OP ri  O Prpl +  O Pr Net profit with acceptable
variability
The working capacity Qpl −  Q  Qi  Qpl +  Q Volume of production,
of technical resources capacity and market share with
acceptable variability
Table 1: Formula of the information granule of RT-homeostasis indicator parameters and
their balance with AT-homeostasis

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 55th International Scientific Conference on Economic and Social Development – Baku, 18-19 June, 2020

Parameters-indicators of operating activity, a variant of which is shown in the table, are

associated with certain direct and inverse relationships, and each of them has a different impact
on the operating profit. The calculated limits of their permissible change form a certain
numerical space determined through the methods of mathematical statistics, optimization, and
analytical models. Definition of limits of admissible changes of parameters-indicators at which
value the system is capable to adaptation and robustness, acts as a new task of financial
management. It should be noted that the created homeostases in robust management are
considered as special information structures, the formation of which fully corresponds to the
general principles of the information structures designing:
1) fixing, i.e. determining the data carrier, in case of economic system management – these are
parameters-indicators;
2) 2)displacement of competing parameters, which may occur periodically depending on the
strategic orientation and status of the economic system (continuation of the fixation
process);
3) sliding, when each parameter has internal degrees of freedom, which in the introduced
homeostases are determined by the limit of permissible fluctuations and under which the
adaptation of the economic system is adjusted;
4) space– the ability of an information structure to interact with the "external world" by
generating some space, i.e., judging by the definition of homeostasis, is inherent in the
definition of its construction and taken as a basis from the fundamental work of academician
I. Prangishvili [15, p. 113]
5) self-similarity– the ability to multiply, whichdetermines the development dynamics of both
the information structure and the synthesis of new structures – a set of homeostases for the
stages of the economic system life cycle and functional subsystems.

5. CONCLUSION
The presentation of the mechanism of robust control as a configurator, inscribed in the
homeostatic space, synthesizing knowledge of strategic, tactical and operational actions of the
control system and producing their reasonable selection for the construction of "floating
equilibrium" – a temporary attractor of operational activity, justified approach to its design as
an information structure that closes the homeostatic space of the economic system. Operational
activity carried out in the homeostatic space is reduced to the connectivity of technological,
providing, servicing, auxiliary and managerial processes, combining them into a horizontal
cycle (M - G - M’) through financial, material and information flows, with a duration equal to
the cycle of capital turnover. In accordance with the principle that the criterion of the economic
system activity is determined not by one variable, but by a set of them, characterizing the results
of key objectives, the parameters-indicators of operational activity, which are part of the
information structure of RT homeostasis, are justified. Priority is given to the indicators defined
directly by measuring the results of operating activity. Each indicator of RT homeostasis is
represented by the formula of its information granule, which determines the internal degrees of
freedom, which are limited by the limits of permissible fluctuations and for which the
adaptation of the economic system is adjusted. Output of the parameter's value beyond the limits
is a challenge to making decisions about new maneuvering of the economic system in turbulent
and chaotic environment.

LITERATURE:
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robustness as a technological and financial mechanism for managing economic systems.
[Parametricheskaya robastnost' kak tekhnologicheskiy i finansovyy mekhanizm
upravleniya ekonomicheskimi sistemami]. VestnikNSUEM, 2019 (No. 4), pp. 143-161.

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 55th International Scientific Conference on Economic and Social Development – Baku, 18-19 June, 2020

2. Alekseyev, M. A. (2017) Financial cycle modeling and company's behavior in the

information space of the financial market. [Modelirovaniye finansovogo tsiklai povedeniye
kompanii v informatsionnom prostranstve finansovogo rynka].Vestnik NSUEM,
2017(No.3), pp. 131 – 146.
3. Alekseyev, M. A., Freydina E. V.(2019) To the theory of flexible adaptation of economic
systems through robust management. [K teorii gibkoy adaptatsii ekonomicheskikh system
posredstvom robastnogo upravleniya]. Fundamental'nyyeissledovaniya (Fundamental
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[Korporativnyy finansovyy analiz: иchebnoye posobiye] Textbook. Novosibirsk: NSUEM.
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German). Moscow: Finance and statistics.
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rezul'tativnosti kompanii] (translated from English). 2nd ed. Moscow: Alpina Business
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(translated from English). Moscow: Progress, pp. 156-182.
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predprijatij]. Vestnik NSUEM, 2013 (No. 2), pp. 112-127.
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robust technical resources management career. [Chast' II. Razvitie robastnogo upravlenija
tehnicheskimi resursami kar'era] Fiziko-tehnicheskie problem razrabotki poleznyh
iskopaemyh (Physical-technical problems of mining), 2014 (No. 4), pp. 68-76.
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processes: university textbook. [Organizacii: povedenie, struktura, processy.
Universitetskij uchebnik] (translated from English). Moscow: INFRA-M.
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performance. Measuring the company's performance[Sbalansirovannaja sistema
pokazatelej, izmerjaj us ih effektivnost'. Izmerenie rezul'tativnosti kompanii](translated
from English). 2nd ed. Moscow: Alpina Business Books (Harvard Business Review
Classics Series), pp. 123-145.
13. Klevlin A. I., Moiseeva N. K. The harmonious organization of production. Theory and
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uchebnoe posobie].Moscow: Omega-L.
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"Systemic management problems" [Sistemnyj podhod i obshhesistemnye zakonomernosti.
Serija «Sistemnye problemy upravlenija»]. Moscow: SINTEG.

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16. Rubinstein, M., Firstenberg, I. (2003) Intellectual organization. Bring the future to the
present and turn creative ideas into business solutions [Intellektual'naja organizacija.
Privnesi budushhee v nastojashhee i prevrati tvorcheskie idei v biznes-reshenija]
(translated from English). Moscow: INFRA-M.
17. Ryan, B. (1998) Strategic accounting for managers[Strategicheskij uchet dlja
rukovoditelej] (translated from English). Moscow: Audit, UNITY.
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from English). Moscow: Information and publishing house "Filin"

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 55th International Scientific Conference on Economic and Social Development – Baku, 18-19 June, 2020

DIGITAL BANK CONCEPT

Yuriy Shvetsov
Novosibirsk State University of Economics and Management, Russia
[email protected]

Galina Tarasova
Novosibirsk State University of Economics and Management, Russia
[email protected]

Vladimir Balikoev
Novosibirsk State University of Economics and Management, Russia
[email protected]

Alexandra Shmyreva
Novosibirsk State University of Economics and Management, Russia
[email protected]

ABSTRACT
The article examines the basic trends and the content of transition period in the development
of the banking services, which undergo substantial changes in the conditions of digital economy
ecosystem formation. The need for the essential adjustments in the theory of banking is justified,
the promising trends in the shift of lending institutions into the cyberspace are indicated, a
characteristic of the new bank products, emerging within the decentralized management
system, is given. The most important aspects of the design of a digital bank model and the key
elements of its entrepreneurial activity strategy are revealed.
Keywords: Artificial intelligence, Banks, Blockchain, Digital assets, Digital economy,
Cryptocurrency, Electronic banking, Lending, Loans, Virtual assistants

1. INTRODUCTION
The rapid emergence and development of the digital economy in the world makes it imperative
for all market participants to make the necessary adjustments in their activities. Naturally,
commercial banks, being one of the most active participants in the formation of the society's
material basis, have also been involved into this effort. Banking in its traditional sense is a thing
of the past. The lending institution's functions of a financial intermediary, providing a link
between the population's monetary savings and business, and regulating the volume and
structure of funds in various segments of the stock, currency and capital markets, have become
an anachronism and prevent a key commercial institution from adapting to the changing
conditions of economics, which is rapidly shifting into the virtual space. Cash turnover,
extensive branch networks, in-house services with an emphasis on the human factor, banking
products that involve face-to-face communication with the borrower, a huge number of
employees, monitoring all the stages of the loan history from its issuing to repayment, are in
sharp contradiction with the requirements of the emerging digital society, the key objectives of
which are the swiftness and mobility of transactions, the substitution of labour with artificial
intelligence and the electronic format of financial assets. A new economic era is coming, the
priority of which is the highest quality of banking services, based on two main pillars, the first
of which is the physical distance of customers from the lending institution and their non-contact
business cooperation with each other, and the second is the complex robotization of banks based
on unattended technologies.

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2. FINANCIAL SERVICES
Under the present conditions, banks tend to move away from the traditional scheme of
managing money resources and try to build their financial services on a decentralized
management system. Its main types are the following.

2.1. Electronic banking

As digital technologies are confidently entering the lives of people all over the world, almost
the entire range of banking services is shifting into the internet, and credit transactions and
payments are made in the electronic banking mode. The advantages of the latter over the
traditional banking are undeniable, since there is a multiple reduction in the cost of transactions
(according to analysts' estimates from 2 to 16 times) and operating costs for the maintenance of
offices and equipment, security, payment of wages to employees, collection, etc. Online
banking allows to maximize the customer base and at the same time eradicate queues,
significantly reduce the cost of purchasing and renting premises, communications, hardware
and software. In these conditions, an extensive branch network and a large number of ATMs
for lending institutions lose its relevance, and this is also a strong argument in favour of the
emerging contemporary ecosystem. The profitability of a lending institution reaches a huge
multiplier effect also due to a dramatic reduction in the cost of services while increasing the
volume of its sales. Comfortable service technologies significantly increase the demand for
them, the level of users' trust to the bank, and thus have a great impact on increasing the sales
of other commercial bank products: loans, credit cards, insurance policies, etc. The main cost
of the bank, which activities are reoriented to adapt to new economic conditions, is investment
into the development of software for the smooth functioning of digital products and its
continuous modernization. Leading lending institutions, such as Sberbank, establish special
divisions in their structure that are exclusively engaged in the research of IT services and
electronic technologies of the future. This allows leading banks, despite significant
expenditures on innovation, to increase the growth rate of virtual business, expand the range of
digital services for customers and stay ahead of the competition, allowing them to control the
market situation in their favour. Commercial banks are heterogeneous in the level of internet
banking service and there are three categories: the outsiders, which are satisfied with a
minimum set of electronic services (information about the size of funds and their movement on
bank accounts); those in the middle, which allow customers to make payments and transfers in
roubles, to pay utility expenditures, to support the online activities of internet service providers;
and the leaders, who created the necessary software products enabling their customers to repay
outstanding loans and taxes, manage personal finance through the expenses categorisation
module, to create a set of functions for establishing limits on card transactions, transfer money
between cards via the phones, social media account or e-mail. The latter have great future, since
such credit institutions have already passed the period of "digitization" of traditional banking
operations and are working closely on creating a comprehensive virtual banking terminal,
operated by AI. An important advantage of the online service is that the access to it is free for
customers, the vast majority of operations are inexpensive, and the rates are even lower than
when visiting the bank's offices. This service allows bank customers to have round-the-clock
access to their accounts, constantly monitor the movement of funds and make necessary
payments promptly. All of them are carried out within one banking day and have multi-level
protection.

2.2. Remote biometric identification system

The EU Directive on payment services PSD2 (Revised Directive on Payment Services) has
helped accelerate the development of internet banking, which has dramatically reduced the cost
of payment services for the end user. It initiated the development of two types of services:

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intermediaries for making payments between the consumer and the source of financing, and
account information service providers (AISP), accumulating information about the client's
existing accounts in all banks. Providers of customer account management services are banks
that are required to provide, with their customers consent, all available information to financial
intermediaries without entering into a special agreement. As a result of this innovation, payment
organizations that do not have the status of a lending institution have free access to all
information about transactions of the bank clients. The latter no longer monopolise this market,
now they have only the function of data storage and managing the customers’ accounts. The
changes in the economic environment bring to the fore the problem of users recognition within
KYC/AML ("know your customer"/"anti money laundering") policy. To solve it a remote
biometric authentication should be established to increase the security of customer data, and
simplify their interaction with the bank. The project implementation plan for the development
of a National biometric platform was approved in July 2017, according to which a unified state
system was created; it includes such methods of users' recognition as by fingerprints, face,
voice, and movement. The information stored in the unified system of identification and
authentication of customer data allows to increase the customers’ comfort and security of
satisfying their financial needs. From now on, the user does not need to duplicate their actions
in several lending institutions: they just need to contact one bank to be able to remotely open
accounts and receive money services in any other. And which is more, progress in the digital
sphere forgers ahead. Today, you can solve the problem of identification in various trading
operations almost free of charge by using blockchain through peer-to-peer technologies (P2P),
and tomorrow there will probably be other equally attractive opportunities in other areas of
commerce.

2.3. Generating interfaces for close interaction of cryptocurrencies with both traditional
and emerging financial markets
For example, Ripple Labs through the Ripple payment network, allows banks to transfer funds
and perform currency exchange directly without intermediaries, develops its own platform and
language for smart contracts — Codius, and provides funding through the innovative fund of the
Spanish Bank Bankinter in Coinfieine so that users are able to buy and sell bitcoins directly,
bypassing exchanges. Kraken cryptocurrency exchange in close cooperation with partner banks
provides its clients with the necessary financial services using bitcoin. Tag Exchange launched
the first bitcoin swap exchange, through which investors buy contracts in bitcoin on the
exchange's online trading platforms. Buttercoin, a company that specializes in financial analysis,
requires its clients to pay in bitcoins.

2.4. Crowdfunding
Earlier a centralized service, eg. Kickstarter, Indiegogo, was required for this funding model, but
with the advent of crowdfunding platforms based on blockchain technology, the need for an
intermediary is completely eliminated. Swarm is pioneer of startups in the field of digital
currencies, the company, which created its own Swarmcoin cryptocurrency, and provides an
opportunity for investors to receive dividends from the implemented startups. The Lighthouse
mobile app allows you to make financial investments and enter into crowdfunding contracts using
bitcoin wallets directly. In Japan, bitFlyer, bitcoin crowdfunding site was created.

2.5. Robotic services and Robo-advising services

High-frequency trading, born in the late 1990s, has now received a second life due to a
significant reduction of securities trading deals, now completed within milliseconds and
microseconds, which requires a powerful and mobile software and network support. Artificial
intelligence is also involved into the complex process of optimizing the banks' investment

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portfolio and managing the trust capital of their clients. Robot consultants allow you to sharply
reduce the high commission rates for providing this type of service. Russian lending institutions
are trying to keep up with American banks equipped with cutting-edge Wealthfront and
Betterment robot consultants. Many of them already use the "financial autopilot" developed by
the FinEx investment company.

3. CONCLUSION
Business cooperation between IT companies and banks creates a new economy and the core of
it being digital technology, which makes all types of traditional credit activities outdated and
requires a more complex intellectual content of emerging business projects. Today's business
activities are impossible without a powerful computer and proper software. Digitization of
banking operations, which involves their execution in cryptocurrency, i.e. virtual money using
computers and the internet. Leading lending institutions clearly realized that the era of
cryptocurrency ubiquity is approaching and began to actively work in this direction, making
settlements in bitcoin, Ethereum, etc. and creating their own digital currency. So far, this work is
being carried out in a test mode, but there is no doubt that in the future it will gain the necessary
momentum and become a priority for banks, especially since the next generation of computers,
quantum computers, is on the way. Banks are trying to carry out all their operational activities
within the framework of financial processing, which is a digital processing of the entire
database and comprehensive automation of the entire range of services provided to clients. An
important role in this system is assigned to the API (Application Programming Interface)
technology – a set of procedures and functions of applications or operating system, used in
external software products. All software components interact with each other via the API based
on a hierarchy: when transmitting data, each subsequent level uses the functionality of the
previous level, which allows banks to bring their personal product to the client. Each financial
product of a modern lending institution is an automatically configurable component with a
personal code that allows the user to upload it to their application. The availability of banking
technologies for any user in combination with cloud services, the Big data information
processing mechanism, and the API platform will lead to the integration of the internet space,
mobile applications, and social networks in the future. A striking example of this trend is the
Deutsche Bank Autobahn app store. Any client of the bank can freely choose a suitable banking
product with a set of financial management tools. So in the monetary sphere, an extensive
structure of value exchange is developing. Within this structure banks use constantly improving
financial technology developed both in-house and by IT companies, inherent in the digital
environment, and acquire an important status of its coordinator, which is more than the status
of a money broker, characteristic of lending institutions in the model of traditional market
structure. Developing the concept of a digital bank is an extremely complex task, which
involves considering many factors that affect the efficiency of its financial activities when
moving into the virtual space. It is advisable for a lending institution to focus on the following
main aspects of digital modelling:
• development of ecosystems around online platforms, including financial services;
• a complex of banking operations using artificial intelligence in the provision of services and
their shift into the internet space, which have the greatest commercial potential and the
highest level of profitability as an ecosystem of digital banking;
• strategy for the development of banking products based on cryptocurrency payments;
• structure of the loan portfolio with its division into traditional and digital operations, as well
as payments based on fiat currencies and cryptocurrency;
• a system of managed demurrage of currency and cryptocurrency, which allows it to be
automatically "reset", i.e. periodically redistribute funds between the bank network nodes
and encourage holders of financial funds to spend them within a specified period of time;

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• methodology for optimizing electronic financial flows between the bank and its clients on
the internet banking platform in accordance with its algorithm of development;
• mechanism for integrating internet banking with social networks;
• financial processing model as an integrated system of bank interaction with clients, in which
any financial product becomes an automatically configurable component having its own
personal code, uploaded by the user to the application;
• system of risk insurance of electronic payments, turnover of virtual derivatives, operations
with cryptocurrencies and digital property;
• the model of financing startups through crowdfunding;
• algorithm for high-frequency trading, which allows the bank to obtain arbitrage profit by
spotting the slightest price fluctuations in financial markets;
• functioning mechanism of the system of payment initiation services (PISP) and financial
information aggregation services (AISP) and their interaction on creating clients and their
transactions database (storage);
• built-in video support system for online and mobile terminals in real time to create
personalized interactive services;
• organizational system for reliable remote authentication of bank clients protecting their
personal data and a set of special office applications for distributed work – a software
providing users with the entire set of banking services " blockchain as a service»;
• the bank's digital asset liquidity mechanism and its reserve system;
• a method, establishing a framework for collective security of a bank and large companies
and state organizations based on cloud technologies in the form of a centralized archive
with dossiers on the most aggressive criminals and suspicious individuals to prevent
cybernetic excesses.

Those banks that manage to implement all the above-mentioned adaptations to the realities of
the digital economy, rather than trying to act selectively, avoiding the inevitable difficulties,
will create the most stable and free from weaknesses platform for their business.

LITERATURE:
1. Furst, K. (2002). Internet Banking. Journal of Financial Services Research, 2002 (Vol. 22,
N. 1&2), pp. 93-117.
2. Kulikov, N. I., Kudryavtseva, E. V. (2016). Banks go to the Internet. [Banki uhodjat v set'
Interneta]. Finansy i kredit (Finance and credit), 2016 (No. 29), pp. 2-10.
3. Shvetsov, Yu. G., Suntsova, N. V., Koreshkov, V. G. (2019). What will happen to
commercial banks in the digital economy? [Chto proizojdet s kommercheskimi bankami v
cifrovoj jekonomike?]. Vestnik NSUEM, 2019 (No. 1), pp. 192-204.
4. Sullivan, R. J. How Has the Adoption of Internet Banking Affected Performance and Risk
at Banks? A Look at Internet Banking in the Tenth Federal Reserve District. In R. J.
Sullivan, Financial Industry Perspectives, Federal Reserve Bank of Kansas City, pp. 1-16.
5. Warner, M. (2005). Virtual organizations. New forms of doing business in the 21st century.
[Virtual'nye organizacii. Novye formy vedenija biznesa v 21 veke]. Moscow: Dobraya
kniga.

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 55th International Scientific Conference on Economic and Social Development – Baku, 18-19 June, 2020

INFORMATION AS AN OBJECT OF CIVIL RIGHTS

Elena Khоlmova
Novosibirsk State University of Economics and Management, Russia
[email protected]

ABSTRACT
The article raises questions about the legal nature of information, its place among the objects
of civil rights, including taking into account the legislation of various States; and the feasibility
of returning to Art. 128 of the civil code of the mention of information as a full-fledged object,
as well as offers solutions to the issues.
Keywords: Information, Object of law

1. INTRODUCTION
Information occupies an increasingly significant place in the life of society in General and in
business in particular, and its significance became even more obvious during the pandemic,
when physical contacts between business partners were reduced to a minimum. This fact makes
us think about the legal nature of information, whether it is possible to establish any rights to
it, and therefore whether it is included in the system of objects of rights. This article offers
conclusions related primarily to Russian law, but the applied methods of comparative law, as
well as the generality of trends that have caused interest in this topic, allow us to hope that the
article will be useful for readers from different countries of the world. This research only
concerns the private legal side of the issue, since public law in this case is less interesting for
business. In addition, the volume of work does not allow us to consider the criminal and
administrative components of the issue.

2. ABOUT THE LEGAL NATURE OF INFORMATION

2.1. History of the issue
The list of objects of rights, it would seem, is of a deep doctrinal nature and should not be
subject to frequent changes. But article 128 of the Civil Code of the Russian Federation
containing such a list was not lucky. On October 1, 2013, the Federal Law No. 142-FZ of July
2, 2013, the penultimate version of Art. 128 of the Civil Code of the Russian Federation, which
was designed to bring a glance at the objects of rights into a single coherent system. A
harmonious system did not work, and a new version of the same article was introduced this
year. And even earlier, back in 2006, an amazing event took place in Russian legislation that
did not give a serious resonance in the scientific literature, but which had and has influenced
doctrinal positions in one of the most important areas of both civil law and legal theory. We are
talking about reducing the list of civil rights - the exclusion of information from it. Until January
1, 2008, information was indicated in Article 128 of the Civil Code of the Russian Federation
as one of the objects of civil rights. But from the indicated date by the law of December 18,
2006 No. 231-ФЗ the word “information” was excluded from this article. In the current edition
of Art. 128 of the Civil Code of the Russian Federation and in the wording that came into force
on October 1, 2019, information is not mentioned. Given that the list of objects in this article
was and is exhaustive, it should be concluded that, in accordance with the current version of
the Civil Code of the Russian Federation, information is not subject to civil law. The exhaustive
nature of the list of objects of civil rights is evidenced by the absence of an indication of the
possibility of other objects. The presence of a clause on “other property” does not change the
situation, since this “other” must be property in order to be an object of law. In other words,
“other property” is in the circle outlined by the content of Art. 128 of the Civil Code of the
Russian Federation, and in no way goes beyond it.

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By the way, in foreign legislation such an exhaustive list is not always found. So, German civil
law is limited to the mention of individual objects, not reducing them into a single system.

2.2. Information features

Considering information as a possible (or impossible) object of rights, it is necessary to proceed,
firstly, from the importance of information for society, and secondly, their characteristics of its
receipt, transmission and dissemination. The first (significance) will be discussed later. Features
of receiving, transmitting and disseminating information, i.e. in fact - its turnover is reduced to
the following:
• information can be obtained both from third parties, and independently, without any
participation;
• the transfer of information in most cases does not mean "loss" of this information by the
person who transmitted it;
• the dissemination of information is an irreversible phenomenon; if information is
disseminated, then in the future its “removal” becomes impossible in fact and legally.

The foregoing allows us to conclude that the circulation of information differs significantly in
the circulation of things as traditional objects of civil rights. In modern conditions, information
is the most important factor in the life of the whole society, each person and any subject of law.
Doing business outside of information without receiving and transmitting information is
impossible. And the legal environment of business, of course, includes the regulation of
relations regarding information. The legislation on information not only continues to exist, but
is constantly being improved and supplemented, and the regulation of relations related to
information is not at all limited to the public law sphere. A dilemma has arisen in Russian
legislation: on the one hand, based on a literal interpretation of the law (namely, Article 128 of
the Civil Code of the Russian Federation), we must conclude that such an object as information
does not exist at all, on the other hand, there is a relationship regarding information relate to the
sphere of legal regulation and are regulated, inter alia, by civil law. It is necessary to mention
that in accordance with Art. 3 of the Civil Code of the Russian Federation, the norms of civil
law contained in other laws must comply with the Civil Code.

2.3. Information as an object of rights

To resolve the dilemma, it is necessary to turn to the very concept of the object of civil rights.
The appeal to the concept formulated by V. Lapach [2] seems to be the most correct: it is
necessary to distinguish two levels of objects of civil rights. The first level, or objects of the
first order is the actions of the subjects of law, it is precisely on them that the legal regulation
as a whole and the private law regulation are directed. Nothing but the actions of the subjects
can be resolved. Here, on the first level, there is no place not only information, but also the most
traditional objects - things. The second level, or objects of the second order are those fragments
of reality that the actions of the subjects are directed to. The law cannot regulate external
fragments of reality: a land plot, a reputation, a picture, a banknote, a poem remain all the same,
regardless of changing legal norms. The law can regulate the behavior of people relating to a
particular fragment of reality, and regulation will inevitably be different, depending on whether
the behavior is directed to a land plot, a bill or a poem. It is the objects of the second order listed
in Art. 128 of the Civil Code of the Russian Federation. At the same time, there are reasonable
doubts that this listing is complete and exhaustive, doubts related not only to the exclusion of
information from the article. In this work, we will not consider the problem of the absence of
virtual objects in the legislatively established list of objects of civil rights that arose more than
ten years ago. This is a topic for a separate study. It seems necessary only one remark: it is
likely that virtual objects are a kind of information.

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Abstracting for a while from the content of Art. 128 of the Civil Code of the Russian Federation,
let’s try to find the answer to the question of whether in theory information can be classified as
objects of law in general and civil law in particular. Of course, information in itself is not an
action, so it cannot relate to first-order objects. But the law regulates the behavior of people
aimed at information (transmission of information, its protection, etc.), in other words, it
regulates relations regarding information, and regulation of such relations is carried out by the
norms of various branches of law, including civil law. Thus, the information should logically
be attributed to the number of objects of rights - objects of the second order, which also include
things, and the results of intellectual activity, and intangible benefits and much more.

3. THE IMPERFECTION OF THE LEGAL REGULATION OF INFORMATION

3.1. Meaning of the lack of information in the list of legal objects
There is clearly a bewildering disagreement in the law. Art. 5 of the Federal Law "On
Information, Information Technologies and the Protection of Information" dated July 27, 2006
N 149-ФЗ states: "Information may be the subject of public, civil and other legal relations."
Meanwhile, the priority of the Civil Code of the Russian Federation in the regulation of civil
law relations is undeniable. Should this be understood in such a way that, in accordance with
Russian law, from January 1, 2008, information can only be the subject of civil rights, but it is
not? In scientific works written after 2006, it was not possible to find any satisfactory answer
to this question: works devoted to information as an object of rights either ignore the fact of its
exclusion from the list of objects or are generally written outdated (at the time of writing the
corresponding work) legislation. So that the last statement does not look like an unfounded
accusation, as an example, see the article by Bozieva Yu.G. in the collection "Successes of
modern science", published in 2017 [1]; in this article, the revision of the Civil Code of more
than a decade ago is analyzed as relevant.

3.2. Information as property

Of course, there are exceptions to the sad situation of inattention to the problem. So, M.A.
Rozhkova, succinctly and essentially describing in the article “Information as an object of civil
rights, or What needs to be changed in civil law” the situation with the presence / absence of
information among objects of civil rights, gives its own answer regarding the ignoring by
researchers of the fact of the lack of information in the list of objects right [5]. In her opinion,
neither information, nor virtual objects in this list are simply needed - all together. Presumably,
they can be placed in a mysterious “other property” that remains in Article 128 of the Civil
Code of the Russian Federation beyond things, cashless money, uncertified securities and
property rights, based on the fact that they all have economic value. We have to talk specifically
about the category of “other property”, since in no other sense the list contained in Art. 128 of
the Civil Code, is not open. Paying tribute to the depth, completeness, over-relevance and
brightness of the works of Marina Alexandrovna (not only the aforementioned work, but also
all the others that I was lucky to familiarize myself with), I have to note that in this case the
opinion expressed seems ill-conceived. The category of “economic value” itself needs to be
clarified and does not have a stable, massively accepted interpretation, which already casts
doubt on the possibility of using this category to determine the relevance of a fragment of reality
to the number of rights objects. One of the most logical and clear definitions is given in the
article by L.D. Revutsky, where economic value is defined as “total savings or satisfaction
received by a person as a result of consumption of goods acquired by him” [4]. The quoted
definition, like most others, is quite consistent with the objects of law. If all fragments of reality
that have economic value are “other property”, then it makes no sense to have all the other types
of objects listed in article 128 of the Civil Code of the Russian Federation. Practically any object
of law can possess economic value.

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Things, non-cash money and uncertified securities certainly have economic value (there may
be exceptions, such as, for example, shares of a bankrupt business company, but exceptions do
not change the essence of the phenomenon under study). The results of work and the provision
of services also have economic value, since without economic value no one would order them
or agree to pay. However, the legislator does not classify work and services as property. The
results of intellectual activity and equivalent means of individualization, even with the
impossibility of turnover being imposed on them by article 129 of the Civil Code of the Russian
Federation, also undoubtedly have economic value. They are not property, nor are works and
services. Moreover, intangible goods can also have such value, which is especially pronounced
in case of violation of rights to them. Thus, the opinion that the information fits into the
established Art. 128 of the Civil Code of the Russian Federation, the system of civil rights
objects seems illogical. The exclusion of information from the text of the named article was
illogical.

4. ABOUT THE TERMS "INFORMATION" AND "DATA"

4.1. Meaning of legal terms
It is impossible not to touch upon another aspect of the problem: when speaking about
information, the legislator and law enforcer do not always imply information as such. This term
may mean “information” or “knowledge”. In Art. 2 of the Federal Law "On Information,
Information Technologies and the Protection of Information", the following definition of
information is given: "Information - information (messages, data) regardless of the form of their
presentation." At first glance, this definition indicates the synonymy of the concepts of
“information” and “messages, data”. However, we can conclude that information is data that is
presented in some form outside. Thus, “data” is a broader concept, since among them one can
distinguish those data that is not presented in any way. Data is the object of civil law relations
in the variants of information (example: know-how) and knowledge. The fact that know-how
is information, although it has special properties, is explicitly stated in the Civil Code of the
Russian Federation. Data relating to the personality of a citizen is also data. They can exist both
in the form of information and in the form of knowledge. The fact that the relevant information
is evasively called “personal data” in the legislation does not change the essence of the
phenomenon: in the modern world, relations arising regarding personal information are
regulated in detail. The civil law component of this regulation is the possibility of claiming
compensation for non-pecuniary damage and compensation for property losses caused by the
disclosure of relevant data.

4.2. Knowledge as data

Knowledge, unlike information, may not have a form available for transfer to third parties.
Knowledge is information that inherently belongs to the subject, and not to any subject, namely
to a person - an individual. Even if a person “shares” knowledge, they will remain with him.
He can lose (forget) them, just as he can lose part of his hair, teeth, arm or any organ, and this
does not completely cancel their inextricable belonging to him. Knowledge as an object of legal
relations is directly mentioned in Art. 1042 of the Civil Code of the Russian Federation: they
can be made as a contribution of a participant in a simple partnership agreement. Knowledge
can act as an object in the contract for the provision of services. Educational service contracts,
for example, stipulate that as a result of training, the student must have knowledge. Online
learning has gained immense popularity in recent years and especially in recent months due to
the massive forced self-isolation of citizens of most countries of the world. And it (online
training) also has as its goal the acquisition of knowledge, while the information in the same
online is in abundance. Having concluded an agreement on the provision of consulting services,
the client expects to receive precisely knowledge. It cannot be legally indifferent.

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Possession of knowledge is a condition for occupying certain positions and a condition for
granting the right to engage in certain types of activities. Even taking into account that this
aspect goes beyond the framework of civil law relations, the connection with such relations is
still obvious. So, in this aspect, there is reason to think about including knowledge in the number
of objects of rights.

5. DO WE NEED TO CHANGE THE LAW AGAIN

5.1. About recent changes
On October 1, 2019, a new article of the Civil Code of the Russian Federation began to operate
- article 783.1, which is called "Features of the contract for the provision of information
services." This means recognition at the legislative level that information can be provided, and
that the provision of information under the contract has significant features that require specific
regulation. Interesting in terms of the problem under study is not only the fact that the legislator
considered it necessary to regulate the features of such an agreement. The same law that
enforces this article - Federal Law dated March 18, 2019 No. 34-ФЗ, also introduces a new
version of Article 128 of the Civil Code of the Russian Federation. And in this new edition,
information as an object of rights is still missing. That is, a literal interpretation of the new law
should lead to the idea that information is not an object, but its provision has legal significance.
This is completely illogical, which means that further changes to the law are needed, without
which the legal environment of business cannot be considered impeccable.

5.2. Information in the legislation of other States

Often the method of comparative jurisprudence helps the adjustment of legislation. If we turn
to the origins of world civil law - Roman private law, we will see that our problem there was
not only solved, it could not have arisen. In ancient Rome, all objects of rights were considered
things, and according to the Roman classification of things we would simply attribute
information, information, knowledge to the number of things invisible. Turning to the
experience of foreign countries also does not bring significant clarity to the solution of the
problem under study. So, the German Civil Code simply does not have an exhaustive list of
objects of rights. A comprehensive analysis of the norms of German civil law leads to the
conclusion that the objects of law are things, rights, the totality of rights and things, intangible
goods and animals [3]. At the same time, it remains unclear what information, knowledge, and
other fragments of reality occupy in this system: whether they relate to rights, to intangible
benefits, or are not included in this system at all. In the legislation of a number of states,
information is expressly referred to as an object of rights. As an example, Art. 177 of the Civil
Code of Ukraine (but keep in mind that the aforementioned article, like most of the norms of
the entire code, is a translation of the old edition of the Civil Code of the Russian Federation).
However, knowledge, information or other similar concepts in the main civil laws of foreign
countries are almost never mentioned.

6. CONSLUSION
Given the specificity and diversity of types of information, the particularity of the circulation
of rights to it, which is of great importance today and is clearly increasing for society, it should
be recognized that within the system of objects of rights, information should have its own,
special place. It cannot be regarded simply as a kind of property, and even more so, it cannot
be “hidden” in the faceless category of “other property”. The list of rights objects must not be
reduced, but expanded. Or, make it non-exhaustive. The last option as a bonus would allow us
not to puzzle over non-standard, including virtual objects, the problem of their belonging to the
number of objects of civil rights. If the openness of the list of objects of civil rights seems too
radical a step, then at least in the closed list, instead of information that was once excluded from

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 55th International Scientific Conference on Economic and Social Development – Baku, 18-19 June, 2020

it, data needs to be entered. Using this very term, because the term "information" is
unreasonably narrow. And before the relevant changes in the legislation occur, business
representatives, as well as other participants in the legal relationship, will have to focus on the
current fragmented regulation of relations arising from information and other data.

LITERATURE:
1. Bozieva Yu.G. (2017) Information as an object of civil law // Successes of modern science.
Kabardino-Balkarian State Agrarian University, 2017, Volume 6, No. 1, p. 61.
2. Lapach V.A. (2002) The system of civil rights. V.A. Lapach St. Petersburg: Legal Center
Press, 2002. - 542 p.
3. Marchuk A.A., Sharikova M.V. (2014) Objects of civil rights in Russia and Germany: a
comparative legal study of general provisions. Bulletin of the Omsk Academy of Law. 2014.
No. 2 (23), p. 44.
4. Revutsky L.D. To the question of the concept of "economic value". Retrieved 25.12.2019
from https://www.audit-it.ru/articles/appraisal/a108/921476.html
5. Rozhkova M.A. Information as an object of civil rights, or What needs to be changed in
civil law. Zakon.ru. 2018 November 6th.

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 55th International Scientific Conference on Economic and Social Development – Baku, 18-19 June, 2020

THE IMPACT OF DIGITAL TRANSFORMATION ON THE

FORMATION OF MANAGEMENT TOOLS USED BY MODERN
COMPANIES

Akmaeva Rayasa
Astrakhan State University, Astrakhan
20a Tatischev Str., 20а, Russia
[email protected]

Abbasovа Sevinj
Associate Professor at
Azerbaijan State Economic University(UNEC), Azerbaijan
[email protected]

ABSTRACT
The studying of global trends should help managers to cope with them and develop new
principles of effective behavior in these conditions to ensure the competitiveness of
organizations. The need in explosive growth of digital instruments used by Russian enterprises,
which is adequate to the Fourth Industrial Revolution, is argued. In the digital age managers
actively change the strategies of their organizations, while accelerating not only the
replacement of business models, but also significantly reducing the horizon for developing
strategies and introducing new organizational forms such as Agile and holacracy. Аccording
to «Bain & Company» the analysis of the evolution of the application of managerial tools by
managers in the world showed both an increase in their attention to consumers (predictive
analytics, analysis of customer behavior) and a growing rejection of bureaucracy and
complexity (using digital technologies, reducing complexity). The top management of modern
organizations must recognize the importance of unleashing the potential of staff in its ambition
to create value for customers and to realize the opportunities for becoming themselves as active
entrepreneurs.
Keywords: 21st century management, digital transformation, new organizational forms,
tendencies

1. INTRODUCTION
The problem of the rapid introduction of digital technologies in the Russian economy is closely
interconnected with the effective development of national management in conditions when
practical managers are forced to solve new and complex managerial tasks, faced with global
trends and challenges of modern reality. Studying and understanding of global factors and
trends occured in the modern world will teach Russian managers how to deal with them and
allow them to develop principles for effective behavior in these conditions to ensure their
competitiveness. The high level of dynamism and uncertainty of the external environment in
the context of the unfolding economic crisis under the influence of the new “black swans”
(coronavirus, economic sanctions and the withdrawal of the Russian Federation from the
agreement with OPEC+) requires Russian managers to quickly make strategic digital decisions
to eliminate the country's technological gap that took place in the Post-Soviet period.
Meanwhile, it should be borne in mind that the main problems in the process of introducing
digital innovations and the growing uncertainty and risks facing Russian leaders are complex
and widespread, and the required changes must occur faster and faster.

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2. PROGRAMS AIMED AT DEVELOPMENT OF «INDUSTRY 4.0»

With the launch of the Industry 4.0 Program in Germany in 2011, which is considered the
starting point for the beginning of the Fourth Industrial Revolution unfolding in the world, many
countries began to actively develop similar digitalization programs for their economies [13]. In
2014 the National Technology Initiative (NTI) was developed in the Russian Federation which
responded to the challenges of Industry 4.0. In the USA the similar program is called the
«Advanced Manufacturing Partnership», in Japan – «Society 5.0», in China – «Made in China
2025». NTI in Russia is a program of measures for forming fundamentally new markets and
creating conditions for global technological leadership of the country by 2035. In the NTI
matrix the 10 key technologies are big data and big data management; artificial Intelligence;
distributed registry systems (blockchain technology, 3D printers, etc.); quantum technologies;
new and portable energy sources; new manufacturing technologies; sensorics and components
of robotics; wireless technology; technologies for managing the properties of biological objects;
neurotechnology and technology of virtual and augmented reality [8]. The role of NTI and the
Digital Economy Program of the Russian Federation is huge in narrowing the technological gap
between Russia and the developed countries of the world. Digital transformation can give us a
new chance in eliminating the lag of our country that took place in the post-Soviet period.
Therefore, the digitalization of the economy has paramount importance for Russian business
and requires explosive growth in the use by Russian enterprises of new digital tools that are
adequate to the Fourth Industrial Revolution: cloud computing, 3D printing, the Internet of
Things, virtual (VR) and augmented reality (AR) tools, Big Data, blockchain and artificial
intelligence technologies, high-performance platforms for storing and processing data (such as
HANA), etc. In connection with the adoption of the Convention on the Legal Status of the
Caspian Sea in August 2018, the number of partner countries will become significantly larger
for the breakthrough in the digital economy. The Russian Federation offers the countries of the
«Caspian Five» to focus on cooperation in the field of digital transformation, to actively
introduce information and communication technologies (ICT) and electronic commerce and to
engage in digitalization of foreign trade operations, cargo transportation and logistics [3]. In
recent years in Azerbaijan both the public and private sectors have taken steps to develop the
ICT−sector and have adopted state programs aimed at the sustainable development of this
sector. Thus, the start of a five-year program of digital transformation of the economy of
Azerbaijan is reported. For the purpose of popularizing digital transformation in the country the
website digitalazerbaijan.az was created. It publishes news and information on recent projects
in the digitalization field [9]. Azerbaijani oil company SOCAR actively supports the state
course of Azerbaijan in digitalization of the economy, attracting the SAP company and business
partners from the CIS-countries to share experiences and exchange views on the use of digital
tools in the oil industry. The IBM company and the Central Bank of Azerbaijan will cooperate
in the implementation of blockchain technologies in the economy of the republic. The X-road
platform was introduced Azerbaijan. It is a decentralized system that defines common interfaces
and protocols for interaction and data exchange in state institutions. Private companies can also
interact with X-Road and use these platforms. It is designed to become an important component
of the infrastructure, providing an increase in a favorable investment climate for foreign
investors, businessmen and partners. Azerbaijan is the first country to ensure the complete
digitalization of all state programs, strategic roadmaps and monitoring processes [7].

3. NEW GLOBAL TENDENCIES AND TRANDS INFLUENCING ON COMPANY

BEHAVIOR
The results of Fortune's 2017 survey of CEOs of 500 largest companies in the world about the
most serious challenges that today's reality poses to them are known. 72% of the directors
named the incredibly accelerated pace of technological modernization as the main trend [11].

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In fact, the world is now undergoing a real digital revolution. The second highlighted trend is
«the borders of industries are blurring» [11]. Here are examples of how digital transformation
processes require rethinking business models and expanding the scope of actions, i.e.
diversification: Apple began selling music and movies as did the Amazon online store, which
began producing an Echo device with Alexa's voice assistant. «Russian Post» becomes a retail
bank, and «Rostelecom» in partnership with SAP provides financial services for money
transfers, turning with other telecommunications companies into universal providers of
business solutions from the cloud [11]. The most important mega-trend is «Data is New Gold»,
according to a survey by Fortune [11]. Systematic collection of data about the needs of their
customers, their analysis, necessary knowledge elicitation for improving the product allows
improving product quality and providing companies with competitive advantages. To keep the
attention of consumers, first of all, it is necessary to deeply understand their needs. The Chinese
company Haier, which produces household appliances, discovered as a result of a survey of
customers what they feared when purchasing air conditioners. It turned out, that people were
afraid to be infected with legionellosis most of all, and the company minimized this risk by
changing the design of the fan blades [5, p. 53]. Let examine other examples of using the Big
Data (BD) tool on the basis of SAP systems at Russian enterprises: at «Bashneft» they are used
to predict the behavior of visitors to gas stations to offer suitable products; at «Severstal» SAP
digital solutions help predict and analyze product quality; «Rostselmash» has introduced a
customer-oriented approach based on SAP solutions to automate the dealer’s workplace in
order to collect, analyze data and know what each of the 30,000 Russian customers wants (in
essence, it has created a unique strategy for a specific client, knowing what the client wants)
[11]. The point-of-sale strategy using Big Data technology is used by the Russian companies
«Metro», «VimpelCom», «Lenta», shoe network «The Alba», «Sorsdata» and «Revo» startups.
Thus, the use of Big Data opens up a new source of growth and opportunities for Russian
organizations due to deep segmentation of the client base, the use of sophisticated analytics
based on mathematical models. Another trend is the widespread adoption by enterprises of the
tools of Internet of Things, or IoT, the technological concept of connected and interacting
devices. So, the digital assistant «Automated Consultant» in the «Sibur» company analyzes data
from sensors, issues recommendations for repair and efficient use of equipment. Foreign
companies «TrenItalia», «Kaeser», «GEA», «Daimler» use SAP analytics to predict equipment
failures and plan repairs, as does «GE», which has equipped its industrial products with sensors
and has received the necessary analytics, has provided customers with the benefit of increasing
the life of jet engines by reducing the time of their repair due to the analysis of data received
from sensors. In real time «GE» controls equipment at industrial objects like that: using
information from the firmware, it informs customers about the need for repairs and adjusts the
maintenance schedule. Consequently, Internet of Things offers great opportunities for the
collection, storage, processing and analysis of data, remote control of devices and «smart»
systems. CEO of the «GE» company, D. Immelt, calls his company «... a digital industrial
company that defines the future of the Internet of things» [6]. «GE» created the Predix platform
for the industrial Internet, making it open to partners, developers, customers, and competitors,
as Microsoft had previously did that with the Windows operating system. The Predix platform
at «GE» is an open ecosystem and can be used by competitors. The Chinese company Haier
has built the Open Partnership Ecosystem (HOPE), which includes 400 thousand participants
in solving the company's problems - organizations and experts from around the world. Each
new Haier product is developed openly and at the same time uses the national social network
«Baidu» to ask potential users about their needs and preferences [5, pp. 52-53]. Another trend
is the changing of approaches to optimize each stage of the value chain. Augmented Reality
(AR) tools play a large role in this, it is a set of technologies that add digital data and images to
the physical world.

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 55th International Scientific Conference on Economic and Social Development – Baku, 18-19 June, 2020

In other words, physical objects are reflected in a digital copy, since AR tools turn data arrays
and analytics into images or animations, superimposing them on the real world. AR increases
the efficiency of smart connected devices (SCD), which allow you to monitor processes and
conditions in real time, control the work remotely [10]. Here are examples: the production of
unmanned cargo KAMAZ-vehicles equipped with machine vision has already been planned for
2025, and intelligent transport systems will control them and other vehicles. «Bosch» has
become a leading developer of intelligent vehicle automation systems. Like Siemens, it offers
its own platform, built on the basis of SAP digital solutions. Thus, because of digital
transformation the approach to doing business is changing, i.e. the business model is changing
due to the integration of disruptive technologies in all aspects of the company’s business
activity, and this is a new major trend in today's reality. Studying and understanding the global
factors and trends observed in the modern world will teach Russian and Azerbaijani managers
how to deal with them and allow them to develop principles for effective behavior in these
conditions to ensure their competitiveness. Under the influence of global challenges and new
development trends, modern organizations radically change the strategies of their organizations
in the digital age, while accelerating not only the replacement of business models, but also
significantly reducing the strategy development horizon from one-year planning cycles to
shorter ones, and enterprise management should actively realize opportunities both for
replacing traditional business models and kindly adopting the new 21st century management
principles and relevant management tools: flexible technology Agile, the introduction of self-
managed teams (Holacracy), customer behavior analysis, participation in digital
transformation, predictive analytics, benchmarking, etc.

4. MANAGEMENT DEVELOPMENT IN THE DIGITAL PERIOD

In our opinion, in the process of evolution any management concept at the end of its active
phase of action does not disappear completely, but mutually penetrates and enriches the
management tools of other concepts at subsequent stages of its development [2, p.14]. Thus,
the idea of a self-managed labor collective, put forward by P. Drucker in the early 50s of the
20th century and completely not accepted at that time by the community of managers, actively
develops in various organizational forms in the 21st century. Of course, in management at each
historical stage of evolutionary development, there are such key management technologies that
most determine the effective solution of management tasks at this stage. The set and content of
these management methods and tools change over time in their importance, role, structure.
Accordingly, in the digital age management methods and tools must also be modified, their
content and conditions of use must be changed. In this regard, it is of interest to analyze the
evolution of the use of managerial tools by managers in the world based on the results of surveys
of several thousand company executives, which have been regularly conducted by Bain &
Company since 1993. The last sixteenth review was conducted in 2017 and it showed
significant shifts in changing the views of top management on many aspects of modern
management [12]. Firstly, 80% of managers «... agreed with the idea that today business leaders
should trust and empower employees, not command and control them». As evidence, there is
the opinion of Pablo Isla, head of the Spanish fast fashion company Inditex (brands Zara,
Bershka, etc.), who for the second year in a row heads the rating of the top 100 «The best CEOs
in the world». He stated: «Motivate people and maintain team spirit - this is the most important
thing in the work of the general director» [14]. Secondly, among the most popular management
tools in the 2017 survey were tools related to customer satisfaction due to their better studying:
«Advanced Analytics» takes the first place, and «Customer Journey Analysis» is in 9th place,
as well as purely digital tools: 13th place of «Digital Transformation», 15th place of «Internet
of Things», and, finally, tools due to the development of new organizational forms of work:
«Agile Management» and «Complexity Reduction», which imply the rejection of the traditional

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 55th International Scientific Conference on Economic and Social Development – Baku, 18-19 June, 2020

hierarchy in the direction of reducing links in the structure management and development of
self-managed teams. The «Agile» tool took 2nd place and the «Complexity Reduction» took
7th place (table 1). More than half of the respondents to the 2017 survey believe that
bureaucracy and an excessive level of hierarchy put them at a competitive disadvantage, which
is why the «Complexity Reduction» tool remains in the top ten. Although the Big Data
Analytics tool, first noted by managers in a 2013 survey, had relatively low using, nevertheless
took the first place in satisfaction, especially high in China and India. «Bain&Company»
employees give good forecasts for the future with the highest projected increase in using of the
«Scenario planning and contingency planning» tool (42%) and the «Complexity Reduction»
tool (40%). The table shows the results of a survey of top managers about the most popular
management tools of the beginning of the 21st century [12]. It should be noted that almost all
the «tools» listed in the table are essentially management methods.

Table 1: Most frequently applied tools of management over 2004-2017, according to Bain &
Company
Ranking # 2004 2006 2008 2010 2013 2017
1 strategic strategic bench- bench-marking balanced advanced analytics
planning planning marking scorecard
(BSc)
2 CRM CRM strategic strategic benchmarking аgile management
planning planning
3 bench-marking segmentation of mission and mission and Big Data analysis balanced scorecard
customers vision vision (BD) (BSc)
declaration declaration
4 outsourcing bench-marking CRM CRM business process benchmarking
reengineering
5 segmentation of core compe- outsourcing outsourcing management business process
customers tencies program change reengineering
6 mission mission and balanced balanced complexity management
and vision vision scorecard scorecard reduction program change
declaration declaration (BSc) (BSc)
7 core outsourcing segmen-tation management core complexity
competencies of customers program competencies reduction
change
8 strategic business business core compe- CRM core competencies
alliances process reen- process reen- tencies
gineering gineering
9 growth strategy knowledge core compe- strategic segmentation of customer journey
tools management tencies alliances customers analysis
10 business process planning based mergers and segmentation of decision-making CRM
reengineering on scenarios acqui-sitions customers methods
and anticipation
of unforeseen
circum-stances
Sourse: [12] The results of the survey were evaluated by the percentage using a particular
tool of the total number of respondents and the effectiveness of this tool for the company

It is important to emphasize that the tools “Agile Management”, “Customer Journey Analysis”
and “Internet of Things” are first included in the review of the most popular tools used by top
managers. Moreover, the «Advanced Analytics» tool, which is in the first place, is the most
frequently used among companies in the Asia-Pacific region. Thirdly, there is a characteristic
feature: the average number of managerial tools used by managers steadily decreased to 7.5

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tools, whereas managers used twice as much 10 years ago. There are also differences in the
approaches of managers from different industries and countries. Thus, the leaders of large
organizations use more tools than small and medium ones, as do top-managers of developed
countries in comparison with managers of developing countries. Fourthly, it turned out that in
all sectors and regions digital tools are the dominant factor which rapidly change the rules of
competition in their sectors. They are already very widely used in organizations. Moreover,
there is a positive correlation between the breadth of tools using and their satisfaction.
Respondents note a high level of satisfaction with the «Digital Transformation» tool, the use of
which has nearly doubled since the last survey in 2013. There is such a characteristic feature of
them: satisfaction with them grows only under the condition of wide, and not limited use of
tools in the organization. Combined with «Advanced Analytics», Internet of Thing, a network
of connected sensors and smart devices for data production, can be a powerful tool to help
control equipment and improve products and services. Analysis of the dynamic of tools, used
by top managers over the years, shows that the three most popular and effective technologies
are such classic ones as benchmarking, BSc and CRM. The «Big Data» tool appeared for the
first time in the 2013 survey and immediately took third place in the ranking of used tools. In
the latest survey of 2017 there were two groups of new tools that appeared due to both
increasing attention to consumers (Advanced Analytics, Customer journey analysis), and to
improving organizational forms of employees (Agile Management) and a growing rejection of
bureaucracy and complexity (Digital Transformation, Complexity Reduction). Consequently,
the use of digital tools also opens up a new source of growth and opportunities for Russian
organizations due to deep segmentation of the client base, using of software applications and
the development of technologies of the Fourth Industrial Revolution. Thus, the presence in the
last two lists of «Bain&Company» such tools as the adaptive management model «Agile», the
Complexity Reduction and Internet of Thing tools, that are characteristic of the ongoing digital
transformation in the world, indicates the onset and development of the digital economy era,
new global challenges to which many Russian enterprises and, above all, their managers, need
to prepare.

5. CONCLUSION
The purpose of this work is to help practical managers due to a scientific review to facilitate the
search and selection of priority digital projects, and for this we should begin with their
acquaintance with digital technologies that have already been successfully implemented in
advanced partner-enterprises, and only then actively proceed with their benchmarking. Agile
technology gradually and very actively penetrates into such areas as marketing, creating new
products, human resources, top-management, when top managers become another agile-team,
as in DE and others. Flexible self-managed teams are focused primarily on innovation, they
actively interact with customers, quickly making ongoing changes to their requirements. Large
world companies, such as Spotify, Netflix, Amazon, USAA, Bosch, Saab, ING, SAP, Tesla,
and others, are very successful in using the agile approach [1]. Sberbank has introduced Agile
not only in IT-departments, but also in the HR-department, which actively uses digital services
to automate HR-processes, online training, mass recruiting by using chat-bots and artificial
intelligence tools. Sberbank has also switched to the new cloud-based SAP Success Factors
platform. With the help of Agile, Sberbank actively uses analytics and build predictive models
of various HR−services [4, pp. 90-93]. Our participation in various online-seminars, webinars
and forums allows us to conclude that certain Agile-elements and attributes (15-minute stand-
ups, customer participation in the acceptance of individual product prototypes, dashboards, etc.)
are already widely and effectively used by many Russian organizations in their daily activities.
Top-management of Russian organizations must recognize that the prerequisite for the
successful implementation of digital innovations is to take into account new trends in the

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development of management, which release the potential of the staff in its desire to create value
for customers and realize opportunities for becoming themselves as active entrepreneurs [5].
But the most important is the task of finding and selecting specific priority digital projects by
practical managers for implementation in their organizations. In addition to the independent
search for information on the Internet, managers should receive similar information about
successful examples of digitalization at enterprises of related industries and sectors of the
economy from the relevant departments of ministries and offices or from specially created
professional organizations such as the Internet of Things Association and other similar
associations. In response to the global challenges and trends of the digital economy,
management of modern enterprises should strive to create companies in the form of ecosystems
opened to partners, investors and even competitors.

LITERATURE:
1. Akmaeva, R.I., Epifanova, N.S., Jukov, V.M. Opportunities of the adaptive model Agile
for management. Journal ASTU, 2017 (№ 1), pp.7-15.
2. Akmaeva, R.I. (2018) Popular Management Studies of the 21st Century. Astrakhan:
Astrakhan State University, Publishing House «Astrakhan University».
3. Convention on the Legal Status of the Caspian Sea. Retrieved 07.03.2020 from
http://www.kremlin.ru/supplement/5328. (выделила желтым дату обращения, измените
ее на ту, когда обращались к ссылке)
4. Fukolova, J. Staff under the number. How Sberbank implements digital HR-methods.
Harvard Business Review Russia, 2018 (August), pp. 90-93.
5. Hamel, G., Zanini, M. The End of Bureaucracy: How a Chinese appliance maker is
reinventing management for the digital age. Harvard Business Review Russia, 2018
(November-December), pp. 47-55.
6. Immelt, J.R. How I remade GE and what I understood in the process. Harvard Business
Review Russia, 2017 (November), pp. 30-40.
7. Information and analytical portal «Digital Report». Retrieved 07.03.2020 from
digital.report›azerbaydzhan…platformu-x-road-v…
8. National Technology Initiative. «Technet». Retrieved 07.03.2020 from
http://www.nti2035.ru/technology/technet.
9. Online-page of the project «Digital Azerbaijan». Retrieved 07.03.2020 from
facebook.com›DigitalAzerbaijan.az/about/
10. Porter, M., Heppelmann, J. Why Every Organization Needs an Augmented Reality Strategy.
Harvard Business Review Russia, 2018 (December), p. 30.
11. Ragimova, S. Ten factors that change everything. Forbes Brand Voice. Retrieved
07.03.2020 from http://www.forbes.ru/brandvoice-photogallery/sap/345705-desyat-fakto
rov-menyayushchih-vsyo
12. Rigby, D. (2013) Management tools. Retrieved 07.03.2020 from http://www.bain.com/
Images/MANAGEMENT_TOOLS_2017_An_Executives_guide.pdf
13. Schwab, K. (2018). Technology of the Fourth Industrial Revolution. Moscow: Eksmo.
14. The most effective heads of companies 2018. Harvard Business Review Russia, 2018
(November), pp. 34-47.

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 55th International Scientific Conference on Economic and Social Development – Baku, 18-19 June, 2020

IMPROVING THE NORMATIVE LEGAL BASE FOR THE

REGULATION OF LABOR RELATIONS

Arabiya Mustafayeva
Researcher at department of the regulation of Economics,
Lecturer at Azerbaijan State University of Economics, Azerbaijan
[email protected]

ABSTRACT
The article analyzes the aspects of the study of the employment contract, as well as reforms to
improve the labor legislation, including notification of the employment contract in the
electronic information system of the employer, including the registration of notices of
employment contract.
Keywords: labor contract, notice of labor contract, electronic information system, E-signature

1. INTRODUCTION
In legal science, labor is studied in three aspects in accordance with a labor contract. Firstly, as
a form of implementation of the constitutional labor law of citizens; secondly, as the basis for
the creation and existence over a certain time of labor legal relations, as a legal fact; thirdly, as
an institution of a special part of labor law, that is, as a system of legal norms governing the
conclusion, amendment and termination of an employment contract. Currently, the labor
contract is the main and leading form of implementation of the labor law of citizens, approved
in the constitution. Since it is a labor agreement that has the ability to fully meet the
requirements of market labor relations based on the hired nature of labor. Today, world
civilization also takes the labor contract as the main form, since here the real principle of
freedom of labor has found its relationship (4.p.122). According to Article 35 of the
Constitution of the Republic of Azerbaijan, everyone has the right to independently choose for
themselves the type of activity, profession, employment, workplace (1.p.13). In legal science,
labor is studied in three aspects in accordance with an employment contract. Firstly, as a form
of implementation of the constitutional labor law of citizens; secondly, as the basis for the
emergence and existence over a certain time of labor legal relations, as a legal fact; thirdly, as
an institution of a special part of labor law, that is, as a system of legal norms governing the
conclusion, amendment and termination of an labor contract. From this point of view, as a result
of reforms carried out in our country in the direction of improving the legislative framework,
significant changes have been made to the content of the labor contract in connection with the
latest amendments to the Labor Code of the Azerbaijan Republic. Even in developed countries,
the electronization of social services is being implemented gradually, taking into account public
opinion. Improving a transparent management system that will ensure public interests and
requirements is also a priority issue in Azerbaijan. The process of electronization of social
services in our country is being carried out every year in an increasingly focused form. With
the help of the experience gained, the services existing in the most relevant areas of the social
environment are electronized and transferred to the use of citizens. As part of the work carried
out in the direction of creating electronic government, digital public relations, the e-signature
is one of the important factors ensuring the circulation of electronic documents. As a means of
a single digital identification, the e-signature is used to electronize paper transactions. E-
signature acts as an intermediary in the replacement of official signed and sealed documents in
a paper form with digital documents having the same legal force. Digital public services not
only serve to ensure a transparent relationship between a civil servant and a citizen. They also
serve for the effectiveness of management principles. The registration in the E-Government
portal of a notice of an employment contract that has led to a recent recovery in the labor sphere

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 55th International Scientific Conference on Economic and Social Development – Baku, 18-19 June, 2020

can be pointed as an illustrative example. Everyone knows that the number of companies,
organizations, large and small public catering facilities created in various fields of activity in
our country is increasing fast. This is the indicator reflecting the development of the country's
economy. However, the facts show that the violation of labor relations in our country is one of
the most common administrative errors. In particular, a serious violation of the labor rights of
employees occurs in private enterprises, where the conclusion of a labor contract is being
avoided. However the labor contract, being the provision of employee – employer relations,
protects the rights of the both parties. Employers avoid paying taxes by not registering labor
contracts. This, in turn, also affects statistics related to unemployment. Due to this, the number
of unemployed people, which sector is developing to what extent, plans aimed at economic
development remain unknown, strategies are based on unreasonable figures. And this creates a
chaotic situation in the country (5). The situation on the ground required the management of
such an increase from a single center and tighten control of this issue. In this regard, the Law
of the Republic of Azerbaijan No. 875-IVQD dated December 27, 2013 “On Amendments to
the Labor Code of the Republic of Azerbaijan” determined the legal justification for creating
an electronic information system for the notification of a labor contract and in accordance with
the amendments made to Article 12 of the Labor Of the Code of the Republic of Azerbaijan,
the inclusion of the notification of a labor contract to the corresponding electronic information
system was assigned to the duties of the employer. According to the first paragraph of Article
49 of the Labor Code of the Azerbaijan Republic, According to the first paragraph of the Article
49 of the Labor Code of the Republic of Azerbaijan, the conclusion of an employment contract,
the introduction of amendments to it or its termination takes effect after the registration of such
a change in the information system where the notice of a labor contract was made, and after the
relevant electronic notification is sent to the employer (2). After such changes, all employers,
regardless of the legal form and type of ownership, must enter the notification of a labor contract
in the electronic information system in connection with the conclusion of the contract,
amending it, or terminating it. The sending of an electronic notification of registration in the
electronic information system of the entered notice of a labor contract through the system to an
employer is being provided during a period not exceeding one business day (6). The Cabinet of
Ministers Decree No. 183 dated June 6, 2014 approved “The form of notification of a labor
contract and the procedure for making the notification in the electronic information system, the
form of information about the registration of notification of a labor contract sent to the
employer, as well as the Procedures for real-time acquisition of information related to the
registered notification of a labor contract ”(3). After the changes made to the Labor Code, labor
relations are being created not since the time of concluding the labor contract, but since the time
of registration of the notification of the labor contract entered into the electronic information
system and sending the corresponding electronic notification to an employer (6).

2. RESEARCH
Starting July 1, 2014, the portal “E-Government” (www.e-gov.az) hosted the services of the
Ministry of Social Protection of Labor and Population “Registration of notifications of labor
contracts and sending the corresponding electronic notification to the employer”, as well as
“Receiving the information about notifications of labor contracts by employees”. Introduction
of the information on labor contracts concluded with employees by authorized persons of the
organization and upon that the acquisition of such information by employees by means of the
mobile electronic signature “ASAN imza” is already possible (5). Notification of a labor
contract is a new concept in the law. Notification of a labor contract is an electronic document
entered into the electronic information system by the employer for the purpose of electronic
registration in the electronic information system of the Ministry of Social Protection of Labor
and Population (hereinafter referred to as “the electronic information system”) of information

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on the conclusion of a labor contract, amending or terminating labor contract, except for
exceptional cases (7). The form of notification of a labor contract, the procedure for entering it
into the electronic information system, the form of information sent to the employer in
connection with the registration of the notification of a labor contract, as well as the procedures
for acquiring the information about registered notifications of labor contracts in real time are
being determined by the Cabinet of Ministers. According to clauses 3.1, 3.2 and 3.4 of the
corresponding Procedures of the Cabinet of Ministers, the notification of a labor contract is
being entered into the electronic information system through the “Electronic Government”
portal (3.p.2). With the exception of labor contracts concluded between employers and
employees accepted for relevant positions (occupations) in state bodies, provided for in
paragraph 2-1 of Article 7 of the Labor Code of the Azerbaijan Republic, employment contracts
concluded between employers and employees for other positions (occupations), amending or
terminating such contracts is the entry of such information into the electronic information
system by the respective employers in the form of notification of a labor contract (2).
Notification of a labor contract through the use of authentication tools that allow to log in using
an enhanced electronic signature in the “Electronic Government” portal is being done directly
by the employer or by persons authorized by the employer through the “Authorized Person
Registration” service located on the “Electronic Government” portal. In accordance with article
3 of the Labor Code, in order to electronically register the conclusion of an employment
contract, amendment or termination of it in the electronic information system of the relevant
executive body, the employer must enter an electronic document, that is, a notification of a
labor contract in such electronic information system (EIS). And this requires the presence of an
enhanced e-signature of the employer or their authorized persons (2). It is the e-signature that
ensures the preservation of the identical legal force of the a labor contract that the employer
signed with the employee and certified with the seal while entering the contract into the system.
The system contains a legally approved labor contract approved by the employer. A labor
contract entered to the system is approved by the employer and have a legal force. Notification
of a labor contract entered into the system by E-signature, as well as in paper form, protects the
interests of both parties and prevents their avoidance of liability (5). The amendments to the
Labor Code are aimed at ensuring the protection of the labor rights of the employed population
and the prevention of illegal labor activity, elimination of problems associated with the
omission of employer-employee relations and the organization of remuneration. All employers,
as well as employees, will be able to acquire information about the contracts they have signed
through the notification of labor contracts from the electronic information system of the
Ministry of Social Protection of Labor and Population. Thus, both parties will be responsible
for the obligations that they assumed under the labor contract. Notifications of labor contracts
provide employees with protection of their labor rights, create opportunities for them to claim
their own rights from employers. This document is also an additional form of ensuring the
protection of the rights of an employer provided for in a labor legislation: an employer can
provide the specific conditions agreed upon in a labor contract in a transparent form. It was
noted that as the result of the introduction of an electronic information system by the Ministry
of Social Protection of Labor and Population with the aim of registering notification of labor
contracts, the process of provision of certificates of workplace or wages by citizens in
connection with certain issues was greatly simplified. In case of a request by an organization
for an information about his salary from a citizen, the citizen will print out the notification of
the labor contract concluded with him and available in the electronic information system and
provide it to that organization. The citizen will also be able to send this form of notification to
the email of the organization that requested such a notification from him.

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3. CONCLUSION
The launch of the electronic information system being primarily an important step towards
ensuring labor standards, will put an end to such situations as the formalization of labor
relations, that is, failure to provide the employee with one copy of the concluded labor contract
and the availability of such a copy only for the employer. Thus, the electronic information
system will act as an important source of information on protecting the labor rights of workers
and at the same time the rights of future social security. As a result, working citizens will not
be required to provide an information about their jobs, salaries, etc., obtaining this kind of
information will be possible through the electronic information system. In particular, this
system will have a positive impact on non-violation of employees' labor rights, as well as
simplifying the analysis of developing and lagging areas of activity, increasing the quality of
work on the regulation of economic development by strengthening control over the employer-
employee relations, and indirectly, increasing social welfare. The introduction of notifications
of labor contracts in the electronic information system will contribute to a significant
strengthening of the state control over labor legislation, more reliable protection of labor rights
of workers. Previously, there were such cases when, in spite of the presence of a labor contract
concluded between the parties, the employee was not provided with one copy of it, the labor
contract was kept by the employer. And this fact contributed to the deprivation of the legal basis
for protecting their own rights in the situation they needed. However, after this, any employee
or employer will be able to receive information about labor contracts concluded with them from
the electronic information system. Registered notifications of labor contracts, being primarily
a form of ensuring the protection of labor rights for employees, as well as other rights arising
from such rights, including a form of ensuring the protection of social security rights, provides
the basis for requiring the employer to exercise the rights indicated in that contract. Cases of
employers avoiding responsibility for ensuring work rights will be prevented. The state control
will be carried out by the auditor conducting the audit, who will already have in advance many
data about the employer and employee. As a result, employers will be forced to approach more
serious and comply with the requirements of the law; the protection of the labor rights of
workers will be carried out in a better form. In the course of exercising state control over labor
legislation in any enterprise, the legal or illegal labor activities of employees will be promptly
clarified depending on the availability of a labor contract notification related to them in the
information database. The growth dynamics in the field of registration of labor relations
between the employer and the employee will ultimately contribute to an increase in budget
revenues for social insurance contributions and tax contributions. And this will create
conditions for providing working citizens with a decent pension in the future (7).

LITERATURE:
1. The Constitution of Azerbaijan Republic. Baku, Ganun, 2017
2. The Labor Code of Azerbaijan Republic. Baku, 2018
3. The Cabinet of Ministers of Azerbaijan Republic Decree No 183 dated June 6, 2014.
4. A. Gasimov. Zahid Jafarov. The Labor Law and Labor Code in Schemes and Tables.
Tutorial. Baku - Ganun, 2015
5. www.e-gov.az/ Electronic Government portal
6. www.bhm.aznews/BLC- Baku Law Center
7. www.mlspp.qov.az/ The official internet information resource of the Ministry of Social
Protection of Labor and Population of Azerbaijan Republic

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 55th International Scientific Conference on Economic and Social Development – Baku, 18-19 June, 2020

THE USE OF TOURISM SLOGANS AND LOGOS IN THE CASE OF

EUROPEAN CAPITALS – A POSSIBLE CLASSIFICATION

Arpad Papp-Vary
Budapest Metropolitan University, Hungary
[email protected]

David Wolf
Budapest Metropolitan University, Hungary

Mate Farkas
One on One Communications, Hungary
[email protected]

Szabolcs Szolnoki
University of Pécs, Earth Sciences Doctoral School, Hungary
[email protected]

ABSTRACT
The present study attempts to categorize and analyze the tourism logos and slogans of
European capitals, thus providing a comprehensive view of the role of logos and slogans in
European city branding efforts. During our research we examined a total of 52 capitals of
countries related to the European continent. We analyzed their own media platforms used in
tourism communication to find out how much the application of a consciously and centrally
used English language tourism slogan or logo can be identified. Our examination showed that
logos and slogans (both being popular city branding elements in Europe) are used in an almost
equal number of countries during their marketing processes (capitals with logos: 37; capitals
with slogans: 36). The lack of both (that is, not having a logo or a slogan) could be experienced
in one fifth of the capitals (10 capitals). Having examined the dominant colours in the 37
tourism logos of capitals, we found out that the most dominant colours were red (27%),
followed by blue and black (both 22-22%). However, an equal number of capitals are colourful
in the sense that their logos consist of at least 3 colours (22%). In the case of slogans (36
pieces), ones with an emotional effect (25%) are in the first position. It is followed by calls to
action (22%). Slogans that display some positioning in geography/value or highlight the
attraction of the specific capital occurred in 17-17% each. In addition, we also found other
slogans (19% of the cases) that could not be listed in any of the categories mentioned above.
The results may provide important guidance for capitals that have not developed their brand
with a conscious choice of slogan or logo, and the novel approach to the topic may designate
directions of research for academics.
Keywords: destination branding, city branding, tourism logo, tourism slogan, European
capitals

1. INTRODUCTION
Slogans and logos are the two most tangible elements in destination branding. Both are really
good if they capture the character and story of the place, distinguish it from its competitors,
and especially if they inspire tourists to learn more about the destination and travel to that
specific place. Capitals have usually been considered the gems of their countries in the course
of history. The word ”capital” originates from the Latin word ”caput”, that is ”head”, and they
were hence regarded not only as the economic, governmental and cultural centre of the country,
but also its flagship in tourism.

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Therefore it is very important and exciting to examine what tourism slogans and logos the
capitals use, because they usually affect the complete tourism of their country. The present
study narrows down this analysis to the capitals of Europe, providing a more complete picture
of the role of logos and slogans within European city branding efforts. The article first discusses
the general attributes of good slogans and good logos and their special role in cities and places,
that is destination branding. It then goes on to present the methodology. We start the
presentation of the results by providing a general overview of the use of slogans and logos in
terms of European capitals. Then we perform a more in-depth analysis of each logo and slogan,
identify their noticeable characteristics, and present possible classifications. The conclusion
summarises the most significant findings and their possible uses, and shows further possible
research results. The appendix includes slogans and logos of capitals from which the sample
was drawn.

2. THEORETICAL OVERVIEW
2.1. The role of slogans – with an outlook on cities
If we are looking for the origin of the word ’slogan’, we must travel back to Gaul in time and
space. Gallic people used the word ’sluagh-ghairm’ as a battle cry (HEALEY, 2009). This was
the thing soldiers lined up behind, and as soon as they heard it, they knew they had to give their
life and blood for victory, their common goal. Although we do not use the word as a battle cry
anymore, we can be sure that ”slogans are an extremely effective tool for the development of
brand equity.” – as KOTLER, ”the Pope of Marketing” and KELLER, one of the most famous
experts of branding wrote in their book ”Marketing Management” (2006, 378). They also
highlight that “the role of the slogan is to provide a reference point or clue to customers in
order make them understand what’s behind the brand, and what makes it special” (KOTLER–
KELLER, 2006, 378–379). It is also worth quoting Ildikó SÁRKÖZY (2009), who says that a
slogan is a sentence that includes the textual message of a brand. In the case of a good slogan,
the unique selling proposition is expressed. The slogan is an essential part of brand
communications – its basis and climax the same time. According to ROSENGREN and DAHLÉN
(2006) a slogan may also play an important role in creating the prestige of a brand. The authors
say while a logo is a less human, visual, graphical element that primarily grabs people’s
attention instead of making them think, a slogan is considered a rather human interaction as it
usually communicates its values through everyday language. Therefore the importance of
slogans or mottos is indisputable. However though, it is not easy to define what makes a good
slogan. PAPP-VÁRY also summarized the aspects of a good slogan in his book “The power of
brand names” (2013):
• it ’grabs’ positioning;
• it has a clear message and communicates the ’story’ of the product (in this case, the story
of the capital);
• it is attractive and includes ’consumer and customer’ advantage;
• it carries a positive connotation (or at least it is not negative);
• it is inspiring: it urges us to buy the product, or get more information about it;
• it is relatively short (not longer than 5 words);
• it differentiates: it is unique, original, and different from competitors;
• it can be used and sustained on a long term, and you do not have to replace it;
• it is easy to memorize and repeat;
• it harmonizes with the logo;
• it is catchy and witty;
• clients – and colleagues – like it. (In the case of a capital, potential tourists, locals and
citizens like it).

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In spite of their importance, there are actually only a few slogans that we can recall. (Although
almost everyone knows the slogan of Nike, only a few people know the slogan of Adidas). As
we can see, finding the appropriate slogan poses a challenge even for the biggest companies.
This does not mean that a good slogan would not be greatly useful, but its influence should not
be overestimated, either. The central motto might not be a magic bullet, but it plays an
extremely useful role in brand building: a good slogan may generate sales, but a less elaborated
message may undermine sales efforts. In the case of cities, tourism slogans have a similar
effect. They can increase the attractiveness of the city, but can also hold back city brand
building with a boring cliché or inappropriate slogan. As PIKE (2007) points out, in the case of
most destinations the slogan is an indispensable, public articulation of the brand strategy of
that specific place. It can also be seen that cities have less room for manoeuvre in the case of
slogans than in the case of logos, because they have to use a specific code system, the language.
As these are tourism slogans, this language is English in the first place, but it is good if the
slogan also makes sense in other languages. This is one of the reasons why it is a challenge to
write the tourism slogan of a capital in way that makes it effective, memorable, unique, also
addressing all potentially interested parties at the same time. The result is therefore often a less
unique slogan that offers a rather safe solution, which is less effective in attracting tourists.

2.2. The role of logos – with an outlook on cities

The best brands do not only use good slogans, but they also have good logos and – in a broader
sense – good visual identity. WALLY OLINS, prestigious British branding expert, the author of
the book On B®and (2004) goes as far as to state that logos are the heart of branding programs.
Others quote Confucius: ”A picture is worth a thousand words” – referring to the key role of
logos that is even greater than that of slogans in their opinion. PARK et al. (2013) also think that
the logo is a key element of brand identity, because logos represent the essence of a brand in a
visual sense; besides, they can be focal points of the relationship with customers, as they
communicate the core values of the brand, and raise brand awareness. They state that you
should definitely invest in the design of a good logo, because logos that are not able to convey
the symbolic and functional advantages of the brand and do not provide aesthetic satisfaction
are unable to fully unleash the potential of the brand. According to MASTEN (1988), when
people consider that a logo is of high visual quality, they suppose that the product represented
by the brand is also of high quality. At the same time, it is worthwhile to take a look at the
origin of the term ’logo’. The expression comes from the Greek word ’logos’, whose original
meaning is ’word’. This suggests that the role of logos is no different than displaying the name
in a visual way (HEALEY 2009: 90.) However, this can have various forms: the most common
example is when the brand name is also accompanied by some visual symbol (for example, the
Red Bull inscription with the characteristic red bull), but there are also cases when only the
brand name appears with a more unique font (for example, Cosmopolitan magazine).
Surprisingly, there are also examples when it is unnecessary to display the brand name, but it
is a very rare situation. Apple, Shell or the Red Cross can use its symbol by itself because in
English-speaking countries people say apple, shell, and red cross if they see the sign of an apple,
a shell, or a red cross. However, it is important to emphasize once again that the role of a logo
is to support the appearance of the brand name as much as possible. But what is a good logo
like? According to graphic designer PAUL RAND (quoted by HEALEY 2009: 90.): ”An ideal logo
is simple, elegant, versatile, practical and unforgettable”. However, this definition is not
specific enough, and provides little help in planning a logo. According to COHEN and
VARTORELLA (quoted by HEM and IVERSEN 2004) a good logo has 3 distinctive features:
1) It is recognisable
2) It has an acceptable uniform meaning for its target market
3) It has a positive effect

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If we had to provide a broader checklist with a series of questions about good logos, it would
include the following (PAPP-VÁRY 2013):
• Does the logo communicate the brand, its positioning and values? (For example, if the brand
is for women, does it use a slim, feminine font? If it is for men, does it use a thicker font?
Do its colours support the message? For example, in a somewhat simplified manner, white
colour can be associated with cleanness, black with luxury, blue colour may suggest
leadership, violet may be connected with royalty, and green may create environmentally
friendly associations.)
• Is it simple? Are you sure it does not include too many elements? (It is no coincidence that
if we consider the logo history of great brands, they have become simpler over time.)
• Does it work on black and white surfaces as well? (Although the number of black and white
press products is decreasing, it is still worth considering a black and white version of the
logo. For example, our colleagues may need to print corporate materials in black and white.)
• Does it work in small sizes? (Can it be noticed if it is scaled down to a really small size?)
• Can the brand be clearly noticed? Is its name readable? (We should not think that we are
Apple or Shell.)
• Can it be used horizontally and vertically as well? (It is usually more useful to create a logo
that is horizontally wide in a 2:1 ratio approximately. This is because many surfaces possess
this ratio, e.g. billboards, business cards, e-mail signatures, or the façades of buildings,
therefore a logo like this can be placed on them more easily. However, it is also true that
the screen of mobile phones uses a reversed ratio.)
• Can the logo be extended to offline and online identity elements? (After all, a logo is just
the basis of visual identity. We need to check if it works on envelopes, writing papers,
invitations, advertising materials, e-mail signatures, the website, online campaigns,
presentation materials, etc.)
• Are we sure it can not be confused with the logos of other (competitor) brands? (The essence
of branding is differentiation. It is no wonder that Pepsi is using more of the blue colour
than before, distinguishing itself from the redness of Coca-Cola.)
• Does it grab attention? (The violet-orange combination used by Fedex delivery services can
be noticed from a distance. Bookline online book shops did not only choose neon green
because it was different from the competition, but it was also different from the
communications of all other online companies – let us remember that we do not only
compete with our direct commercial rivals as we are trying to attract attention, but with
everyone else in a broader sense.)
• Can it be applied on merchandising items and ’gadgets’? (As a graphic designer
acquaintance of the authors pointed out some time ago, one of the basic questions regarding
logos is: ”Would we wear a T-shirt like that?”
• Does it work in the digital world? Is it trendy? Can it be shared? (To continue with the
example above: ”Would we wear a T-shirt like that and would we post it in the social
media?”)

The creation of company logos is not at all an easy process, but city logos – in spite of the
similarity of the process – must comply with a lot of further requirements. First of all, as HEM
and IVERSEN (2004) point out, destination logos must be in accordance with the identity, unique
characteristics, values, essence and aims of the region they represent. Looking at the side of
customers and consumers, cities must show travellers a symbol right in the logo also helps their
distinction from competitors using their unique characteristics – even globally if applicable.
According to MARTI (2008), MORGAN et al. (2011) a logo must be capable of presenting the
aims of the organization within the market in a memorable and easily identifiable way – if
possible, also including its name.

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In this context, PITTARD, EWING and JEVONS (2007) point out that logos are able to bridge
international borders in the course of visual communication. HENDERSON et al. also share the
viewpoint that ”logos are the most common element of the marketing mix to be used in an
unaltered form when going abroad” (2003: 298). Thus similarities are clear, but HANKINSON
(2007) also highlights that destination branding differs from corporate branding in several
respects due to the diversity of local characteristics. According to BUHALIS (2000), one of the
most important aspects is that each destination (be it a city, a region, or a country) has several
highly influential stakeholders similarly to companies. Of course the creation of a good visual
identity is essential in both cases: strong logos increase the appreciation of the cities they
promote, but, at the same time, a less careful choice of logo may affect the reputation of the
city negatively, the same way as in the case of companies. Therefore it is imperative to design
a good city logo, although it is a rather difficult task. Its difficulty, inter alia, comes from the
fact that most countries already have a ”logo”, that is, their coat of arms. However, it usually
does not comply with the requirements mentioned above, and, especially, it is not suitable to
attract tourists. In such situations, the solution is usually the use of the traditional coat of arms
in certain official documents, and the use of the ’marketing logo’ in all other materials reaching
the public. The situation is further complicated by the fact that several countries also use a
variety of logos serving various purposes, for example:
• the logo used to attract tourists
• the logo used to stimulate investment
• the logo(s) used to promote the sales of local products
• logos of local non-municipal organisations
• the coat(s) of arms and logo(s) of the local football team, the national team or other
important sports organizations
• logos of local companies (e.g. public transport)
• logos created for special events and programmes
• and so on.

If these elements are not corelated in some way, the result may be a gigantic cavalcade of logos,
resulting in considerable difficulties in uniform city communication. We must also emphasize
that (however strange it may seem) it is always better to have one good logo that can be used
on the long run than a series of brilliant logos replaced each year. The reason is simple: in the
latter case there is not enough time to ’familiarize’ the target audience with individual logos.
If we examine the logos used by cities, the thing they inevitably have in common is tactfulness.
Cities usually do not experiment with provocative or divisive logos. The stance is usually a
peaceful, cultured, politically correct and clean creative solution. It is rare to even see one with
a more decorative, spectacular and colourful design.

3. METHODOLOGY
The survey was based on an analysis of the slogans and logos of 52 European countries. The
choice fell on the whole European continent first because it provides a sufficient sample size,
and secondly because we live here, this is our international community, therefore its relevance
was given. It should be noted that in the case of some countries and their capitals it was not at
all easy to define if the capital can be considered a European capital and has a place in the
sample. In order to make the examination as extensive as possible, We interpreted the concept
of Europe as broadly as possible. Therefore the survey also covered capitals of countries whose
capitals are in Asia in a geographical sense, but the country itself is often considered as a part
of Europe – these include Turkey, Armenia and Azerbaijan. However though, Kazakhstan was
not included, because its capital, Nur-Sultan (formerly known as Astana) is in the middle of
Asia.

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In accordance with the aims of the research, we examined all of the capitals’ internet platforms
with several users worldwide and especially in Europe, providing an effective advertising or
informative platform for the capitals. These include the capitals’ official and tourism websites,
Twitter profiles, Facebook/Instagram pages and the intermediary platforms Tripadvisor and
Visitacity. Based on the official website of each capital it soon became clear how elaborate the
brand identity of that capital was. If the duo of the logo and the slogan was not communicated
on the main page immediately, these elements usually could not be found elsewhere afterwards.
We could see surprisingly little activity on the social pages of capitals, and it was often not
clear which of them were edited by the local municipality or tourism office (thus providing a
communication channel for the capital) besides the several fan-made sites. We hoped that –
similarly to companies – it will be impossible to miss the slogan and logo of the brand.
However though, we experienced that only one fourth of capitals featured their logo in a central
position of their social page, and only one tenth of them included their slogan in a central
position. As a bit of a surprise, the capital with the most consistent communication of
appropriate contents on its social platforms is no other than Vatican City, where they even have
capacity to build the personal brand of Pope Francis. The capitals have a rather average
presence on Tripadvisor and similar intermediary sites. The pages of the cities on these sites
do not feature a unique message or advertisement, although this is more of a missed opportunity
on the side of the intermediary sites. In order to make the survey appropriately focused, our
aim regarding the present study was to examine the following aspects:
• what percentage of capitals use a logo or slogan clearly defined for the attraction of tourists,
• in the case of logos, what colours are dominant and what the capitals wish to represent
through them,
• how can we categorize slogans – what are the ideas capitals wish to use to convince tourists.

4. RESULTS OF THE SURVEY

4.1. The capitals’ use of slogans and logos
Based on the survey, four groups could be created.
1) Capitals with tourism logos:
37 out of 52, that is, 71% of capitals have a tourism logo. At the beginning of the research
we assumed that only few of the smaller European countries or mini-states have some
”living” branding tool, but this was not true in the field of logos. We may consider it a
subgroup that 6 cities out of 37 only have a logo, but do not have a slogan these are: Bern,
Helsinki, Lisboa, Madrid, Oslo and Tallinn.

2) Capitals with tourism slogans:

36 out of 52, that is, 69% of capitals have a tourism slogan. It is interesting that 5 cities out
of the 36, namely Yerevan, Chisinau, Sofia, Tirana and Vaduz only have a slogan, but do
not have a logo.

3) Capitals with tourism logos and slogans as well:

31 out of 52, that is, 60% of capitals have a tourism logo and a tourism slogan as well. The
fact that more than half of European capitals use both major tools to brand themselves is
indicative of their up-to-dateness even if there are significant differences between the area,
population and economic stability of the countries belonging to this group. It is not hard to
’sell’ Rome, Vatican City or Paris, but the examination shows that brand building is also
considered important in the case of Skopje, Tbilisi or Gibraltar.

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4) Capitals without tourism logos and slogans:

10 out of 52, that is, 19% of capitals do not have a tourism logo and a tourism slogan either
– they do not use such tools for the branding of the city. Nevertheless, there might be
differences in the reason why the countries in this group decided not to use them:
• For example, Moscow and London are two huge centres of tourism with a lot of images
and ideas associated with them all over the world. (London: Big Ben, Double Decker,
London Underground, London Eye, London Bridge etc.; Moscow: Kreml, Red Square,
Lenin's Mausoleum, Cathedral of Vasily the Blessed etc.) It is possible that the two
cities think that these sights speak for themselves, and do not want to connect their
slogan or logo to a single element out of dozens of sights.

However, the reason may be different in the case of the other capitals. The capitals of certain
countries are understandably too small to launch a unique, independent branding process
targeting the whole world – in such cases, they prefer to brand the country itself. In the case of
Ukraine or Belarus it is possible that tourism branding and selecting a slogan and a logo are
not priorities as a result of the current economic and political situation.

4.2. A classification of the capital’s tourism logos based on the dominant colour
We classified the logos on the basis of their colours to get closer to the emotions and values
represented by them (ones that they are likely to wish to communicate). As the colours used by
the brands are key elements, it can be assumed that the choice of colours is a conscious step in
the case of each logo.

4.2.1. City logos with red as the main colour (10 out of 37)
We may associate red colour with strong, stimulating feelings such as excitement,
adventurousness and passion. In terms of products/services, red logos usually appear in
entertainment industry, food industry or the fashion world (for example, YouTube, Netflix,
RedBull, McDonald’s, H&M, Levi’s, LEGO). This category includes capitals using logos in
red or some shade of it.

Figure following on the next page

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Figure 1: Logos with red as the main colour

4.2.2. City logos with blue as the main colour (8 out of 37)
Blue colour can be connected to competence because we may associate it with intelligence,
communications, effectiveness, sense of duty and logic, therefore we can often see it in the
financial sector, telecommunications or electronics industry companies (Labrecque – Milne
2011). The following brands use blue as the dominant colour: Facebook, Twitter, Skype,
PayPal, HP, Dell, Samsung, CitiBank. In the case of cities, this colour may also create an
impression of reliability, safety and competence. It is especially interesting that there are two
examples when the word ’love’ is written in blue.

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Figure 2: Logos with blue as the main colour

4.2.3. City logos that combine blue and red (2 out of 37)
No matter how different the previous two categories are, there are capitals which use both
colours at the same time. What is interesting is that all logos in this category feature a city name
in blue with some additional brand element or graphics in red. Zagreb’s logo is adjusted to the
colours of the Croatian national flag, but Budapest’s logo does not include such an element. It
is as if they want to communicate something like the city preserves its competence and
reliability (associations of blue colour), but it can be entertaining, energetic, passionate or
adventurous if it needs to in order to please its guests longing for excitement.

Figure 3: Logos with a combination of blue and red

4.2.4. City logos with at least three colours (8 out of 37)

While single-colour logos are more focused and more serious, multi-colour logos suggest that
the brand is more informal, open and creative. We may often see them in the case of children’s
toys and sweets, but even in the case of online companies such as Skittles, Toys R Us, Google,
Microsoft or Instagram. Not surprisingly, multi-colour logos are also used by cities who
probably try to demonstrate their diversity.

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Figure 4: Logos including at least 3 colours

4.2.5. City logos with black as the main colour (8 out of 37)
Black colour is most often associated with force, power or professionalism. It appears in a
variety of industries from sports clothes to luxury, tech and fashion industry. It is a less unique,
but safe choice. It can be very simple and clean - little wonder, then, that it is a popular choice
among Scandinavian countries.

Figure following on the next page

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Figure 5: Logos with black as the dominant colour

4.2.6. Other city logos that could not be classified (1 out of 37)
In one case we could not list the city logo in any of the groups mentioned above. The special
example is Vatican City who actually use their coat of arms, not a logo.

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4.3. A classification of the capitals’ slogans

It is worth starting the analysis of the 36 tourism slogans by examining what the words
appearing in the greatest number of slogans are. The two words leading this ’competition’ are
”City” and ”Culture”. First it is worth considering whether the slogan should include the word
’city’ in the case of a city. This is because there is one thing that we (almost) probably know
about it: it is a city. Is it a reason why the word ’city’ need not necessarily be included in the
slogan? Or is it a reason for including it? Both reasonings have their own logic. We can also
add that in the case of many European capitals it is not even clear whether potential tourists
know them or have heard about them, therefore the word ’city’ may be necessary. The word
„culture” is the other most popular expression. Of course all places are proud of their culture,
therefore it is understandable that they try to advertise themselves by this. Special mention
should be made of ’different’, another quite popular word, which is used to demonstrate that a
city is unlike the others. What is interesting is that these capitals made a conscious decision
(and spent money) to equip themselves with a slogan that positions them within the tourism
market. However though, most of them tend to use identical, almost clichéd expressions that
any of the other capitals could also proclaim about themselves, and the whole process loses its
original value. Anyway, the following groups can be distinguished according to their meaning:

4.3.1. Slogans with an emotional impact (9 out of 36, 25%)

Love, that is, the promise of a strong emotional experience is the most frequently used motif
in the slogans of European capitals, also addressing tourists. However, this promise is the least
suitable for distinction among all alternatives – which capital would say that it does not love
its tourists?

Name of capital Slogan (English original)

Brussels BXL Moves For You
Paris City of Love
Prague Prague:emotion
Reykjavík Reykjavik Loves Visitors
Skopje Feel Love, Feel Skopje
Tbilisi The City That Loves You
Warsaw Fall in Love With Warsaw
Yerevan Feel the warmness
Zagreb Full of experiences
Table 1: Slogans with an emotional impact

4.3.2. Positioning based on space or value (8 out of 36, 22%)

The second most popular trend is to place the city some in space within the slogan, based on
its real, geographical or represented values. This approach can provide a much easier
distinction, because the city refers to itself as the centre of something, that is, it positions itself.
As of summer 2019, Valletta’s tourism website still consciously features that it is the European
Capital of Culture, although it actually possessed the title in 2018. The most interesting solution
in this category is undoubtedly that of Vilnius, whose slogan is ’The G-spot of Europe’. The
basics of the campaign were developed for a school project by Jurgis Ramanauskas and his
fellow students. Two years later the picture came to light and soon started to spread
domestically in a viral way. Soon after this Go Vilnius, the capital’s official development office
invited the students to think together about the implementation of the g-spot idea. The final
result was a rather daring advertising campaign which was reported all over the world in
tourism and marketing communications magazines.

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Name of capital Slogan (English original)

Andorra la Vella Capital dels Pireneus
Berlin The city of freedom
Budapest Spice of Europe
Nicosia The brightest capital of Europe
Stockholm The capital of Scandinavia
Vaduz Centre of Culture
Valletta European Capital of Culture
Vilnius The G-spot of Europe
Table 2: Positioning slogans based on space or value

4.3.3. Call to action slogans (6 out of 36, 17%)

Call to action slogans hit a more direct, more informal tone in order to distinguish themselves.
Be it a visit or experiencing local life in some form, these slogans do call to action. The call in
question may be more abstract, or an urge to some concrete action.

Name of capital Slogan (English original)

Belgrade #gobelgrade
Chisinau Discover The Routes of Life
Luxembourg Let’s Make It Happen!
Minsk Think Minsk!
Riga Live Riga!
Vienna Now! Forever.
Table 3: Call to action slogans

4.3.4. Emphasizing its own attractive characteristic or beauty (6 out of 36, 17%)
Although slogans focusing on the charm or beautiful nature of the city clearly communicate a
specific value that they aim to represent, the same the same occurs in relation to them as in the
case of slogans focusing or love. Would anyone say that their city is ugly? Not likely. With all
that in mind, this is not a very strong positioning tool, because each city would obviously list
itself among beautiful cities. Rome’s case is somewhat outstanding among these slogans,
because it did not want to invent some new catchy thing, and uses the widely popular slogan
”The Eternal City”.

Name of capital Slogan (English original)

Bratislava The city where you find real life
Copenhagen Wonderful Copenhagen
Monaco Wild Beauty
Rome The Eternal City
Sarajevo A city of thousand tales
Sofia Grows, But Does Not Age.
Table 4: Slogans emphasizing the attractive characteristic or beauty of the city

4.3.5. Other slogans that could not be categorized (7 out of 36, 19%)
There are other slogans that cannot be put in any of the abovementioned categories, but they
are also different from each other. In a sense, Amsterdam’s slogan goes beyond the slogans of
all capitals. It is a message packed in a simple word game, but it is also a deep message
encouraging identification which (instead of the simple call to action ’visit us’) promises that
the tourist simply becomes one with the city of Amsterdam (Iamsterdam).

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This is not just a friendly inviting message, but it also helps to dispel the feeling that visiting
tourists are only outsiders, observers, static parts of the city. Athens’ slogan (”This is Athens!”)
is quite clichéd; it is some kind of proclamation. It is interesting that the slogan is similar to the
iconic ’This is Sparta’ battle cry scene of the movie titled ”300”, serving as a basis for a lot of
memes after the premiére of the piece. It creates an apt, unique, really authentic impression
together with the logo, and the a ”One city, never ending stories” complementary sub-message
also improves the overall impact. Dublin’s ”A Breath of Fresh Air” slogan does not only refer
to the much fresher air as compared to the majority of cities, but also to the options to have
largely important experiences. Tirana promotes the diversity and variety of the city. It is
interesting that none of the 56 capitals used something similar, although the diversity of
experiences is very attractive for many tourists when choosing their destination. The brand
building of Vatican City is completely different from the ordinary in the sense that unlike other
cities, its message is largely based on the city’s spiritual, cultural and historic attraction. The
papal motto is also only displayed on the city’s coat of arms, and instead of using a ’slogan’ in
English for wide audiences, it keeps its Latin language, addressing a target audience who know
the original source of the text – and of course for everyone who knows it, but see that itt was
written in Latin.

Name of capital Slogan (English original)

Amsterdam I amsterdam
Athens This is Athens!"
Dublin A Breath of Fresh Air
Gibraltar A year of culture
Kiev Everything starts in Kyiv
Tirana A Colorful Place
Vatican City State Miserando atque eligendo
Table 5: Slogans that could not be categorized

5. CONCLUSION, FURTHER RESEARCH OPPORTUNITIES

The aim of the research was to examine how widespread the use of a central tourism slogan and
logo is in the case of European capitals. Based on the results, the following conclusions can be
drawn:
• Out of the 52 (100%) examined capitals:
- 36 cities (69%) have a logo,
- 35 cities (67%) have a slogan,
• Within that:
- 6 cities (10%) only have a logo,
- 5 cities (8,9%) only have a slogan,
- 33 cities (63%) have a logo and a slogan as well,
• Last, but not least, 10 cities (19%) do not have a logo or a slogan.

Thus the result of the analysis shows that two thirds of the capitals examined are up to date in
their branding in terms of the examined tools. We also found out that tourism logo and tourism
slogan are popular city branding elements in Europe. Only one fifth of European capitals lack
both a tourism slogan and a logo – they should consider using one or both of them in the future.
In the case of logos, the subject of the analysis was a categorisation based on colours. The
results show that the most popular colour is red, which – according to colour symbolism – tries
to stimulate basic and strong emotions such as adventurousness, passion and excitement. Blue
colour is also very popular, and colour symbolism suggests that capitals belonging here wish
to make a competent, intelligent, reliable impression.

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Black logos may create an impression of power and luxury, but these sacrifice communications
based on the power of colours. Logos using at least three colours are more informal and playful,
and they may refer to the city’s diversity instead of trying to display a serious image like single-
colour logos do. The most popular colours in the case of the 37 cities that have tourism logos
are:
• Red: 10 logos (27%)
• Blue: 8 logos (22%)
• Blue and red: 2 logos (5%)
• At least three colours: 8 logos (22%)
• Dominantly black: 8 logos (22%)
• Other: 1 logo (3%)

We also examined slogans based on what their recognisable patterns were. Our findings
suggest that most capitals (25%) use a slogan try to make an emotional impact. These capitals
do not want to convince tourists rationally, but use some more emotional communication. This
is followed by the groups of call to action slogans, which amounts to 22% of slogans. The ratio
of slogans involving a positioning of the capital based on space or value and slogans
emphasizing their own attractive characteristics is 17-17%. However though, slogans use other
(if you like, unique) solutions in 19% of cases. We must add that this uniqueness is subjective
in many aspects, because there were actually very few slogans which could not have been used
in the case of other capitals. The classification of slogans in the case of the 36 European capitals
that have a tourism slogan:
• Slogans with an emotional impact: 9 (25%)
• Positioning based on space or value: 8 (22%)
• Call to action: 6 (17%)
• Emphasizing its own attractive characteristic or beauty: 6 (17%)
• Other: 7 (19%)

All in all, it can be stated that while the majority of capitals produce excellent tourism image
spots, their website functions well and their logo use is conscious, they do not really find their
voice in terms of slogans. In this field, there is space for improvement, which may hopefully
find some inspiration in this study. Considering further directions of research, it would be
useful to conduct a survey of tourists and travellers to find out how much they know these
logos and slogans, how much they like them, or how much these tools activate them – in a
sense that they would depart and visit the specific city. In addition, it may be worth to provide
a more thorough linguistic and semantic analysis of slogans, and they could also be compared
with the slogans of the capitals of other continents. The same kind of examination could be
performed regarding logos, therefore it could be found out whether there is a difference
between European and non-European solutions. Last but not least we must not forget that
slogans and logos are always part of a broader city branding concept or strategy, therefore a
more thorough examination of such documents also offers further opportunities for research.

LITERATURE:
1. Buhalis, D. (2000). Marketing the competitive destination of the future. Tourism
Management, 21(1), 97-116.
2. Hankinson, G. (2007). The management of destination brands: Five guiding principles
based on recent developments in corporate branding theory. Journal of Brand Management,
14, 240-254.
3. Healey, M. (2009): Mi az a branding? (”What is Branding?”) Budapest: Scolar Kiadó

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4. Hem, L. E. – Iversen, N. M. (2004). How to develop a destination brand logo: A quantitative

and qualitative approach. Scandinavian Journal of Hospitality and Tourism, 4(2), 82-102.
5. Kotler, P.–Keller, K. L. (2006) Marketingmenedzsment. (”Marketing Management”)
Akadémiai Kiadó, Budapest.
6. Labrecque, L. - Milne. G (2011): Exciting red and competent blue: the importance of color
in marketing. Springer US
7. Marti, B. E. (2008): Cruise line logo recognition. Journal of Travel & Tourism Marketing,
18, 25–31.
8. Masten, D. L. (1988). Logo's power depends on how well it communicates with target
market. Marketing News, 22, 2.
9. Morgan, N. – Pritchard, A. – Pride, R. (2011): Destination Brands: Managing Place
Reputation. Elsevier Butterworth-Heinemann, 3rd Edition.
10. Olins, W. (2004): A má®kák – A márkák világa, a világ márkái. (”On B®and”) Budapest:
Jószöveg Műhely – British Council
11. Papp-Váry Á. F. (2013) A márkanév ereje – Szempontok a sikeres brandépítéshez. (”The
power of brand names – the aspects of successful brand building”) Dialóg-Campus Kiadó,
Pécs-Budapest
12. Park, C. W. – Eisingerich, A. B. – POL, Gratiana – PARK, Jason Whan (2013): The role of
brand logos in firm performance. Journal of Business Research, 66(2), 180–187.
13. Pike, S. (2007): Destination Marketing Organizations and destination marketing:
A narrative analysis of the literature, Elsevier Science Publishers.
14. Pittard, N. – Ewing, M. – Jevons, C. (2007): Aesthetic theory and logo design: Examining
consumer response to proportion across cultures. International Marketing Review, 24(4),
457-473.
15. Rosengren S. - Dahlén, Micael (2006): Brand–slogan matching in a cluttered environment.
Journal of Marketing Communications. 12(4), 263-269.
16. Sárközy I. (2009) Szlogenmeghatározások. (”Slogan definitions”)
www.szlogenek.hu/szlogenmeghat.php Accessed on: 10.11.2017.

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APPENDIX

Slogans and logos of European capitals

Capital Country Slogan Logo

Amsterdam The Netherlands I
amsterdam

Andorra la Andorra Capital

Vella dels
Pireneus

Ankara Turkey - -
Athens Greece This is
Athens!

Baku Azerbaijan - -
Vienna Austria Now.
Forever.

Belgrade Serbia #gobelgrad

e

Berlin Germany The city of

freedom

Bern Switzerland -

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Brussels Belgium BXL

Moves For
You

Bucharest Romania - -
Budapest Hungary Spice of
Europe

Dublin Ireland A breath of

fresh air

Gibraltar Gibraltar A year of

culture

Helsinki Finland -

Yerevan Armenia Feel the

warmness
Kyiv Ukraine Everything
starts in
Kyiv

Chișinău Moldova Discover

The Routes
of Life

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Copenhagen Denmar Wonderful

Copenhage
n

Lisboa Portugal -

Ljubljana Slovenia - -
London United Kingdom - -
Luxembourg Luxembourg Let’s make
City it happen!

Madrid Spain -

Minsk Belarus Think

Minsk

Monaco Monaco Wild

Beauty

Moscow Russia - -
Nicosia Cyprus The
brightest
capital of
Europe

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Oslo Norway -

Paris France City of

Love

Podgorica Montenegro - -
Bratislava Slovakia The city
where you
find real
life

Prague Czech Republic prague:em

otion

Pristina Kosovo - -
Reykjavík Iceland Reykyavík
Loves
Visitors

Riga Latvia Live Riga

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Rome Italy The eternal

city

San Marino San Marino - -

Sarajevo Bosnia and A city of
Herzegovina thousand
tales

Skopje North Macedonia Feel love,

feel Skopje
Sofia Bulgaria Grows, but -
does not
age
Stockholm Sweden The capital
of
Scandinavi
a

Tallinn Estonia -

Tbilisi Georgia The city

that loves
you

Tirana Albania A colorful -

feeling
Tórshavn Faroe Islands - -
Vaduz Liechtenstein Centre of -
culture

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Vatican City Holy See Miserando

atque
eligendo

Valletta Malta European

Capital of
Culture

Vilnius Lithuania The G-spot

of Europe

Warsaw Poland Fall in love

with
Warsaw

Zagreb Croatia Full of

experience
s

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PUBLIC AUDIT IN THE SYSTEM OF ENSURING REGION

ECONOMIC SECURITY (THE ASTRAKHAN REGION EXAMPLE)

Perepechkina Elena
Astrakhan State University
Astrakhan, Tatischev str. 20a, 414056, Russia
[email protected]

Samarets Tatyana
Astrakhan State University
Astrakhan, Tatischev str. 20a, 414056, Russia
[email protected]

Mamedova Aida
Azerbaijan State University of Economics
Baku, Hasan Aliyev str. 134, Azerbaijan
[email protected]

Kasumova Lala
Azerbaijan State University of Economics
Baku, Hasan Aliyev str. 134, Azerbaijan
[email protected]

Babashirinova Esmira
Azerbaijan State University of Economics
Baku, Hasan Aliyev str. 134, Azerbaijan
[email protected]

ABSTRACT
The System of public audit and financial control is a vital tool to combat abuse in redistribution
and improvement of the use efficiency of resources belonging to the state in general and a
certain region in particular. Control and Auditing Department (CAD) is a Ministry's
department that carries out the imposed functions to perform public financial control within its
competence. From 2015 to 2018 the Ministry of Finance of the Astrakhan Region's Department
carried out control activities in organizations - beneficiaries of the Astrakhan Region budget
and in municipalities. From 2015 to 2018 the Ministry of Finance of the Astrakhan Region's
CAD carried out 172 audits (inspections). The Average control activity performance was nearly
93%. The share of unsuccessful audits (inspections) was extremely low - only 7% of the total
number of inspections while the year 2018 marked the highest dynamics of financial
irregularities detected within these four years, i.e. 100%. The numbers in question stand for the
efficiency of control activity implementation for these monitored items. The overall number of
financial irregularities detected encompasses violations committed during audits on the use of
the Astrakhan Region budget and public budget loan funds and the Moscow Region budget
funds.
Keywords: audit, аccounting, financial control, violations committed

1. INTRODUCTION
The Strategy for the Economic Security of the Russian Federation 2030 calls inefficient public
administration a challenge and threat for the economic security [1]. Experts estimate that the
state share in the domestic economy is only 46% while its share in some industries reaches 70%

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and keeps on growing [2]. Such an increase shall come amid improving efficiency of the public
resource use accompanied by enhancing control. The System of public audit and financial
control is a principal tool to combat abuse in redistribution and improvement of the use
efficiency of resources belonging to the state in general and a certain region in particular. In
Russia, the term "public audit" pertains to the Accounts Chamber of the Russian Federation and
similar bodies in entities and municipalities of the Russian Federation. At the legislative level,
the notion "public audit" is considered synonymic with control or a power in the area of budget
funds flow control [3]. Decree of the Government of the Astrakhan Region No. 144-П dated
April 17, 2014 on the Order of Exercising Power by the Ministry of Finance of the Astrakhan
Region for the Internal State Financial Control regulates basic requirements to the Ministry of
Finance of the Astrakhan Region's activities in the area of internal state financial control
(hereinafter referred to as ISFC) [4].

2. THE STRUCTURE OF THE CONTROL AND AUDITING DEPARTMENT

The Ministry of Finance of the Astrakhan Region is divided into structural bodies, namely
departments that exercise certain sets of functions. Control and Auditing Department
(hereinafter referred to as CAD) is a Ministry's department that carries out the imposed
functions to perform public financial control within its competence. The Department exercises
its power for state financial control implementation in the area of budget under the current
legislation of the Russian Federation, namely: Constitution of the Russian Federation, federal
laws, acts of the President and Government of the Russian Federation, laws of the Astrakhan
Region, resolutions, orders, decrees, instructions and guidelines of the Ministry of Finance of
the Russian Federation as well as of the Ministry of Finance of the Astrakhan Region.

Figure 1: The structure of the Control and Auditing Department

Basing on the power for the state financial control implementation in the Astrakhan Region,
CAD exercises a number of its principal functions:
• to collect and analyze of suggestions to carry out control activities;
• to develop a control activities plan draft for a respective fiscal year;
• to carry out control activities;
• within the framework of regular inspections, to carry out counter audits of legal entities and
individuals that received the Astrakhan Region Budget funds as well as any material values
owned by the Astrakhan Region form the organization under audit.

For each monitored item, the Ministry of Finance of the Astrakhan Region draws and approves
a schedule to cover certain issues of an inspection within its field. Once the schedule is drawn,
a preparatory stage starts. At this stage, the following components shall be analyzed:
• laws and regulations;
• accounting (financial) statements of the monitored item;
• acts of previous inspections;
• other information regulating and characterizing financial and economic activity of the item.
[5]

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3. CONTROL METHODS
To carry out control and audit CAD of the Astrakhan Region applies the following methods: an
inspection, audit and examination. Inspections are divided into cameral (office), field and
counter audits [6]. Table 1 contains a classification of ISFC methods used by CAD of the
Astrakhan Region as well as their peculiarities, including requirements to the application of
each method, time frame and distinctive features.

Method Implementation peculiarities Implementation time Documents on inspection

frame findings
Examination In the course of an inspection It can be carried out Basing on the findings
expertise and investigations within the framework thereof, a conclusion is
can be carried out as well as of cameral and field drawn
data recording instruments can audits
be used
Cameral audit In the course of a cameral It is carried out within Basing on the findings
audit the Minister of Finance 30 working days upon thereof, an act is drawn
can impose an examination or submission of all
counter audit necessary data and
documents by the
monitored item to the
Ministry of Finance of
the Astrakhan Region
Field audit It is carried out at the territory Implementation thereof Basing on the findings
of the monitored item and does not exceed 45 thereof, an act is drawn
comes into effect upon working days
submission of credentials
Counter audit It is carried out within the Implementation thereof Basing on the findings
framework of cameral and does not exceed 30 thereof, an act is drawn.
field audits working days This act supplements
findings of a field or
cameral audit
Table 1: Methods to implement internal state financial control

From 2015 to 2018, CAD performed its activities directly under the schedule of inspections
(audits) to be carried out by the department appointed by the Minister of Finance of the
Astrakhan Region. The schedule of control activities for the period in question included the
following types of inspections:
• inspection on compliance with goals and fulfilment of terms for granting inter-budget
transfers and public budget loans form the Astrakhan Region budget, including funds
granted for implementation of comprehensive programmes to support pre-school
educational institution development;
• cameral audit on compliance with goals and fulfilment of terms for granting subsidies form
the Astrakhan Region budget to develop educational institutions implementing preschool
educational programmes within the National Programme "Comprehensive Modernization
of the Education System in the Astrakhan Region for 2011-2015";
• audits and inspections of principal budget units of the Astrakhan Region;
• audits of beneficiaries of the Astrakhan Region budget funds;
• inspections on compliance with the Budget Legislation in granting budgetary and
independent institutions subsidies to meet state targets and subsidies for other purposes and
budget investments.

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From 2015 to 2018 control activities were carried out:

in organizations - beneficiaries of the Astrakhan Region budget funds, and in municipalities
(local budget) (Figure 2).

Figure 2: The number of inspections (audits) the Ministry of Finance of the Astrakhan
Region's CAD carried out from 2015 to 2018 units

The graph shows that highest percentage of control activities carried out pertains to 2015, i.e.
62 audits (inspections), the following years mark a decline. From 2015 to 2018 the Ministry of
Finance of the Astrakhan Region's CAD carried out 172 audits (inspections). Average control
activity performance was nearly 93%. Basing on the abovementioned, the share of unsuccessful
audits (inspections) was extremely low - only 7% of the total number of inspections while 2018
marked the highest dynamics of financial irregularities detected within these four years, i.e.
100%. The numbers in question stand for the efficiency of control activity implementation for
these monitored items [7]. The overall amount of financial irregularities detected encompasses
violations committed:
• during audits on the use of the Astrakhan Region budget funds;
• during audits on the use of municipality budget funds;
• during audits on the use of the Astrakhan Region public budget loan funds (Figure 3).

Figure following on the next page

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 55th International Scientific Conference on Economic and Social Development – Baku, 18-19 June, 2020

1669.292
2015 1775.815
2.647

1647.055
2016 956534.617
0

1536.179
2017 5221.356
0

324.768
2018 80.776
0

0
200000
400000
600000
800000
During audits on the use of the Astrakhan Region budget funds 1000000
During audits on the use of the Moscow Region budget funds
During audits on the use of the Astrakhan Region public budget loan funds

Figure 3: The overall number of financial irregularities detected from 2015 to 2018

According to the findings of audits (inspections) carried out from 2015 to 2018, the overall
number of financial irregularities detected was 968792.505 million rubles. The Picture shows
the highest percentage of irregularities detected pertains to 2016. These irregularities were
mostly detected during audits on the use of the Astrakhan Region budget funds and reached
99.8% of the total number of financial irregularities detected. The annual reporting analysis
allowed to elicit a structure of financial irregularities detected in the area of finance and budget
from 2015 to 2018. This structure formed a basis to develop diagrams with a financial
irregularity dynamics. (Figure 4)

Figure 4: Dynamics of financial irregularities detected from 2015 to 2018

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 55th International Scientific Conference on Economic and Social Development – Baku, 18-19 June, 2020

The financial irregularities detected in the area of budget were as follows:

• misuse of budgetary funds;
• inefficient use of material resources and funds;
• exceeding the standards of maximum wages;
• unlawful spending of funds and material resources;
• assuming budgetary (financial) obligations in excess of the established limits of budgetary
obligations and income and expenditure estimates;
• violations of the budgetary obligation accounting procedure;
• violations of creation and (or) financing procedure to meet a state (municipal) target;
• violations committed by principal budget units that grant subsidies to legal entities,
individual entrepreneurs and individuals as well as violations of granting terms;
• violations of granting terms for inter-budget transfers;
• and others [8].

Basing on the formed structure of the Department’s financial irregularities, the highest
percentage of the total number of irregularities (the specific weight fluctuates from 75.8 to 99.9
% within the entire period) mainly pertains to the column "Other financial irregularities". It
mostly consists of accounting irregularities, such as:
• distortion of accounting, violations of the procedure thereof;
• submission of knowingly false budgetary reports or other data;
• violations of the budgetary obligation accounting procedure;
• violations of the property accounting and property registry maintaining procedure
(undocumented property, illegal enclosures, property write-off);
• misapplication of the Budget Classification Code (BCC). [9]

The maximum numeric index for this type of violations pertained to 2016 and amounted
957,638.432 million rubles, which equals 99.9% of the total amount of the financial
irregularities detected.

4. CONCLUSION
With report and conclusion data integrated, the above grouping features were outlined for risks
and threats to the entity economic security formed in the area of budgetary legal relations, which
are interpreted as violations. Accounting in the area of budget at the levels of an individual
organization and territory compromises two diametrically-opposed functions. It is either a risk
driver in the system of economic security, or a guarantee of the territory economic security. [6]
Therefore, data studies on CAD of the Astrakhan Region’s control activities revealed a high
risk for the economic security of the Region. The reason thereof is a weak accounting system
and irregularities found in it. The main problems arising in the actual implementation of control
activities are as follows:
1) Absence of cooperation over monitored items with other state financial control bodies,
which is critical for planning control and audit activities (CAA);
2) Under qualified specialists dealing with monitored items in terms of responsibility for
action and inaction performed;
3) Poor financial discipline of monitored items;
4) Absence of the use efficiency and performance internal evaluation system. [10]

The analysis showed the public audit in regions of the Russian Federation is reduced to
activities carried out by entity bodies of control and accounts. Meanwhile all principal budget
units and managers as well as internal state control bodies represented by the Federal Treasury

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 55th International Scientific Conference on Economic and Social Development – Baku, 18-19 June, 2020

at the Russian Federation level and the Ministry of Finance of the Astrakhan Region’s Control
and Auditing Department at the entity level are involved in the area of audit and control.
Therefore, speaking about the system of public audit, we believe, along with control and
accounting bodies, it is necessary to include internal audit bodies in the area of budgetary legal
relations [11]. It is also suggested to systematize documentation subject to inspections. At any
time, this systematization allows to see work performed by an inspector, to determine the
amount of uncovered documentation, to involve other employees, if needed, or to forward
requests to the directorship of an organization under audit. The example is given in Table 2.

Order No. Document name Presence Date

1 Charter + February 5, 1999
2 License + March 1, 1999
3 Regulations:
3.1. on document management + March 3, 1999
3.2. on wages + March 3, 1999
… …
4 Accounting Policy + March 4, 1999
5 Personnel list / personnel regulations + March 4, 1999
6 Individual records -
7 Civil law contracts:
7.1. Contracts + During the year
7.2. Credit contracts -
7.3. Lease contracts:
7.3.1. Non-residential unit (4 Pereulok Serova) + March 28, 2012
7.3.2. Warehouse (2 Ivanova Str.) + April 5, 2012
… …
Table 2: Monitored item data (system documents)

The table contains information on a schematic description of the monitored item. It can be
modified if it is necessary to elicit documentary data on the item. The first part contains all the
statutory documentation; the second part - human resources documentation; the third part –
financial and accounting documentation. Under inductive study, the organization and its system
documents undergo several stages of audit shown in Figure 5.

Examination of the monitored item legal status

Organization structure analysis

Examination of Budget Classification codes and accounting policy

Internal documentation examination

Documentation analysis with affiliated parties

RESULT (feedback)

Figure 5: System document audit stages

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System documents are critical budgetary institutions’ activities and form their basis. Inefficient
evaluation of this segment may affect financial results and subsequent monitoring of financial
and economic activities. In the course of an inspection, control bodies both have to detect
budget funds misuse and budget, civil and labor legislation violations and define goals of the
budget funds use efficiency evaluation [12]. Meanwhile the analysis of violations revealed in
exercising the power for external public audit (control) by the Chamber of Control and
Accounts of the Astrakhan region allows to understand the system of public audit in the Region
lacks efficiency and improperly responds to emerging risks and threats for the Region’s
economic security.

LITERATURE:
1. Strategii ekonomicheskoy bezopasnosti Rossiyskoy Federatsii na period do 2030 goda
[About the Strategy for the Economic Security of the Russian Federation 2030]: Decree of
the President of the Russian Federation No. 208 of May 13, 2017 [Electronic resource]. -
URL: http://www.consultant.ru (accessed 06.02.2018).
2. E. S. Mityakov. Razvitie metodologii i instrumentov monitoringa ekonomicheskoy
bezopasnosti reghionov Rossii [Development of Techniques and Tools to Monitor the
Economic Security of Regions in Russian] // Candidate for a degree of Economic Sciences
Thesis. Nizhny Novgorod State Technical University n.a. R. E. Alekseev. Nizhny Novgorod
2018. 360 pp.
3. Federal Law of the Russian Federation No. 6-ФЗ of February 07, 2011 (edited on July 2,
2013, March 4, 2014, April 3, 2017, December 27, 2018) on General Principles of
Organization and Activity of Control and Accounting Bodies of the Russian Federation and
Municipalities // [Electronic resource]. – URL: http://base.garant.ru/.
4. Resolution of the Government of the Astrakhan Region No. 497-П of November 14, 2007
(edited on July 11, 2013) on approval of Uniform Requirements (Standards) to the
Procedure of Financial Control Organization and Implementation in the Astrakhan region
// [Electronic resource]. - URL: http://base.garant.ru/.
5. Gosudarstvenyi audit kak osnova protivodeistviya koruptsii i bezopasnosti stran Prikaspiya
[Public Audit as a Basis to Combat Corruption and Ensure Security of the Caspian Sea
Countries] / / L. V. Kashirskaya, O.K. Minyova, K.O. Shamasheva. Economics and
Management: Problems and Solutions. 2019. Vol. 2. No. 1 (85). - PP. 19-27.
6. Audit effektivnosti ispolzovaniya biudzhetnikh sredstv pri realizatsii federalnikh tselevikh
programm, kak odin iz metodov gosudarstvennovo kontrolya v regione [Audit of Budgetary
Funds Use Efficiency in Implementation of Federal Target Programs as a State Financial
Control Method in the Region] // L.V.Usacheva, T.V. Samarets, I.S. Voynov.
Competitiveness in the Global World: Economics, Science, Technology. 2017. No. 11 (58).
- PP. 1381-1385.
7. M.V. Sivras, T.V. Samarts. Effektivnost finansovogo kontrolya v sisteme obespecheniya
ekonomicheskoj bezopasnosti Astrahanskoj oblasti [Financial Control Efficiency in the
System of Ensuring Economic Security of the Astrakhan Region]. The International
Scientific-Practical Conference “Socioeconomic and Ecological Aspects of the Caspian
Region Development” (2019; Elista). The International Scientific-Practical Conference
“Socioeconomic and Ecological Aspects of the Caspian Region Development” (May 28-30
2019). [Text]: materials / editorial board: B.K. Salaev [et al.]. – Elista: Kalmyk State
University Publishing House, 2019. – 731 pp., PP. 51-54.
8. Code of the Russian Federation on Administrative Violations No. 195-ФЗ of December 30,
2011 (edited on May 02, 2015) // [Electronic resource]. – URL: http://base.garant.ru/

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9. Problemi formirovaniya finansov munitsipalnikh obrazovaniy kak factor ustoychivovo

razvitiya territorii [Issues of Municipality Finance Formation as a Territory Sustainable
Development Factor] // E.G. Perepechkina, D. Yu. Markaryan. Collection of Scientific
Articles “Sovremennaya Nauka i Praktika Vyshevo Obrazovaniya v Formate Ustoichvovo
Razvitiya Obshchestva”: materials of international interdisciplinary scientific and practical
conference. 2017. PP. 157-161.
10. Osobennosti gosudarstvennovo upravleniya territorialnym razvitiem [Peculiarities of the
Territorial Development Public Administration] // I.N. Akhunzhanova, A.P. Lunyov, K.A.
Markelov, L.V. Usacheva. Humanities Studies. 2014. No. 4 (52). PP. 156-163.
11. Audit kak mekhanizm protivodeistviya korruptsii [Audit as a Mechanism to Combat
Corruption] // I.I. Potapova, L.V. Kashirskaya. Prospects of the Construction Complex
Development. 2018. No. 12. PP. 227-232.

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 55th International Scientific Conference on Economic and Social Development – Baku, 18-19 June, 2020

CYCLICAL FLUCTUATION IN MONEY LAUNDERING: CASE STUDY

OF AZERBAIJAN, TAJIKISTAN, UKRAINE AND KAZAKHSTAN

Atik Kerimov
Azerbaijan State University of Economics (UNEC)
Baku, Istiqlaliyyat str., 6, AZ1001, Azerbaijan
[email protected]

Anton Boyko
Sumy State University
Sumy, Rimsky-Korsakov str., 2, 40007, Ukraine
[email protected]

Victoria Bozhenko
Sumy State University
Sumy, Rimsky-Korsakov str., 2, 40007, Ukraine
[email protected]

ABSTRACT
The main purpose of the study is the estimation of the cyclical fluctuation of the environment in
different countries, which forms there the preconditions for the money laundering. The
relevance of the decision of this scientific problem is that the identification of peaks and
recessions in money laundering is the basis for the formation of effective tools for its timely
prevention and further minimization. Methodological tools of the research methods were
decomposition and harmonic analysis. The information base of the study is the Basel Anti-
Money Laundering Index, which describes the level of perception of corruption, the state of
financial and public transparency, the risks of the political environment, etc. The object of
research is the chosen Azerbaijan, Tajikistan, Ukraine and Kazakhstan, years of research 2009-
2019. Investigation of cyclical fluctuation in money laundering in the paper is carried out in
the following logical sequence: 1) identification of the trend and cyclical components of the
market environment, which forms the preconditions for the money laundering, based on a
decomposition and harmonious analysis of the Fourier series; 2) identification of market
environment cycle parameters (peak, bottom, cycle duration); 3) estimation of volatility and
inertia of the money laundering. The study empirically confirms and theoretically proves that
cyclical fluctuation in money laundering is different for the studied countries, namely for
Ukraine – 5 years, Tajikistan – 3 years, Kazakhstan – 4 years. Azerbaijan – no cycles detected.
The developed methodological support allows applying the most effective instruments of
counteraction to the money laundering in accordance with the stage of the cycle of the
environment concerning money laundering, which will maximize their effectiveness in terms of
neutralization of specific catalysts for the money laundering.
Keywords: Cycle, Money laundering, Fluctuation, Decomposition, Harmonic analysis

1. INTRODUCTION
The intensification of globalization processes, the advent of digital money, the liberalization of
commodity and financial markets formed the basis for the intensification and growth of money
laundering. The United Nations Office on Drugs and Crime estimates that the global money
laundering was 2.7% of world GDP in 2009, while as of early 2019 this figure had almost
doubled to about 5% of the world GDP or about $2.0 trillion US, which is equivalent to annual
GDP of countries such as Italy, Brazil, or Canada. The need to ensure counteraction to money
laundering and to reduce the level of threats to the national security of countries requires

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 55th International Scientific Conference on Economic and Social Development – Baku, 18-19 June, 2020

expanding and deepening the methodological tools for investigating this process, namely,
assessing the cyclicality and volatility of the environment that forms the prerequisites for
money laundering. A more detailed study of this process will allow developing effective tools
and levers of state influence on countering money laundering, as well as forming a set of
preventive measures to minimize the risk of money laundering.

2. LITERATURE REVIEW
The issue of counteracting money laundering and terrorist financing has been widely discussed
in the scientific literature. Thus, in their papers, Sharman and Chaikin (2009), Sharman (2010),
Levi and Reuter (2012), Levi et al. (2018) investigate the origins of illegal income, as well as
methods and markets for their laundering. Moreover, the above authors paid considerable
attention to the system of counteracting money laundering. Balakina, D’Andrea and
Masciandaro (2017), Barone, Delle Side and Masciandaro (2018) focused on the study of
international instruments for hiding criminal proceeds, namely the use of offshore countries in
the process of money laundering in the context of globalization processes. One important area
of research is to assess the risk of money laundering, both at the level of financial institutions
and the state (Kostyuchenko et al., 2018). According to Dmytrov and Medvid (2017), it is
advisable to make a national assessment of money laundering based on international rankings.
Le Nguyen (2018) explores ways to combat money laundering through financial intermediaries
that are actively involved in the process of money laundering. Scientists suggest an optimal
strategy for maximizing the benefits of each participant in this process, including financial
intermediaries, based on the evolutionary game. In addition, Le Nguyen (2018) suggests using
preventive methods to combat the laundering of money in the context of their interaction with
financial confidentiality. Arnone and Padoan (2008) considered it expedient to use methods of
strict state management of the processes of countering money laundering. Thus, these authors
analyze repressive measures against money laundering and the ability of countries to effectively
apply these measures. Dobrovic et al. (2018), Tiutiunyk et al. (2019) examine the relationship
between tax evasion and the process of money laundering and identify the most effective tools
for a comprehensive fight against these phenomena of economic fraud. The analysis of
scientific publications made it possible to identify the main factors contributing to the spread
of money laundering around the world, namely: high level of shadow economy (Hrytsenko et
al., 2018; Levchenko et al., 2018), corruption (Nguedie, 2018; Zakharkina and Abramchuk,
2018), aggravation of social tension and discontent in society (Kyrychenko et al., 2018), the
emergence and active use of cryptocurrency for various transactions (Bilan, Кuzmenko and
Boiko, 2019; Bilan et al., 2019; Druhov, Druhova and Pakhnenko, 2019), the spread of
cyberattacks (Lyeonov et al., 2018), the low level of openness of public finances (Logan and
Esmanov, 2017; Grenčíková et al., 2019), the lack of conformity between the national
legislation on combating money laundering and international standards and recommendations
(Rubanov et al., 2019; Islam and Khan, 2019), low level of development of the financial system
(Kozmenko and Kuzmenko, 2011; Zarutska, 2018; Alikariev and Poliakh, 2018; Djalilov and
Ngoc Lam, 2019), lobbying the interests of stakeholders through the owners and (or) top
managers of financial institutions (Petrushenko, 2013; Vasylieva et al., 2017) etc. Moreover,
the lack of an adequate system of accountability of financial institutions to regulatory
authorities creates the conditions for illegal transactions (Vasylyeva et al., 2017; Makarenko et
al., 2017; Evana et al., 2019). Special attention should be paid to the scientific approach to
assessing the volume of money laundering (Levchenko et al., 2019), which takes into account
the operations through the real sector of the economy, state and local budgets, as well as the
segment of financial intermediaries, adjusted for the level of shadowing of the economy and
indicators of the quality and effectiveness of state regulation of the national economy. A
separate area of research is devoted to state regulation of financial institutions in the context of

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countering money laundering, as well as evaluating the effectiveness of regulatory agencies in

the country. In particular, Subeh and Boiko (2018) proposed a methodological approach to
assessing the effectiveness of the national system for countering money laundering and
terrorism financing based on the provisions of the theory of queues. Despite a detailed study of
the issue of money laundering, namely its nature, implementation features, and mechanism of
minimization, scientists have not sufficiently disclosed the detailed aspects of its development.
Thus, the cyclicality of money laundering has been studied only in fragments. Considerable
attention is also paid to the cyclicality of economic processes by such scientists as (Bilan,
Brychko, et al., 2019; Buriak et al., 2019), analyzing the relationship between the economic
cycle and the confidence in financial institutions.

3. METHODOLOGY AND RESULTS

The determination of peaks and drops in the intensity of money laundering is the basis for the
formation of effective tools for its timely prevention and subsequent minimization. The
information base of the study is proposed to be formed based on the Basel AML Index (the
Basel Anti-Money Laundering Index). This index includes 14 indicators, including:
1) Indicators of the quality of the state system for countering money laundering and terrorism
financing. These indicators include data from the FATF Mutual Assessment Reports, the
Financial Secrecy Index from the Tax Justice Network, and data from the US International
Narcotics Control Strategy Report. This group of indicators has a share of 65% in the index.
2) The Corruption Perceptions Index, which has a share of 10%;
3) Indicators of financial transparency and standards: corporate transparency index, data from
the WEF Global Competitiveness Report: the strength of standards for securities market
regulation, and the World Bank's IDA resource allocation index. These indicators together
have a 15% share in the Basel AML Index;
4) Indicators of public transparency and accountability (a share of 5%);
5) Indicators of political and legal risk (a share of 5%).

Thus, the analysis of the composition of the Basel AML Index provides an opportunity to assert
a comprehensive characteristic of the process of money laundering using this complex indicator
and, accordingly, the validity of its application in the study of the cyclical component of the
prerequisites for the emergence of this process. Confirmation of the hypothesis about the
differences in the cyclicality of money laundering for different countries will allow, in the
future, forming a differentiated set of tools to combat financial fraud. Thus, the input
information is summarized in Table 1.

Year
Country
2012 2013 2014 2015 2016 2017 2018
Azerbaijan 6.49 6.48 6.46 4.9 4.84 4.78 4.7
Tajikistan 8.12 8.27 8.34 8.26 8.19 8.28 8.3
Ukraine 6.62 6.47 6.55 6.56 6.57 6.52 6.06
Kazakhstan 5.12 5.94 5.94 5.93 5.88 6.42 6.36
Table 1: Dynamics of the Basel AML Index for Azerbaijan, Tajikistan, Ukraine, and
Kazakhstan during 2012-2018
(Source: Data of Basel Institute on Governance)

The Basel AML Index is essentially a disincentive indicator, meaning that the higher its value,
the more active is the process of money laundering in the country. The absolute values of this
indicator (Table 1) indicate the slightest prerequisites for money laundering in Azerbaijan and
the gradual reduction of the Basel AML Index during 2012-2018 in this country.

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At the same time, the highest value of the Basel AML Index is typical for Tajikistan since the
studied indicator did not decrease below 8.1 units during the study period. The authors consider
the sequence of implementation of the methodological approach to assessing the cyclicality and
volatility of the environment, which forms the prerequisites for money laundering. The first
stage involves the study of the cyclical component of the risk of money laundering based on
the Basel AML Index, which provides for the gradual implementation of the following steps:
1) Decomposition of the time series for assessing the risk of money laundering by filtering the
trend and cyclical components;
2) Formalization of the trend component;
3) Evaluation of the cyclical component;
4) Visualization of the initial time series, as well as the trend and cyclical components;
5) Identification of characteristics such as peak, bottom, duration of the cycle (if confirmed).

The type of the trend component was initially determined, formalizing its specification by
constructing an equation with a high coefficient of determination. Thus, for Azerbaijan, it is
advisable to formalize the trend component of the time series of the Basel AML Index using a
linear function (Fig. 1a, Table 2). In turn, the specification of the trend component of the time
series of the Basel AML Index in the context of Tajikistan takes the form of a power function
(Fig. 1b, Table 2), a polynomial function for Ukraine (Fig. 1c, Table 2), and a linear function
for Kazakhstan (Fig. 1d, Table 2).

Figure 1: Visualization of the baseline time series of the Basel AML Index, trend and cyclical
components in the context of Azerbaijan (a), Tajikistan (b), Ukraine (c), Kazakhstan (d) for
the period from 2012 to 2018
(Source: proprietary calculations)

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Country Type of equation

𝐴
Azerbaijan 𝐴𝐿𝑀𝑡 = −0.3712 ∙ 𝑡 + 7.0079
Tajikistan 𝐴𝐿𝑀𝑡Т = 8,1812 ∙ 𝑡 0.0072
𝑈
Ukraine 𝐴𝐿𝑀𝑡 = −0,0266 ∙ 𝑡 2 + 0.1582 ∙ 𝑡 + 6.3798
Kazakhstan 𝐴𝐿𝑀𝑡К = 0.165 ∙ 𝑡 + 5,281
Legend: 𝐴𝐿𝑀𝑡𝐴 , 𝐴𝐿𝑀𝑡Т , 𝐴𝐿𝑀𝑡𝑈 , 𝐴𝐿𝑀𝑡К – an indicator for assessing the risk of money
laundering for the t-th year for Azerbaijan, Tajikistan, Ukraine, Kazakhstan, respectively; t –
indicator of the year.
Table 2: Formalization of the trend component for the Basel AML Index in terms of the
countries under consideration
(Source: proprietary calculations)

Having determined the trend component for each of the countries under consideration
(Azerbaijan, Tajikistan, Ukraine, Kazakhstan) in the framework of the Basel AML Index, we
will evaluate the cyclical component by subtracting the trend component calculated using the
formulas in Table 1 from the original time series. The results of this step are shown in the lines
marked as trend Table 3.

Year
Country Indicator
2012 2013 2014 2015 2016 2017 2018
time series 6.49 6.48 6.46 4.9 4.84 4.78 4.7
Azerbaijan trend 6.64 6.27 5.89 5.52 5.15 4.78 4.41
cyclical component -0.14 0.22 0.57 -0.62 -0.31 0.00 0.29
time series 8.12 8.27 8.34 8.26 8.19 8.28 8.3
trend 8.18 8.22 8.25 8.26 8.28 8.29 8.30
Tajikistan cyclical component -0.06 0.05 0.10 0.00 -0.09 0.00 0.00
time series 6.62 6.47 6.55 6.56 6.57 6.52 6.06
trend 6.51 6.59 6.62 6.59 6.51 6.37 6.18
Ukraine cyclical component 0.10 -0.12 -0.06 -0.03 0.07 0.15 -0.12
time series 5.12 5.94 5.94 5.93 5.88 6.42 6.36
trend 5.45 5.61 5.78 5.94 6.11 6.27 6.44
Kazakhstan cyclical component -0.33 0.33 0.16 -0.01 -0.23 0.15 -0.08
Table 3: Dynamics of the Basel AML Index, as well as its trend and cyclical components in
terms of countries under consideration
(Source: proprietary calculations)

At the second stage, the authors will specify the cyclical component of the time series using the
Fourier harmonic analysis, which allows describing the phenomenon of periodic recurrence
using mathematical expressions and analyzing it. The harmonic analysis ignores the nature of
seasonal fluctuations, and only the presence of the cyclical component in the dynamic series is
important. Thus, the cyclical component is formalized using the Fourier harmonic analysis (the
Fast Fourier Transform) for countries as follows:
• for Azerbaijan:


tt j = −0.396 cos 2  j 
1  
+ ( −1) 0.611 + −0.411 cos 2  j 
2 
+ ( 1) 2.325
 4   16  (1)

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• for Tajikistan:


tt j = 0.04 cos 2  j 
1   2 
+ ( −1) 1.565 + 0.044 cos 2  j  + ( −1) 2.247
 4   8  (2)

• for Ukraine:


tt j = 0.091 cos 2  j 
2   3 
+ ( 1) 0.606 + 0.086 cos 2  j  + ( 1) 1.654
 8   8  (3)

• for Kazakhstan:


tt j = 0.225 cos 2  j 
1   2 
+ ( −1) 2.194 + 0.27 cos 2  j  + ( 1) 1.886
 4   4  (4)

The volatility and persistence of time series were calculated as part of the third stage of the
methodological approach to assessing the cyclicality and volatility of the environment, which
forms the prerequisites for money laundering. Absolute volatility is an indicator of the
amplitude of fluctuations of the Basel AML Index, and its formal degree is the ratio of the span
(the difference between the maximum and minimum possible levels of the original time series),
weighted by the mean square deviation:

𝐦𝐚𝐱 𝒚𝒕 − 𝐦𝐢𝐧 𝒚𝒕
𝒕 𝒕
𝑽𝒂𝒕 = (5)
𝑺

where 𝑉𝑡𝑎 – absolute volatility;

𝑦𝑡 – the level of the time series;
𝑆- standard (mean square) deviation of the time series.

Relative volatility is defined as the ratio of the absolute volatility of the country under
consideration to the maximum value of absolute volatility among the countries under
consideration. The level of persistence of the time series (Basel AML Index) was estimated
based on the Hurst exponent. In theory, there are three different classifications for different
Hurst exponents:
• at 0 <H< 0.5 – an anti-persistent time series, i.e. a series in which there is an average return:
if the system develops for a certain period, then the system's activity is expected to decline
in the next period. The closer the H value is to zero, the more stable the system's
fluctuations are.
• H=0.5 – corresponds to a stochastic time series;
• 0.5< H < 1 – persistent time series or trend-resistant series. This time series is characterized
by the effect of the long memory. If the number has started to grow, we should expect
further growth. If the number has started to decline, this trend will continue in the future.

The following Hurst metric is used to calculate persistence:

𝑅
= (𝛼 ∙ 𝑁)𝐻 (6)
𝑆

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where 𝐻 – the Hurst exponent;

𝑁 – number of observation periods;
𝛼 – a positive number, the specified constant.

Hence
𝑅
log⁡( )
𝑆
𝐻 = log⁡(𝛼∙𝑁) (7)

where the scope of the accumulated deviation:

max 𝑍𝑢 − min 𝑍𝑢
𝑅 = 1≤𝑢≤𝑁 1≤𝑢≤𝑁
(8)
𝜎𝑢

𝑍𝑢 = ∑𝑢1(𝑦𝑖 − 𝑦̅) (9)

where 𝑦̅ – the arithmetic value of the time series;

𝜎𝑢 – the average square of the accumulated deviation.

Thus, turning to the definition of persistence in the time series of the Basel AML Index, it is
first necessary to calculate the deviation of the current level of the time series from the mean
over the study period. After interim calculations, the Hurst exponent for the Basel AML Index
for the countries under consideration was determined, the results of which are presented in
Table 4.

Persistence
Country
actual value cyclical component
0.2064 anti-persistent time series X X
Azerbaijan
X X 0.5895 persistent time series
0.5938 persistent time series X X
Tajikistan
X X 0.5644 persistent time series
0.6003 persistent time series X X
Ukraine
X X 0.4714 anti-persistent time series
0.6548 persistent time series X X
Kazakhstan
X X 0.5303 persistent time series
Table 4: Persistence of actual values and cyclical components of the time series of
the Basel AML Index
(Source: proprietary calculations)

Thus, in the context of the countries under consideration, stochastic time series were not found
either in actual data or in cyclical components. For those time series for which the Hurst
exponent is less than 0.5 units, we can conclude that they are anti-persistent, i.e. a gradual return
to the average level of the series and a change in the trend. For the growing time series, we
should expect a decline in the future perspective and the opposite trend for declining time series.
This applies to countries such as Azerbaijan – the downward trend during 2012-2017 will be
replaced by a growing one, while for Russia (with the current growth in the prerequisites for
money laundering) we should expect a decrease in this trend in the future. At the same time,
countries such as Tajikistan, Ukraine and Kazakhstan were trend-resistant in the context of the
Basel AML Index.

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A separate area of research is the identification of the peak, bottom and duration of the cycle in
the study of the environment, which forms the prerequisites for money laundering (table 5).
Analyzing the characteristics of the prerequisites for money laundering within the countries
with economies in transition, we note that Tajikistan has a typical cycle duration of three years,
and the duration of the cycle of money laundering is the smallest in comparison with other
countries.

Characteristics of the money laundering process

Country
Peak Bottom Cycle duration
Azerbaijan 2014 2015 not revealed
Tajikistan 2014,2017 2016 3 years
Ukraine 2012,2017 2013, 2018 5 years
Kazakhstan 2013, 2017 2016 4 years
Table 5: Peak, bottom and duration of the cycle of processes related to money laundering
(Source: proprietary calculations)

4. CONCLUSION
The proposed method allows determining the cyclical fluctuations of the process of money
laundering, namely its prerequisites, at the level of different countries of the world. This will
allow predicting the peaks of laundering and neutralizing them in the future. The reliability of
this task is confirmed by the determination that the laundering processes are not stochastic, and
therefore predictable. The hypothesis that there are no individual prerequisites for the
development of money laundering process depending on the country has been confirmed since
the process of money laundering has an international character and is not limited to the territory
of one country. Fraudsters from one country usually use financial institutions of several
countries for money laundering, trying to hide the real sources of funds' origin. In addition, as
it was established at the previous stages of the study, the reasons for the development of the
money laundering process in the countries under consideration are both national prerequisites
and global transformations. Thus, the proposed methodological approach and the obtained
practical results provide the state financial monitoring agencies with the possibility to form
strategic action plans for the implementation of the most effective tools for countering money
laundering according to the stage of the cycle that forms the environment for money laundering.

ACKNOWLEDGEMENT: This research was funded by the grant from the Ministry of
Education and Science of Ukraine (No. s/r 10117U003930, 0118U003574, 0118U003569).

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THE DIMENSION OF FINANCING OF NON-PROFIT

ORGANIZATIONS IN SLOVAK REPUBLIC

Dagmar Hraskova
University of Zilina, Faculty of Operation and Economics of Transport and Communications,
Department of Economics, Univerzitna 1, 010 26 Zilina, Slovak Republic
[email protected]

ABSTRACT
The non-profit sector is a frequently discussed topic in the current economic environment of
the Slovak Republic. Nonprofit organizations do not focus on profit as a priority, but respond
to the whole range of problems that occur in society. Since not all problems can be solved and
covered by the state, precisely for this purpose there are non-profit organizations whose
mission is to provide services of general interest. Non-profit organizations act as legal entities
on the market and are in charge of providing services of general interest in the fields of health,
education, culture, research and development, sports and community development, etc. It is
clear from the name that making profit is not the primary goal of their existence in this type of
organization. Funding is becoming a necessity for non-profit organizations. Since they do not
primarily earn profits, they are dependent on raising money from other sources. The article
focuses on the issue of financing non-profit organizations. The aim of the article is to analyze
available forms for financing the needs of non-profit organizations in Slovakia. I work with the
hypothesis that only one source of funding for non-profit organizations is scarce and it is
necessary to accumulate funds from a larger amount of sources. The financing of non-profit
organizations is therefore a very interesting issue and is undoubtedly a very demanding set of
activities that a non-profit organization has to address in order to convince potential donors to
decide for its mission to provide funding. The article also addresses the way of financing
through fundraising as a new approach and highlights the function of fundraisers in the issue
of financing non-profit organizations with an emphasis on creating a fundraising plan.
Keywords: financing of non-profit organizations, self-financing, fundraising, funraiser

1. INTRODUCTION
The current global system of the company is connected with the increasing use of information
and communication technologies in all spheres of its economic activities. The transition to the
global economy is changing the nature of government, creating the preconditions for applying
decentralized forms of coordination and aggregation of the preferences of individual
organizations in a democratic society. In the process of globalization, new market conditions
for economic operators are expanding as a result of changes in the consumer and business
environment, as the process of globalization increases competition in markets. In previous
economic periods conditions competition has been limited mainly to the national economy and
currently, in conditions of integrated economics competition has crossed national borders and
has become global. In the market economy, national markets played a dominant role; in the
conditions of the new economy, their character changes. The processes of globalization and the
emergence of virtual markets contribute to the intensification of competition in most markets,
so that their functioning creates the preconditions for increasing resource allocation efficiency
in the economy, while changing conditions for the functioning of economies require new types
of economic policy. It is also true that many of the government measures that have been
successfully applied to date have become less effective in new market conditions.

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2. THEORETICAL FOUNDATION
Non-profit sector organizations in the current economy perform different roles, they are
providers and distributors of services, participate in the creation of a society-wide consensus,
support innovation and contribute to the development of a democratic society in general. The
non-profit sector is made up of organizations that operate in the space between the state and
citizens and are one of the basic pillars of society. In the current economy in Slovakia, alongside
the business and government sectors, the non-profit sector is gradually forming (third,
voluntary, independent). Third sector organizations operate in an environment mixed from
different kinds of government, business, self-government and non-profit institutions, this
institutional mix is typical of today's advanced democratic countries (Sedivy and Medlikova,
2017).

• Non-profit sector and state - The mutual links between the state and the non-profit sector
narrow many times exclusively to financial relations, between direct and indirect financial
support from the state (Belickova and Bukovova, 2007). Direct state financial support to
non-profit organizations is provided through public budgets. Indirect state financial support
is based primarily on tax and customs relief. However, the relations of the third sector
cannot be narrowed to financial relations only; legislative activity, social policy and so on
(Hladka et al., 2017).
• Non-profit sector and self-government - Self-government is a non-state article of public
power, has typical power tools (eg issued various regulations, decisions, etc.) and at the
same time represents a basic form of citizen participation in governance. For this reason,
the self-government and the third sector are well-placed to cooperate in various areas, eg.
involving citizens in the solution of the municipality at public meetings, co-organizing the
local referendum, providing counseling services for the municipality, etc.
• Non-profit sector and business sector - Government and state agencies are not the only
potential partners of non-profit organizations in solving public problems. Increasingly, the
business sector is also involved in this effort by providing, for example, financial support,
organizational and managerial skills, technical knowledge, etc (Bachmann, 2011).

These forms of cooperation can take a variety of forms of cooperation, coordination,

institutional cooperation, association of organizations. Cross-sectoral cooperation makes a
significant contribution to increasing the efficiency of each sector's activities, exploiting the
strengths of each sector, and can provide a significant boost to their growth. The basic
prerequisite for doing business is an optimal capital structure (Belas, et al., 2019). Likewise,
successful working capital management also brings value to organizations (Bin, et al., 2019).
The basic prerequisite for the functioning of a non-profit organization, like any other public or
commercial sector, is to ensure its financing. Each body must in some way raise resources to
cover the costs of its functioning and the activities it develops. In non-profit organizations, this
financial side is associated with their specifics, which are in many ways due to their service
status in the company. Financing the non-profit sector is therefore an interesting area that
combines economic, financial and social elements. Sustainable development of these
organizations in Slovakia still encounters financial problems that are specific to the non-profit
sector and, to a certain extent, more characteristic than for the business or public sector.
Specificity is manifested especially in the basic mission of the non-profit organization and its
fulfillment. The primary objective of the existence of a non-profit organization is not to make
a profit, but to promote and achieve certain public benefit objectives. At present, we may
encounter multiple classifications of income sources for non-profit organizations (Salaga et al.,
2015).

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In general, the main criteria for allocating funding sources are:

• method of acquisition - internal sources from own activities, external sources from another
source,
• origin of funds - domestic, local, foreign sources
• nature of the financing entity - public resources - state, local government - individual
resources, society, foundations and private resources - business entity,
• form of income - gifts, collections, grants, orders, etc (Hraskova, 2012).

3. ANALYSIS OF FINANCING OF NON-PROFIT ORGANIZATIONS IN THE

CONDITIONS OF SLOVAK REPUBLIC
The basic principle of financing the non-profit sector is its multi-source nature. Its essence is to
use multiple sources of income in a non-profit organization to ensure its own independence
from a single financial source, as well as to avoid the negative consequences of its unexpected
failure. The non-profit sector in Slovakia is currently financed in the following ways:
• state funding;
• partnership with other sectors;
• obtaining finance from own activities,
• use of EU funds and others.

3.1. Funding of non-profit organizations from state resources

In the case of public finances, the Slovak Republic has various legislative mechanisms at its
disposal to co-finance Slovak non-profit organizations. These mechanisms have two basic
forms of direct and indirect support for non-profit organizations. Fonadova and Hyanek also
deal with this issue in their publication (Fonadova and Hyanek, 2015).

3.1.1. Direct form of support for non-profit organizations

The current functioning of the direct form is considered to be underdeveloped and insufficiently
transparent. In the case of direct form, it is necessary to take into account in particular the
mechanisms of provision - subsidies and grants, implementation of contracts and contracts in
which the non-profit organization provides services to the state, redistribution of revenues from
lotteries, public collections and other similar games. Direct support mechanisms for non-profit
organizations operate at different levels of government and self-government.

3.1.2. Indirect form of support for non-profit organizations

It is a financial support of non-profit organizations whose amount cannot be determined and
quantified immediately after the state financial support. In Slovakia it has several forms eg.
exemption from taxes and duties where the State waives part of the revenue that it would
otherwise have received in taxes, by allowing legal and natural persons to exempt their income
from a certain type of tax or customs duty, 2% personal income tax, assignment 2% persons,
deduction of donation from the tax base and others (Bukovova, 2012). Despite the mechanism
by which the state allowed both legal and natural persons to write off part of the amount of the
donation from the tax base, many entities did not avail themselves of this option because of the
statutory setting of low, non-motivating depreciation rates. As a result, the donation (its write-
off from the tax base) was no longer perceived by many recipients of donations as an indirect
form of state support but as private income, as the donor's share in this case was much larger
than.

3.2. Funding of non-profit organizations from private sector

Private resources in the context of non-profit organization funding include endowment and
business resources. As with public sources and private sources, we distinguish between foreign

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and domestic sources. Foreign endowment resources are still the strongest financial base for
financing non-profit organizations not only in Slovakia but also in other transition countries.
Domestic endowment resources - most of them are operational to support their own programs
and activities, only a small number of them are grant funds that provide funding to other
institutions or individuals. In recent years, community foundations have been established in
Slovakia, which are gradually building their own base. Corporate donation is the willingness of
an enterprise to devote some value to a public benefit purpose, either one-time or repeatedly,
without claiming any counter-service. Another level of cooperation between a business entity
and a non-profit organization is represented by longer-term strategic partnerships, which may
also operate on a more commercial basis of so-called philanthropic marketing or in the form of
a traditional commercial relationship based on sponsorship.

3.3. Funding of non-profit organizations from individual sources

Individual sources in the context of financing non-profit organizations are those obtained from
individual donors, specific people or individuals. The method of obtaining funds from
individual donors is considered to be one of the most stable, although its success is often
conditioned by high demands. This method involves a large number of "small donors" where
the loss of one or two does not lay an organization.

3.4. Self-financing of non-profit organizations

Self-financing is a process in which a non-profit organization uses its capacities, whether
human, material, financial, know-how, etc. to create and raise resources in fulfilling their
mission. Self-generating resources help an organization prevent uncertainties from external
funding. Self-financing allows the organization to obtain the so-called. free financial resources
which it may use to cover its own operating or administrative costs or to finance priorities at its
discretion. Thus, the organization is not forced to adapt its activities and projects to the
requirements and conditions of donors. Obviously, raising resources by self-financing places
increased demands on the quality of financial management and requires a higher degree of
professional management throughout the organization. However, if these processes are well
managed, it ultimately brings greater financial stability for the organization. Naturally, if a non-
profit organization opts for self-financing, it must also face multiple risks, which may concern
both the products and services offered and the organization itself and its capacities (Svidronova
and Vacekova, 2012). From an internal point of view, an organization can overestimate its
capabilities, which can have a negative impact not only on its bank accounts, but also on the
image of the public and donors, the motivation of its own employees and volunteers, or the
overall position in the community.

3.5. Fundraising - financial support of the non-profit sector

In today's complex business environment, it is not easy to realize your ideas, dreams or
activities. This is also the reason why the English word fundraising is becoming increasingly
popular among members of non-profit and civic associations. People who know fundraising
know that this way hides the key to possibilities. Fundraising is a method of professionally
obtaining financial and non-financial resources for the activities of non-profit organizations. It
is a planned, organized and strategically oriented activity that results in obtaining the necessary
funding or material or non-proprietary resources or assistance, such as: gifts, volunteer work,
know-how, management experience, information, etc. Fundraiser is characterized as
communicative and innovative person able to successfully present and establish contacts. As it
is not just monetary support, it adds a new perspective on obtaining support or finance in the
issue of non-profit organizations (Boukal, 2013). There is no literal translation for the word
fundraising in Slovak, but economists cite a few examples in the literature - collecting public

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funds, collecting funds or raising funds for funds, foundations, projects from companies and
sponsors, and a planned activity aimed at attracting donors or sponsors. An important aspect of
all fundraising planning is the systematicity and division of resources into financial and non-
financial. Their non-monetary resources may include the material resources they acquire. The
most widespread form of these resources is barter, when the non-profit organization provides
eg. some form of promotion for the delivery of some material. Another intangible resource may
be rights where the organization may be given space on some domain to promote the logo at a
symbolic price. Information is also an intangible resource that helps nonprofits make early
awareness or printed educational material. Businesses also help to non-profit organizations by
providing their own employees who can volunteer for non-profit organizations. Substantial
support for non-profit organizations is represented by services that can be offered to them in
the form of specialist counseling. Fundraiser is a person who is professionally engaged in
fundraising, oversees the whole project process from its preparation, addressing donors,
communicating with them to its implementation and evaluation. There are two types of
fundraisers, external and internal fundraiser. An internal fundraiser is usually a core employee
of an organization in a leadership position whose main task is to raise funding, especially for
larger organizations and this position does not exist in small non-profit organizations. An
external fundraiser is a legal or natural person who is contractually obliged to perform this
function. The problem arises when this fundraiser is not successful in its activities, the
organization may eventually lose more than are its acquired resources. Each organization must
consider whether it is able to obtain the necessary resources on its own or will have to contact
an external specialist (Burnett, 2002). In this case, it is also important to address the issue of
the financial health of the organization and this issue is discussed in more detail by Yakymova
and Kuz (Yakymova, Kuz, 2019). According to Weissova, et. al, the financial situation of the
organizations is based on the past situation of the organization as well as on the future outlook
of organization (Weissova, et al., 2015). Should the financial stability of the organization prove
to be in decline, then it is possible to resolve this situation through bankruptcy models (Svabova,
Durica, 2019). A similar issue in their publication was analyzed by the authors Kovacova et al.
(Kovacova, et al., 2019).

3.5.1. Fundraising project

An important part in attracting a new donor is to create an interesting fundraising project that
can attract the attention of the person to the aim of the project and want to subsidize it.
Fundraising is important to include in all activities that are involved in the functioning of the
organization. During the preparation of the project application, workers collect all the necessary
materials and form the basis for the entire project. By analyzing the financial budget, they will
find out and evaluate where the funding is missing and to which sphere of the organization it is
appropriate to direct the project. The basic prerequisite for successful fundraising is a well-
developed project in which all those who are involved in its implementation in any way should
participate (Burnett, 2002). The fundraising project should include this aspects:
• project objectives and strategy for achieving them,
• specification, for who the project is intended,
• resources needed and where to get them - identifying potential donors and partners
• all relevant financial information - sources already acquired, contractual obligations,
• clear, coherent and motivating, inspiring respect for the work done by the organization,
• convincing and motivational arguments for gaining business support, etc.

However, in practice occur in fundraising many errors. In particular, they are committed by less
experienced fundraisors, which implies that fundraising art needs to be taught for a long time,
even several years.

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The most common mistakes in fundraising include over-focusing on organizational equipment

and operating costs, a large campaign without carrying out preparatory studies and action
surveys that will not bring enough funding, underestimated long-term fundraising and
partnership planning and lack of recognition. Regarding the issue of optimal capital structure,
it is not possible to specify this indicator for non-profit organizations because, according to
Shkodra, there is no model to which we can accurately quantify this indicator (Shkodra, 2019).
Buzinskiene also deals with capital structure issues (Buzinskiene, 2019).

4. CONCLUSION
Non-profit organizations play an important role in society, responding very flexibly to their
needs. They cover a wide range of activities in the field of health, social care, culture, education,
environmental protection, etc., thus meeting the social needs of the country. The strengths of
non-profit organizations also include the trust of disadvantaged groups as they are generally
more sensitive to the needs of society and are therefore particularly capable of identifying
priorities in service offerings and helping to adapt to real local needs. Because of their scope
and focus, they are flexible and innovative in their approach to problem-solving and less
bureaucratic in their work, and are suitable for enhancing people's civic awareness and
capabilities. In general, NGOs are seen to be transparent in their activities and responsive to
their actors and the general public, providing meeting space for diverse groups and interests
that address public issues and seek solutions to them, keeping public space open to new
perspectives and excluded groups. Non-profit organizations also have weaknesses, which often
include a lack of resources - both human and material - to manage their projects. Many times
they find themselves dependent on donors and therefore on their priorities.

ACKNOWLEDGEMENT: The paper is an output of the science project VEGA 1/0544/19

Formation of the methodological platform to measure and assess the effectiveness and financial
status of non-profit organizations in the Slovak Republic.

LITERATURE:
1. Bachmann, P. (2011). Management neziskove organizace. Hradec Králové: Gaudeamus.
2. Belas, J., Gavurova, B., Toth, P. (2018). Impact of selected characteristics of SMES on the
capital structure. Journal of Business Economics and Management. Vol. 19(4), pp. 592-
608.
3. Belickova, K., Bukovova, S. (2007). Ekonomika tretieho sektora. Bratislava: Merkury, spol.
s.r.o.
4. Bin, L., Jianguo, Ch., Duong, S. T. (2019). Exploring the Determinants of Working Capital
Management: Evidence across East Asian Emerging Markets. Economics, Management,
and Financial Markets. Vol. 14(2): pp 11–45.
5. Boukal, P. (2013). Fundraising pro neziskove organizace. Praha: Grada. (Boukal, 2013)
6. Bukovova, S. (2012). Financovanie tretieho sektora v SR: vyzvy a perspektivy. Bratislava:
Ekonom.
7. Burnett, K. (2002). Relationship fundraising: a donor-based approach to the business of
raising money. San Francisco: Jossey-Bass.
8. Buzinskiene, R. (2019). Framework for assessing the structure of corporate intangible
assets. Ekonomicko-manazerske spektrum, Vol. 13(2), pp. 10-27.
9. Fonadova L., Hyanek V. (2015). How to Measure the Effect of Public Income on the
Structure of Resources and Production of Non-profit Organizations. Proceedings Of The
19th International Conference: Current Trends In Public Sector Research. pp. 377-384.

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10. Hladka M., Hyanek V., Spalek J. (2017). The Relationship between Public Subsidies and
Unearned Revenues for Non-profit Organizations: Testing the Crowding-Out and
Crowding-In Positions in the Czech Republic. Ekonomicky casopis. Vol. 65, pp. 263-281.
11. Hraskova, D. (2012). Ekonomika verejneho a tretieho sektora. Zilina: Zilinska univerzita –
Edis.
12. Kovacova, M., Kliestik, T., Valaskova, K., Durana, P., Juhaszova, Z. (2019). Systematic
review of variables applied in bankruptcy prediction models of Visegrad group countries.
Oeconomia Copernicana, Vol. 10(4), pp. 743-772.
13. Salaga, J., Bartosova, V., Kicova, E. (2015). Economic Value Added as a measurement tool
of financial performance. Procedia Economics and Finance, Vol. 26, pp. 484-489.
14. Sedivy, M., Medlikova, O. (2017). Uspesna neziskova organizace. Praha: Grada.
15. Shkodra, J. (2019). Financial performance of microfinance institutions in Kosovo, Journal
of International Studies, Vol. 12(3), pp. 31-37.
16. Svabova, L., Durica, M. (2019). Being an outlier: a company non-prosperity sign?
Equilibrium – Quarterly Journal of Economics and Economic Policy, Vol. 14(2), pp. 359-
375.
17. Svidronova M., Vacekova G. (2012). Current State of Self-Financing of Private Non-Profit
Organizations in The Conditions of The Slovak Republic. Technological and Economic
Development of Economy. Vol. 18, pp. 438-451.
18. Weissova I., Kollar B., Siekelova A. (2015): Rating as o useful tool for credit risk
management. In 4th World Conference on Business, Economics and Management.
Procedia Economic and Finance. 26, pp. 278-285.
19. Yakymova, L. & Kuz, V. (2019). The use of discriminant analysis in the assessment of
municipal company's financial health, Economics and Sociology, 12(2), pp. 64-78.

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GREEN INTELLECTUAL CAPITAL AND COMPANY

PERFORMANCE

Eldar Khanlarov
Azerbaijan State University of Economics (UNEC)
Baku, Istiqlaliyyat str., 6, AZ1001, Azerbaijan
[email protected]

Serhiy Lyeonov
Sumy State University
Sumy, Rimsky-Korsakov str., 2, 40007, Ukraine
[email protected]

Lyudmila Starchenko
Sumy State University
Sumy, Rimsky-Korsakov str., 2, 40007, Ukraine
[email protected]

ABSTRACT
The paper aimed to analyse the relationship between green intellectual capital and company
performance. The authors generalised the approaches to define green intellectual capital. The
summarising findings showed that the scientists had not accepted the universal approach to
define green intellectual capital. The authors proposed to analyse the green intellectual capital
as a combination of three core element as follows as: green human capital; green structural
capital; green communication channels. The findings proved that ongoing tendency on
considering the green features of the company during the making decisions by the stakeholders
required the strengthening of the green intellectual capital as a core element of the sustainable
business model. The hypothesis of the investigation was checking the relationship between core
elements of the green intellectual capital and company performance. The authors estimated the
company performance through three types of performance: social, economic and green. The
raw data was collected from the open financial and non-financial reports and findings of the
survey of 150 managers of small and medium enterprises. The survey was conducted using the
Google platform and email. The study used the second-generation multivariate statistical
analysis. The findings proved the positive statistically significant relationship between green
human capital, green structural capital and all components of company performance. At the
same time, the third element of green intellectual capital (green communicational channels)
had a negative statistically significant relationship with green performance. The findings
allowed concluding that analysed companies had not adopted the implementing of the green
features in the operational activities. The managers should develop and implement the best
experience in developing green intellectual capital. Besides, the managers should pay attention
to the improving of the green communication channels through strengthening the relationship
with green investors, consumers and other stakeholders.
Keywords: Green economy, Green intellectual capital, Human resources, Stability, Sustainable
business model

1. INTRODUCTION
The reorientation of the world economics to the development considering green aspects requires
the appropriate adaptation of the company's policy. Thus, the management of the companies
should consider the new green trends in the global market and increasing the efficiency through
the balancing of the economic, ecological and social interests of the stakeholders.

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At the same time, the efficiency of companies relates to the available resources and capital,
including human capital. Moreover, the greening of the company's policy requires the allocation
and attraction of the additional capital: investments for development and implementing of green
technology [9], clean production; investments for patents and know-how; investments for staff
training on green policy and technologies etc. In this case, the green intellectual capital becomes
the core element of the company's efficiency in providing green activities.

2. LITERATURE REVIEW
The findings of publishing activities on green intellectual capital showed the increasing number
of the documents on the selected theme in the scientific databases Web of Science. Thus, in
beginning of 2020 the authors published 102 documents. Besides, the scientists with American
affiliation (539) had the biggest amount of the papers on analysed theme. The Chinese scientists
published 394 documents for 2002-2019 years. Table 1 visualised the publishing activities of
green intellectual capital in Web of Science.

Table following on the next page

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Numbers of papers by years 600

500

400

300

200

100

0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

The most significant scientists (TOP 10)

# Authors Papers # Authors Papers
1 Dumay J 54 6 Bontis N 36
2 Edvinsson L 43 7 Abeysekera I 34
3 Lin CYY 40 8 Guthrie J 34
4 Chen J 38 9 Matos F 33
5 Beding T 36 10 Markkula M 32
The most cited papers Citation Google Scholar
Guthrie, J., Ricceri, F., Dumay, J. (2012). Reflections and
1 projections: a decade of intellectual capital accounting research. 286 600
The British accounting review, 44(2), 68-82.
Edvinsson, L. (1997). Developing intellectual capital at
2 475 2131
Skandia. Long-range planning, 30(3), 366-373.
Yang, C.C., Lin, C.Y.Y. (2009). Does intellectual capital
mediate the relationship between HRM and organisational
3 performance? Perspective of the healthcare industry in Taiwan. 116 297
The International Journal of Human Resource Management,
20(9), 1965-1984.
Countries Affiliation

Table 1: Visualising of the publishing activities on green intellectual capital

in Web of Science
(Source: developed by the authors based on Web of Science)

The results of the analysis of the approaches to define green intellectual capital showed that the
scientists have not accepted the universal definition. Besides, the group of the scientists
confirmed that the core element of the green intellectual capital was the human capital which
has expertise on green technologies or policy [13]. The scientists in the papers [19, 27, 21, 29,
4, 28, 20] analysed green intellectual capital and proved its impact on the country’s social,

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economic and green growth. Besides, the development of the human capital [23] and affordable
education and lifelong [44, 37, 24] was the goal of Sustainable development goals 2030. The
authors in the papers [43] highlighted that efficiency of the intellectual capital relate from the
investment in education. At the same time, the scientists [36, 15, 40, 46, 35, 45] confirmed
hypothesis that green intellectual capital had the positive significant impact on the company’s
performance. In the paper [6] the authors analysed intellectual capital as intangible assets and
confirmed that increasing efficiency of the human capital lead to increasing of added values for
companies. Besides, in the paper [25, 22, 11, 45, 5, 2] confirmed that green innovations and
human capital was the core element of competitiveness for the companies. The scientists in the
paper [34] proved the necessity to extend knowledge of the human recourses on the green policy
in the retail business. In the papers [30, 11, 3] the scientists explained crucial role of the
financing management at the company in the developing of the human capital. The scientists in
the paper [50] confirmed that human capital, and structural capital are the core elements of the
intellectual capital in the company. Besides, the authors in the papers [7, 39, 31, 26, 41] proved
that communicational channels provide the moving information between all parameters of
green intellectual capital and company’s management. In the papers [32, 33, 1] the authors
highlighted the importance of the gender factor in human recourses management. The issues
on investing in the intellectual capital were investigated in the papers [18, 42, 17]. The authors
allocated the main restrictions for human resources management at the small and medium
enterprises. the findings proved that mostly the scientists analysed the meaning of green
intellectual capital. however, the further investigation requires the empirical justification of
statistically significant impact of the green intellectual capital on the company’s performance.

3. METHODOLOGY AND RESEARCH METHODS

The results of the analysis of the approaches to define green intellectual capital allowed
allocating the main its parameters: green human capital; green structural capital; green
communication channels. Based on the results of the analysis the authors chose the following
parameters which describe the company’s performance: Return on Equity (ROE), Return on
Sales (ROS) Return on Assets (ROA), Return on Investment (ROI).
The study checked the hypothesis aa follows:
• H0: green human capital has a statistically significant positive impact on company
performance;
• H1: green structural capital has a statistically significant positive impact on company
performance;
• H3: green communication channels have a statistically significant positive impact on
company performance.

The dependence variable – company performance, the independent variables were parameters
of the green intellectual capital (green human capital; green structural capital; green
communication channels). The visualising of research hypothesis showed in Figure 1.

Figure following on the next page

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company Independent
company
performance variable
performance

Dependant variable

Figure 1: Research hypothesis of the investigation

(Source: developed by the authors)

The raw data was collected from the open financial and non-financial reports and findings of
the survey of 150 managers of small and medium enterprises. The survey was conducted using
the google platform and email. The study used the second-generation multivariate statistical
analysis. The study analysed the four core industries of the national economy: food industry,
agriculture, machinery-producing industry and production of building materials. The
parameters of the green intellectual capital estimated by the grade scale from 1 to 5 (from strong
disagreement to strongly agree). The same approach was used to estimate the company’s
performance during the assessment by the company’s managers. The authors used the partial
least squares based-structural equation modelling method (PLS-SEM) for checking the
hypothesis mentioned above (formula 1).

𝑋𝑝𝑞 = 𝜆𝑝𝑞 𝐸𝑞 + 𝑒𝑝𝑞 (1)

𝜆𝑝𝑞 – the loading term was linking the q-th latent variables to the p-th relations, 𝑋𝑝𝑞 – relevant
companies’ performance.

Before the PLS-SEM, the authors did the one-way ANOVA: F-test with the purpose to check
the statistically significant differences in company performance depend on the sectors of the
national economy.

4. RESULTS
The authors analysed the results of questionnaires for checking the hypothesis. The generalised
study answers from 150 managers of small and medium enterprises. The managers represent
four leading sectors of the national economy: food industry, agriculture, machinery-producing
industry and production of building materials. The descriptive statistics of the data for all
industries showed in Table 2.

Industry Frequency Per cent Valid Percent Cumulative Percent

Food industry 40 26,7 26,7 26,7
Agriculture production 51 34,0 34,0 60,7
Machinery industry 38 25,3 25,3 86,0
Production of building materials 21 14,0 14,0 100,0
150 100 100
Table 2: Industry descriptive statistics
(Source: calculated by the authors)

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The authors used the same approaches as in the papers [10, 12, 47, 49, 8] to estimate the
parameters of the green intellectual capital (green human capital; green structural capital; green
communication channels). Thus, the parameters estimated by the grade scale from 1 to 5 (from
strong disagreement to strongly agree). The dependence variable (company performance) was
estimated using the managers’ comparison analysing five core indicators: Return on Equity
(ROE), Return on Sales (ROS) Return on Assets (ROA), Return on Investment (ROI). In this
case, the authors used the five grade scale for comparison analysing (1 = “strongly disagree”,
and five =“strongly agree”) [38]. Table 3 contained the findings of the descriptive statistics for
each parameter of the green intellectual capital and company performance.

green
green structural green communication
human company performance
capital channels
capital
Mean 4.08 2.01 3.70 3.60
SD 1.50 0.11 0.27 0.12
Minimum 1.30 0.70 1.15 1.37
Maximum 4.98 3.50 4.77 4.82
Table 3: Descriptive statistics
(Source: developed by the authors)

The findings of Shapiro-Wilk and Levene's test allowed using the One-way ANOVA: F-test for
comparison analysing of the company performance relate from sectors of the national economy.
The findings of One-way ANOVA: F-test showed in Table 4.

_______________________________________________________________________________
Source SS df MS F Prob > F
------------------------------------------------------------------------
Between groups 20.3441989 4 4.06883978 1.43 0.2575
Within groups 57.0254174 145 2.85127087
------------------------------------------------------------------------
Total 77.3696163 150 3.09478465

Bartlett's test for equal variances: chi2(5) = 2.6655 Prob>chi2 = 0.751

Contrast Std. Err. t P>|t| [95% Conf. Interval]
-------------+----------------------------------------------------------------
id |
2 vs 1 | -2.346667 1.233158 -1.90 0.429 -6.222798 1.529465
3 vs 1 | -2.48 1.233158 -2.01 0.371 -6.356131 1.396131
4 vs 1 | -1.52 1.067946 -1.42 0.713 -4.876828 1.836828
3 vs 2 | -.1333333 1.378712 -0.10 1.000 -4.46698 4.200313
4 vs 2 | .8266667 1.233158 0.67 0.983 -3.049465 4.702798
4 vs 3 | .96 1.233158 0.78 0.968 -2.916131 4.836131
Table 3: The findings of One-way ANOVA: F-test for company performance
(Source: developed by the authors)

The findings of One-way ANOVA: F-test confirmed the non-existing of statistically significant
differences in company performance depend on the sectors of the national economy. It allowed
using the partial least squares based-structural equation modelling method (PLS-SEM) for all
sample of the small and medium enterprises. This method allowed using the not significant
sample of data which is the core benefits. The findings of the structural modelling presented in
Figure 4.

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Н0=0,05
(0,007)*

Н1=0,266
company (0,000)*
performance

Н2 = -0,012
(0,048)**

Figure 1: Results partial least squares based-structural equation modelling method

(Source: calculated by the authors)

The findings confirmed that all parameters of green intellectual capital (green human capital;
green structural capital) had a statistically significant positive impact on the company
performance, which allowed confirming the hypothesis Н0 and Н1. At the same time, green
communication channels had a statistically significant adverse impact at 5% on the company
performance. In this case, the hypothesis H2 was rejected.

5. CONCLUSION
The findings allowed concluding that analysed companies had not adopted the implementing
of the green features in the operational activities. The managers should develop and implement
the best experience in developing green intellectual capital. Besides, the managers should pay
attention to the improving of the green communication channels through strengthening the
relationship with green investors, consumers and other stakeholders.

ACKNOWLEDGEMENT: This research was funded by the grants from the Ministry of
Education and Science of Ukraine (№0120U102001 and № 0118U003569).

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THE IMPACT OF TIME MANAGEMENT ON FINANCE OF SLOVAK

NON-PROFIT ORGANIZATIONS

Emilia Gresakova
University of Zilina, Slovakia
[email protected]

ABSTRACT
Non-profit organizations are not non-profit primarily because they are not making a profit, but
because they offer products and services to target groups who cannot buy them themselves.
This is why an important part and specificity of non-profit organizations is their multi-source
financing, consisting of public, private and individual forms of support. The budget is an
essential part of a non-profit organization. Multi-source funding of the organization's stability
and sustainability provider. The main objective of budgets is to prevent the consumption, in the
worst case of theft, of financial resources for unauthorized purposes. It is also important for
non-profit organizations to support and monitor innovations that allow for a more rational
distribution and use of finance, and thus improve service quality. Under the conditions of non-
profit organizations, but also businesses, the organization is mainly about trying to analyze,
plan finances and control costs. The manager is responsible for the optimal division of tasks
between individual financial units and within management levels. Individual departments are
responsible for efficient use of financial resources. The financial and accounting departments
of the organization should be transparent to each other. The task of management is to avoid
duplication of requirements, by permanent communication, either on horizontal or vertical
level, it is necessary to clarify and logically justify the expressed requirements. The task of the
financial analysis is to characterize how the financial objectives that are specific to the NPO
have been met, to identify the causes of deviations from the planned quantified goals, to assess
the adequacy of the financial goals set in the NPO and the adequacy of the instruments and
measures to ensure them. and characterize the state of financial health of the organization, its
expected future development as well as the overall market position.
Keywords: Non-profit organizations, Sources of funding, Financial analysis

1. INTRODUCTION
The importance of using time management is exceptional for the non-profit sector in that it
helps executives to demonstrate a better ability to dispose of resources, which will also be
reflected in the reallocation of resources. Time management is a discipline that deals with the
organization of time. In this type of management, it is very important to set clear objectives for
its work and set priorities, define what is important to us in terms of work or personal activity
and how much time and resources we are willing to devote to this activity and, last but not least,
to eliminate unnecessary activities. So we will discuss individual strategies with a view to
improving organizational skills (Gresakova, & Chlebikova, 2018). When planning, it is
necessary to think about your own performance, which is different for each person and during
the day is subject to certain fluctuations, but if the curve of distraction. We should plan specific,
measurable, accepted, realistic, time-bound and positive terms. The objectives should be
encouraging. Effective implementation of individual goals requires managers to constantly
rationalize them, look for approaches and ways to make them the best and in the shortest
possible time Chlebikova, et al. (2015). Prioritizing means that managers have to decide what
they want every day or do it before everyone else to achieve their goals Diener, et al. (2009).
The ABC method is based on the philosophy of percentages of important and less important
tasks. This division is based on analogies of inventory management.

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The Eisenhower principle represents a technique named after former US President Dwight
David Eisenhower. Its essence highlights the argument that importance should always take
precedence over urgency. Delegation in the context of techniques is a planned management
technique or principle necessary to streamline the work of managers. The helicopter perspective
focuses on structuring tasks and the time to perform them into six levels that help managers see
tasks from a “perspective” and decide priorities accordingly. In defining the tasks to be
performed, the S.O.R.U.S method, whose name is derived from the initial letters of the sub-
steps it consists of, is also a very effective tool for managers. Partial steps of the method are:
summary of tasks, estimation of time for individual activities, reserve time, prioritization and
back-checking Francis-Smythe, & Robertson, (1999a). The elephant technique is mainly used
in solving large complex tasks. These tasks that department managers face are complex. As part
of time management, the authors recommend dividing the tasks into smaller manageable
projects, which will be solved in a chronological sequence of activities. before all other tasks
and always proceed from the most difficult and most important task (Andjarwati, et al. 2019).
In order for managers to analyze the time spent effectively setting time, they must first
determine what they are spending their time on, then they can reduce the tasks that hold them
and focus on those that move the business forward. This may in the future result in raising funds
for non-profit organizations (Francis-Smythe, & Robertson, 1999b).

2. SOURCES OF FUNDING FOR NON - PROFIT ORGANIZATIONS

Non-profit organizations are heavily dependent on donations, subsidies from government or
business entities and corporations, institutions or individuals, who benefit from raising
awareness of their company and reputation through community service. The purchase of long-
term tangible and intangible assets, operation and routine activities of non-profit organizations
are directly supported from public and private sources (Dobesova, & Fabian, 2013).

2.1. Public sources of funding

Public-non-profit sector relations focus almost exclusively on financial resources. The public
sector has the advantage of a large number of employees with a more stable position compared
to the non-profit sector. At the same time, the government has the power to tax and control
funds providing subsidies and grants to non-profit organizations (Holubkova, 2012). We
recognize the direct financial support of the state, where we talk about support from the budget
revenues of the state budget. The state provides subsidies to the non-profit organization 35 and
also concludes contracts and contracts with it, mainly due to lower financial demands and
higher efficiency in comparison with state institutions. Subsidies can be from the state budget,
from the budget of self-governments and HTUs or from European funds. Legislatively, the
subject of the state budget is dealt with in Act no. 523/2004 Coll. on budgetary rules of public
administration and on amendments to certain acts. This law regulates the budget of public
administration, especially the state budget, the budget process, the rules of budget management,
the establishment and management of budgetary and contributory organizations and others.
Another amending law is Act no. 583/2004 Coll. on budgetary rules of territorial self-
government and on amendments to certain acts Green, & Skinner, (2005). The subject of this
Act are the budgets of territorial self-government and higher territorial units, mutual financial
relations between the state budget and budgets of higher territorial units, as well as the relations
of budgets of higher territorial units to legal and natural persons and others. In addition to the
aforementioned laws, the obligations of non-profit organizations, as entities using public funds
for their financial management, also deal with the Act no. 112/2018 Coll. on the social economy
and social enterprises and on the amendment of certain laws. By indirect financial support of
the state we mean exemption of non-profit organizations from taxes and duties, when the state
waives part of its income, 2% personal income tax, assignment of 2% corporate income tax,

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when a legal entity can decide to transfer part of the tax to another organization, respectively to
the recipient whom he determines, and finally the deduction of the gift from the tax base
(Trettin, 2019).

2.2. Private sources of funding

The business sector can also be a partner of non-profit organizations. The strengths of this
cooperation are the financial resources available to entrepreneurs, even if they are not limited,
as well as organizational skills and opportunities, which the business sector often has more than
a non-profit and stable institutional base that can serve in the case of cooperation. The business
sector has better access to state bodies that can help generate, not only financial, resources
needed for sector cooperation, but also has better technological equipment (Holubkova, 2012).
The foundation, established by a private person, serves as a provider of monetary and non-
monetary funds to third parties, while we recognize three foundation sources. Foreign, forming
the strongest financial base for financing non-profit organizations in Slovakia, domestic and
community, which provide grants for raising the standard of living within their community.
Another private source of financing is corporate donation, where a company provides some
value without the right to consideration, and finally various strategic partnerships operating on
the basis of charitable marketing or traditional sponsorship, where provided funds, products,
services or rental of premises receive value from nonprofit organizations, such as advertising.
The concept of sponsorship is not defined in the legal system of the Slovak Republic Kaasa,
(2019). A relatively new source of funding is the income from advertising for charitable
purposes. Contributions and gifts Gifts and the donation contract are regulated by law no.
40/1964 Coll. The Civil Code regulates inheritance within the framework of § 628 to § 630 and
§§ 460 and 487. With the donation contract, the donor leaves something or promises to the
other party, the recipient, free of charge, and the donor accepts this gift or promise. Contracts
can be donation or grant, or financial contribution contracts. Donations can be made to a non-
profit organization from their private sources by entrepreneurs as well as other independent
entities. According to the form, donations are divided into material and financial, which include
contributions. They are not subject to tax, do not require consideration and may be tied to a
specific activity (Kmecova, 2018).

2.3. Individual sources of funding

By individual sources for non-profit organizations we mean funds obtained from individuals,
specific people or individual donors in the form of deductions from wages, public charitable
events aimed at collecting financial contributions from individual donors, direct contact with
people, membership fees within the organization Belas, et al. (2018). Public Collections Public
collections are dealt with in the Slovak Republic by Act No. 162/2004 Coll. on public
collections and on amendments and supplements to certain acts, valid from 1.7.2014 and Act
no. 71/1967 Coll. on administrative proceedings as amended. The public collection is
characterized as the acquisition and accumulation of voluntary financial contributions. The
range of contributors is not predetermined, the collection is carried out for a predetermined
public benefit purpose or for individually designated humanitarian aid to a natural person or a
group of persons who have found themselves in a difficult life situation such as an emergency,
life threat or disaster. Only legal entities authorized to do so may make public collections. These
include a civic association, a non-profit organization providing services of general interest, a
non-investment fund, a foundation, the Slovak Red Cross, a special purpose facility of a church,
a special purpose facility of a religious society, an organization with an international element,
an interest association of legal entities and an association of municipalities. This legal entity
must be entered in the register of public collections, which may be done by: the district office,
if it is a public collection in the territory of municipalities belonging to its district, the Ministry

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of the Interior for public collections held in the territory exceeding Office of the Ministry of the
Interior with the prior consent of the Ministry of Foreign Affairs and European Affairs of the
Slovak Republic for public collections from which the proceeds or part thereof will be used
abroad Carvalho, et al. (2019). The collection costs are the costs incurred by the organization
to carry out the collection and are therefore related to its material, technical and organizational
support, management and detection of the use of the net revenue of the collection. We recognize
the revenue from the public collection gross and net. Gross income is the sum of all
contributions received by the collection, taking into account interest on contributions of
contributions to a special account maintained at the bank, which is also used to collect
contributions to the collection. We obtain the net income by subtracting the costs of the
collection from the gross income of the collection. We call fundraising a strategically oriented
activity through which a non-profit organization obtains funds and resources for its activities.
The basis is a well-developed project. Crowdfunding has become a phenomenon in recent years,
which, like fundraising, raises funds for the implementation of a certain project, but the whole
process takes place on the Internet. Investors are individuals from the public who contribute a
certain amount and within a specified period. Thanks to these funds, the organization can then
carry out its project. The presentation of the project to the public as well as a wide range of
potential contributors Kundelis, & Legenzova, (2019) are a great advantage for the creator. The
Crowdfunding portal for non-profit organizations in the conditions of the Czech Republic and
Slovakia is, for example, the Philanthros project. It is aimed at supporting charitable,
humanitarian and environmentally friendly non-profit organizations. Individual organizations
can apply, publish their project and convince the public of the usefulness and benefits of their
project. Anyone can contribute financially from as little as CZK 1 (Major et al., 2002).

3. METHODOLOGY
The present study looked at finding a relationship between the time managers of executives and
the financing of their business. We evaluated the individual items of the questionnaire by
creating contingency tables and testing with Pearson's chi square test of character independence.
In case of finding dependence, we measured the intensity of dependence by Cramer coefficient.
The reliability of the items in the questionnaire was assessed with a Cronbach's alpha of 0.81,
which indicates the optimal value and therefore the items were relevant. This tool has 10
statements on a 5-point scale Janoskova, & Kral, (2019). The current study examined 108 non-
profit organizations, with 384 valid cases. The collected data were analyzed using the Statistical
Package (SPSS) software.

4. CONCLUSION
We averaged the answers to the questionnaire, and used the average of the resulting
questionnaires to create one 2 x 4 (l x c) pivot table. Created pivot table represents empirical
and theoretical abundance. The first categorical variable was the completion of a course in the
field of time management and the second concerned questions focused on the connection
between the choice of financing and the use of time management as we an see in table 1.

Table following on the next page

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Time management Financing non-profit organizations

course B C D E Together
Yes Oij 3 22 93 27 145
Yes Eij 3,8 27,6 92,9 20,8 145,0
No Oij 7 51 153 28 239
No Eij 6,2 45,4 153,1 34,2 239,0
Together 10 73 246 55,0 384
10,0 73,0 246,0 55,0 384,0
Table 1: Contingency table of actual and theoretical frequencies of variables
(Source: Author)

I fulfilled the testing conditions by combining the averaged answers "A" and "B" to get the
following table, which meets both conditions for the evaluation of Pearson's χ testu - test of
character independence Durana, et al. (2020). At the level of significance alpha 0.05, I test
hypothesis H0 whether there is a significant dependence between completing a course in time
management and financing a non-profit organization. H0: There is no correlation between
taking a time management course and financing a non-profit organization. Based on the
comparison of the p-value from the table, we do not reject the values of alpha, p > α, H0. I
consider the characters independent.

Pearson's χ² - character independence test

Test criterion value Df p-value
5,089 3 0,172
Table 2: Pearson χ² - character independence test
(Source: Author)

On the significance level of alpha 0.05 we accept the hypothesis that there is no dependence
between attending a time management course and setting goals and priorities. Thus, it can be
stated that time management has a significant impact, according to studies, on labor-induced
stress, somatic symptoms, job satisfaction and self-assessment Gresakova, & Chlebikova,
(2019), but not on the financing of non-profit organizations. Non - profit organizations long -
term tangible and intangible assets used for their main activity, they are largely financed from
the public or private resources obtained for its activities, respectively. they obtain it by physical
donation, inheritance. They are unable to generate sufficient financial resources from their own
activities to invested in fixed assets. According to the contribution, whether they receive
funding does not depend on the time management ability of managers in non-profit
organizations. In order to be able to raise financial resources, they must assess their financial
health. The assessment of the financial health of a non-profit organization can be assessed by
liquidity, debt ratios, debt ratios and equity and EBITDA and interest expense under the criteria
of the Company's Financial Situation Index (Holubkova, 2012).

ACKNOWLEDGEMENT: This is paper is an outcome of project VEGA: 1/0544/19 Formation

of the methodological platform to measure and assess the effectiveness and financial status of
non-profit organizations in the Slovak Republic.

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no.2, pp. 27–33.

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TOOLS FOR STRATEGIC RESEARCH OF THE NATIONAL

SECURITY SYSTEM - METHODOLOGY FOR RESEARCH USING
SIMULATION BUSINESS GAME

Venelin Terziev
National Military University, Veliko Tarnovo, Bulgaria
University of Rousse, Rousse, Bulgaria
[email protected]

Mitko Stoykov
Rakovski National Defence College, Sofia, Bulgaria
[email protected]

ABSTRACT
Modelling a business game to test the building of capabilities for enhancing institutional
resilience requires a thorough knowledge of the underlying in the reviewed process base
concepts (for counteracting hybrid threats, for building defence capabilities, for the functioning
of the business model of the national security system and etc.) and following a specific
management strategy. The business simulation games should be seen as a concrete model of
abstractions from the reality. Therefore, when analysing the results of their implementation, it
should be borne in mind that the tested coherence of a theory or concept can be successful in a
particular model or simulation, but this isn't actually a guarantee of overall consistency with
the real world, especially when testing newly developed theories and concepts with many
conventions. Therefore, the selection of concepts, variables, the way the model is developed,
the approaches to conducting it, and especially the management of this type of scientific
research are of particular importance. Of course, the most profound impact on the results is
the level of professionalism in preparing the analysis of the results of each business simulation
game.
Keywords: Simulation business game, National security system, Tools, Cyber-attacks, Business
game

1. INTRODUCTION
Modelling a business game to test the building of capabilities for enhancing institutional
resilience requires a thorough knowledge of the underlying in the reviewed process base
concepts (for counteracting hybrid threats, for building defence capabilities, for the functioning
of the business model of the national security system and etc.) and following a specific
management strategy. To this end, in order to stimulate the specific behaviour of the participants
in the simulated scenario specific variables and theoretical constructs are identified. In this
particular case, following the concept of counteracting contemporary threats must provoke the
creativity of participants in rationalising the potential threats and the institutional areas of
responsibility for counteracting their manifestation. Important for the reliability of the obtained
results are the choice of roles, levels of analysis, management mechanism in order to reduce
abstraction. Selecting certain criteria for evaluating the model of the business game itself can
help to avoid subjectivism and follow specific theoretical assumptions in the studied concepts.

2. METHODOLOGY FOR RESEARCH THROUGH SIMULATION BUSINESS GAME

The business simulation games should be seen as a concrete model of abstractions from the
reality. Therefore, when analysing the results of their implementation, it should be borne in
mind that the tested coherence of a theory or concept can be successful in a particular model or
simulation, but this isn't actually a guarantee of overall consistency with the real world,

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especially when testing newly developed theories and concepts with many conventions.
Therefore, the selection of concepts, variables, the way the model is developed, the approaches
to conducting it, and especially the management of this type of scientific research are of
particular importance. Of course, the most profound impact on the results is the level of
professionalism in preparing the analysis of the results of each business simulation game. In the
present case with the aim of increasing the relevance of the study results, they are compared
with the results of the previous study with an expert evaluation card (Petrova, Petrov, 2020-c).
Several areas of discussion have been identified for the organization of the Business Game, in
which the lack, shortage or out-of-date of current institutional capacities, combined with the
lack of appropriate management practices, would allow for the occurrence of functional
problems and constraints to reveal new challenges, risks and threats for the national security,
the manifestation of which could become hybrid in nature or cause unexpected and unfamiliar
hybrid effects with severe damaging effects and consequences for the national security
(Georgiev, 2019-b; Nichev, 2009; Petrov, Georgiev, 2019c; Terziev, Madanski, Georgiev,
2017-a; Terziev, Georgiev, 2017b). In accordance with the likely origin and content of the
national security challenges (Table 1), the discussion areas are classified as follows:
1. Discussion Area 1;
1.1. Identification of potential (hybrid) threats that may endanger the national interests of
the Republic of Bulgaria;
1.1.1. Threats to the energy safety and impacts on energy infrastructure entities - gas
transmission system, storage companies, hydropower facilities, central dispatch system,
electricity transmission grid;
1.1.2. Interruption of energy supplies;
1.2. Potential subjets with impact capacity and capability;
1.2.1. Climate changes, natural disasters, accidents and catastrophes;
1.2.2. Intentional malicious attempts on the critical energy infrastructure;
1.2.3. Terrorist threats to critical energy infrastructure;
1.2.4. Interruption of the supply of gas, oil and petroleum products;
1.3. Likelihood of manifestation of threats;
1.3.1. From not high to moderate;
1.4. Hesitation in the society and government of the country regarding the European and
Euro-Atlantic choices of the country, manipulating the society through incorrect and
manipulated information in the media space;
1.4.1. Corruption in the country, being used by foreign special services;
1.4.2. Human migration;
1.4.3. Alienation in society;
1.5. Cyber-attacks, changing the content of sites and creating psychosis among the
population;
1.5.1. Long-term impact and manipulation of public opinion on migration and refugee issues;
1.5.2. Direct actions on the state's telecommunications system;
1.5.3. Attacks on the history of the country - changing the history;
1.5.4. Interference in the political system of the country by other countries;
1.5.5. Threats against the information security and especially against classified information;
1.5.6. Weakening or loss of statehood;
1.5.7. Information campaigns against Bulgaria and the Bulgarian institutions for the
substitution of truth;
1.6. Radicalization and marginalization of parts and ethnic groups of society;
1.6.1. The demographic crisis and depopulation of regions in the country;
1.6.2. External influence and servicing foreign interests;
1.7. Loss of the intellectual potential of the country;

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1.8. Information campaigns against the state;

1.9. Threats against the political and social stability and the integrity of society;
1.10. Seizing economic positions through the privatization of larger state-owned companies;
1.11. Spread of radicalism;
1.12. Terrorism, extremism and international organized crime;
1.13. Focused efforts for the long-term merging of structure defining industries;
1.14. Potential subjects, capabilities and impact capacity;
1.15. External subjects: Union and non-union states, non-state entities, non-governmental
organizations, illegitimate structures, international organized crime;
1.16. Internal subjects: private corporate entities, criminal structures, individuals (hackers);
1.17. Beneficial impact: NATO and EU membership and no immediate military threat;
2. Discussion Area 2;
2.1. Defining the necessary capabilities to counter hybrid threats;
2.1.1. Critical infrastructure protection capabilities: plans, timeframes and resources for
building / updating security systems for critical infrastructure sites;
2.1.2. Increasing the resilience of institutions and the public against the impact of cyber-
attacks on critical infrastructure management systems, including increasing the
responsibility for the private sites from the critical infrastructure;
2.1.3. Selection and preparation (education, teaching and training) of the necessary personnel;
2.1.4. Maintaining a stable energy balance of power;
2.1.5. Diversification of the risk for supplies, routes and sources of energy resources;
2.1.6. Abilities and national coordination in the case of crisis of all kinds;
2.1.7. Network and information security and cyber security, liaison between agencies,
coordinating unit for monitoring;
2.1.8. Developing a hybrid threat response strategy;
2.1.9. Social measures to reduce the risk of external impact - raising incomes, minimal human
intervention, transparency, accountability and responsibility;
2.1.10. Ability to acquire and exchange information, coordination and interinstitutional
cooperation;
2.1.11. Building and updating capabilities to conduct anti-terrorism / counterterrorism
operations;
2.1.12. Improving education, training and scientific research in the field of national security;
2.1.13. Building national capabilities to counter radicalization, extremism and terrorism;
2.1.14. Building capacity for planning, coordination and interaction between the MoI, MoD and
security services in the joint execution of tasks;
2.1.15. Improvement of intelligence capabilties, early warning and crisis management;
3. Discussion Area 3;
3.1. Defining and analysing the existing institutional capabilities to counter hybrid threats;
3.1.1. Defence capabilities of the MoD (Cyber Defence?);
3.1.2. National strategy on cyber security "Cyber Sustainable Bulgaria 2020";
3.1.3. Requirements for the preparation of vessels for information security in the field of
maritime transport;
3.1.4. Legislative steps to change Art. 94 of PCIA for inclusion of a system such as "Screen"
in AIS;
3.1.5. Mutual recognition agreement system for biometric data capture;
4. Discussion Area 4;
4.1. Lack of abilities to counteract hybrid threats;
4.1.1. Norms, bodies and prevention capabilities;
4.1.2. Capabilities for integral information and cyber security, including information and
social networks;

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4.1.3. Functioning e-government, full range of e-services for citizens;

4.1.4. Critical infrastructure protection systems;
4.1.5. Monitoring, early warning and announcement systems;
4.1.6. Joint education and training of institutions;
4.1.7. Increase of the responsibilities for strategic communication;
4.1.8. Policies and mechanisms for solving demographic problems;
4.1.9. Abilities to deal with migratory pressure, trafficking of human beings, goods and drugs;
4.1.10. Interinstitutional and international cooperation and interaction;
5. Discussion Area 5;
5.1. Forms and methods of interinstitutional interaction for the formation and use of
capabilities to counter hybrid threats;
5.1.1. Interaction regarding cybersecurity, establishment of national Standard Operating
Procedures;
5.1.2. Joint education, preparation, exercises and trainings;
5.1.3. Change of the legal framework on the interaction between the institutions;
5.1.4. Establishment of a single national network for communication and crisis management,
interagency cooperation capabilities and a single database.

Table 1: List of the main functions of the national security system

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The in-depth discussion facilitated the initial classification of key features of hybrid threats:
• Deliberately planned and controlled use of overt and covert tactics;
• Conducting military or non-military information, cyber, intelligence operations;
• Political, diplomatic and economic pressure;
• Use of conventional armed forces;
• Generation of vagueness and ambiguity among the attacked and the international
community to disguise true goals;
• Blurring the line between peace, aggression and war;
• Lowering the impact profile to prevent allied and international reaction;
• Exploiting the weaknesses and vulnerabilities of contemporary society, institutions and
countries;
• weaknesses in national institutions, state governance and corruption;
• lack of confidence and support for internal security and defence;
• ethnic division and neglect of the interests of large ethnic groups - political and economic
marginalization;
• critical dependency on resource import, economic and energy dependency, strong
dependence on critical infrastructure - finance, energy, communications and transport,
cyber vulnerability.

As a result of the discussions, concrete proposals and recommendations for enhancing

institutional and public resilsience are expected through:
• Working institutions and political system with broad public support;
• Transparency in the financing of political parties;
• Rule of law and fight against corruption;
• Respect and protection of the civil rights of citizens;
• Access to administrative and social services;
• Reducing social exclusion;
• Establishing common criteria for the protection of national infrastructure;
• Protection of critical infrastructure, reduction of the number and scale of critical
vulnerabilities of the country, of the information systems and networks;
• Diversification of the sources for resource and energy supplies;
• Reducing the possibility of sudden interruptions and filling the shortage of resources;
• Abilities to respond immediately to internal tension and uncertainty;
• Support from membership in unions and international organizations;
• Specialized training and exercises.

The selection of five possible areas for threat occurrence and multiple variables in the
organization of the particular business simulation game facilitates the presentation and,
subsequently, testing of this research practice with the preliminary attitude that, in order for any
simulation to be effective, during the organization and conduct of the business simulation game
should be planned, as far as it is possible, to achieve a smaller number of objectives. The pursuit
of numerous goals leads to an increase in subjectivity and conditionality, which may
compromise the chosen model of the game, and it may be that insufficient attention is paid to
its main tasks. In accordance with practically proven limitations in the application of the theory
of simulation games, the level for conducting the game and evaluating the results is one -
strategic, national. The operation on several levels, even just one in the context of the other
(operational level in a strategic context) leads to a number of conventions and failure to account
for the dynamics of the two different levels, or to placing one of them in a static state, which
would lead to a decrease in the qualities of the final results of the study (Terziev, Stoyanov,

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Georgiev, 2017c- j; Dimitrovski, Pushova, Georgiev, 2017k-l). The analysis of the results of
the business simulation game should focus on solving the specific initial tasks and achieving
only the intended goals. The use of business games as a method of scientific study does not
allow for full coverage and consideration of all constraints in the internal structure and
functionality of the represented institutions, so the study focuses solely on the relevance of the
regulatory obligations to identify potential challenges for the national security in pre-defined
areas of manifestation and the ability to respond with the availability the institutional capacity.

3. CONCLUSION
The methodology developed for assessing the role and capabilities of counteracting hybrid
threats to the institutions of the national security system allows: Definition of potential hybrid
threats, whose manifestation may endanger the national interests and the national security of
the Republic of Bulgaria: Identification of the areas of available institutional capacities;
Identification of the deficits of institutional capacities; Determination of the need for
institutional capabilities to respond to hybrid threats and the opportunities for their creation;
Identification of forms of interinstitutional interaction for the creation and use of capabilities to
counter hybrid threats.

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