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2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
Activity Based Costing System and Model Application in a Marble Business
Ġsmet TĠTĠZ
Faculty of Economics and Administrative Sciences
Suleyman Demirel University,Turkey
titiz@iibf.sdu.edu.tr
Harun ÖZTÜRK
Faculty of Economics and Administrative Sciences
Suleyman Demirel University,Turkey
hazrunozt@iibf.sdu.edu.tr
Davut KARAMAN
Alanya Vocatıonal Hıgh School
Akdeniz University,Turkey
davutkaraman07@hotmail.com
Abstract : As well as being the key of economic developement, the growth of
national economies is the most important factor that pollutes environment, because
it increases the consumption. Companies are the biggest producer and consumer in
economy. Businesses manifacture their products in multiple countries and remove
borders because of today‘s economic and competitive conditions. Protection and
development of resources is the basis of sustainable development. Today, most
businesses face difficulties about rival businesses‘ competitive power and price
politics. But,for well established firms ―crises are temporary, competitiveness is
permanent‖, so the target of businesses is to obtain this competitive power and
sustain it. ABC system is a more accurate cost calculation method. ABC system
focuses on activities instead of traditional volume based costing. ABC system
focuses on what causes the formation of costs and how to make contact with costs
and products. Application is made by taking a marble company as an example, and
results have been evaluated.
Keywords : Activity based costing system, Marble Industry, Cost
Introduction
The technological advences experienced in our day is not only affected the production systems but also
these advences have necessitated changes in accounting structures. Because of these interactions, businesses were
forced to move to the new costing system in order to adapt economic development. Companies had to use new
production technologies because of the acceleration of communication and international competition (Kaygusuz &
Dokur, 2009).
With 1980s completely aggravated new environment and global computitive conditions, were the reasons
why companies tried to develop management. The other reasons fort his efforts were (Öker, 2003):
- Rapid transformation of computer use in the production process
- Innovations in production technology and quality control.
- Developments in the field of communication and logistics
In accordance with the above-mentioned reasons, new methods and approachs that applied in production
management, provided the companies to improve quality, to reduce the level of stock and losses (Hacırüstemoğlu
& ġakrak, 2002)
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�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
In this study, the concepts of cost and accounting are analysed seperately. The advantages and
disadvantages of activity-based costing system are revealed. It is tried to be understood wheter this design is
appropriate for the companies by an application for marble companies.
The concept of Cost
The goal of all companies is to create a new value at the end of their activities. General meaning of cost is
the monetary expression of sacrifices incurred for reaching the goal (Uragun, 1993).
Activity-Based Cost System
Activity-Based Cost System has emerged as a result of inadequacy of traditional methods . Cost elements,
make distribution costs , moving from the fact that activity uses resources. Cooper and Kaplan (1988) first
introduced the activity-based cost system and increased its popularity. According to Cooper and Kaplan, Activitybased cost is a strategy aimed tool not a formal accounting method.
In todays increasingly competitive conditions, cost factors which used for production has to be determined
exactly . Besides determining the production costs, ABC makes a database about activities and gives important
information about the functions of the company. Here the concept of activity, is defined as work made in an
organization (ġakrak, 1997).
ABC method is based on certain assumptions. These are (Holmen, 1995):
- Activities use resources,
- Product/services use activities
- In the method of ABC, using approach is dominant instead of spending.
These assumptions reveals the structure of the model and gives the direction for operation. There is a cost
pool for each activity.
Process value analysis
Process value analysis is a systematical analysis that is required for service fulfillment. This
analysis
determines all the activities that consumes the sources for producing or serving. It defines activities as creating add
value and not (Arzova, 2001).
The selection of distribution key
ABC system provides more reliable information about cost by using multiple distribution switches instead
of traditional cost methods while loading costs to products;/ services. According to this there have to be a distribution
key for all activities made by the company.
The key of ABC system which represents the activity best must be determined and overall production costs
of the organization should be distributed with this key. Inappropriate selection of keywords can lead all efforts in
vain. Therefore keys have to be determined completely. ABC system focuses on activities instead of chapters. While
loading costs on products, the activities are undertaken. Products are manufactured as a result of activities. Activities
consists of several subactivities. Production preparation activities can be shown as an example for sub-activities.
Monitoring costs for activity headquarters
ABC first installs resource costs to activity centers. Also it performs a two stage action by loading these
costs to products/services. Cost carriers reflect the causation relations between activities and cost group.
To avoid any distortion in product costs, they should be distributed directly to cost centers (Erdoğan, 1995).
Cost Carrier Selection
One of the most important stage in the design process is the selection of carrier operations. According to
Cooper the selection of activitiy carriers requires two important decisions that are seperated but related (Cooper,
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1993: 34). How many activity carriers will be used? Which activity carriers will be used? These two decisiosare
related because the quality of selected activity carrier affects the number of required activity carrier.
The limits of Activity Based Cost
There are certain issues that must be emphasized about activity based costing method. The following two
conditions must be considered to avoid false results. First, excess capacity costs must not be loaded to product costs,
because this situation causes the reduction of demand. Secondly, all research and development costs related to new
products and product lines. The companies which prepare a wide R & D program for short life circled products ,
have to measure costs and incomes, according to the life time of the products.
Marble Supply and Usage in Turkey
Rock formations which can be used as marble are found in many parts of our country., Different
organizations and their studies indicate that Turkey‘s marble reserves are around 14 billion tonnes. There are about
550 marble quarries. The working field is about %8. In other words, 92% of known fields are not operational.
Uses of marble is construction industry, cemeteries, sculpture, jewelry making and decoration. The correct
choice of marble is possible by complying with qualification standards of marble.
Many factors influence to determine using places of marble.
Cost Calculation of Marble
At the end of each production process, production loss should be estimated and its impact on costs should
be measured. While making the process of calculating, production cost is accepted for production cut. The costs of
products and semi products are calculated seperately. Costs which are created in help service locations, should be
loaded to products which are produced at appropriate measures.
It is important to calculate the costs, correctly, in time and reliable. Therefore it is necessary to be careful
about determining methods.
Information about the company which ABCS application will be applied to
X marble industry and Trade Company operates since 1984 in Afyon district. Its subsidiary, X Marble
Industry Trade LĠmited company operates since 1998. Business manager and his assistant undertakes the
administrative staff and some jobs in the department of production. There are 28 staff workers, 9 administrative staff
in total 37 staff in may 2009.
They produce 12000 cubic meters of marble per year.
X marble industry and Trade Company exports to United States,Canada ,Germany,Italy,Middle East and
Gulf Countries such as Israel,Saudi Arabia,United Arab Emirates where its a large part of exports.
Existing Cost Analysis Method
Businesses have a wide range of production.Production quantities and production techniques of these
products differ. These differences, hardens to calculate the product costs exactly.
Direct first material and tool costs are loaded directly to products and labour and general production costs
are loaded indirectly.
Activity Based Costing Application
Activity Based Costing System based on activities in which the costs of activities consists of the resources
consumed. These informations are measured from the balance of three months , january-march 2009.
Direct labour costs
90.944,25 TL
Business material costs
7.533,545 TL
Spare parts costs
8.143,336 TL
Other indirect material costs
1.403,690 TL
Meal expenses
4.856,647 TL
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Electricity expenses
2.537,226 TL
Water expenses
3.870.433 TL
Fuel expenses
13.230,575 TL
Repair and maintenance labor costs
8.000,000 TL
Vehicles expenses
1.104,267 TL
Communication expenses
874,359 TL
Depreciation of fixed asset management 122,152 TL
departmend
Stationery expenses
125,901 TL
Cleaning materials expenses
432,863 TL
Photocopying costs
27,669 TL
Computer equipment expenses
223,933 TL
Photocopying material costs
55,203 TL
Fax material costs
42,000 TL
Drinking water expenses
487,500 TL
Comprehensive business insurance
1,895 TL
Above expenses are given from balance of business.
Traditional Costing System
1) Lilac Beige Marble
Unit Cost
= 20,14 TL
Unit Sales Price
= 27 TL
Unit Profit
= 6,86TL
2) Afyon White Marble
Unit Cost
= 18,97 TL
Unit Sales Price
= 24,5 TL
Unit Profit
= 5,53TL
%25,4
%22,5
Activity Based costing System
1) Lilac Beige Marble
Unit Cost
= 14,804 TL
Unit Sales Price
= 27 TL
Unit Profit
= 12,196TL
2) Afyon White Marble
Unit Cost
= 12,207 TL
Unit Sales Price
= 24,5 TL
Unit Profit
= 12,293
%45,7
%50,17
Conclusions
According to the results of the traditional cost system, unit cost of lilac beige marble is 20.14TL and the unit
cost of Afyon marble is 18.97TL. According to the result of this method,the price of lilac beige marble is 27 TL/M2
and Afyon white marble is 24.5 TL/M2 .
According to results of activity based costing system, unit cost of lilac beige marble is 14.804TL and Afyon
marble is 12.207 TL. Unit sales price of lilac beige marble is 27 TL/M2 and afyon white marble is 24.5 TL/M2.
The unit profit in traditional method is 5.53 TL. In activity based costing system unit profit is 12.293 TL.
According to ABC system unit profit rate is 50.17% and in traditional costing system unit profit rate is 22.5%.
ABC system gives more accurate and reliable information than traditional costing system. Besides all well
designed and developed an activity based costing system gives positive results in both production business and
service business.
References
ARZOVA, B.S., Faaliyet Tabanlı Maliyet Yönetimi ve Muhasebe Sistemi, Doktora Tezi, Marmara Üniversitesi, Sosyal Bilimler
Enstitüsü, Ġstanbul, 2001.
COOPER, R.,R. S. KAPLAN, "How Cost Accounting Distorts Product Cost", Management Accounting, April, 1988.
COOPER, R. , Activity Based Costing For Improved Product Costing, Hand Boook of Cost Management, Edited by Barry
Brinker, New York, 1993.
HACIRÜSTEMOĞLU, R. ve M ġAKRAK,. , Maliyet Muhasebesinde Güncel YaklaĢımlar, Ġstanbul: Türkmen Kitapevi, 2002.
HOLMEN, J. S., ―ABC vs. TOC: It‘s A Matter of Time‖, Management Accounting, Vol: 76, No: 7, 1995.
640
�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
ERDOĞAN, N. , Faaliyete Dayalı Maliyetleme, Anadolu Üniv. Yayınları, EskiĢehir, 1995
KAYGUSUZ, Sait Y., ġükrü Dokur; Maliyet Muhasebesi, Dora Yay:31, Bursa-2009
ÖKER F., ―Faaliyet Tabanlı Maliyetleme‖, Literatür Yayınları, Ġstanbul, 2003., s.17.
ġAKRAK, M. , Maliyet Yönetimi, Yasa Yayınları, Ġstanbul, 1997.
URAGUN, M. Maliyet Muhasebesi ve Mali Tablolar, Yetkin Basımevi, Ankara, 1993.
641
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Title
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Activity Based Costing System and Model Application in a Marble Business
Author
Author
TİTİZ, İsmet
ÖZTÜRK, Harun
KARAMAN, Davut
Abstract
A summary of the resource.
As well as being the key of economic developement, the growth of national economies is the most important factor that pollutes environment, because it increases the consumption. Companies are the biggest producer and consumer in economy. Businesses manifacture their products in multiple countries and remove borders because of today‘s economic and competitive conditions. Protection and development of resources is the basis of sustainable development. Today, most businesses face difficulties about rival businesses‘ competitive power and price politics. But,for well established firms ―crises are temporary, competitiveness is permanent‖, so the target of businesses is to obtain this competitive power and sustain it. ABC system is a more accurate cost calculation method. ABC system focuses on activities instead of traditional volume based costing. ABC system focuses on what causes the formation of costs and how to make contact with costs and products. Application is made by taking a marble company as an example, and results have been evaluated.
Date
A point or period of time associated with an event in the lifecycle of the resource
2010-06
Keywords
Keywords.
Conference or Workshop Item
PeerReviewed
HB Economic Theory
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2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
AHP Modeling in Selection of Students for a Part-Time Work: International
Burch University Case
Ali GÖKSU
Assist. Prof. Dr., International Burch University, Faculty of Economics
Department of Business Administration
goksu@ibu.edu.ba
M. KürĢad ÖZLEN
Research Assistant, International Burch University, Faculty of Economics
Department of Business Administration
kozlen@ibu.edu.ba
Murat ÇUHADAR
Assist. Prof. Dr., Süleyman Demirel University, Turkey
mcuhadar@sdu.edu.tr
Abstract: Making the right decision for an enterprise is very important for its profit, efficiency,
and effectiveness. For these reasons, Decision making in an organization takes a very important
place. In this paper, the most appropriate selection of a student for a particular part time work in a
university will be examined. There are several methods to make a decision. A multi-criteria
Decision Making method will be used to select the most suitable student. The method for this
selection will be Analytic Hierarchy Process (AHP). While making a decision many factors should
be considered. And Analytic Hierarchy Process is a quite useful method to cover many
determinants.
Keywords: Multi-Criteria Decision Making, AHP, Part-Time work,
1. Introduction
Decision Making is a very hard and complicated procedure in many cases through the life of human being.
There are usually many factors affecting the decision problem. So some methods have been developed. These are all
‗Multi-criteria Decision Making‘ methods.
1.1. Multi-Criteria Decision Making
Parallel to the progress of the science and technology, it is a well-known reality that one dimensional or one
variable analysis is not enough to solve more complex problems. In one dimensional analysis, the most important
assumption is to suppose all the other variables constant except the one which was analyzed. However, all the events
in the universe happen with the influence of many inside and outside effects, and this forms a very complex
structure. So the events and the objects should be defined with respect to many variables and collective effects of
them (DaĢdemir, Güngör, 2002-2003-2004 Vol. I-II). Therefore the importance of Multi-Criteria Decision Making
cannot be questioned. AHP is one of Multi-Criteria Decision techniques.
1.2. Personnel Selection
Human Resources in an organization has an extremely important place (Werther and Davis, 1994). So the
preliminary condition is to detect the need for qualified personnel and select them efficiently and effectively. This is
the most crucial issue for the organization and the procedure should work fast and correctly (Özgörmüs, Mutlu, and
Güner, 2005). And the scientific approach to the problem has a great account. So in this study for giving the decision
scientifically Analytic Hierarchy Process will be used.
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1.3. Part Time Work in a University
As a result of Both Economic developments in the world and changes on the necessities of work
environment, the need for and the importance of ‗Part-Time work‘ have been increased. Organizations employ
regular and part-time workers at the same time. While employing a Part-time student, there are some points which
should be taken into consideration. And both the university and the student should get benefit from this procedure.
2. Research Background: Analytic Hierarchy Process
Analytic Hierarchy Process (AHP) was developed by Thomas L. Saaty in 1977. It is one of the methods
which are used for Multi-criteria Decision Making. The main advantage of this method is that the multi-criteria can
easily be managed. Additionally, AHP can be understood easily and it does not contain unnecessary mathematical
operations (BaĢligil, 2005). Through AHP, The observations of Decision Maker‘s in different psychological and
sociological situations can be taken into account and his decision making mechanism will be tried to define. So, the
aim is to provide a better environment to Decision Makers (Dağdeviren, Akay and Kurt, 2004).
The required steps to be satisfied via AHP are given below. The necessary explanations with formulas are
done in each step.
2.1. Defining the Decision Problem
This step is also known as Decomposition Phase. This phase is the process of decomposition of the problem
into sub-problems. In short, this is the formulation of the decision hierarchy. First, the objective of the study is
identified. Then the suitable criteria of the objective are indicated. There may be more than one criterion or suncriteria related with the problem. These criteria should be clear and understandable. At the top of the Decision
Hierarchy, there is the main goal. At the bottom, there are decision alternatives. The hierarchy may contain more
than one phase according to the degree of the details related to the criteria.
2.2. Comparison
The pair-wise comparison matrix is formed by evaluating each criteria and sub-criteria with respect to each
other (Kuruüzüm, 2001). There is a comparison matrix shown in Table 1 for four criteria.
1 1/a21 1/a31 1/a41
a21 1 1/a32 1/a42
1 a43
a31 a32 1
a41 a42 a43 1/
1
a21
a31
a41
1 / a21 1 / a31 1 / a41
1
1 / a32 1 / a42
a32
1
1 / a43
a42
a43
1
Table 1. Pair-wise Comparison matrix for four criteria
While comparing the alternatives a comparison scale which is called Analytic Hierarchy Scale is used. It is
given in Table 2.
Intensity of Importance
1
3
5
7
9
2,4,6,8
Reciprocals of the above
1.1 – 1.9
Definition
Equal importance
Weak importance of one over other
Strong Importance
Demonstrated Importance
Absolute Importance
Intermediate Values
If activity i has one of the above numbers assigned to it when compared
with activity j, then j has the reciprocal value when compared with i.
When elements are close and nearly indistinguishable
Table 2: Analytic Hierarchy scale
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2.3. Synthesis
After developing pair-wise comparison matrices, the calculations are done for the relative order of the
criteria among each other. This section is called ―Synthesis Section‖. If the number of the criteria is five or more, the
calculations are very hard in this step. While setting up the priority vectors, Linear Algebra techniques are used.
This phase contains the steps: The calculations of maximum eigen-value and corresponding eigen-vector and
normalization. There are several methods for normalization. According to the literature most common method is,
first the percentages of each element according to its column are calculated and the average of each row is taken.
Thus for every criteria priority vectors are found (Kuruüzüm, 2001).
2.4. Consistency Ratio
An important subject for the quality of the resultant decision is the consistency of the evaluation of the
decision maker. Being consistent is accepted as a prerequisite for rational thinking. But it is almost impossible to be
fully consistent. To get new knowledge is possible by allowing some amount of consistency. AHP does not request
perfect consistency. It permits consistency, but in each decision it measures the consistency level. To measure the
consistency of the decisions, the Consistency Ratio which was developed by Saaty, is used. The formula for
consistency is, CI
max n
n 1
To get consistent results, consistency ratio should be smaller than 0,1. The Random Index for 15 criteria is
shown in Table 3. If the number of the criteria is greater than 15, then the probability of getting healthier results will
be lessened (Kwiesielewicz and Uden, 2004).
Number
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
R. Index
0
0
0.58
0.9
1.12
1.24
1.32
1.41
1.45
1.49
1.51
1.48
1.56
1.57
1.59
Table 3: Random Index
3. Application
In this study, the aim is to select the most appropriate student for a part time work by using a multi-criteria
decision making method AHP.
The selection is done among Economics Department students which applied for the work. The applied
students have filled out application forms at first. The conditions in the application form are determined by the
Administration of the university and also the criteria of Higher Education Committee of Turkey were considered.
The information in the forms has been used in the selection. In addition to this, a survey was applied on the members
of the administration. And the results of this survey were inserted to the decision matrix. Hence the criteria which
have been considered in this study are,
Economic Situation
Psychological and Medical Situation
Mental problems
Medical problems
Good mannered
Clean wear and neat appearance
Work Qualifications
Work experience
Adaptability to the group-work
Adaptability to the work environment
Work discipline
The hierarchical structure is shown in the Figure 1. At the top of the hierarchy, there is the decision
problem. Then in the second step, there are the main criteria. And in the last step, there are sub-criteria.
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The selection of the most
appropriate student
Economic Situation
Psychology and Medical
Situation
Clean wear and neat appearance
Work qualifications
Work Experience
Mental
Adaptability to groupwork
Medical
Adaptability to work
environment
Good Mannered
Work discipline
A
B
C
D
Figure 1: The hierarchical Structure of the model
The following tables are obtained after the calculation of the means of the survey results. In Table 4, there
are the normalized results of the main criteria and their weight vector. It can be easily observed that the most
important criterion is Work quality.
Criteria
Economic
Situation
Psychology
and
Medical Situation
Clean wear and
neat appearance
Work
qualifications
Weight
Vector
Economic Situation
0,136
0,313
0,214
0,083
0,187
Psychology
and
Medical Situation
0,136
0,313
0,357
0,417
0,306
Clean wear and neat
appearance
0,045
0,063
0,071
0,083
0,066
Work qualifications
0,682
0,313
0,357
0,417
0,441
Consistency Ratio
% 9,887
Table 4: The normalized matrix of the main criteria and their weights
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Then the rank of the criteria according to the importance is as follows.
1. Work qualifications
2. Psychology and Medical Situation
3. Economic Situation
4. Clean wear and neat appearance
The results in the tables are obtained by using Microsoft Office 2007 Excel. But for easy calculations for
AHP problems The Software program Expert Choice may be used.
In Table 5, the sub-criteria of Psychology and Medical Situation are examined and accordingly, the
importance of ‗Mental problem‘ is seen.
Psychology and Medical
Situation
Mental Problem
Mental Problem
Medical Problem
Good Mannered
Weight Vector
0,714
0,714
0,714
0,714
Medical Problem
0,143
0,143
0,143
0,143
Good Mannered
0,143
0,143
0,143
0,143
Consistency Ratio
% 0,000
Table 5: The normalized matrix of the criterion Psychology and Medical Situation and its weights
In Table 6, the weights of sub-criteria of the criterion ‗Work qualifications‘ can be seen. ‗Work discipline‘
is the most important criterion and the least important criterion is ‗Adaptability to work environment‘.
Work qualifications
Work
experience
Adaptability
to the groupwork
Adaptability
to the work
environment
Work
discipline
Weight
Vector
Work experience
0,125
0,188
0,125
0,107
0,136
Adaptability to the groupwork
0,125
0,188
0,375
0,179
0,217
Adaptability to the work
environment
0,125
0,063
0,125
0,179
0,123
Work discipline
0,625
0,563
0,375
0,536
0,524
Consistency Ratio
% 7,030
Table 6: The normalized matrix of the criterion Work qualifications and its weights
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In the conclusion part, the pair wise comparison of alternative students according to the criteria was done.
And the result which is shown in Table 7 appeared. As seen in the table, the most appropriate alternative is the
alternative B.
0,187
0,306
0,714
0,143
0,143
ES
MNP
MDP
GM
A
0,229
0,491
0,25
B
0,343
0,291
C
0,326
D
0,103
0,066
0,441
Weight
Vector
0,136
0,217
0,123
0,524
CWA
EW
AG
WE
WD
0,283
0,323
0,231
0,208
0,200
0,252
0,298
0,25
0,418
0,295
0,231
0,525
0,200
0,554
0,379
0,067
0,25
0,082
0,214
0,231
0,109
0,333
0,097
0,169
0,151
0,25
0,217
0,168
0,307
0,158
0,267
0,097
0,154
1,000
Table 7: The normalized matrix of the students and their weights
4. Result And Evaluation
Decision making takes place in every part of the life. Especially in large organizations, there are many
criteria to select staff. When the number of the criteria is increased, then it would be hard to select the worker. So the
selection should be done in a more scientific way. AHP method offers the decision maker an alternative. A software
program using AHP can be developed, to do multi criteria decisions.
The same type of study can be applied on many decision cases in the life. The study shows that in many
specific and complicated situations, Analytic Hierarchy Process can be easily done. And it can offer the best decision
alternative to the Decision Maker.
References
BAġLIGĠL Hüseyin, 2005, ‗‗The Fuzzy Analytic Hierarchy Process For Software Selection Problems‘‘, Yıldız
Teknik Üniversitesi Mühendislik ve Fen Bilimleri Dergisi, C.3, Istanbul
DAĞDEVĠREN Metin, AKAY D., KURT M., 2004, ‗‗ĠĢ Değerlendirme Sürecinde Analitik HiyerarĢi Prosesi ve
Uygulaması‘‘, Gazi Üniversitesi Mühendislik ve Mimarlık Fakültesi Dergisi, C.19, No.2, Ankara
DAġDEMĠR Ġsmet, GÜNGÖR Ersin, 2002-2003-2004 Vol. I-II, Çok Boyutlu Karar Verme Metotları Ve
Ormancılıkta Uygulama Alanları ZKÜ, Bartın Orman Fakültesi Dergisi
GÖKSU Ali, Güngör Ġbrahim, 2008, ―Bulanık Analitik HiyerarĢik Proses ve Üniversite Tercih Sıralamasında
Uygulanması‖, Süleyman Demirel Üniversitesi Ġktisadi ve Ġdari Bilimler Fakültesi Dergisi, S 3.
GÜNGÖR Ġbrahim, ISLER BÜYÜKER Didar, 2005, ‗‗Analitik HiyerarĢi YaklaĢımı ile Otomobil Seçimi‘‘,
Zonguldak Karaelmas Üniversitesi Sosyal Bilimler Dergisi, C.1, S.2, Zonguldak
KURUÜZÜM AyĢe, 2001, ―Analitik HiyerarĢi Yöntemi ve Ġsletmecilik Alanındaki Uygulamaları‖, Akdeniz
Üniversitesi Ġktisadi ve Ġdari Bilimler Fakültesi Dergisi, C.1, S.1, Antalya
541
�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
KWIESIELEWICZ Miroslaw, UDEN Ewa Van, 2004, ―Inconsistent and Contradictory Judgments In Pair wise
Comparison Method In The AHP‖, Computers & Operations Research 31
MANAP Gonca, 2006, Tourism Centre Selection with Analytic Hierarchy Process, Journal of Commerce & Tourism
Education Faculty
ÖZGÖRMÜS Elif, MUTLU Özcan, and GÜNER Hacer, 2005, Personnel Selection by Fuzzy AHP, V. Ulusal Üretim
AraĢtırmaları Sempozyumu, Ġstanbul Ticaret Üniversitesi
SAATY T. L., 1980, ―The Analytic Hierarchy Process‖, McGraw-Hill Inc.
SAATY T. L., 1994, How to Make a Decision: The Analytic Hierarchy Process, Decision Analysis—
Systems/Decision Analysis—Applications.
542
�
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270
Title
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AHP Modeling in Selection of Students for a Part-Time Work: International Burch University Case
Author
Author
GÖKSU, Ali
ÖZLEN, M. Kürşad
ÇUHADAR, Murat
Abstract
A summary of the resource.
Making the right decision for an enterprise is very important for its profit, efficiency, and effectiveness. For these reasons, Decision making in an organization takes a very important place. In this paper, the most appropriate selection of a student for a particular part time work in a university will be examined. There are several methods to make a decision. A multi-criteria Decision Making method will be used to select the most suitable student. The method for this selection will be Analytic Hierarchy Process (AHP). While making a decision many factors should be considered. And Analytic Hierarchy Process is a quite useful method to cover many determinants.
Date
A point or period of time associated with an event in the lifecycle of the resource
2010-06
Keywords
Keywords.
Conference or Workshop Item
PeerReviewed
HB Economic Theory
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https://omeka.ibu.edu.ba/files/original/192b583b95e01d4a51d53e26f3411eea.pdf
df567e0b405ac9cfc88563f29273eeda
PDF Text
Text
2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
Alternative Financing Models for Sustainable Housing Finance System: Some
Proposals for Participation Banks in Turkey
Ali Cüneyt ÇETĠN
University of Suleyman Demirel,
Isparta, TURKEY
ccetin@iibf.sdu.edu.tr
Orhan ADIGÜZEL
University of Suleyman Demirel,
Isparta, TURKEY
orhanadiguzel@gmail.com
Abstract: This study examines some alternative financing models for sustainable housing
development. As alternatives to conventional interest-based home financing modes, several
financing models are currently in existence, the dominant among which are the cost plus sale (buyand-sell principle) and the diminishing partnership and lease contracts. In this study, the
alternative financing models compare to the conventional financing (interest-based) system using
illustration from banking practices. The paper examines the differences between the two and goes
on to discuss specific problems of housing finance. In relation to the alternative financing models,
the paper concludes that the diminishing partnership and lease contracts have several advantages
over the cost plus sale for the customer. When implemented through Turkish participation banks
and cooperatives, the diminishing partnership can provide an investment avenue for members
through the fractional reserve money creation process. Consequently, if alternative housing
financing models are adopted worldwide, sustainable housing finance system might be more stable
and fair.
Introduction
Home is a necessity for human life and owning a good home is an aspiration of everyone. People fulfill this
need by building a home on their own, purchasing it or renting it from others. Payment for conventional home
mortgage normally takes a good chunk of one‘s monthly income. Conventional home mortgages are interest-based.
Alternative financial practices for house financing arise from the Islamic contracts. Alternative methods of finance
for home do not involve interest. In an alternative house financing contract, the property should be owned by the
bank or the financial institution. In practice, this means that a financial institution would buy a property at a certain
price (exactly like any other buyer or trader). When the bank becomes a complete owner of this property, it would
then be resold at a higher price to any client who would like to buy this specific property. This prospective buyer
shows his or her interest by submitting a documented or written promise to the bank assuring that he will re-purchase
the property. There is no interest at all because the price is not changeable. Whatever happens after the sale
agreement nothing will justify any increase of the cost of the house. There is no room for any speculation to take
place in the light of any possible monthly interest rate change. Everything completely relies on the agreed price in
the contract, whether payment will be after five years or twenty. The bank deal with properties as an original owner
and sell the houses directly to the clients based on instalments or some other mode of the alternative mortgage
(Dwaikat, 2008).
Some financial institutions have introduced a number of modes for home ownership, the dominant of which
are the cost plus sale (CPS) contract and the diminishing partnership and lease (DPL) contracts. The CPS is the
popular concept in countries like Malaysia, Indonesia and Brunei whereas the DPL is widely practiced in the Middle
East, United States, Canada, United Kingdom and Australia (Meera and Razak, 2005, p. 5–6).
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�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
The objective of this paper is to make theoretical analyses between the CPS and the DPL contracts. For the
benefit of the interested readers, managers and customers of participation banks, the paper also provides some
examples for the DPL contract.
Alternative House Financing Models
As alternatives to conventional interest-based home financing modes, several alternative modes are
currently in existence, the dominant among which are;
– Cost plus sale (Murabaha5)
– Leasing to rent (Ijara):
– Lease to own (Ijara wa Iqtina‘a 6)
– Diminishing partnership and lease model (the Musharakah Mutanaqisah Partnership)
Controversy about alternative home financing practices can arise when the translation is made from Arabic
to English. For this reason, British government departments use the same words for different concepts: Ijara (FSA,
2006, p. 3) (leasing to rent), Ijara wa Iqtina‘a (HM Treasury, 2007, p. 9) (lease to own).
The Cost Plus Sale (CPS)
Cost plus sales (CPS) similar to a buyer‘s credit (see, Jackson, 2004, p. 26; UNCTAD, 2006, p. 12). Cost
plus sale is a contract between the customer and the financial institution that entitles the institution to purchase the
goods and sell them again to the customer on deferred instalments without the need to have an interest–bearing loan
(Hassan, 2007, p. 4–5). Here, it could be said that when the banks undertake the transactions according to CPS
contracts, they actually play the role of traders (Akhtar, 2005, p. 26). The process of this contract starts when the
customer requests a tangible asset from a supplier, the financial institution sells it, and then the customer pays the
money to the institution on a deferred sale basis with a mark- up reflecting the institution‘s profit, which is called a
cost-profit (Segrado, 2005, p. 10). It means that this contract is a sale transaction. A specified profit margin goes to
the institution by special agreement whereby the institution funds the purchasing operation for the benefit of the
customer, but in an indirect way, through buying the goods then selling them again to the customer, who should
return the money within an agreed time limit, in instalments or in a lump sum.
Any risk connected to the goods bought by the institution should remain its responsibility until they are
delivered to the customer. This method of financing used to be one of the most important tools used extensively by
participation banks for funding commodity trade by acquisition of long-term assets. In other words, the financial
institution (bank) gives the client a commodity loan, the value of which will be returned to the bank at a cost to the
bank plus a mark up (Gaber, 2007, p. 6). There are some conditions for a correct cost plus sale contract:
– The bank (the seller) keeps the ownership rights of the commodity from the time of negotiation until the end of the
contract.
– The bank should give the client the exact cost of the commodity, and define the sum of profit in advance. That
must be added together and quoted to the client as a final price (Abdelhamid, 2005, p. 37).
– The contract with all its transactions must be free from interest.
– Any defect in the goods to be sold must be disclosed by the bank (the seller) (Gaber, 2007, p. 6).
Cost plus sale is one of the best known forms of alternative finance; it is also applicable to financing
commercial transactions which require liquid short- term instruments, and it can also be used for long-term
investments (Lovells, 2004). In a CPS contract, the client is certain about all the details of the contract, the original
price and the mark-up that should be paid back to the bank, in addition to the clarity of the deferred instalments,
without any future changes. This means the client is not concerned about many other details, especially in connection
with a fluctuating rate of interest influenced by very changeable market prices. The client can pay all the money back
at any point without any kind of restriction or redemption fee being charged. He can pay higher instalments than the
instalments agreed on, but of course not lower. This point is a very important difference between the CPS and
conventional mortgage (Khanfar, 2009, p. 9).
The CPS is basically a sale contract which provides the buyer the benefit of a deferred payment, whereby
the deferred price of the sale object carries an additional profit. The commodity exchanged is ―delivered‖
immediately but the sale price (with profit) is paid in instalments, over a long period. The current CPS home
5
Literally, this means a profitable sale and is also called the al-Bay’ Bithaman Ajil meaning deferred payment sale (Thomas,
2001, p. 5).
6
The words mean ―leasing and acquisition‖ and it is variably called ―leasing ending in ownership‖ (Thomas, 2001, p. 8).
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�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
financing, instead of charging the customer interest, financiers charge a profit derived through a buy-and-sell
contract, but the profit rate is dependent on the market interest rate due to arbitrage activities. Therefore, while the
CPS is practiced in some countries, it is, nonetheless, converging to the conventional mode where the computational
formulas are similar to the conventional and where the profit rate tracks the market interest rate.
The current difference between the fixed-rate CPS and the conventional mode is that once the profit rate is
fixed in the CPS, say at 7% per annum, it will remain the same for the entire duration of financing. This, in fact,
causes problems for the financiers as it is difficult to estimate accurately the cost of funds and hence the appropriate
profit rate over long periods like 20 years, due to the volatility of economic conditions. This encourages customers to
refinance their home from CPS to conventional during low interest periods and vice versa (Meera and Razak, 2005,
p. 4–5).
The CPS Home Purchase plan is based on the principle of trading or buying and selling goods at a profit
Investment Banking Unit contracts with the vendor and pays the deposit required when the contracts are exchanged.
The sale price from Investment Banking Unit to the client is the price paid by Investment Banking Unit to the
vendor, plus the return Investment Banking Unit pays its investors, plus administrative expenses and a profit margin.
The property after sale to the; buyer is registered in the buyers name and the buyer repays Investment Banking Unit
fixed monthly installments.
The key features of CPS are described below (Tlemsani and Matthews, 2003, p. 7):
– Clients identify the property that wish to buy and agree the purchase price with the seller of the property in the
normal way.
– The Investment Banking Unit will buy the property, and immediately sell it to the client at a higher price. This is
calculated depending on the property value, payment terms (up to 15 years) and the amount of the first payment.
– When purchased, the property is registered in client‘s name. The sale between client and the bank is recorded in the
CPS Contract.
– Clients first payment to the bank is made on the day of completion and is client‘s initial contribution is a minimum
of 20% of the purchase price.
In a CPS based mortgage; firstly, customer find a property requests the bank to purchase it to sell it to him
at cost plus a declared profit, and then the bank purchases the property directly and sells it to on the basis of a fixed
mark-up-profit, finally, the customer agrees to pay the price in agreed upon easy installments.
Example of a CPS Financing
Assume that a customer wishes to buy a houses priced at €200, 000. The customer puts a down-payment of
10 percent, i.e. €20, 000 and finances the remaining 80 percent, i.e. €180, 000 using the CPS method. Also assume
that the Annual Profit Rate (APR) charged by the bank is 10 percent per annum and the duration of financing is for
20 years. The bank would first buy the house for €180, 000 and then sell the house to the customer at a profit, with
deferred payments over the 20-year period. The monthly payment for the above financing is €1,737.047, payable for
240 months which adds up to €416, 889.35 in total.
The difference between this figure and the original financing of €180,000 which equals €236, 889.35 is the
total profit for the bank from this transaction. The profit of €236, 889.35 is capitalized upfront in the CPS mode,
unlike under the conventional mortgage, where the interest due is not recognized until the elapse of time. One
important difference of the CPS compared with the DPL and the conventional mortgage is that of the balance of
financing remaining before the expiry of the duration of financing. For our example, the CPS balance after 10 years
(i.e. after 120 payments) is the total of the remaining 120 payments, i.e. €208, 444.80 whereas under conventional
mortgage, this amount would represent the total interest paid for the loan over the 20-year period. The bank,
however, may give some rebate for the early repayment, but the amount of rebate is determined at the discretion of
the bank. Note that even after ten years of repayment, the balance under the CPS mode can even exceed the original
financing of €180,00014 (See, Meera and Razak, 2005, p. 7).
While both the bank and the conventional bank create the original principal amounts through fractional
reserve banking system (i.e. loans given out do not really reduce the deposits of the depositors), a customer owes
more money in the alternative mode than the conventional mode at any time thereafter until the ‗loan‘ is settled. This
fact alone is very attractive for even the conventional bankers to provide alternative mode financing (See Meera,
2004).
7
Computed using the standard formula for present value of annuities (See, Meera and Razak, 2005, p. 7).
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�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
Lease
Lease is proving to be most popular method of house finance. This is because it is more flexible than cost
plus sale if the client wishes to pay bank early or if the client wish to make additional, ‗lump sum‘ payments.
The key features of lease are described below (Tlemsani and Matthews, 2003, p. 9):
– The client identifies the property that wish to buy and agree the purchase price with the seller in the normal way.
– The Investment Banking Unit will then sell the property to the client as detailed in an agreement titled ‗Promise to
Purchase‘ The purchase price between The Investment Banking Unit and client is the same price as the original
purchase.
– At the same time Client will enter into a lease with The Investment Banking Unit which details client rights to
occupy the property.
– The client pays The Investment Banking Unit monthly payment which is calculated so that part is applied towards
the purchase of the property from The Investment Banking Unit and part of it is rent.
– The payments are fixed every 12 months, April to April. At the beginning of April each year, The Investment
Banking Unit will reassess the rent and payments are likely to vary.
– Client may purchase the property from The Investment Banking Unit at any time by paying the bank the balance of
the purchase price.
Two versions of the leasing house are “lease to own” and “diminishing partnership and lease” model.
Lease to own (LTO) model:
The key features of LTO model are described below (Tlemsani and Matthews, 2003, p. 8):
– Bank buys the property from the vendor.
– Customer enters into two contracts; Promise to purchase contract and Lease contract
– In the promise to purchase contract, clients purchase the property from the bank for the original purchase
price spread over T years.
– In the lease contract, the lease contract deals with occupancy prior to completion of the purchase.
– Each monthly payment consists of rent and contribution to profit.
– The amount of the rent may be set annually and is normally aligned to the return required buy the banks
investors.
The LTO is a mode in which the financial institution buys the house and the customer repays the money
back in monthly instalments according to an agreed period in advance. During this arrangement, the client pays an
agreed rent to the financial institution for occupying the house (Wilson, 2007, p. 10). Some of the writers refer to this
mode as Lease-Purchase.
The Diminishing Partnership and lease (DPL) model:
DPL is a form of partnership in which one of the partner promises to buy the equity share of the other
partner gradually until the title to the equity is completely transferred to him. Under DPL arrangement
agreement is required; verbal or written; capital is contributed by both parties in cash or in kind; profit is shared as
per agreement while loss is shared according to share in equity; cost of repair and maintenance, insurance etc are
shared by both parties; one partner (financial institution) leases his share in asset to other (client) for a consideration.
Contract of buying and selling of equity units between partners cannot be stipulated in diminishing partnership
contract; price of units to be sold /purchased is fair value or else as agreed between parties but face value
of units cannot be stipulated (Hanif and Hijazi, 2010, p. 4).
Under this contract, the parties agree in advance that one of them will own the shared asset gradually by
paying the value of the other party‘s shares until the complete cost of transferring the title to the buyer is paid. In the
case of the mortgage contract, the bank and the customer agree to enter into a partnership to share the same property
but under two contracts: Leasing to rent contract and partnership with a period defined in advance. Here the client
pays two kinds of instalments, one as a rent for the bank‘s share, the other to increase the client‘s share in the
ownership, which diminishes the share of the bank until the client owns all the property at the end of the defined
period (OICU–IOSCO, 2004, p. 11).
The DPL contract is based on two portions to the contract. First, the customer enters into a partnership
under the concept of joint ownership agreement with the bank. Customer pays, for example, 10% as the initial share
to co-own the house whilst the bank provides for the balance of 90%. The customer will then gradually redeem the
financier‘s 90% share at an agreed portion periodically until the house is fully owned by the customer. Second, the
bank leases its share (90%) in the house ownership to the customer under the concept of lease, i.e. by charging rent;
and the customer agrees to pay the rental to the bank for using its share of the property. The periodic rental amounts
will be jointly shared between the customer and the bank according to the percentage share holding at the particular
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�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
times which keeps changing as the customer redeems the financier‘s share. The customer‘s share ratio would
increase after each rental payment due to the periodic redemption until eventually fully owned by the customer
(Meera and Razak, 2005, p. 8–9).
The key features of DPL model are the financier and the client to participate in the joint ownership of a
property and the share of financier is divided into a number of units. The client can purchase those units periodically
(Tlemsani and Matthews, 2003, p. 8).
Example of a DPL Financing
Consider the same example as for the CPS concept where a customer wishes to buy a house priced at
€200,000. Let‘s assume again that the customer pays 10 percent of the price, i.e. €20,000, the financier puts the
remaining 80 percent, i.e. €180,000 and that the average rental for similar homes in the locality is agreed upon
between the two parties to be €1,000 per month. In addition, the customer wishes to add another €289.58 monthly 8 in
order to redeem the financier‘s share in 20 years. This gives the total monthly payment as €1,289.58. Table 1 below
provides the schedule for the DPL contract:
Mon
th
Monthl
y Rent
(€)
A
Monthl
y
Redemp
tion
B
(€)
Total
Paymen
t
Customer‘
s ratio
C=A+B
(€)
0
1
2
3
4
1,000
1,000
1,000
1,000
289.58
289.58
289.58
289.58
1,289.58
1,289.58
1,289.58
1,289.58
D
0.10000
0.10195
0.10391
0.10587
0.10785
5
1,000
289.58
1,289.58
6
1,000
289.58
1,289.58
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
240
1,000
289.58
1,289.58
Total = €309, 499.20
IRR = 6%
Rental Division
Custom Financi
er
er
E
F
Customer‘
s
Equity
Financier‘
s
Equity
H
(€)
180,000
179,610.4
179,218.9
178,825.4
178,430.0
Financie
r‘s
Cashflo
w
100.00
101.95 *
103.91*
*
105.87
900.00
898.05
896.09
894.13
G
(€)
20,000.00
20,389.58
20,781.11
21,174.59
21,570.05
0.10984
107.85
892.15
21,967.48
178,032.5
1,289.58
0.11183
.
.
.
.
1.00000
109.84
.
.
.
.
993.59
890.16
.
.
.
.
6.41
22,366.89
.
.
.
.
200,000
177,633.1
.
.
.
.
0
1,289.58
.
.
.
.
1,289.58
(180,000
(€)
)1,289.58
1,289.58
1,289.58
1,289.58
1,000
Rental Distribution i.e. E-2 (Customer‘s) = 20,389.58 X
= € 101.95*; F – 2 (Bank‘s) € 898.05
200,000
G-1 Customer‘s Equity = € 20,000 + € 289.58 + € 100
H-1 Bank‘s Equity
= € 200,000 – € 20,389.60
= € 20,389.58
= € 179,610.40
Table 1. Payments Schedule for DPL
(Meera and Razak, 2005: 10)
Notice that while the amount to be paid monthly was €1737.04 under the CPS concept, the monthly amount
needed under DPL is only €1, 289.58. Therefore, the customer saves €447.46 monthly but acquires the home also in
20 years. Indeed, if the customer pays €1, 737.04 for the DPL mode as in the CPS, then the customer can own the
home in 12 years 3 months, i.e. saving about 8 years of monthly payments. Table 2 below provides a comparison for
financing the home using the conventional, CPS and DPL methods.
8
Mathematical derivations for DPL are used to obtain this amount of €289.58 (See, Meera and Razak, 2005: 24-27).
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�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
Price of house = €200,000 Customer puts = €20,000 Financier provide = €180,000 Monthly Rental =
€1,000
APR = 10%
APR = 10%
APR = 6 %
Monthly payment
Total Payment in 20 years
Total Interest/ Profit to
Bank
APR
Balance after 10 years
Conventional
Loan
1737.04
416,889.60
236,889.60
CPS
DPL
1737.04
416,889.60
236,889.60
1289.58
309,499.20
129,499.20
10%
131,443.76
10%
208,444.68
6%
116,156.56
Table 2. Comparison between Conventional Loan, CPS and DPL
(Meera and Razak, 2005: 11)
From Table 2, it is obvious that so long the annual percentage rates (APRs) are the same the total interest in
the conventional equals the total profit in the CPS. But when customer wants to settle the financing earlier, say after
10 years, the loan balance under the CPS is always higher than under the conventional loan. The balance under the
conventional is much lower because here the balance is the present value of the remaining 120 payments whereas
under the CPS it is simply the monthly payment times 120 (i.e. under CPS the total profit for the twenty years is
capitalized upfront). Nonetheless, the bank may give a rebate for early settlement which is decided at its discretion.
Nevertheless, the total payments and loan balances are lowest in the DPL among the three financing methods.
The mathematical derivation for DPL in the Appendix shows that the return to the DPL is solely determined
by the rental rate, which in this case is 0.5% per month (accordingly the APR is 6%) 9. Interestingly, this return to the
financier is neither determined by the initial capital provided by the financier nor the duration of the contract which
is usual under debt financing. The return is solely but determined by the rental alone as a percentage of the house
price. Such as the case, financiers of DPL would be tempted to finance only homes with high rental rates, whereas it
would be in the interest of the customers to negotiate for low rentals. If, in our example, the rental rate for the DPL
equals an APR of 10 percent (i.e. where the rental is €1, 666.67 per month) then, indeed, the ‗amortization‘ schedule
for all the three methods will be the same (though they differ conceptually). But one important difference would still
remain, i.e. the balance of financing before expiry of the contract. The balance under the conventional loan and DPL
would be the same while the balance under CPS would still be higher. This is because the conventional and
diminishing partnership and lease methods follow a diminishing balance schedule. Therefore, the balance under
conventional and DPL can never exceed the financiers original contribution, but under the CPS it can 10 (Meera and
Razak, 2005, p. 10–12).
The Differences between the CPS and the DPL Contracts
In summary, the main differences between the joint ownership DPL and debt-type CPS financing are as
follows (Meera and Razak, 2005, p. 17–18):
– There are two separate contracts under the DPL method. The first is a partnership where the client is a partner and
the second one is a rental which involves the leasing of the property. The CPS, on the contrary, follows the cost plus
concept of buying and selling of property.
– Under CPS, the selling price of the house does not reflect the market value since the mark-up for the deferred
payment is quite substantial. On the contrary, the value of the house under DPL always reflects the market price and
the rental is determined by the market rental values.
– The return to the CPS is based on a fixed selling price (that uses the prevailing interest rate as the benchmark). But
under DPL, the financer need not be tied to a fixed profit rate throughout the financing tenor. This is because the
rental rate can be revised periodically to reflect current market conditions. Indeed, as argued earlier, the rental can be
tied to some economic variables like Rental Index, House Price Index etc.
9
The annual percentage rate (APR) in the DPL is determined by the rental rate, i.e. the annual rent divided by the original price of
the house. In the example, it is (€1,000 x 12)/200,000 x 100% = 6% (See, Meera and Razak, 2005, p. 24-27).
10
As in the above example where after 10 years of payments, the balance under CPS is €208,444.68 which exceeds the original
amount of €180,000.
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�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
– The financier can manage the liquidity risks better as rental payments can be adjusted at the end of each
subcontract period. This is not possible under the 17current fixed-rate CPS as the profit rate is a constant throughout
the entire tenor of financing.
– Even compared with a floating-rate CPS, the DPL still differs in the balance of financing at any point in time
before the end of the contract. Under DPL the balance can never be larger than the original price/finance of the
house. Rebates for early redemption under CPS cannot be specifically stated in the contract.
– The DPL is a more flexible financing structure than the CPS as the customer can own the property earlier by
redeeming faster the principal sum of the financier, without the need to compute rebates as in CPS.
– In the event of payment defaults, the penalty charges under CPS can be challenged, while under DPL, defaults will
cause the equity of financier to remain constant and therefore entitled to higher rental portions when payments made
later.
– Currently many customers opine that the CPS is similar to the conventional loan with some ―disadvantages‖ for the
customer particularly for early redemptions.
The DPL is accepted internationally whereas the CPS is recognized predominantly in the east, i.e. in Malaysia,
Indonesia, Brunei etc.
Conventional and Alternative Home Financing Models Comparison
In the case of basic home financing, alternative products under the CPS structure, which is deferred
payment sale, might offer more competitive deals than conventional banking. In comparing the two models, an
ordinary conventional housing loan is based on debtor-creditor relationship and the interest rate charged is based on a
certain percentage above the base lending rate over loan period. Fluctuation in the base lending rate will affect total
loan cost. Simultaneously, arrears in conventional loans are normally capitalized. However, under the CPS scheme, a
seller-buyer relationship is established and the selling price is fixed upfront. The sale price is then repaid in
installments, with the amount remaining fixed throughout the financing period. This eliminates the customer‘s
interest rate risk and furthermore, arrears will not be capitalized. The CPS scheme eliminates additional or hidden
costs that will change the price of the property purchased — providing clients with a better value-for-money option
compared to conventional home financing (Islamic Finance, 2008, p. 34).
Under conventional financial system, interest is charged which is determined on the basis of demand and
supply of the capital while under alternative financial system rent of the property is charged, determined through
demand and supply of real asset. As conventional banks do not own the underlying asset, hence sharing of risk
and reward of property is not required while alternative housing finance institutions (AHFIs) are co owner of the
property and share risk and rewards attached with ownership. Return for conventional home financing model
starts from the date of loan extension facility which is not the case in AHFIs. Under DPL model return is due when
the property is ready for use either through acquisition or through construction. Conventional banks are not required
to share any loss occurred to the underlying property while AHFIs being co owner will share any damage
occurred to the house. Conventional banks will continuously receive the installments (containing interest &
principal) even if property is not use able and needs some repair. During the repair period AHFIs cannot receive the
rent. Return of conventional banks is fixed as interest while AHFIs will receive rentals as well as shares any
appreciation (depreciation) (Hanif and Hijazi, 2010, p. 6).
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�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
CONVENTIONAL HOME FINANCE
The lender advances funds to the borrower and
charges [interest] for the use of their money.
Credit references, sources of income to be able to
retune the loan before 65 birthdays.
Most of the lender has no lower limit to the
property value.
Up to 125% of the property value.
Life insurance and building are mandatory in most
cases.
Lender never owns the property.
Payment term up to 40 years.
Income Multiples Up to 5 times primary annual
income sole applicant.
Arrangement fee usually up to £500.
ALTERNATIVE HOME FINANCING
Based on trade (cost plus sale) and leasing, alternative
home financing models are interest free.
Credit references, sources of income to be able to retune
the loan before retirement age.
Minimum property value £50,000.
Up to 80% of the property value
There is no compulsory life and building insurance are
required.
The bank puts itself in the position of owner of the
property. Higher risks.
Cost plus sale up to 15 years minimum 5 years
Lease up to 25 years minimum 7.5 years
Cost plus sale 2.5 times primary annual income
Lease 3 times primary annual income sole applicant
Arrangement fee of 0.75% of the property value less the
first payment.
Table 3. A Comparison between Conventional and Alternative Home Financing
(Tlemsani and Matthews, 2003, p. 12)
For example the price is £ 100,000.00 the banks require 10% deposit if the bank agrees to give a 30-year
mortgage of £90,000, at an annual interest rate of 8%, the monthly payments would be £660.39. Each payment will
consist partly of interest due and partly the repayment of principal. The buyer will make 360 monthly payments,
which add up to a total of £237,740.40 paid to the bank accruing £147,740.40 interest to the bank.
Payment Number
1
2
3
….
120
….
240
….
359
360
Total
Monthly Payment
£ 660.39
£ 660.39
£ 660.39
Interest
£ 660.00
£ 599.60
£ 599.19
Principal
£ 60.39
£ 60.79
£ 61.20
Balance after Payment
£ 89,939.61
£ 89,878.82
£ 89,817.62
£ 660.39
£ 527.13
£133.16
£ 78,951.84
£ 660.39
£ 384.83
£ 295.56
£ 54,428.98
£ 660.39
£ 660.39
£ 237,740.40
£ 8.70
£ 7.30
£
147,740.40
£ 651.69
£ 653.09
£90,000.00
£ 653.09
£ 0.00
Table 4. Amortization schedule for a 30 year conventional housing finance at 8% interest: £ 90,000 principal
(Tlemsani and Matthews, 2003, p. 13)
Just as in the conventional arrangement, the coop bank will require some down payment. That will be client initial
equity share. Let‘s assume client make the same down payment of 10 %, or £10,000. The coop bank puts up the
remaining £90,000.
Now client and the bank are co-owners. If client occupy the house, client will be required to pay rent to the
owners. But client are also allowed to increase his/her ownership share at any time by making additional payments to
the coop bank, in effect, buying out the bank‘s interest in the house. As client do so, his/her proportionate share
increases while the coop bank‘s share decreases and the distribution of the rent payments will change accordingly.
Let‘s compare this arrangement with the conventional mortgage in the example given above. The big question, of
course, is what is a fair amount for the monthly rent? It might be reasonable to assume that it is equal to the monthly
payments client would have made under the conventional mortgage arrangement, in this case, £660.39. At the outset,
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�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
client will receive 10% of that rent as his/her ownership share and the bank will receive 90 percent, Let also assume
that client apply his/her share of the rental payments to increasing his/her share of the ownership.
Payment
Number
1
2
3
…
24
….
120
…
240
…
359
360
Total
Payment
Amount
£
660.39
660.39
660.39
Client
Share
£
60.04
60.48
66.91
Bank‘s
Share
£
594.35
593.91
593.48
Client
Equity
£
10,066.04
10,132.52
10,199.43
Client
Equity
%
10.07
10.13
10.20
Bank‘s
Equity
£
89,933.96
89,867.48
89,800.57
Bank
Equity
%
89.93
89.87
89.80
660.39
76.83
583.56
11,711.34
11.71
88,288.66
88.29
660.39
144.54
515.85
22,030.94
22.03
77,969.06
77.97
660.39
318.43
341.96
48,536.24
48.54
51,463.76
51.46
660.39
660.39
231,018.30
652.52
538.63
7.87
3.56
99,461.37
100,000.00
99.46
100.00
538.63
0.00
0.54
0.00
Note: (With Rent Equal to Conventional 8%, 30 Year Monthly Payment Owner‘s share applied to repurchase: No
additional principal Payments
Table 5. Diminishing Partnership and Lease Model
(Tlemsani and Matthews, 2003, p. 15)
Table 5 is an abridged amortization table which shows the respective returns to client and the coop bank.
Under this arrangement, client will own 100% of the property after making the 350th payment. Client will have paid
total rent of £231,018.30. The bank‘s total share will have been £141,018.30. This is a saving of more than £6,000.00
or 4.1% over the amount of interest paid on the conventional home finance.
The Practices of Alternative House Financing In the World
Alternative house financing models in Germany are equity based diminishing partnership and lease (DPL),
debt based DPL, CPS and adjusting CPS. Ansar Finance, Manchester operates equity based DPL concept.
Equity based mode is no debt, but possibly longer purchasing period and less prone to asset price bubbles. Debt
based modes could have identical cash flow. In CPS, if the sale is void, so is the financing – one contract; contrary to
credit to be repaid because fraud is only with property not with loan. There is no penalty interest if default is due to
difficulties (Kennedy and Gassner, 2009: 5–9).
The practices of alternative house financing have been fortunate in getting legal obstacles removed so that
they are applicable under English law. This has been intended to facilitate the needs of consumers so that they can
have an alternative mortgage with equal safeguards to those available under existing FSA mortgage regulation. The
British government confirmed its positive standpoint by releasing the necessary regulations which allowed the
Islamic mortgagees to be treated in the same way as the mortgagees of conventional mortgage modes (Solé, 2007, p.
17). Based on that, the alternative mode of mortgage has become more available and more widely accessible
(Russell, 2004, p. 13).
The Islamic Investment Banking Unit of the United Bank of Kuwait (UBK) in London has been offering
alternative house financing since 1997. The products are CPS Home Purchase Plan11 and Lease Home Purchase
Plan12. Al Baraka Bank‘s the operations were similar to DPL model. The bank and its client would sign a contract to
purchase the house jointly, the ownership share being determined by the financial contribution of each of the parties.
The bank would expect a fixed predetermined profit for the period of the mortgage. The client makes either monthly
or quarterly repayments over a 10-20 year period, which covered the advance plus profit share. There was some
11
12
This program is named Manzil Murabaha.
This program is named Manzil Ijara.
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�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
debate if the profit share could be calculated in relation to the market value of the property, but this was rejected as
frequent revaluation of the property would be expensive and administratively complicated. Furthermore, given the
fluctuating prices in the London property market, there would be considerable risk for the bank (Tlemsani and
Matthews, 2003, p. 6–9).
The British government has realised the significance of the growth of alternative types of finance in the UK,
especially the mortgage. Some writers consider that the cancellation of double stamp duty has supported the
promotion of the Islamic market mortgage expansion (Alam, 2004, p. 2). Besides that the government also permitted
the mode of lease to own to be used for asset finance, as well as the CPS; the latter became included in the definition
of a regulated mortgage and is now covered by FSA mortgage regulation. This also happened with the mode of the
diminishing partnership when the government included this mode as part of the concept of alternative finance
arrangements instead of standard loans within the Finance Act 2006 (HM Treasury, 2007, p. 9).Co-operative
Housing Corporation, Canada uses the LTO model. MSI housing Fund Houston, Texas [USA] applies the DPL model
(Tlemsani and Matthews, 2003).
Participation Banks in Turkey
Participation banks are an indispensable and complementary element of the financial system in Turkey.
They operate under the Banking Act, regulated and supervised by the Banking Regulation and Supervision Agency–
BDDK (Büyükdeniz, 2006).
Participation banks provide not only classical banking activities but also some more, as leasing, insurance,
barter in financial sector. Participation banks perform almost all operations of classical banks in various methods,
without any confliction on their principals. The objective of this typical banking is to bring in, the idle capital of
interest sensitive people in to national economy, under the interest free banking principals. While performing
classical banking operations, not interest but profit-loss participation investment method made this banking type to
be called as interest free banking in literature. These institutions perform almost all banking services in different
methods. Nevertheless, they do not do such operations depending to interest. This creates a complementary issue
between banks and participation banks. Besides, they are such institute which increases the financial deepening and
diversification (Özulucan and Deran, 2009, p. 85).
Turkish Participation Banks’s Home Financing Methods
Turkish participation banks‘s home financing methods are decreasing installments model, real estate
consumer price index leasing model and home loan.
Decreasing installments model in home financing is based on applying different monthly profit rate for
every year during financing. Monthly profit rate is same for each twelve months. Next years‘ monthly profit rate will
be less than that of previous years‘. At the beginning of home financing, the monthly profit rates are already
determined. The monthly profit rates to be apply are (http://www.kuveytturk.com.tr);
120 months
installments
60 months
installments
1st
Year
2nd
Year
3rd
Year
4th
Year
5th
Year
6th
Year
7th
Year
8th
Year
9th
Year
10th
Year
Annual
Cost
Ratio
1.19%
1.15%
1.14%
1.05%
1.04%
0.95%
0.89%
0.84%
0.79%
0.74%
13.46%
1.04%
0.99%
0.95%
0.89%
0.84%
12.61%
Table 6. Decreasing installments model
For each 12 months installments, monthly profit rates shown above are applied.
Unlike other fixed price installment term Turkish Lira leasing transactions, a consumer price indexed real estate
leasing product is a new leasing product where leasing installments can be indexed to inflation through the
Consumer Price Index (CPI) rate announced by the Turkish Statistical Institute on the 3rd day of every month and
vary according to economic conditions. Thanks to this payment system, with the increase in installments indexed to
CPI, not changing throughout the year, and installments up to 10 years, in an environment of falling inflation client
will be able to own a home as if client was paying rent. In fact, under this payment system, with the change in the
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�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
CPI index for the past year, client will be able to calculate his/her installments for the following year
(http://www.kuveytturk.com.tr).
Home loan is a transaction where the Bank purchases the real property required by the customer and then resells it
thereto
by
adding
a
profit
according
to
the
required
term.
Home
loan
includes
(http://www.turkiyefinans.com.tr/en/retail_banking/personal_loans);
– Discounted Home Finance: With discounted home finance, customer can reduce the profit share on his/her loan
and thus greatly reduces his/her monthly installment payments by paying an amount in 1% to 10% of his/her loan at
the beginning.
– Home Finance with increasing installments: If customer wishes to pay his/her installments at lower amounts at the
beginning and then increases them gradually.
– Home Finance with decreasing installments: If customer wishes to reduce, his/her installment amounts in the next
period and then pays a higher installment at the start
– Flexible Payment Home Finance: Under Flexible Payment Home Finance, customer can make regular extra
payments at every 3, 6 or 12 months at his/her option or lower his/her monthly installment by adding an interim
payment to any month of his/her choice.
– Deferrable Home Finance: With Deferrable Home Finance, customer can defer his/her loan up to 3 months from
the start of its term and starts his/her payments in the next period. Therefore, customer can more easily meet other
costs of his/her house during such deferment period.
Conclusion
A home is basic necessity, it consumes a large chunk of peoples‘ income for long periods. In the present
interest-based system, owning a home is increasingly becoming burdensome. Mortgages are one of the significant
causes of bankruptcies. While price of homes keep rising, the mortgage duration also keep rising, till two-generation
mortgages are even being talked about.
The practices of alternative housing finance are concerned with issues of sustainable rather than efficiency.
These practices focus on the necessity of sharing risk in a fair and stable society, and upon problems of exploitation
in markets where power is asymmetric, this is the real interest issue.
In this study, the case analyses shows that the principles differences between alternative and conventional
housing finance is that the former is equity based and the latter is debit based. In an alternative home financing
situation, both the bank and the client share ownership [equity] and therefore share the risk of equity ownership. In
conventional banking, the client owns all the equity and the banks loan to the client is secured on the value of the
property.
The essence of alternative house finance system is sharing; sharing of risks and rewards by both parties.
Alternative housing finance is unique and unmatched with traditional mortgages. Internal rate of return cannot be
determined in advance. It is true DPL, which demands the sharing of risk and reward by both partners. Under
alternative home finance, financier is earning more as compare to conventional banking (in case of appreciation) but
after capacity building of customer, while under conventional financial system return is fixed which put the client in
trouble in early years and prosperity in following years if property value appraises and vice versa.
This paper made a comparative analysis between the CPS and DPL contracts as means for home ownership.
This paper attempted to argue in favour of the DPL as a better alternative to the conventional mortgage and the CPS.
The CPS is a contract that is based on a buy-and-sell principle while the diminishing partnership consists of a
partnership contract and a rental contract where the equity of the financier follows a diminishing balance method.
The paper concludes that the DPL has several advantages over the CPS for the customer. It can be made to
avoid interest totally and can reduce the cost of homes and the duration of financing. The balance of finance, at any
point in time, never exceeds the original price of the asset, unlike under the CPS where it can.
When a home is purchased from a developer and financed using the present conventional or CPS, the
customer would end up paying about four times the original cost (both the developer and the bank are assumed to
make a gross 100 percent mark-up). This, undoubtedly, can burden particularly the low income group. DPL allows
people to own homes with limited initial capital. In doing so, it promotes the welfare of the people.
The DPL is less attractive to the banker compared to the CPS. For that matter, a viable avenue to implement
the DPL is through a cooperative setting. When implemented through cooperatives, the DPL can also provide an
investment avenue for members while substantially reducing the price of house and the duration of financing. The
concept has a positive impact on the economy and reduces inflation as no additional money is created in the system
compared to debt-financing, as currently done under the fractional reserve banking system.
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�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
The DPL is just and fair compared to the conventional loan and the CPS as there is no interest charge or
‗advanced‘ profit involved in the DPL contract. It is purely based on rental payments of property and the redeeming
of the financier‘s shares.
As a benchmark, the paper suggested the use of a Rental Index or House Price Index in determining the
rental to be charged for each specified rental contract period.
The DPL concept is a viable alternative to the conventional floating rate financing since the rental rate can
be adjusted if there are fluctuations in the economy. Hence, it is more flexible, wherein the Turkish Participation
banks will not be faced with too many uncertainties due to variations in economic conditions.
As for the society, the DPL brings stability into the economy by promoting positive partnership instead of
negative indebtedness thus assisting in the equitable distribution of society‘s wealth; minimizing the large number of
debt defaults and bankruptcies that are observed in the current financial system.
References
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Akhtar, C. (2005). Islamic Economic System, Issues in Islamic Banking, The Pakistan Accountant.
Alam, N. (2004). Islamic Finance - Issues and Opportunities. Client Briefing Note EIRIS 4.
Büyükdeniz, A. (2006). Participation Banks in Turkey: An Economic and Social Reality, http://www.tkbb.org.tr/en/download/PBECONOMIC.PPT
Dwaikat, MR, (2008). The Sale, the Interest, the Pledge in the Holy Qur‘an, and the People Life, Nablus, Rabbaniyeen School.
FSA, (2006). Regulation of Home, Reversion and Home Purchase Plans, Financial Services Authority Consultation Proposals, 1
(8), London, 1–148.
Gaber, A. (2007). Risk Management: Islamic Financial Policies, Case study of Farmers‘ Commercial Bank, Paving the Way
Forward for Rural Finance, An International Conference on Best Practices, http://www.basis.wisc.edu/live/rfc/cs_06a.pdf>
(accessed 4 April 2009).
Hanif, M. & Hijazi, S. T. (2010). Islamic Housing Finance A Critical Analysis and Comparison with Conventional Mortgage,
Middle Eastern Finance and Economics, http://ssrn.com/abstract=1483524 (accessed 7 May 2010).
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HM Treasury, (2007). Alternative Finance Products, Budget 2007: Regulatory Impact Assessments, HM Treasury.
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http://www.islamicfinanceasia.com/pdf/_feature4.pdf. (accessed 07 May 2010).
Jackson, S. (2004). Basics of Islamic Law, the Sources of Islamic Law, Ann Arbor, University of Michigan.
Kennedy, V., Gassner, M. S., (2009). Islamic Mortgages, Frankfurt BAFIN Konferenz Islamic Finance and Certification Islamic
Finance Products, Köln, Germany, 28. Oktober 2009, 1–17.
Khanfar, A.A. N. (2009). The Applicability of the Islamic Mortgage Contract under English Law, Web Journal of Current Legal
Issues (5), http://webjcli.ncl.ac.uk/2009/issue5/khanfar5.html, (accessed 12 March 2010).
Lovells, (2004). Islamic finance, Shariah, Sukuk and securitization,
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Contracts: A Comparative Analysis, Review of Islamic Economics, 9 (2), 5-30.
Meera, A.K.M. (2002). The Islamic Gold Dinar. Subang Jaya, Malaysia: Pelanduk Publications.
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Meera, A.K.M. (2004). The Theft of Nations. Subang Jaya, Malaysia: Pelanduk Publications.
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international organization of securities commissions.
Özulucan, A. & Deran, A. (2009). The Comparison of Participation Banking and Traditional Banking on the Perspective of
Banking Services and Accounting Applications. Mustafa Kemal University Journal of Social Sciences Institute, 6 (11), 85–108.
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Centre for International Business Policy, Kingston Business School.
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71
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175
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Alternative Financing Models for Sustainable Housing Finance System: Some Proposals for Participation Banks in Turkey
Author
Author
ÇETİN, Ali Cüneyt
ADIGÜZEL, Orhan
Abstract
A summary of the resource.
This study examines some alternative financing models for sustainable housing development. As alternatives to conventional interest-based home financing modes, several financing models are currently in existence, the dominant among which are the cost plus sale (buyand- sell principle) and the diminishing partnership and lease contracts. In this study, the alternative financing models compare to the conventional financing (interest-based) system using illustration from banking practices. The paper examines the differences between the two and goes on to discuss specific problems of housing finance. In relation to the alternative financing models, the paper concludes that the diminishing partnership and lease contracts have several advantages over the cost plus sale for the customer. When implemented through Turkish participation banks and cooperatives, the diminishing partnership can provide an investment avenue for members through the fractional reserve money creation process. Consequently, if alternative housing financing models are adopted worldwide, sustainable housing finance system might be more stable and fair.
Date
A point or period of time associated with an event in the lifecycle of the resource
2010-06
Keywords
Keywords.
Conference or Workshop Item
PeerReviewed
HB Economic Theory
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https://omeka.ibu.edu.ba/files/original/357136780068f9bf25fbf91a4877d95a.pdf
e1d310e3101c44f1581d48fc10cec07f
PDF Text
Text
2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
Alternative Manufacturing Technique in Glass Industry for Devoloping
Countries: Fused Glass , “Zumrut Art Of Glass Model” and Its Applicability
in Bosnia Herzegovina Economy
Mesut ALBENĠ
Faculty of Economics and Administrative Sciences
Suleyman Demirel University, Turkey
mesut@iibf.sdu.edu.tr
Muhlis CAN
Faculty of Economics and Administrative Sciences
Hakkâri University, Turkey
muhliscan@hakkari.edu.tr
Abstract: Tourism industry plays an important role in the sustainable devolopment process of the
countries. Giftware (souvenir,craft) sector also forms one of the important elements of tourism
revenues.. However, finding same types of the products in many countries around the world is the
signal that the sale of goods loose their competitivines and so, some innovations are needed. In
this study, the contributions of new production techniques in glass industry, to which increasement
of the export by taking the advantage of niche market and reducement of the unemployement, are
examined for tourism oriented souvenir industry. The "Glass Fusion Technique" is discussed in
order to concretize the purpose of this study with ―Zumrut Art of Glass‖ model and the possibilty
of application into Bosnia and Herzegovina economy.
Keywords: Tourism, Souvenir, Gift, Craft, Fused Glass
Introduction
There are some sectors, playing important roles for not only devoloped countires but also devoloping ones;
such as textile industry, glass industry, otomobile industry, tourism sector. However, for all, tourism is a common
vehicle for all economies.
Tourism is a rapidly developing global industry and has great economic significance for the economy
(Gunce, 2003). It is increasing at annual growth rate between %4 - %7 (Turner & Reisinger, 2001).
Table 1: International Tourist Arrivals and International Tourism Receipts Source between 1990-2008
Source: World Tourism Organization
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�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
International tourist arrivals have continued to grow steadily from 25 million in 1950 to 684 millon in 2000,
and they have reached 922 millon in 2008. Tourism has been becoming one of the largest and fastest growing
economic sectors in the world (World Tourism Organization, 2009).
Tourism has been one of the major international trade categories. For example, the overall export income
generated by international tourism including passengers transport reached US $ 1.1 trillion in 2008,or US $ 3 billion
a day. World‘s Export of commericial services consist of 30% from tourism and overall export goods and services
6% consist of tourism. Globally, as an export category, after fuels, chemicals and automotive products tourism ranks
fourth. For many developing countries, tourism is one of the main income source and the number one export
category, providing much needed employment and opportunities for development(World Tourism Organization,
2009).
Table-2: International Tourist Arrivals by ( Sub) region
Source: World Tourism Organization
As it can be seen from the figure, Europe has %53,1 share from all international arrivals with 489,4 million
people in 2008. However, Bosnia has just 212.749 international tourist arrivals in the same year (Federation of
Bosnia and Herzegovina Federal Office Of Statistics, 2009) which is equal to ‰4 from Europe tourist arrivals.
According to UNWTO‘s Tourism 2020 Vision reports, international arrivals are expected to reach nearly
1.6 billion by the year 2020. The total tourist arrivals by regions shows that, tourism will grow and the top three
receiving regions will be Europe (717million tourists), East Asia (397 million) and the Americas (282 million)
(World Tourism Organization, 2009).
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�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
Table 3: Forecasting of International Tourist Arrivals Between 2010-2020
Source : World Tourism Organization
The Effect of Tourism on Economy
Tourism does not only affect the countries in one way. It has also positive effects on the devolopment of the
physical, social, cultural and economic environment of a country(Gunce, 2003). Tourism has positive effects on
economy in different ways. According to the United Nations foreign exchange earnings, the contribution to
government revenues, the generation of employment, the stimulation of infrastructure investment and the
contribution to local economies are some of them (Torrent, 2008; United Nations Environment Programme).
Tourism contributes to the worldwide gross domestic products nearly 5%, also it contributes to employment directlyindirectly and it is estimated 6-7% of the overall number of jobs which are provided by tourism ( World Tourism
Organization, 2009). For developing countries, where tourism is a key economic sector, the importance of tourism
tends to be higher for economy (World Tourism Organization, 2009). There are some activities which are relavant to
the tourism and have impacts on the economy in positive way during the journey. One of them is shopping.
The Importance of Shopping During a Journey
Shopping might be the most universal activities, despite the fact that it is seldom considered as a primary
reason for travel (Turner & Reisinger, 2001). Whether international or domestic tourism , for both, the second most
important expenditure item is shopping after accommodation ( Turner & Reisinger, 2001). For a tourist, a tour can
not be a complete traveling experience without shopping ( Hudman & Hawking,1989). Shopping is a common and
preferred tourist activity in different locations, and for today‘s travelers, tourism and shopping are integrated to each
other. Shopping activities include especially souvenir, because tourists need to bring home something tangible to
concretize and preserve their memories for their trips (Gordon, 1986). Souvenirs are related to tourism as
commercially produced and purchased object to remind the purchaser of the experience (Swanson & Horridge,
2006). Souvenir products also include craft products which are called craft souvenir.
What effects tourists when they decide to buy souvenirs? Turner and Reisinger (2001) found three
important product characteristics for tourists purchasing cultural products: value (range, quality), product display
characteristics (color, display, packaging, size), and uniqueness (memory of the trip). The ease of cleaning, care, and
packing were of particular importance for travelers to reach the decision of craft buying (Hair et al.,1998).
Through crafts, tourists generally prefer the products which are valuable work of the hand. According to
UNESCO report (2007), there is a wrong impression that tourists prefer industrialized goods rather than handmade
products. Especially nowadays, mass-produced polyester products which seem very simple, are sold everywhere.
Also textile crafts can be found in every destination. Finding same types of the products in many countries around
the world signals that the sale of goods loose their competitivines and so, some innovations are needed.
663
�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
In this study, we would like to emphasize on advantage of the craft sector for devoloping countries. As
generally devoloping countries has labour intensive sectors. For production of craft, sector also needs cheap labour
force. According to UNESCO report ( 2007) the economic characteristics of the craft sectors are:
- The handicrafts sector requires minimum expenditure and infrastructure to establish as it is a home-based industry.
Therefore it can create jobs with minimum cost.
- In general this sector uses raw materials which are avaliable locally.
- Product adaptation is less expensive than investing in energy, machinery or technology becasue inputs required can
easily be provided.
The Worldwide Situation of Craft Sector
Handicrafts have been devoloping without specific political stratetegies and they directly depend on demand
gererated by tourism industry ( UNESCO, 2007). According to report released by UNESCO (2007) the national
accounts do not fully include handicraft activities. However, handicrafts are always parts of the culture of a nation
and represent a key component of socio-economic life. Many countries face to some difficulties in collecting data
about craft sector because there is an important lack of data on the craft sectors.
In some industrialized countries, craft sector plays an important role in their economy. For example in
Italy, 24% of national enterprises belong to the crafts sector in which 1/5 private sector workers are employed. In
Italian total Gross Domestic Products (GDP) ,craft exports share is %17. Morever in devoloping countries craft
sector has a great importance in economy. In Colombia, crafts production represents income of approximately US$
400 million in a year and brings in a monthly income to the workers between US$ 140 to 510. Crafts exports (not
include sales to tourists) approximately amount to US$ 40 million per year. Two-thousand shops and 400 bulk and
export trading companies, where 800,000 people are employed, affected by this important tourism market. Tunisia is
another example. Craft sector is employing 300.000 people (%11 of the active population) of whom are working 4
hours a day on a part time-time basis. Their production contribute to Gross Domestic Income an avarage of %3,8 and
provide US$ 2,400 income per household (an average of 5 members). In Morocco, Ministry of Tourism measure the
volume of the these sector at %19 of total GDP. Morocco export handcraft products approximately valued US$ 63
million.
Nowadays, there is a problem in souvenir industry. Finding same types of the products ( for example:
textile products: t-shirts, carpet, cheap polyeserin products) , in many countries around the world is the signal that the
sale of goods loose their competitivines and so, some innovations are needed.
In this study, we would like to introduce an innovation in craft, souvenir and giftware. Our main method is
Fused Glass Tecnique that is used in Turkey for touristic craft and souvenir industry. Not only for just giftware, it
can also be applicated in Tableware, Decoration, Kitchenware, Hotel Products, Electirical Equipments etc. So, this
new tecnique affects different sectors in not only domestic markets but also export markets.
Fused Glass and “Zumrut Art Of Glass” Model
What is fused (fusing) glass? It is a process of joining pieces of glass by melting them together and the main
aim of fusing is to produce a solid glass sheet from individual pieces of glass which are arrange beside or on the top
of one another by melting together in a kiln (Eberle, 1997).
History of Zumrut Art of Glass
Zumrut Art of Glass was established in 1981. The company entered the glass sector with decorative items
by using the tecniques which are popular during that time: stained glass and sand blasting. In 1997, the company
decided to produce new products by using unique tecnique which was not avaliable in Turkey. It brought fused
(fusing) glass tecnique to Turkey. The company also desired to enter the giftware, souvenir sector by means of this
unique tecnique. After preparing the consept products and marketing, they got a lot of orders from touristic places. In
2002, the company participated giftware fair which was in Germany and this date was the starting of entrance to the
foreign markets. In 2005, the company invested to the water jet CNC machine for putting the limits away for
designs. After this investment, all the designs have been prepared in computers with benefiting from the technology.
664
�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
In 2006, to satisfy the customers‘ request, the drop tecnique which gives opportunity to produce locational and
promotional products was applied into the production.
Product Consept
Zumrut Art of Glass product consept consist of Giftware, Tableware, Souvenir, Tea and Coffee Sets, Sugar
Plates, Candle Holders, Magnets, Key Rings, Clocks, Picture Frames, Glass Tables, Plate Sets, Fruit Bowls, Self
Service plates, Tea-Coffee Trays, Vases, Ashtrays, Chandeliers, Door Glasses, Glass Sinks, Mirror Frames, Bowls,
Dinner Sets.
Employment Situation
There are 900 sales points, which are located generally in touristic places, of the company and it has 10 own
exhibition centers. Zumrut Art of Glass is employing directly 25 workers in manufacturing department, 20 persons in
exhibition centers as salesperson position,10 staff in different departments. Also company is employing 150 persons
indirectly.
Production Process
The production steps are made up:
1-) Flat glasses are provided firstly as plates in different thicknesses for products of which their production
is carried out by utilizing fusion glass melting tecnology.
2-) The necessary glass cutting processes are performed according to design and pattern of the product that
will be produced. While the glass patterns are cut manually in the cutting workshop, the design cutting is carried out
in Water Jet CNC bench. The water jet machine is able to cut all kinds of materials as two dimentional by operating
in the CNC machines‘ principle. The cutting carried out with water is able to see thinner details and carried out
milimetric cuttings in comparison to other tecnologies.
3-) The pattern and design glasses that have been got together in the production department are then placed
into molds in the fusion glass furnaces after the necessary staining are done and the furnaces are made ready in order
to perform thermal processing. All the Works taht have been carried out in the production are hand made and all the
staining is carried out between two glasses. After 800 C thermal processing is applied, since the fusion glass furnace
is kept for cooling, tension of the glass product has been taken and it is more resisting in comparison to normal flat
glass.
4-) For souvenir industry, plastic drop process is applied into the products . Plastic drop is poured on
photographs by labeling the which are demanded with the drop label tecnique and the photographs has been
protected between the label and the drop. All kind of design, figure and logo are able to be applied on the glass with
this tecnique.
Domestic and Foreign Market Situation Of Zumrut Art of Glass
Domestic market has 60% share and foreign market has 40% in total. Many of products which are
manufactured in fused (fusing) glass tecnique are sold in Antalya, Fethiye, Bodrum, Marmaris, Kusadasi, Izmir,
Ankara, Ġstanbul in Turkey with different points. The companys‘ exports markets consists of 15% of USA, 75% of
EU and %10 others. 2 million pieces of products are manufactured and sold in both foreign and domestic market
every year. The most popular products are magnets which are very easy to pack and hold, sugar plates which reflect
the culture of the location, tea sets with different figures, mini vase and wall decoration gifts.
Discussion
665
�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
Devoloping countries, especially nowadays, try to continue their development process with different
methods. Some of them are transfering capital from agricultural to industrial production, some of them are try to
increase earnings from different industry. However, there is a hard competitiveness in all industry for all countries
and this creates a hard situation for devoloping ones. That means developing countries should find new methods
which can be a competitive to continue their development process by using their rich and cheap labour force.
Tourism is very important tool for development. Some of governments advertise their countries with
different methods to increase the number of tourist arrivals. Some of them organize festivals, some of them give
advertisements to TV programs to introduce their countries nature, the places for sight-seeing etc. Bosnia should also
use methods to introduce its unique nature, touristic opportunies and historical background.
Whether there is a little increasement in tourist arrivals, Bosnia Herzegovina with the share ‰4 from total
from Europe that has %53,1 share from all international arrivals with 489,4 million tourists, Bosnian government
should implement some policies to increase the share in the Europe. According to forecasting reports shows that
tourist arrivals will continue to grow in Europe. In the light of this information, Bosnia can increase and take
advantage of tourism sector if the government apply important policies into tourism industry for sustainable
devolopment.
Account deficit, unemployment and low income level constitue important economic problems in Bosnia.
1.708.000 persons are in the working age population and 226.000 persons are unemployed ( Federation of Bosnia
and Herzegovina Federal Office Of Statistics, 2009 ). Tourism oriented invesments to fusing glass tecniques in
souvenir industry will not only help decrease of unemployement, but also contribute to increase of the export with its
geographical advantages. Bosnia Herzegovina, which is located in the middle of Europe where the estimated tourist
arrival number will be 717 million in 2020, can use the advantage of minumun cost investment into the craft
industry, which will affect whole economy like a chain not only with retail shopping but also with export trade.
References
Eberle, B. (1997). Creative Glass Tecniques (pp. 15). Lark Books A division of Sterling Publishing Co.
Federation of Bosnia and Herzegovina Federal Office Of Statistics, (2009), Statistical Yearbook 2009. Retrieved on April 6, 2010
from http://www.fzs.ba/Statisticki%20godisnjak%202009.pdf
Gordon, B. (1986). The souvenir: messenger of the extraordinary. Journal of Popular Culture, 20, 135–146.
Gunce, E. (2003). Tourism and local attitudes in Girne, Northern Cyprus. Cities, 20(3), 181-195
Hair, J. F., Anderson, R. E., Tatham, R. L., & Black, W. C. (1998). Multivariate data analysis (5th ed.). Upper Saddle River, NJ:
Prentice-Hall.
Hudman, L. E., & Hawkins, D. E. (1989). Tourism in contemporary society. Englewood Cliffs, NJ: Prentice Hall.
Swanson, K. K., & Horridge, P.E. (2006). Travel motivations as souvenir purchase indicators. Tourism Management, 27, 671-683
Torrent, R. R.-I-., (2008). Sustainable development in tourism municipalities: The role of public goods. Tourism Management, 29,
883-897
Turner, L. W., & Reisinger, Y. (2001). Shopping satisfaction for domestic tourist. Journal of Retailing and Consumer Services, 8,
15-27
UNESCO, (2007). Handicrafts and Employment Generation for the Poorest Youth and Women (pp. 03-50) . Retrieved on April 6,
2010 from http://unesdoc.unesco.org/images/0015/001567/156772e.pdf
United Nations Environment Programme, http:// www.unep.org
World Tourism Organization. (2009). Tourism Highlights. Retrieved on April 6, 2010 from
http://unwto.org/facts/eng/highlights.htm
666
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Alternative Manufacturing Technique in Glass Industry for Devoloping Countries: Fused Glass , “Zumrut Art Of Glass Model” and Its Applicability in Bosnia Herzegovina Economy
Author
Author
ALBENİ, Mesut
CAN, Muhlis
Abstract
A summary of the resource.
Tourism industry plays an important role in the sustainable devolopment process of the countries. Giftware (souvenir,craft) sector also forms one of the important elements of tourism revenues.. However, finding same types of the products in many countries around the world is the signal that the sale of goods loose their competitivines and so, some innovations are needed. In this study, the contributions of new production techniques in glass industry, to which increasement of the export by taking the advantage of niche market and reducement of the unemployement, are examined for tourism oriented souvenir industry. The "Glass Fusion Technique" is discussed in order to concretize the purpose of this study with ―Zumrut Art of Glass‖ model and the possibilty of application into Bosnia and Herzegovina economy.
Date
A point or period of time associated with an event in the lifecycle of the resource
2010-06
Keywords
Keywords.
Conference or Workshop Item
PeerReviewed
HB Economic Theory
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https://omeka.ibu.edu.ba/files/original/c51a3ee43e40e2da92c234a1f36f73d0.pdf
e1d310e3101c44f1581d48fc10cec07f
PDF Text
Text
2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
Alternative Manufacturing Technique in Glass Industry for Devoloping
Countries: Fused Glass , “Zumrut Art Of Glass Model” and Its Applicability
in Bosnia Herzegovina Economy
Mesut ALBENĠ
Faculty of Economics and Administrative Sciences
Suleyman Demirel University, Turkey
mesut@iibf.sdu.edu.tr
Muhlis CAN
Faculty of Economics and Administrative Sciences
Hakkâri University, Turkey
muhliscan@hakkari.edu.tr
Abstract: Tourism industry plays an important role in the sustainable devolopment process of the
countries. Giftware (souvenir,craft) sector also forms one of the important elements of tourism
revenues.. However, finding same types of the products in many countries around the world is the
signal that the sale of goods loose their competitivines and so, some innovations are needed. In
this study, the contributions of new production techniques in glass industry, to which increasement
of the export by taking the advantage of niche market and reducement of the unemployement, are
examined for tourism oriented souvenir industry. The "Glass Fusion Technique" is discussed in
order to concretize the purpose of this study with ―Zumrut Art of Glass‖ model and the possibilty
of application into Bosnia and Herzegovina economy.
Keywords: Tourism, Souvenir, Gift, Craft, Fused Glass
Introduction
There are some sectors, playing important roles for not only devoloped countires but also devoloping ones;
such as textile industry, glass industry, otomobile industry, tourism sector. However, for all, tourism is a common
vehicle for all economies.
Tourism is a rapidly developing global industry and has great economic significance for the economy
(Gunce, 2003). It is increasing at annual growth rate between %4 - %7 (Turner & Reisinger, 2001).
Table 1: International Tourist Arrivals and International Tourism Receipts Source between 1990-2008
Source: World Tourism Organization
661
�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
International tourist arrivals have continued to grow steadily from 25 million in 1950 to 684 millon in 2000,
and they have reached 922 millon in 2008. Tourism has been becoming one of the largest and fastest growing
economic sectors in the world (World Tourism Organization, 2009).
Tourism has been one of the major international trade categories. For example, the overall export income
generated by international tourism including passengers transport reached US $ 1.1 trillion in 2008,or US $ 3 billion
a day. World‘s Export of commericial services consist of 30% from tourism and overall export goods and services
6% consist of tourism. Globally, as an export category, after fuels, chemicals and automotive products tourism ranks
fourth. For many developing countries, tourism is one of the main income source and the number one export
category, providing much needed employment and opportunities for development(World Tourism Organization,
2009).
Table-2: International Tourist Arrivals by ( Sub) region
Source: World Tourism Organization
As it can be seen from the figure, Europe has %53,1 share from all international arrivals with 489,4 million
people in 2008. However, Bosnia has just 212.749 international tourist arrivals in the same year (Federation of
Bosnia and Herzegovina Federal Office Of Statistics, 2009) which is equal to ‰4 from Europe tourist arrivals.
According to UNWTO‘s Tourism 2020 Vision reports, international arrivals are expected to reach nearly
1.6 billion by the year 2020. The total tourist arrivals by regions shows that, tourism will grow and the top three
receiving regions will be Europe (717million tourists), East Asia (397 million) and the Americas (282 million)
(World Tourism Organization, 2009).
662
�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
Table 3: Forecasting of International Tourist Arrivals Between 2010-2020
Source : World Tourism Organization
The Effect of Tourism on Economy
Tourism does not only affect the countries in one way. It has also positive effects on the devolopment of the
physical, social, cultural and economic environment of a country(Gunce, 2003). Tourism has positive effects on
economy in different ways. According to the United Nations foreign exchange earnings, the contribution to
government revenues, the generation of employment, the stimulation of infrastructure investment and the
contribution to local economies are some of them (Torrent, 2008; United Nations Environment Programme).
Tourism contributes to the worldwide gross domestic products nearly 5%, also it contributes to employment directlyindirectly and it is estimated 6-7% of the overall number of jobs which are provided by tourism ( World Tourism
Organization, 2009). For developing countries, where tourism is a key economic sector, the importance of tourism
tends to be higher for economy (World Tourism Organization, 2009). There are some activities which are relavant to
the tourism and have impacts on the economy in positive way during the journey. One of them is shopping.
The Importance of Shopping During a Journey
Shopping might be the most universal activities, despite the fact that it is seldom considered as a primary
reason for travel (Turner & Reisinger, 2001). Whether international or domestic tourism , for both, the second most
important expenditure item is shopping after accommodation ( Turner & Reisinger, 2001). For a tourist, a tour can
not be a complete traveling experience without shopping ( Hudman & Hawking,1989). Shopping is a common and
preferred tourist activity in different locations, and for today‘s travelers, tourism and shopping are integrated to each
other. Shopping activities include especially souvenir, because tourists need to bring home something tangible to
concretize and preserve their memories for their trips (Gordon, 1986). Souvenirs are related to tourism as
commercially produced and purchased object to remind the purchaser of the experience (Swanson & Horridge,
2006). Souvenir products also include craft products which are called craft souvenir.
What effects tourists when they decide to buy souvenirs? Turner and Reisinger (2001) found three
important product characteristics for tourists purchasing cultural products: value (range, quality), product display
characteristics (color, display, packaging, size), and uniqueness (memory of the trip). The ease of cleaning, care, and
packing were of particular importance for travelers to reach the decision of craft buying (Hair et al.,1998).
Through crafts, tourists generally prefer the products which are valuable work of the hand. According to
UNESCO report (2007), there is a wrong impression that tourists prefer industrialized goods rather than handmade
products. Especially nowadays, mass-produced polyester products which seem very simple, are sold everywhere.
Also textile crafts can be found in every destination. Finding same types of the products in many countries around
the world signals that the sale of goods loose their competitivines and so, some innovations are needed.
663
�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
In this study, we would like to emphasize on advantage of the craft sector for devoloping countries. As
generally devoloping countries has labour intensive sectors. For production of craft, sector also needs cheap labour
force. According to UNESCO report ( 2007) the economic characteristics of the craft sectors are:
- The handicrafts sector requires minimum expenditure and infrastructure to establish as it is a home-based industry.
Therefore it can create jobs with minimum cost.
- In general this sector uses raw materials which are avaliable locally.
- Product adaptation is less expensive than investing in energy, machinery or technology becasue inputs required can
easily be provided.
The Worldwide Situation of Craft Sector
Handicrafts have been devoloping without specific political stratetegies and they directly depend on demand
gererated by tourism industry ( UNESCO, 2007). According to report released by UNESCO (2007) the national
accounts do not fully include handicraft activities. However, handicrafts are always parts of the culture of a nation
and represent a key component of socio-economic life. Many countries face to some difficulties in collecting data
about craft sector because there is an important lack of data on the craft sectors.
In some industrialized countries, craft sector plays an important role in their economy. For example in
Italy, 24% of national enterprises belong to the crafts sector in which 1/5 private sector workers are employed. In
Italian total Gross Domestic Products (GDP) ,craft exports share is %17. Morever in devoloping countries craft
sector has a great importance in economy. In Colombia, crafts production represents income of approximately US$
400 million in a year and brings in a monthly income to the workers between US$ 140 to 510. Crafts exports (not
include sales to tourists) approximately amount to US$ 40 million per year. Two-thousand shops and 400 bulk and
export trading companies, where 800,000 people are employed, affected by this important tourism market. Tunisia is
another example. Craft sector is employing 300.000 people (%11 of the active population) of whom are working 4
hours a day on a part time-time basis. Their production contribute to Gross Domestic Income an avarage of %3,8 and
provide US$ 2,400 income per household (an average of 5 members). In Morocco, Ministry of Tourism measure the
volume of the these sector at %19 of total GDP. Morocco export handcraft products approximately valued US$ 63
million.
Nowadays, there is a problem in souvenir industry. Finding same types of the products ( for example:
textile products: t-shirts, carpet, cheap polyeserin products) , in many countries around the world is the signal that the
sale of goods loose their competitivines and so, some innovations are needed.
In this study, we would like to introduce an innovation in craft, souvenir and giftware. Our main method is
Fused Glass Tecnique that is used in Turkey for touristic craft and souvenir industry. Not only for just giftware, it
can also be applicated in Tableware, Decoration, Kitchenware, Hotel Products, Electirical Equipments etc. So, this
new tecnique affects different sectors in not only domestic markets but also export markets.
Fused Glass and “Zumrut Art Of Glass” Model
What is fused (fusing) glass? It is a process of joining pieces of glass by melting them together and the main
aim of fusing is to produce a solid glass sheet from individual pieces of glass which are arrange beside or on the top
of one another by melting together in a kiln (Eberle, 1997).
History of Zumrut Art of Glass
Zumrut Art of Glass was established in 1981. The company entered the glass sector with decorative items
by using the tecniques which are popular during that time: stained glass and sand blasting. In 1997, the company
decided to produce new products by using unique tecnique which was not avaliable in Turkey. It brought fused
(fusing) glass tecnique to Turkey. The company also desired to enter the giftware, souvenir sector by means of this
unique tecnique. After preparing the consept products and marketing, they got a lot of orders from touristic places. In
2002, the company participated giftware fair which was in Germany and this date was the starting of entrance to the
foreign markets. In 2005, the company invested to the water jet CNC machine for putting the limits away for
designs. After this investment, all the designs have been prepared in computers with benefiting from the technology.
664
�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
In 2006, to satisfy the customers‘ request, the drop tecnique which gives opportunity to produce locational and
promotional products was applied into the production.
Product Consept
Zumrut Art of Glass product consept consist of Giftware, Tableware, Souvenir, Tea and Coffee Sets, Sugar
Plates, Candle Holders, Magnets, Key Rings, Clocks, Picture Frames, Glass Tables, Plate Sets, Fruit Bowls, Self
Service plates, Tea-Coffee Trays, Vases, Ashtrays, Chandeliers, Door Glasses, Glass Sinks, Mirror Frames, Bowls,
Dinner Sets.
Employment Situation
There are 900 sales points, which are located generally in touristic places, of the company and it has 10 own
exhibition centers. Zumrut Art of Glass is employing directly 25 workers in manufacturing department, 20 persons in
exhibition centers as salesperson position,10 staff in different departments. Also company is employing 150 persons
indirectly.
Production Process
The production steps are made up:
1-) Flat glasses are provided firstly as plates in different thicknesses for products of which their production
is carried out by utilizing fusion glass melting tecnology.
2-) The necessary glass cutting processes are performed according to design and pattern of the product that
will be produced. While the glass patterns are cut manually in the cutting workshop, the design cutting is carried out
in Water Jet CNC bench. The water jet machine is able to cut all kinds of materials as two dimentional by operating
in the CNC machines‘ principle. The cutting carried out with water is able to see thinner details and carried out
milimetric cuttings in comparison to other tecnologies.
3-) The pattern and design glasses that have been got together in the production department are then placed
into molds in the fusion glass furnaces after the necessary staining are done and the furnaces are made ready in order
to perform thermal processing. All the Works taht have been carried out in the production are hand made and all the
staining is carried out between two glasses. After 800 C thermal processing is applied, since the fusion glass furnace
is kept for cooling, tension of the glass product has been taken and it is more resisting in comparison to normal flat
glass.
4-) For souvenir industry, plastic drop process is applied into the products . Plastic drop is poured on
photographs by labeling the which are demanded with the drop label tecnique and the photographs has been
protected between the label and the drop. All kind of design, figure and logo are able to be applied on the glass with
this tecnique.
Domestic and Foreign Market Situation Of Zumrut Art of Glass
Domestic market has 60% share and foreign market has 40% in total. Many of products which are
manufactured in fused (fusing) glass tecnique are sold in Antalya, Fethiye, Bodrum, Marmaris, Kusadasi, Izmir,
Ankara, Ġstanbul in Turkey with different points. The companys‘ exports markets consists of 15% of USA, 75% of
EU and %10 others. 2 million pieces of products are manufactured and sold in both foreign and domestic market
every year. The most popular products are magnets which are very easy to pack and hold, sugar plates which reflect
the culture of the location, tea sets with different figures, mini vase and wall decoration gifts.
Discussion
665
�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
Devoloping countries, especially nowadays, try to continue their development process with different
methods. Some of them are transfering capital from agricultural to industrial production, some of them are try to
increase earnings from different industry. However, there is a hard competitiveness in all industry for all countries
and this creates a hard situation for devoloping ones. That means developing countries should find new methods
which can be a competitive to continue their development process by using their rich and cheap labour force.
Tourism is very important tool for development. Some of governments advertise their countries with
different methods to increase the number of tourist arrivals. Some of them organize festivals, some of them give
advertisements to TV programs to introduce their countries nature, the places for sight-seeing etc. Bosnia should also
use methods to introduce its unique nature, touristic opportunies and historical background.
Whether there is a little increasement in tourist arrivals, Bosnia Herzegovina with the share ‰4 from total
from Europe that has %53,1 share from all international arrivals with 489,4 million tourists, Bosnian government
should implement some policies to increase the share in the Europe. According to forecasting reports shows that
tourist arrivals will continue to grow in Europe. In the light of this information, Bosnia can increase and take
advantage of tourism sector if the government apply important policies into tourism industry for sustainable
devolopment.
Account deficit, unemployment and low income level constitue important economic problems in Bosnia.
1.708.000 persons are in the working age population and 226.000 persons are unemployed ( Federation of Bosnia
and Herzegovina Federal Office Of Statistics, 2009 ). Tourism oriented invesments to fusing glass tecniques in
souvenir industry will not only help decrease of unemployement, but also contribute to increase of the export with its
geographical advantages. Bosnia Herzegovina, which is located in the middle of Europe where the estimated tourist
arrival number will be 717 million in 2020, can use the advantage of minumun cost investment into the craft
industry, which will affect whole economy like a chain not only with retail shopping but also with export trade.
References
Eberle, B. (1997). Creative Glass Tecniques (pp. 15). Lark Books A division of Sterling Publishing Co.
Federation of Bosnia and Herzegovina Federal Office Of Statistics, (2009), Statistical Yearbook 2009. Retrieved on April 6, 2010
from http://www.fzs.ba/Statisticki%20godisnjak%202009.pdf
Gordon, B. (1986). The souvenir: messenger of the extraordinary. Journal of Popular Culture, 20, 135–146.
Gunce, E. (2003). Tourism and local attitudes in Girne, Northern Cyprus. Cities, 20(3), 181-195
Hair, J. F., Anderson, R. E., Tatham, R. L., & Black, W. C. (1998). Multivariate data analysis (5th ed.). Upper Saddle River, NJ:
Prentice-Hall.
Hudman, L. E., & Hawkins, D. E. (1989). Tourism in contemporary society. Englewood Cliffs, NJ: Prentice Hall.
Swanson, K. K., & Horridge, P.E. (2006). Travel motivations as souvenir purchase indicators. Tourism Management, 27, 671-683
Torrent, R. R.-I-., (2008). Sustainable development in tourism municipalities: The role of public goods. Tourism Management, 29,
883-897
Turner, L. W., & Reisinger, Y. (2001). Shopping satisfaction for domestic tourist. Journal of Retailing and Consumer Services, 8,
15-27
UNESCO, (2007). Handicrafts and Employment Generation for the Poorest Youth and Women (pp. 03-50) . Retrieved on April 6,
2010 from http://unesdoc.unesco.org/images/0015/001567/156772e.pdf
United Nations Environment Programme, http:// www.unep.org
World Tourism Organization. (2009). Tourism Highlights. Retrieved on April 6, 2010 from
http://unwto.org/facts/eng/highlights.htm
666
�
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Extent
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306
Title
A name given to the resource
Alternative Manufacturing Technique in Glass Industry for Devoloping Countries: Fused Glass , “Zumrut Art Of Glass Model” and Its Applicability in Bosnia Herzegovina Economy
Author
Author
ALBENİ, Mesut
CAN, Muhlis
Abstract
A summary of the resource.
Tourism industry plays an important role in the sustainable devolopment process of the countries. Giftware (souvenir,craft) sector also forms one of the important elements of tourism revenues.. However, finding same types of the products in many countries around the world is the signal that the sale of goods loose their competitivines and so, some innovations are needed. In this study, the contributions of new production techniques in glass industry, to which increasement of the export by taking the advantage of niche market and reducement of the unemployement, are examined for tourism oriented souvenir industry. The "Glass Fusion Technique" is discussed in order to concretize the purpose of this study with ―Zumrut Art of Glass‖ model and the possibilty of application into Bosnia and Herzegovina economy.
Date
A point or period of time associated with an event in the lifecycle of the resource
2010-06
Keywords
Keywords.
Conference or Workshop Item
PeerReviewed
HB Economic Theory
-
https://omeka.ibu.edu.ba/files/original/d2c20a8709a8ad8677d2688235c3586f.pdf
f200a11764c035b4b20db9910012e639
PDF Text
Text
2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
An Analysis of Environmental Costs for a Midlle Sized Printing and Packing
Company
Nurcan KARACA
Fatih University, Buyukcekmece, Istanbul, Turkey
nurcankaraca82@gmail.com
Ali COġKUN
Fatih University, Buyukcekmece, Istanbul, Turkey
alicoskun@fatih.edu.tr
Abstract: In the past three decades, awareness of the companies towards the environmental
issues increased because of new regulations and increased public awareness. In order to satisfy
the public demand and accomplish the legal obligations companies initiated using environmental
friendly technologies and made changes in their manufacturing processes and material usage.
Implementation of environmental friendly manufacturing systems brings additional costs to the
companies. In this study the classification of environmental costs in small and medium sized
enterprises (SMEs) are discussed and previously suggested environmental costs classification
system for SMEs were applied to a middle size printing and packing company. The share of
environmental management cost of the company was calculated as 2.7% of annual expenses
while the average annual cost of environmental investments were about at the level of 0.6%. In
the main part of this study, we discussed how environmental costs are being done varies in a
number of respects and applications for a selected type of work sector, how they can be grouped
or classified, and what could be the magnitude of the environmental investment to fulfill new
national regulations established.
Key Words: Accounting, cost, environment, management, SME.
Introduction
However the Environmental Protection Agency (EPA) was established in 1969, environmental reporting in
company level was not required till the end of 1980s. In 1990s environmental disclosures appear in company reports.
The International Organization for Standardization (IOS) issued the first of the ISO 14000 family of standards in
1996. The ISO 14000 family addresses various aspects of environmental management. The very first two standards,
ISO 14001:2004 and ISO 14004:2004 deal with environmental management systems. Major milestones in the
development of external reporting on environmental performance appear as Figure 1 (Fleichman and Schuele 2006).
In recent years with increased public awareness on environmental issues environmental accounting is
became a popular research issue. Environmental accounting is mainly divided into two categories as environmental
financial accounting (EFA) and environmental management accounting (EMA). EFA focuses on financial reporting
and provides information to external decision makers and EMA provides environmental financial information for
internals. This study focuses on environmental costs issues within environmental management accounting. Xiaomei
(2004) defines EMA as ―the identification, collection, estimation, analysis, internal reporting, and use of materials
and energy flow information, environmental cost information, and other cost information for both conventional and
environmental decision-making within an organization‖. Jasch (2003) defines EMA as ―a combined approach that
provides for the transition of data from financial accounting, cost accounting and mass balances to increase material
efficiency, reduce environmental impacts and risks and reduce costs of environmental protection‖.
In order to satisfy the environmental requests of the public and to fulfill the legal responsibilities the
companies initiated to use environmental friendly manufacturing systems, material and processes. Implementation of
environmental friendly technologies brings additional costs to the companies. Companies should carefully
understand, measure, and control the environmental cost. Environmental cost are classified is different ways in the
literature.
642
�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
Figure 1. Major milestones in the development of external reporting on environmental performance
Source: Fleichman and Schuele (2006:45).
Coskun and Karaca (2008) classify the environmental costs for small and medium sized enterprises (SMEs)
into three categories: environmental investment costs, environmental management and operating costs and
environmental risk management costs.
De Beer and Friend (2006) classify environmental costs as internal and external costs. Internal costs include
conventional costs, potentially hidden costs, contingent costs, and image and relationship costs. External costs
include environmental degradation costs, and human impact costs.
Steen (2005) defined costs and revenues associated with environmental issues as process costs, sales,
accidents and goodwill changes, and Taxes and fees on emissions and resource consumption. Process costs include
costs of control equipment, environmental permit, environmental monitoring, certification cost, labeling costs and
environmental management.
Jasch (2003) classifies environmental costs in four categories: conventional waste disposal and emission
treatment costs, prevention and environmental management costs, Material purchase value of non-product output,
and production costs of non-product output. In addition Environmental revenues can be derived from sales of waste
or grants of subsidies. Waste disposal and emission treatment costs includes depreciation for related equipment,
maintenance and operating materials and services, related personnel costs, fees, taxes, charges, fines and penalties,
insurance for environmental liabilities, and provisions for clean-up costs, remediation. Prevention and environmental
management costs includes external services for environmental management, personnel for general environmental
management activities, research and development, extra expenditure for cleaner technologies and scrap percentage of
operational plants, and other environmental management costs. Material purchase value of non-product output
includes costs associated with the raw materials, packaging, auxiliary materials, operating materials, energy and
water
Kumaran, et.al. (2001) developed a life cycle environmental cost analysis (LCECA) model is to include
eco-costs into the total cost of the products. They classified eco-costs of the cost breakdown structure (CBS) in eight
categories: eco-costs: cost of effluent/waste treatment (implementation, operation, and maintenance); cost of
effluent/waste control (implementation, operation, and maintenance); cost of waste disposal (collection,
transportation, and land fill or incineration); cost of environmental management systems - EMS (implementation,
643
�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
operation, maintenance, and certification); costs of eco-taxes (country- or product specific eco-taxes, levy, etc.);
costs of rehabilitation in case of environmental accidents (damages like health disorders, accidents, and production
losses caused by the damages); cost savings of renewable energy utilization; and cost savings of recycling and reuse
strategies.
Kirlioglu and Can (1998), classify environmental costs into three categories as mitigation / avoidance costs,
utilization costs, and impairment /damage costs.
Method
In order to determine the environmental costs for small and medium sized enterprises (SMEs) in the
printing and packing sector, we used an environmental costs classification system previously suggested by Coskun
and Karaca (2009). One can obtain detailed information about this classification system from the related studies
(Karaca 2008; Coskun and Karaca 2009). Here, only some brief information about the method is summarized as
follows. Environmental costs of SMEs are divided into three categories: "environmental investment costs",
"environmental management and operating costs" and "environmental risk management costs". There are some
subcategories within these three main categories as they are summarized in Table 1. The total number of these
subcategories of environmental costs may vary depending on industry type. In this study all the classified
environmental costs and their share in total annual costs were calculated for a selected company.
Classification
Environmental Investment
Costs (EICs)
Environmental
Management and Operating
Costs (EMOCs)
Environmental
Management
(ERMCs)
Risk
Costs
Environmental costs
Environmental planning costs
Environmental management system and organizational costs
Wastewater treatment plant costs
Waste gas control and filtration systems costs
Solid waste storage (management) costs
Hazardous and toxic waste storage (management) costs
Waste monitoring and testing equipments and investments costs
Administrational costs
Environmental education costs
Consultancy and cost of other services received
Others
Test and analysis costs
Labor costs
Consumables (chemicals)
Legislation and management costs
Administrational costs
Consultancy and cost of other services received
Waste disposal and treatment costs
Wastewater treatment plant operational costs (electricity, water
consumption, etc.)
Taxes
Others
Punishment and indemnity costs
Costs for complain investigations and compensations
Air, water or soil treatment ( in the case of any fugitive or
accidental contaminations)
Bonding and guaranty costs
Selling or production cutback costs
Other unexpected losses and costs
Other
Source: Coskun and Karaca (2009).
Table 1: Possible environmental costs for SMEs
644
�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
Case Study
In this study a company in printing and packing sector was selected. This company is a typical one in the
related sector and can certainly be classified into one of the most active and modern corporation operation in Turkey.
They have large production capacity and they define themselves as an environmental friendly and responsible
company. The rationality of selecting such a company for our study is their eagerness in environmental investments
for upcoming environmental costs which had already appeared by new regulation period during the integration
period of Turkey to European Union. In the following part the possible treats or new regulations in which they
invested a certain amount of environmental budget are discussed.
The company reported that they have one typical waste which has been generated during printing operations
is wastewater. Thus, the costs and/or needs for wastewater treatment or discharge are the number one environment
related hot topic for this sector. Water and Sewerage Directorate for Istanbul Greater Metropolitan City (ISKI) is the
responsible authority who regulates and controls all the wastewater discharges and water demands of all bodies
located within the boundaries of Istanbul Megacity. Based on the related ISKI regulation; if any company does not fit
wastewater discharge limits two times in a sequential 6 months all activities of the company are stopped. This
regulation is actually an important environmental risk for companies, so they have to invest money and make certain
plans for sustainable production. In our case study, this regulation and related actions were the main legislative factor
for environmental costs and efforts invested by the company. In addition to that, there are other environment related
activities which not only result in costs but also benefits.
Annual costs of the company which are taken from the company‘s accounting records are summarized in
Table 2. In that table environmental costs of the company do not appear because under the uniform accounting
system of Turkey there is not a proper section that classifies environmental costs and environmental investments of
the company separately.
In Table 2 values were recorded during the year 2005 and all the records were originally in Turkish Liras
(TL). We converted all these TL based values in Euros (€) to present in European Union (EU) currency unit to have
a better understanding. In converting these values to original format, one can use conversation factors available on
the website of the Central Bank of the Republic of Turkish (http://www.tcmb.gov.tr/kurlar/200505).
Total (€)
218,057
85,771
34,286
1,143
4,571
548,571
57,143
6,143
85,714
11,429
14,714
34,286
1,101,829
Costs
Direct materials
Indirect materials
Electricity
Water
Fuel
Labor costs
Maintenance and Repair
Copyright and patent
Marketing and sales
Packing
Depreciation
General overhead
Total
Table 2: Annual costs for a printing and packing company during 2005 in Turkey.
As it stated before, the most important environmental costs for the company is related to wastewater
discharge or treatment. ISKI regulation40, namely ―Wastewater discharge directive‖, defines some responsibilities for
the companies which result in environmental costs, are summarized as follows.
Wastewater discharge into sewage system is directly under the permission of ISKI, and companies should
obtain a ―discharge quality control permit‖ (item 11)
Bodies having a wastewater source should install a septic tank, preliminary treatment plant or treatment
plant to responsible of its operation (item 11.3)
4040
This regulation is available online on the web site of ISKI in Turkish
(http://www.iski.gov.tr/Web/UserFiles/File/mevzuat/pdf/Y_Atiksularin_Kanalizasyona_Desarji.pdf).
645
�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
They should have an engineer as ―Technical Manager‖ which is responsible in wastewater treatment (item
13.2)
Industries are classified in two main groups based on their wastewater capacities; i) ones having less than
0.5 m3/day and ii) having more than the 0.5 m3/day flow rate. First group of companies can buy a service for
their wastewater from collective treatment plants. However second group of companies should have their
own treatment plants (items 16.3 and 16.4)
Based on the above mentioned regulations, the company decided to install a wastewater treatment plant (a
packed batch wastewater treatment plant with the capacity of 6~8 m3/day) at the begging of 2006. It was a typical
treatment plant used in this sector and it works based on the chemical coagulation and flocculation followed by a
sedimentation tank. Details of this treatment plant and design parameters can be obtained from Karaca‘s work
(2008). In the following part, cost analysis of the wastewater related investment is discussed.
Firstly, EICs are given in details. Initialization costs (cf. Table 1) of a packed wastewater treatment plant
can vary from thousands Euros to hundreds of thousand, this is up to size and capacity. This company bought one
small sized treatment plant about 52,000 € including setup and startup costs. Secondly, EMOCs (cf. Table 1) are
calculated. Annual EMOCs are generally expected to be higher than EICs (Coskun and Karaca, 2009). In this case
study, this rule was not broken and it was calculated about 56,000 €. All the details and subcategory costs are
summarized in Table 3. In addition to above mentioned costs, company was reengineered and started to collect or
recover used materials (waste paper) for trading. This is a typical environment friendly application and recorded as
an environmental benefit. Total income of this action was estimated about 5,700 € per year. Than practically EMOCs
were decreased about 10%. Finally, ERMCs were estimated based on the regulatory fines and penalties which is
based on the ISKI directive. It suggests a certain amount of Contribution Payment Charge (KÖP) if the discharge
limits are exceeded. ERMCs are expected to be 10% of EMOCs. No environmental damage or environmental health
risks were considered in this estimation.
As a result share of environmental costs of the company was calculated as 2.7% of all expenses while the
yearly environmental investments were about at the level of 0.6%.
Environmental
Costs
Consumables
Monthly
Basic chemicals
Granule active carbon used in sedimentation
Granule active carbon used in filtration unit
Electricity
Waste disposal
Training costs
Labor costs
1,429
1,429
571
143
Combustion (this price is paid for the incineration of hazardous wastes
Transportation
Technical Manager (Engineer)
Operator
354
429
Total
Annual
Total
(€)
17,143
17,143
6,857
1,714
3,400
143
571
4,251
5,143
56,366
Table 3: Environmental Management and Operational Costs of a Printing and Packing Company.
References
Coskun A. and Karaca N. 2009. A Suggestion to the Classification of Environmental Costs in SMEs: An Application in Metal
Processing Sector. Ekoloji 18 (69), 59-65 (in Turkish).
De Beer P. and Friend F. 2006. Environmental accounting: A management tool for enhancing corporate environmental and
economic performance. Ecological Economics 58, 548-560.
Fleichman R.K. and Schuele K. 2006. Green Accounting: A Primer. Journal of Accounting Education 24, 35-66.
Jasch C. 2003. The use of Environmental Management Accounting (EMA) for identifying environmental costs. Journal of Cleaner
Production 11. 667–676.
646
�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
Karaca N. 2008. Küçük ve Orta Boy ĠĢletmelerde Çevresel Maliyetler (Environmental Costs in SMEs), Master Thesis submitted
to Fatih University, Department of Management, May 2008, Istanbul, Turkey (in Turkish).
Kirlioglu H. and Can A.V. 1998. Cevre Muhasebesi. Degisim Yayinlari, Adapazari, Turkey (in Turkish).
Kumaran D.S. Ong S. K. Tan R.B.H. and Nee A.Y.C. 2001Environmental life cycle cost analysis of products. Environmental
Management and Health 12 (3). 260-276.
Steen B. 2005. Environmental costs and benefits in life cycle costing. Management of Environmental Quality: An International
Journal 16 (2). 107-118.
Xiaomei L. 2004. Theory and Practice of Environmental Management Accounting. International Journal of Technology
Management and Sustainable Development 1, 47-57.
647
�
Dublin Core
The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/.
Extent
The size or duration of the resource.
250
Title
A name given to the resource
An Analysis of Environmental Costs for a Midlle Sized Printing and Packing Company
Author
Author
KARACA, Nurcan
COSKUN, Ali
Abstract
A summary of the resource.
In the past three decades, awareness of the companies towards the environmental issues increased because of new regulations and increased public awareness. In order to satisfy the public demand and accomplish the legal obligations companies initiated using environmental friendly technologies and made changes in their manufacturing processes and material usage. Implementation of environmental friendly manufacturing systems brings additional costs to the companies. In this study the classification of environmental costs in small and medium sized enterprises (SMEs) are discussed and previously suggested environmental costs classification system for SMEs were applied to a middle size printing and packing company. The share of environmental management cost of the company was calculated as 2.7% of annual expenses while the average annual cost of environmental investments were about at the level of 0.6%. In the main part of this study, we discussed how environmental costs are being done varies in a number of respects and applications for a selected type of work sector, how they can be grouped or classified, and what could be the magnitude of the environmental investment to fulfill new national regulations established.
Date
A point or period of time associated with an event in the lifecycle of the resource
2010-06
Keywords
Keywords.
Conference or Workshop Item
PeerReviewed
HB Economic Theory
-
https://omeka.ibu.edu.ba/files/original/146622a9c60fbbe7b1b1fcc0de419d4f.pdf
f200a11764c035b4b20db9910012e639
PDF Text
Text
2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
An Analysis of Environmental Costs for a Midlle Sized Printing and Packing
Company
Nurcan KARACA
Fatih University, Buyukcekmece, Istanbul, Turkey
nurcankaraca82@gmail.com
Ali COġKUN
Fatih University, Buyukcekmece, Istanbul, Turkey
alicoskun@fatih.edu.tr
Abstract: In the past three decades, awareness of the companies towards the environmental
issues increased because of new regulations and increased public awareness. In order to satisfy
the public demand and accomplish the legal obligations companies initiated using environmental
friendly technologies and made changes in their manufacturing processes and material usage.
Implementation of environmental friendly manufacturing systems brings additional costs to the
companies. In this study the classification of environmental costs in small and medium sized
enterprises (SMEs) are discussed and previously suggested environmental costs classification
system for SMEs were applied to a middle size printing and packing company. The share of
environmental management cost of the company was calculated as 2.7% of annual expenses
while the average annual cost of environmental investments were about at the level of 0.6%. In
the main part of this study, we discussed how environmental costs are being done varies in a
number of respects and applications for a selected type of work sector, how they can be grouped
or classified, and what could be the magnitude of the environmental investment to fulfill new
national regulations established.
Key Words: Accounting, cost, environment, management, SME.
Introduction
However the Environmental Protection Agency (EPA) was established in 1969, environmental reporting in
company level was not required till the end of 1980s. In 1990s environmental disclosures appear in company reports.
The International Organization for Standardization (IOS) issued the first of the ISO 14000 family of standards in
1996. The ISO 14000 family addresses various aspects of environmental management. The very first two standards,
ISO 14001:2004 and ISO 14004:2004 deal with environmental management systems. Major milestones in the
development of external reporting on environmental performance appear as Figure 1 (Fleichman and Schuele 2006).
In recent years with increased public awareness on environmental issues environmental accounting is
became a popular research issue. Environmental accounting is mainly divided into two categories as environmental
financial accounting (EFA) and environmental management accounting (EMA). EFA focuses on financial reporting
and provides information to external decision makers and EMA provides environmental financial information for
internals. This study focuses on environmental costs issues within environmental management accounting. Xiaomei
(2004) defines EMA as ―the identification, collection, estimation, analysis, internal reporting, and use of materials
and energy flow information, environmental cost information, and other cost information for both conventional and
environmental decision-making within an organization‖. Jasch (2003) defines EMA as ―a combined approach that
provides for the transition of data from financial accounting, cost accounting and mass balances to increase material
efficiency, reduce environmental impacts and risks and reduce costs of environmental protection‖.
In order to satisfy the environmental requests of the public and to fulfill the legal responsibilities the
companies initiated to use environmental friendly manufacturing systems, material and processes. Implementation of
environmental friendly technologies brings additional costs to the companies. Companies should carefully
understand, measure, and control the environmental cost. Environmental cost are classified is different ways in the
literature.
642
�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
Figure 1. Major milestones in the development of external reporting on environmental performance
Source: Fleichman and Schuele (2006:45).
Coskun and Karaca (2008) classify the environmental costs for small and medium sized enterprises (SMEs)
into three categories: environmental investment costs, environmental management and operating costs and
environmental risk management costs.
De Beer and Friend (2006) classify environmental costs as internal and external costs. Internal costs include
conventional costs, potentially hidden costs, contingent costs, and image and relationship costs. External costs
include environmental degradation costs, and human impact costs.
Steen (2005) defined costs and revenues associated with environmental issues as process costs, sales,
accidents and goodwill changes, and Taxes and fees on emissions and resource consumption. Process costs include
costs of control equipment, environmental permit, environmental monitoring, certification cost, labeling costs and
environmental management.
Jasch (2003) classifies environmental costs in four categories: conventional waste disposal and emission
treatment costs, prevention and environmental management costs, Material purchase value of non-product output,
and production costs of non-product output. In addition Environmental revenues can be derived from sales of waste
or grants of subsidies. Waste disposal and emission treatment costs includes depreciation for related equipment,
maintenance and operating materials and services, related personnel costs, fees, taxes, charges, fines and penalties,
insurance for environmental liabilities, and provisions for clean-up costs, remediation. Prevention and environmental
management costs includes external services for environmental management, personnel for general environmental
management activities, research and development, extra expenditure for cleaner technologies and scrap percentage of
operational plants, and other environmental management costs. Material purchase value of non-product output
includes costs associated with the raw materials, packaging, auxiliary materials, operating materials, energy and
water
Kumaran, et.al. (2001) developed a life cycle environmental cost analysis (LCECA) model is to include
eco-costs into the total cost of the products. They classified eco-costs of the cost breakdown structure (CBS) in eight
categories: eco-costs: cost of effluent/waste treatment (implementation, operation, and maintenance); cost of
effluent/waste control (implementation, operation, and maintenance); cost of waste disposal (collection,
transportation, and land fill or incineration); cost of environmental management systems - EMS (implementation,
643
�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
operation, maintenance, and certification); costs of eco-taxes (country- or product specific eco-taxes, levy, etc.);
costs of rehabilitation in case of environmental accidents (damages like health disorders, accidents, and production
losses caused by the damages); cost savings of renewable energy utilization; and cost savings of recycling and reuse
strategies.
Kirlioglu and Can (1998), classify environmental costs into three categories as mitigation / avoidance costs,
utilization costs, and impairment /damage costs.
Method
In order to determine the environmental costs for small and medium sized enterprises (SMEs) in the
printing and packing sector, we used an environmental costs classification system previously suggested by Coskun
and Karaca (2009). One can obtain detailed information about this classification system from the related studies
(Karaca 2008; Coskun and Karaca 2009). Here, only some brief information about the method is summarized as
follows. Environmental costs of SMEs are divided into three categories: "environmental investment costs",
"environmental management and operating costs" and "environmental risk management costs". There are some
subcategories within these three main categories as they are summarized in Table 1. The total number of these
subcategories of environmental costs may vary depending on industry type. In this study all the classified
environmental costs and their share in total annual costs were calculated for a selected company.
Classification
Environmental Investment
Costs (EICs)
Environmental
Management and Operating
Costs (EMOCs)
Environmental
Management
(ERMCs)
Risk
Costs
Environmental costs
Environmental planning costs
Environmental management system and organizational costs
Wastewater treatment plant costs
Waste gas control and filtration systems costs
Solid waste storage (management) costs
Hazardous and toxic waste storage (management) costs
Waste monitoring and testing equipments and investments costs
Administrational costs
Environmental education costs
Consultancy and cost of other services received
Others
Test and analysis costs
Labor costs
Consumables (chemicals)
Legislation and management costs
Administrational costs
Consultancy and cost of other services received
Waste disposal and treatment costs
Wastewater treatment plant operational costs (electricity, water
consumption, etc.)
Taxes
Others
Punishment and indemnity costs
Costs for complain investigations and compensations
Air, water or soil treatment ( in the case of any fugitive or
accidental contaminations)
Bonding and guaranty costs
Selling or production cutback costs
Other unexpected losses and costs
Other
Source: Coskun and Karaca (2009).
Table 1: Possible environmental costs for SMEs
644
�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
Case Study
In this study a company in printing and packing sector was selected. This company is a typical one in the
related sector and can certainly be classified into one of the most active and modern corporation operation in Turkey.
They have large production capacity and they define themselves as an environmental friendly and responsible
company. The rationality of selecting such a company for our study is their eagerness in environmental investments
for upcoming environmental costs which had already appeared by new regulation period during the integration
period of Turkey to European Union. In the following part the possible treats or new regulations in which they
invested a certain amount of environmental budget are discussed.
The company reported that they have one typical waste which has been generated during printing operations
is wastewater. Thus, the costs and/or needs for wastewater treatment or discharge are the number one environment
related hot topic for this sector. Water and Sewerage Directorate for Istanbul Greater Metropolitan City (ISKI) is the
responsible authority who regulates and controls all the wastewater discharges and water demands of all bodies
located within the boundaries of Istanbul Megacity. Based on the related ISKI regulation; if any company does not fit
wastewater discharge limits two times in a sequential 6 months all activities of the company are stopped. This
regulation is actually an important environmental risk for companies, so they have to invest money and make certain
plans for sustainable production. In our case study, this regulation and related actions were the main legislative factor
for environmental costs and efforts invested by the company. In addition to that, there are other environment related
activities which not only result in costs but also benefits.
Annual costs of the company which are taken from the company‘s accounting records are summarized in
Table 2. In that table environmental costs of the company do not appear because under the uniform accounting
system of Turkey there is not a proper section that classifies environmental costs and environmental investments of
the company separately.
In Table 2 values were recorded during the year 2005 and all the records were originally in Turkish Liras
(TL). We converted all these TL based values in Euros (€) to present in European Union (EU) currency unit to have
a better understanding. In converting these values to original format, one can use conversation factors available on
the website of the Central Bank of the Republic of Turkish (http://www.tcmb.gov.tr/kurlar/200505).
Total (€)
218,057
85,771
34,286
1,143
4,571
548,571
57,143
6,143
85,714
11,429
14,714
34,286
1,101,829
Costs
Direct materials
Indirect materials
Electricity
Water
Fuel
Labor costs
Maintenance and Repair
Copyright and patent
Marketing and sales
Packing
Depreciation
General overhead
Total
Table 2: Annual costs for a printing and packing company during 2005 in Turkey.
As it stated before, the most important environmental costs for the company is related to wastewater
discharge or treatment. ISKI regulation40, namely ―Wastewater discharge directive‖, defines some responsibilities for
the companies which result in environmental costs, are summarized as follows.
Wastewater discharge into sewage system is directly under the permission of ISKI, and companies should
obtain a ―discharge quality control permit‖ (item 11)
Bodies having a wastewater source should install a septic tank, preliminary treatment plant or treatment
plant to responsible of its operation (item 11.3)
4040
This regulation is available online on the web site of ISKI in Turkish
(http://www.iski.gov.tr/Web/UserFiles/File/mevzuat/pdf/Y_Atiksularin_Kanalizasyona_Desarji.pdf).
645
�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
They should have an engineer as ―Technical Manager‖ which is responsible in wastewater treatment (item
13.2)
Industries are classified in two main groups based on their wastewater capacities; i) ones having less than
0.5 m3/day and ii) having more than the 0.5 m3/day flow rate. First group of companies can buy a service for
their wastewater from collective treatment plants. However second group of companies should have their
own treatment plants (items 16.3 and 16.4)
Based on the above mentioned regulations, the company decided to install a wastewater treatment plant (a
packed batch wastewater treatment plant with the capacity of 6~8 m3/day) at the begging of 2006. It was a typical
treatment plant used in this sector and it works based on the chemical coagulation and flocculation followed by a
sedimentation tank. Details of this treatment plant and design parameters can be obtained from Karaca‘s work
(2008). In the following part, cost analysis of the wastewater related investment is discussed.
Firstly, EICs are given in details. Initialization costs (cf. Table 1) of a packed wastewater treatment plant
can vary from thousands Euros to hundreds of thousand, this is up to size and capacity. This company bought one
small sized treatment plant about 52,000 € including setup and startup costs. Secondly, EMOCs (cf. Table 1) are
calculated. Annual EMOCs are generally expected to be higher than EICs (Coskun and Karaca, 2009). In this case
study, this rule was not broken and it was calculated about 56,000 €. All the details and subcategory costs are
summarized in Table 3. In addition to above mentioned costs, company was reengineered and started to collect or
recover used materials (waste paper) for trading. This is a typical environment friendly application and recorded as
an environmental benefit. Total income of this action was estimated about 5,700 € per year. Than practically EMOCs
were decreased about 10%. Finally, ERMCs were estimated based on the regulatory fines and penalties which is
based on the ISKI directive. It suggests a certain amount of Contribution Payment Charge (KÖP) if the discharge
limits are exceeded. ERMCs are expected to be 10% of EMOCs. No environmental damage or environmental health
risks were considered in this estimation.
As a result share of environmental costs of the company was calculated as 2.7% of all expenses while the
yearly environmental investments were about at the level of 0.6%.
Environmental
Costs
Consumables
Monthly
Basic chemicals
Granule active carbon used in sedimentation
Granule active carbon used in filtration unit
Electricity
Waste disposal
Training costs
Labor costs
1,429
1,429
571
143
Combustion (this price is paid for the incineration of hazardous wastes
Transportation
Technical Manager (Engineer)
Operator
354
429
Total
Annual
Total
(€)
17,143
17,143
6,857
1,714
3,400
143
571
4,251
5,143
56,366
Table 3: Environmental Management and Operational Costs of a Printing and Packing Company.
References
Coskun A. and Karaca N. 2009. A Suggestion to the Classification of Environmental Costs in SMEs: An Application in Metal
Processing Sector. Ekoloji 18 (69), 59-65 (in Turkish).
De Beer P. and Friend F. 2006. Environmental accounting: A management tool for enhancing corporate environmental and
economic performance. Ecological Economics 58, 548-560.
Fleichman R.K. and Schuele K. 2006. Green Accounting: A Primer. Journal of Accounting Education 24, 35-66.
Jasch C. 2003. The use of Environmental Management Accounting (EMA) for identifying environmental costs. Journal of Cleaner
Production 11. 667–676.
646
�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
Karaca N. 2008. Küçük ve Orta Boy ĠĢletmelerde Çevresel Maliyetler (Environmental Costs in SMEs), Master Thesis submitted
to Fatih University, Department of Management, May 2008, Istanbul, Turkey (in Turkish).
Kirlioglu H. and Can A.V. 1998. Cevre Muhasebesi. Degisim Yayinlari, Adapazari, Turkey (in Turkish).
Kumaran D.S. Ong S. K. Tan R.B.H. and Nee A.Y.C. 2001Environmental life cycle cost analysis of products. Environmental
Management and Health 12 (3). 260-276.
Steen B. 2005. Environmental costs and benefits in life cycle costing. Management of Environmental Quality: An International
Journal 16 (2). 107-118.
Xiaomei L. 2004. Theory and Practice of Environmental Management Accounting. International Journal of Technology
Management and Sustainable Development 1, 47-57.
647
�
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303
Title
A name given to the resource
An Analysis of Environmental Costs for a Midlle Sized Printing and Packing Company
Author
Author
KARACA, Nurcan
COŞKUN, Ali
Abstract
A summary of the resource.
In the past three decades, awareness of the companies towards the environmental issues increased because of new regulations and increased public awareness. In order to satisfy the public demand and accomplish the legal obligations companies initiated using environmental friendly technologies and made changes in their manufacturing processes and material usage. Implementation of environmental friendly manufacturing systems brings additional costs to the companies. In this study the classification of environmental costs in small and medium sized enterprises (SMEs) are discussed and previously suggested environmental costs classification system for SMEs were applied to a middle size printing and packing company. The share of environmental management cost of the company was calculated as 2.7% of annual expenses while the average annual cost of environmental investments were about at the level of 0.6%. In the main part of this study, we discussed how environmental costs are being done varies in a number of respects and applications for a selected type of work sector, how they can be grouped or classified, and what could be the magnitude of the environmental investment to fulfill new national regulations established.
Date
A point or period of time associated with an event in the lifecycle of the resource
2010-06
Keywords
Keywords.
Conference or Workshop Item
PeerReviewed
HB Economic Theory
-
https://omeka.ibu.edu.ba/files/original/3796a887f5cb8e29097c20f09ffa1a58.pdf
b247cedd47b5982d01f8474ff01d9573
PDF Text
Text
2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
An Analysis of the Contents of the Studies Carried Out on the Relationship
between the Strategy and the Performance of the Organization
Orhan BATMAN
Sakarya University,
Faculty of Economics and Administrative Sciences
Department of Tourism Management
orhanbatman54tr@hotmail.com
Ġzzet KILINÇ
Düzce University
Akçakoca School of Tourism and Hotel Management
izzetkilinc@duzce.edu.tr
Muammer MESCĠ
Düzce University
Akçakoca School of Tourism and Hotel Management
muammermesci@duzce.edu.tr
Abstract: The aim of this research is to analyze the methodology used in the papers that deal
with the relationship between strategy and business performance in the last decade. In this
context; it is intended to determine the fields of study on which the papers focus, the research
methods and data collection techniques used and the findings achieved, and to compare and
contrast the findings obtained with the methods of research used. In this research, a qualitative
research method was used and the data were acquired through literature review. The data
acquired were put to content analysis and they were analyzed within the theoretical framework
formed in accordance with the objectives of the research. The main restriction of the research is
that the academic papers only in the data bases of Emerald and Sciencedirect were included in
the research. Within this, 15 papers in both data bases mentioned were reviewed. The findings of
the research indicate that the papers reviewed have been published in 10 different academic
journals and they focus on 6 different fields. Furthermore, quantitative research methods were
used in 11 of total 15 papers whereas qualitative research methods were used in 4 of them.
Questionnaire technique was chosen to collect data in the papers in which quantitative research
methods were used. On the other hand, while literature review was mainly preferred in the
papers in which qualitative research methods were used, case method was used in one of them.
The results of the research point out that the papers have similar findings although they have
used different methods, and it has been found out that there is a positive relationship between
strategy and business performance in the consequence of each paper.
Key Words: Strategy, performance, methodology.
Introduction
Strategic management is an understanding which has focused on the organization‘s continuing its life and
providing superiority in competition. Due to this, it is true and important to handle and explain the concepts of
―performance‖ and ―performance evaluation‖ with the approach of strategic management. The organizations should
develop their strategies and evaluate to what extent they have fulfilled their strategies in order to continue their
existence. The success measure in the market where the organizations operate is to obtain profitability above the
average. Performance evaluation is an important means in finding out whether the organizations have achieved this
profitability or not or to what extent they have achieved (Pongatichat & Johnston, 2008).
Today the rapid and intensive environmental changes and uncertainties affect the sector structures and the
dynamics of the organizations, the organizational process and functions, the market structures directly. These
interactions may cause the organizations to disappear in the area they operate in by affecting their performance and
profitability. Because of this, performance and performance evaluation systems are very important for the
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�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
organizations. Performance evaluation systems make important contributions to the organizations especially in
coping with the problems they will have in competing, continuing the operations and growing (Kilinc & et al., 2009).
These contributions can also increase the number of the studies carried out on strategy and performance evaluation
(Dyson, 2000).
There has been a dramatic change in the last two decades due to the nature of competition. Quality, intense,
flexibility and cost have appeared to be important competition elements. In this period, the performance evaluations
based on the traditional finance started to lose importance. At that time, new performance evaluation systems were
developed by the researchers as a result of the studies carried out (Bititci & et al., 2001). For instance, the traditional
performance evaluation process in the organizations was done in three ways. These were the turn over of the sales
involving the financial evaluations, the turn over of the investment and the turn over of the properties. Today it is
seen that there are non-financial evaluation systems beside the financial evaluation systems. Non-financial evaluation
systems are handled with a strategic view and used to complete the missing parts of the traditional evaluations and to
increase ―the firm value‖ of the organizations (Jusoh, 2008; Kilinc & et al., 2010).
The Concepts of Strategic Management and Performance Evaluation
Strategy is the process of determining the basic aims and goals of an organization and producing the
supplies that are essential to achieve these aims (Chandler, 1962). For Mirze & Ulgen (2005), strategy is a whole of
long-termed dynamic decisions which study the actions of the competitors, which focus on an end and which are
made to achieve certain aims. According to Hitt & et al. (2005), strategy means targets planned to improve the basic
core of the organization and to obtain a competition advantage and procedures followed to reach these targets. Lee
and Carter (2005) describe strategy as a plan which the organization makes to show how it will fulfill its mission and
vision.
For Mintzberg (1996), strategy is a multidimensional concept which includes the dynamics such as plan,
maneuver, behavior form, point of view and positioning against the competitors. The main purpose of the strategy is
to get an advantage against the competitors and to make it sustainable. Strategic management changes the strategy
concept into a management understanding. According to Ansoff (1965), strategic management is an active process
which guides the organization on how it can fulfill its aims. Teare and Boer (1996) describe strategic management as
the process related to the development of ―ideal‖ management systems for an active organization. For Aktan (2007),
strategic management is a means which leads the organizations in the competition environment to what they can do,
what strategies they should follow so as to compete with their competitors. Johnson and Scholes (1993) explain that
the strategic management is the procedures followed to make the inner and outer environment analyses, to collect
information, to make decisions, to make implementations by gathering the references and to evaluate the results in
order that the organization can obtain sustainable competition superiority in the long term.
Performance in general is a concept which qualitatively and quantitatively determines an output obtained as
a consequence of a planned and aimed activity (Percin, 2008). For Atakus (2006), performance is a comparison. He
states that something that can not be measured will not be compared. Therefore, the concept of performance should
be explained clearly for a good comparison. Kanj (2002) defines the performance evaluation as the methods which
are used to perform the functions of the organization perfectly and to improve them. Beamon and Balcik (2008) say
that performance evaluation is a form of evaluation made to measure the efficiency and validity of the functions of
the organizations. Each organization has certain objectives and functions. The basic function of the business
management is to bring the aims and objectives of the organization to the highest level possible. Performance
evaluation determines to what extent the organization has reached this level (Akal, 2000). The contributions of
performance evaluation can be listed as follows (Dilek, 2009):
It enables the strategies of the organization to be supported, to be understood better and to be assimilated
It makes contributions to the implementation of the strategies easily and making decisions about the
management
It enables to make a map of developments and changes in the organization so that the organization can have
a dynamic structure which can renew itself
It enables the organization to increase its productivity and efficiency
Performance evaluation systems are effective in developing strategies which are arranged according to the new
environment conditions and which aim to fulfill the objectives instead of non-functional strategies developed before
(Jusoh & Parnell, 2008).
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�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
Method
This study aims to investigate the contents of the studies carried out on finding out the relationship between
the strategy and the performance of the organization in the last decade by taking the methods used in these studies as
a basis. Thus, it is the main objective of this study to determine the new tendency related to this subject. Within this,
the fields where the articles focus on, the research methods and data collection techniques used and the findings they
obtained will be found out and comments will be made on the findings.
The data used in the study were obtained through literature review. At this stage, the focus was which
academic articles would be examined and their being original. The data collected were analyzed through content
analysis in the theoretical fragment formed according to the objectives of the research. The basic limitation of the
study is that only the articles published in emerald and science direct databases were involved in it. Due to this,
fifteen articles published in both databases were evaluated. In addition, two things – obtaining the data easily and
checking them- were considered essential in respect of the reliability of the research process.
Findings
The papers involved in the population of the study and the basic findings obtained from these papers have been
shown systematically in Table 1.
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�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
Author(s)
And Year
Bititci &
et al.,
2001
Hitt A. &
et al.,
2001
Pehrsson,
2001
Mc Adam
& Bailie,
2002
Ruiz & at
el.,
2002
The Aim of the Study
To find out the relationships
of the quantitative models
affecting the performance by
taking the performance
evaluation studies published
before as a basis
To study the effect of human
capital on the performance
of the organization
To study the effect of
environmental changes on
the strategic performance
evaluations of the
organizations
To study the relationship
between the strategies of the
organizations and the
performance evaluation.
Plus, to search for the role of
the improvement models for
the organization.
To determine the effect of
the market, product and
production factors when the
organizations use the
differentiation strategies in
order that the organizations
can grow more in the foreign
market
To examine the relationship
The Basic
Method Used
Qualitative
Research
The Method
for Data
Collection
Literature
Review
Analysis
Techniques
Used
The
Analysis of
Dynamics
and
Sensitivity
Content
Production
Field
Findings
It makes suggestions about the quantitative
models used in the performance evaluation
system, which strategic productions should
be made for the organizations and giving
alternative strategic decisions.
The
Magazine in
Which the
Article was
Published
International
Journal of
Production
Economics
Quantitative
Research
Questionnaire
Technique
Correlation
Analysis
Human
Resources
Two conclusions were reached in the
study: First, there is an indirect
relationship between human capital, the
performance of the organization and the
strategy. Second, there is an effective
relationship between the supplies and the
strategy.
Qualitative
Research
Literature
Review
Sample Case
Technique
Production
Field
It states that organizations can obtain high
performance by developing optimum
strategies.
Management
Decision
Production
Field
It has been determined that strategy has an
important effect on performance
evaluation. Besides, it is thought that
evaluations, evaluation structures and
strategy are a complicated and dynamic
structure and this situation is criticized in
the study.
International
Journal of
Operations&P
roduction
Management
International
Marketing
Review
International
Qualitative
Research
Literature
Review
Sample Case
Technique
Quantitative
Research
Questionnaire
Technique
Statistics
with
Multiple
Variables,
T-Test,
Regression
Analysis
Production
Field
It has been pointed out that the factors
such as market, production and
organization are important elements in the
extension of the organization in the foreign
markets. In addition, it has been found out
that these factors have an important effect
on the performance of the organization.
Quantitative
Questionnaire
Statistics
Production
The needs of the employees working in the
177
Academy of
Management
Journal
�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
Kathuria
& Porth,
2003
Bourne &
at el.,
2003
Bednall &
Valos,
2005
Megicks,
2007
Enticott
&
Walker,
2008
Pehrsson,
2008
Chau,
between the functional
strategy of the organization
and the characteristic of the
strategy management.
To study how important the
approach based on the
supplies is in finding out the
performance and
competence of the
organization.
Research
Qualitative
Research
Technique
with
Multiple
Variables,
T-Test,
Literature
Review
Field
Production
Field
Questionnaire
Technique
Statistics
with
Multiple
Variables,
ANOVA,
Tamhane‘s
T2
Production
Field
Quantitative
Research
Questionnaire
Technique
Factor
Analysis,
Correlation
Production
Field
Quantitative
Research
Questionnaire
Technique
Correlation,
Regression
Analysis
Service
Organizati
ons
Statistics
with
Multiple
Variables,
ANOVA,
Correlation
Production
Field/
Service
Organizati
ons
To study the contribution of
the strategy to searching for
marketing in a certain area
and with the purpose of
gaining profit.
Quantitative
Research
To examine the effect of
small-scaled retailers and the
strategies developed at
different levels .on the
organization performance
To study the effect of the
relationships between the
performances of the
organizations which have a
social responsibility and
sustainable management on
the organizations.
To find out the effect of
strategy implementations
which have a crucial role in
setting value in the foreign
markets on the organization.
Quantitative
Research
Questionnaire
Technique
To explain the relationship
among the efficiency of the
Qualitative
Research
Literature
Review
Production
Field
178
organization should be considered in order
to evaluate the relationship between
strategy and management at the functional
level together.
In this paper it has been determined that
the approach based on supplies has an
important influence on the organizations.
The approach based on supplies enables
the organizations to see their supplies and
competence.
This paper has shown that knowledge,
internal policies and searching for the
market are the factors that increase the
market performance of the organizations.
Besides, it has been found out that these
factors are related with the strategies
developed by Miles, Snow and Porter.
This paper states that, at the functional
level, the strategies implemented in the
organizations at different levels have a
great influence on the performance of the
organization.
In this research paper, it is mentioned that,
in order to reach high performances
determined by the organizations, the
organizations need not only the strategy
but also the sustainable management and
the support of the shareholders. In
addition, there is an indirect relationship
between sustainable management and
sustainable performance.
The organizations require product
differentiation for making products and
setting a value in the foreign markets.
Also, the performances of the
organizations which meet the expectations
of the customers will increase.
Strategic performance management, the
performance of the organization and team
Journal
of Operations
&Production
Management
International
Journal of
Operations&P
roduction
Management
International
Journal of
Productivity
Performance
Management
Management
Decision
Business
Strategy and
the
Environment
European
Business
Review
Team
Performance
�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
Sum
2008
Parnell &
Dent,
2009
Gunby,
2009
Fantazy
& at el.,
2009
organization, the
performance of the
organization, the team
strategy and the strategic
performance management.
strategy exist at the operational or medium
level and upper level. The efficiency can
be interpreted as the phenomenon of
strategic team performance management.
Production
Field/
Service
Organizati
ons
This paper states that there are different
views about the performance of the
Quantitative
Questionnaire
ANOVA
organization and chance factor. Managers
Research
Technique
claim that bad situations are related to the
chance factor.
It has been found out that the organizations
which do not have the purpose of making
profits are affected by the policies and
To find out what kind of a
changes in the process of developing
relationship there is between
Factor
Service
Quantitative
Questionnaire
strategy due to environmental conditions.
the strategy developing
Analysis,
Organizati
Research
Technique
This paper mentions that there is not an
process and the performance
Correlation
ons
important change in the performances of
of the organization.
the employees in the strategy developing
process of the organizations which aim or
do not aim to make profits.
This study suggests that performance has a
great influence on flexibility and flexibility
has a great influence on strategy. Making
new products, providing flexibility and
To examine the relationship
Structural
improving the supplies are essential for the
between performance,
Quantitative
Questionnaire
Production
Equality
customers, whereas the limit of the
strategy and flexibility in the Research
Technique
Field
Modeling
flexibility, creating new products,
chain organizations.
improving the supplies and time are the
most important investment factors for the
organizations which want to develop new
strategies
Table 1: The Studies Carried Out On the Relationship between the Strategy and the Performance
To study the relationships
between performance and
strategic factors in strategic
management schools.
179
Management
Management
Decision
Management
Decision
Supply Chain
Management:
An
International
Journal
�Discussion and Results
In the recent years, the studies on the relationship between strategy and performance evaluation have
mostly concentrated on the evaluation. The strategies determined by the organizations should be evaluated with
correct criteria. Besides, organizations need to determine their strategies correctly. The organizations which do
not determine their strategies correctly fail to improve their performances. In order to find out to what extent the
organizations have reached the strategies they have determined, analyses should be made through correct
evaluation systems. Misleading evaluation systems can not find out how successful the organization is in
achieving the goals and objectives that it has determined before.
The other thing is that the functions in the organization should be arranged according to the strategies.
Organizations must develop the competence and authority which are necessary to perform the functions
determined before. In addition, correct decisions should be made in order to perform the functions successfully.
The basic findings results that have been obtained with this research have been discussed below.
When the aims of the studies are considered, it has been seen that the common subjects dealt with are
the factors which are essential for the organizations to grow in the foreign markets, the relationship between
strategy and management, the effects of environmental conditions on the performance of the organization,
determining the competence of the organization and finding out the relationship between the strategy and the
performance of the organization. Among the studies carried out with different purposes, Bititci & et al. (2001) –
the relationship between the quantitative models affecting the performance- and Hitt and et al. (2001) – the direct
and indirect effects of the human capital on the performance of the organization- appear to be the most
important. It has been found out that the researchers have involved the relationship between the strategy and
performance indirectly in their studies with different purposes. One of the most important deficiencies in these
studies is that they have not explained at what level this relationship is. The other deficiency is that the
techniques used in these studies have not been mentioned sufficiently in the evaluation of the relationship
between strategy and performance.
When the basic methods are considered, it is seen that five of these studies have used the qualitative
research method and ten of them have used the quantitative research method. It has been found out that while the
qualitative research method was preferred in the early 2000s, the quantitative research method was preferred in
the later years. That the quantitative research method was used more in the studies can be interpreted as meaning
that the researchers had a rationalist understanding. The reason why the qualitative research method was
preferred less can be that the process of this research is troublesome and takes too much time and that the
researchers do not know how to search and analyze the data. However, there is no paper in which both methods
have been used together among the papers which form the population of the research. The use of both methods
in the new studies which will be done in this field can be important in respect of the results to be obtained.
The papers were also examined in respect of the analysis techniques and it has been found out that
sample case technique was used in the studies based on the qualitative research method, whereas statistics with
multiple variables, ANOVA, Tamhane‘s T2, Correlation, Regression, Structural Equality Modeling and Factor
Analyses techniques were preferred in the studies based on the quantitative research method. It has been
determined that the analysis techniques suitable for the purpose of the research were preferred in the studies.
Different from the analysis techniques used in the studies, Bititci and et al. (2001) used the analysis of dynamics
and sensitivity and Fantazy and et al. (2009) used the structural equality modeling. The structural equality
modeling is briefly the combination of the factor analysis and the regression analysis.
The content being analyzed, it is understood that the studies were carried out in the fields of production
and service. Today it is essential that the outputs produced by the organizations and the inputs they have been
using be evaluated in respect of quality and quantity related to the sectors that the organizations operate in.
Among the studies, the study prepared by Hitt A. and et al. in 2001 on human resources is different from the
others. In this paper, the researchers came to the conclusion that human capital had an influence on the strategy
and the performance of the organization.
When the data collecting method is considered, it is seen that the researchers benefited from the
literature review and the questionnaire technique. While the literature review was preferred as the data collecting
method in the studies with the qualitative research method, the questionnaire technique was used in the studies
with the quantitative research method. It is understood that secondary resources were preferred in the studies
because the researchers could use fewer references, do periodic studies and make compare and contrast. It was
found out that the researchers who preferred the questionnaire technique had used it in order to collect data in a
wider area.
Related to the magazine in which the studies were published, the magazine preferred the most by the
authors is Management Decision (4) and International Journal of Operations & Production Management (3)
follows this magazine. It is seen that there is an important relationship between the magazine preferred and the
subject of the studies. It was found out that the researchers evaluated the subjects they had searched for
according to the concept of the magazine which they published their papers in.
�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
The common result of the findings obtained from the studies is that there is a relationship between the
strategy and the performance of the organization in a great deal. The hypotheses suggested in the studies were
either accepted or rejected according to the analyses. The interesting point is that the aims determined in the
studies seem to support the results of the studies. Among the studies examined, the study prepared by Parnell and
Dent (2009) differs from the others in that they explained the negative events the managers faced with the
chance factor. The authors stated that there was a direct relationship between the performance of the organization
and the chance factor and the chance had an important effect on the operational results of the organization. The
other different study is the one carried out by Fantazy and et al. (2009). It mentions that information system and
technology usage are important factors so as to improve the performance of the organization. The information
and technology; in other words, core supplies the organizations have are important in that they show the
competition power of the organizations. It is seen that the organizations today will improve their performances
and achieve the success above the sector average by developing different strategies such as differentiation,
focusing, cost based…..etc. The deficiencies in the studies result from the fact that it is not clear to what extent
the relationship between the strategy and performance evaluation is effective on the other facilities that the
organization provides.
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Title
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An Analysis of the Contents of the Studies Carried Out on the Relationship between the Strategy and the Performance of the Organization
Author
Author
BATMAN, Orhan
KILINÇ, İzzet
MESCİ, Muammer
Abstract
A summary of the resource.
The aim of this research is to analyze the methodology used in the papers that deal with the relationship between strategy and business performance in the last decade. In this context; it is intended to determine the fields of study on which the papers focus, the research methods and data collection techniques used and the findings achieved, and to compare and contrast the findings obtained with the methods of research used. In this research, a qualitative research method was used and the data were acquired through literature review. The data acquired were put to content analysis and they were analyzed within the theoretical framework formed in accordance with the objectives of the research. The main restriction of the research is that the academic papers only in the data bases of Emerald and Sciencedirect were included in the research. Within this, 15 papers in both data bases mentioned were reviewed. The findings of the research indicate that the papers reviewed have been published in 10 different academic journals and they focus on 6 different fields. Furthermore, quantitative research methods were used in 11 of total 15 papers whereas qualitative research methods were used in 4 of them. Questionnaire technique was chosen to collect data in the papers in which quantitative research methods were used. On the other hand, while literature review was mainly preferred in the papers in which qualitative research methods were used, case method was used in one of them. The results of the research point out that the papers have similar findings although they have used different methods, and it has been found out that there is a positive relationship between strategy and business performance in the consequence of each paper.
Date
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2010-06
Keywords
Keywords.
Conference or Workshop Item
PeerReviewed
HB Economic Theory
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1. International Symposium on Sustainable Development, June 9-10 2009, Sarajevo
An Analysis of the Impact of Motivating Factors on
Tourism Agencies in Turkey
Şuayip ÖZDEMĐR
Assoc. Prof. Dr. Department of Business Administration, Afyon Kocatepe
University, Turkey
Tel: +90 (272) 228 1292, Fax: +90 (272) 228 1145, sozdemir@aku.edu.tr
Yusuf KARACA
Assist. Prof. Dr. Department of Business Administration, Afyon Kocatepe
University, Turkey
Abstract: This study investigates the relations between agencies and hotels in Turkey, from
the perspective of business to business marketing. Drawing on the data obtained from 189
agencies by a survey. The results of the research show that six variables are important. Their
order of importance as followings: Communication with the agencies, supports for agencies,
the relationship between agencies and hotel companies, promotion activities for clients and
agencies, promotion activities encouraging and out of business relations between agencies and
hotel company.
Keywords: agency, tourism, distribution channel.
Introduction
This study investigates the motives influencing the perception of tourism agencies towards to hotel
companies. This research will try to illustrate why tourism agencies prefer one hotel brand to others. There is a
little study in the literature on the subject how agencies could be motivated by hotel companies. Generally,
authors refer to other aspects of relationship between agencies and hotels. Karamustafa (2000:24) emphasized
price-related problems which are tour operators frequently encountered. Jorgensen and Zaccour (2003:801)
discuss the effects of marketing strategies on the other member’s actions.
Tourism agencies are the most common intermediaries between the guest and a hotel company. They
play four important roles at the market. Firstly, they act as information brokers between guests and managers.
Secondly they process transactions by booking rooms and transferring money. Thirdly, they provide advice to
their customers. Finally, they provide better services by considering their customers’ needs and feedback.
Tourism agencies help with the customers’ safety, good value, and high quality for the guests. These
intermediaries do business with the hotels much more regularly than the guests do. Most travel agencies receive
little feedback on their clients’ satisfaction with their hotels client. The majority of travel agencies think that no
complaints as indicator of clients’ satisfaction.
From hoteliers’ point of view travel agencies want to improve their relationship with hotel companies
carry out joint-marketing activities and include more detailed information in the sales brochures (Medina-Munoz
et al. 2002).
Buhalis and Licata (2001) underline electronic communication devices affecting the intermediaries in
the tourism industry. They explain that using the internet, the interactive digital television and the mobile devices
bring new intermediaries called e-mediaries. From the point of experts, they suggest to reengineering business
process concerning the relationship between hotels and agencies. Ozturan and Roney (2004) find out that travel
agencies cannot use the internet effectively in Turkey. Travel agencies still use traditional marketing
communication channels such as printed media and telephone.
Knowing of the expectations of agencies and distributor firms is important for keeping successful relationship.
The industrial resellers expect financial and competitive differentiation benefits from main company. A finding
of a study on the USA shows that greater benefit differentiation leads to fewer financial benefits (Ghosh et al.,
2004)
Supplier firms try to attract agencies using different applications and methods. For example economic and
non-economic tools are preferred to encourage agencies by the hotels. The following two parts will explain
economic and non-economic tools respectively.
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1. Economic Tools For Motivation
Economic tools that aim to motivate agencies are the pecuniary ones. The agencies are encouraged by
these tools. As a consequence of using economic tools, agencies could increase their profits and so
intermediaries willing to make further cooperation with the hotel companies. There are many economic tools in
the practice that being used to affect intermediaries directly. Some selected important economic tools are
explained below.
Firstly, quotas are used as an economic tool. Supplier firms aim to make the members of distribution
channel join actively in marketing their own products using quotas. In order to make their distribution system
that they used active and effective, both sides want to use law sanctions based on agreements or other powers
(Aksoy, 1990:14-19).
Secondly, discounts, financial aids, compensation are used as economic tools. Such tools could be used to
decrease the conflicts and improve the cooperations. For realization of it, suppliers apply discounts, financial
aids, compensations, and setting protective rules by an agreement (Islamoglu, 1999:440-442). Intermediaries
expect from the suppliers financial aids and competitive differentiation (Gosh et al., 2004). Tsay (2001) points
out those intermediaries could be motivated by cash discounts and give back policy. It is also suggested that
supplier firms could encourage the intermediaries using the difference price for in favor of intermediaries (Li and
Dant, 1999).
Thirdly, promotion, advertising and co-marketing are also used for motivation economically. (i)
Promotion activities of supplier firms support the intermediaries’ activities such as giving gifts (e.g. pens,
calendars, etc.) in special day and religious festivals. At the same time, intermediaries’ promotion activities also
support the suppliers. This creates a mutual support between agencies and hotels. (ii) Advertising, public
relations, personal selling and the other marketing activities of hotels motivate agencies. (iii) Co-marketing
activities would be providing the reduction of cost and increase of effectiveness for both agents and the hotel
companies.
To sum up, this section explained main economic tools that motivate intermediaries such as quotas,
discounts, financial aids, compensations, agreements, difference price, cash discounts, co-marketing and
promotion activities. Non-economic tools are explained in the following section.
2. Non-Economic Motivation Tools
Non-economic tools to motivate agencies are not pecuniary ones such as communication, personal
relationships, participating to decisions, cooperation, problem solving. In practice, the number of non-economic
tools is more than economic tools. The most important feature of non-economic tools is that these tools provide
some advantages that make intermediaries the same profit with lesser working. Moreover, non-economic tools
encourage voluntary efforts in the mid or long term.
There are three factors influencing the recommendation of agencies’ a hotel to a client: The quality of
communications with intermediaries, the hotel brand name, and the incentives for intermediaries. These
communication tools provide hotel companies some advantages. Another three tools that contribute to the hotel
companies as the followings: Efficiency of computer systems for reservations, the sales representatives, and the
information received in following intermediaries’ requests (Dube and Renaghan, 2000:73-74).
Medina-Munoz and Falcon (2000) report that the intermediaries’ successes depend on five factors:
interorganizational trust, commitment towards the relationship, interorganizational communication
(coordination, communication quality, information exchange and participation), conflict resolution and
interorganizational dependence. But at the same time they had said there is no model established as an entirely
satisfactorily alliance. As a result of their study, in order to improve the impresenting of interorganizational
relationships in the tourism industry should be examined from the perspective of tourism agencies, recreational
companies, airlines and rental companies.
According to Gilliland (2003:60; 2004:88) there are five factors for the intermediaries of electronic
equipment such as credible channel policies, market development support, supplemental contact, high-powered
incentives, end-user encouragements. Later, he mentions about 16 subgroups differentiating these factors into
subgroups again which contains both economic and morale variables.
Shipley and Egan (1992) report that the countrywide marketing activities of the supplier firms, supported
marketing activities of intermediaries, the opportunity of product wideness and open relations and personal
relationships between supplier and intermediaries are thought important by intermediaries. They were also
underlining that, if there are being low motivated or demoralized intermediaries in the distribution channel,
conflicts will be inevitable in this channel and the conflicts prevent the effectiveness of channel. Because
intermediaries expect the reward for taking capital risk and labor force. Furthermore intermediaries compare the
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rewards of other similar intermediaries, the will cause conflict if there are any disadvantageous difference
against them. The first way of cooperation in a distribution channel and preventing conflict is better
communication.
Yukselen, (2003:262-263) evaluate the motivation of distribution channel members and conflict among
them simultaneously and he shows collaboration, partnership and the activities of programming the distribution
as incentives
Motivations of intermediaries are generally related to their expectations. The transformation of four P’s
(product, price, place and promotion) in the marketing mix into four C’s (customer value, convenience, cost,
communication) is the most important clue to understand the expectations of intermediaries as industrial
customers. Using the elements of marketing mix (4P) as (4C) makes intermediaries’ self-confidence. Trust is the
first expectation of international intermediaries from the supplier, especially in industrial marketing (Marshall,
2003). As long as intermediaries feel in confidence it is easier to motivate them
Yaprakli (1997) classifies motivation tools as rewarder power, punisher power, or charismatic power for
newcomers in the channel. Akin (1997) also adds to these tools three new powers: legal, expertise and
leadership. It is known that supplier firms' participating intermediaries making plans and solving problems has
positive effects on the interorganizational relationships. (Claro et al. 2003). Since active participation willingly
have positive effect for both sides, motivation is an important tool, and lack of motivation is one of the reasons
that cause lack of cooperation and conflicts and increase these conflicts (Tek, 1997:563). This reason, when
motivation is accepted as the basic factor in cooperation and conflicts, it will be easy to solve the problems since
the reason of the problem is determined truly. Actually, relationship between supplier and intermediaries is a
kind of human behavior in a group from social-psychological perspective. The trust between intermediaries and
supplier firms, relative profit gained from the sold products, cooperation and supplier firms’ satisfaction from the
intermediaries affect the relationships (Anderson and Narus, 1984). Namely, the trust and satisfaction of the
representatives are accepted as trust and satisfaction of intermediaries.
Weber (2001) put forward that the communication tools and using frequency of these tools determine the
relationship between supplier and intermediaries. Especially, internet increases the communication and sharing
the information, thus increase effectiveness of relationship between suppliers and intermediaries.
Intermediaries positively affect the use high technology communication. As a result of this thought,
intermediaries’ opinion affects long term relation expectations with the supplier positively (MacDonald and
Smith, 2003; Hunter et al., 2003).
Customer services of the supplier firms are important for relationships between supplier and
intermediaries (Parasuraman, 1998); because each of the intermediaries is an industrial customer. Being focused
on the targets, power equity and cooperation helps firms have contracted to each other reciprocally (Dabholkar
and Neeley, 1998).
Dickson and Zhang (2004) determined that the referent power influenced positively on retailer’s attitudes
toward and non-economic satisfaction with their suppliers in apparel industry in China. They reported that the
greater referent power also reduced channel conflict and enhanced economic satisfaction with business
performance. They also reported that greater channel conflict was associated with increasing economic
satisfaction with business performance.
Anderson and Narus (1990) state the relationship between distributors and supplier firms can be
considered in one perspective. Considering the subject both from supplier and distributors’ perspective, they had
seen distributors as a customer who must be satisfied. Their satisfaction is determined by the outcomes of
distributor communication, relative dependence, cooperation, trust and conflict. Whose power will be stronger in
this relationship? Anderson and Narus, (1984) reported that distributors’ comparison levels of outcomes and
comparison levels of alternatives determine the powerful side of this relationship.
Briefly, main non-economic tools that impact motivation of intermediaries are following:
Communication, Personal relationships, expectations of intermediaries, participating to decisions, cooperation,
problem solving, trust, communication tools, power and customer services,
3. Research Method
The survey was conducted on a sample of privately held Turkish companies in November December 2004
/ February 2005. The research was employed on a sample of 240 tourism and traveling agencies. All the sample
companies are the members of TURSAB (Association of Turkish Travel Agencies). TURSAB has 4585 member
tourism and traveling agencies in countrywide. The names and addresses of these agencies are available from the
website of TURSAB. Three copies of the questionnaire were distributed to each of 58 fourth-year undergraduate
students of the Department of Management at Afyon Kocatepe University, with the instruction to visit two
tourism and traveling agents they chose from the TURSAB database list. The researcher was the convener of the
course “Research Methods” for this fourth-year undergraduate programme class. A decision was made by the
researcher to assign the students to conduct the survey as a part in fulfilling the course. The participation-
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�1. International Symposium on Sustainable Development, June 9-10 2009, Sarajevo
invoking nature of personal communications and the cost constraints led the researcher to prefer this method to
mailing the questionnaire. No restriction was applied in choosing the companies. But once a student chose a
company, the name of the company was noted down and subsequent students were not allowed to choose it in
order to eliminate the possibilities of duplicate questionnaires. The aim and nature of the research were
addressed to the students beforehand. They were asked to bring back the questionnaires in stamped and signed
form by participants, and were told that further confirmation with the participants may be made later via
telephone. The students presented agent each business with a letter of invitation to participate in the survey.
Once the invitation was accepted, the students directed the questions to the participants. A few directors (28)
rejected the invitation letter to participate in the study by indicating some personal reasons (not having enough
time, going for a trip, etc.). In the case of rejection, students have chosen new companies. All the representative
directors who accepted the invitation letter completed the questionnaire. The questionnaires were stamped and
signed by the participating board member and the students noted the date of the interview. During November
2004 and February 2005, the students returned the questionnaires and for confirmation purposes telephone calls
were made to 12 (more than 6% of sample) companies. Telephone interviews with the participants indicated that
they were enthusiastic on the subject and answered the questions seriously. Verification of their answers in these
phone calls also showed that there were no differences in terms of their answers on the phone and those that they
gave in the questionnaires. Therefore, it was not deemed necessary to make further phone calls for confirmation
purposes. Of the 212 questionnaires distributed and then collected in that way, 23 were eliminated due mainly to
missing information. This resulted in 189 usable questionnaires, corresponding to 79 percent of the
questionnaires answered. The reliability of questionnaires is measured by Cronbach Alpha coefficient
(Cronbach alpha=0,91) which shows that dataset is reliable to analyze.
A questionnaire that consists of three parts is used in the research. Characteristics of the participants have
been investigated in the first part. The attitudes of the intermediaries to hotel companies are measured in the
second part. Likert scale is used in this part (1 strongly agree, 2 agree, 3 no idea, 4 disagree, 5 strongly disagree).
The importance of practices of hotel companies and the success of these practices are measured in the
third part. Likert scale is used in this part, too (1 very important, 2 important, 3 no idea, 4 not important, 5 not
very important). Variables used in this part are based on Gillilands’ (2003; 2004) studies. Gilliland (2003; 2004)
points out five factors that motivate intermediaries. Credible channel policies, market development support,
supplemental contact, high-powered incentives, end-user encouragements.
Table 1. Descriptive Statistics
Establishment date
Before 1990
Between 1990-1999
Between 2000-2003
Frequency
48
90
51
Percent
25,4
47,6
27,0
Number of hotels (or brand name) that
intermediaries represent.
Only one brand
Two or more brands
66
123
35
64,8
Intermediaries that have another job different
from tourism.
Yes
No
51
138
27,0
73,0
Table-1 shows descriptive statistics of sample companies. A perusal of Table-1 indicates that almost 73%
participants have experience in the tourism sector more than five years. It is expected that data based on these
experienced companies may yield robust findings. Majority of participants (64,8%) represent two or more hotels
or brand names. Majority of agencies (73%), work only as tourism agency, and the rest of the agencies (27%) do
additional business such as logistics, public relations, hotel management and real estate agency.
4. Findings
Evaluation of agencies towards hotel, analyzed by using eight expressions which are shown in the
following table. The responses to these expressions indicate that tourism agencies intend to maintain relationship
with the hotel companies. As shown in Table-2, the weighted mean (1,74) of this expressions indicates that
agencies are satisfied by hotel companies. In addition, tourism agencies believe that clients are satisfied with the
hotels that are booked (mean=1,39). They also happy for being agencies of hotels and they plan to do business
with these hotels.
Table 2 also illustrates that agencies believe that hotel companies make enough effort to increase the
profit of agencies (mean=2,03), and give reward to agencies’ performance (mean=2,21). It should be noted that
this finding is relatively stronger than other findings in Table 2.
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Table 2. Evaluation of Agencies regarding Hotel Companies
Mean
1,18
1,20
1,39
1,48
1,51
1,59
2,03
2,21
1,74
We are planning to do business with these hotels for a long time.
We are pleased with hotels that we represent them.
Our clients are pleased with hotels that we represent them.
We are happy for being agencies of hotels.
We believe that the products of these hotels are well.
Hotel company has a good relationship with us.
Hotel company makes efforts to increase our profits.
Hotel company rewards our performance.
Weighted mean
Std.
Deviation
0,50
0,40
0,64
0,77
0,75
0,82
1,21
1,19
Means= 1 strongly agree, 2 agree, 3 no idea, 4 disagree, 5 strongly disagree
Table 3. Associate Relationship between Agencies and Hotel Companies
Evaluation of current situation
(services oh hotels)
%
Perceived importance
Mean
Solving the conflict between agencies and hotel company
1,32
Including encouraging factors in the agreement increase to
1,50
sell hotel products.
When rival companies want to steal agencies, whether the
hotels maintain the relationship with the agencies to continue 1,80
with them.
Establishing partner advisory council
1,59
Compensating the loss of reps due to direct sales.
1,67
Giving client list to agency in a market division
1,86
Agreeing a market division belong to an agency
2,33
Weighted mean
1,72
Std.
Deviation
Enough
No idea
Not Enough
,50
66,1
6,4
27,5
,72
69,8
14,3
15,9
,90
52,9
36,5
10,6
,78
,88
,93
1,22
43,9
49,2
47,1
32,8
23,8
27,5
34,4
38,6
32,3
23,3
18,5
28,6
Means= 1 very important, 2 important, 3 no idea, 4not important , 5 not very important
Table 3 shows the associate relationship between agencies and hotel companies. The finding indicates
that from the agencies’ perspective, the most important subject at relationship between agencies and hotel
companies is “solving the conflict between agencies and hotel company”. The other variables that affect the
relationships between agencies and hotel companies are as follows in turn according to their importance: (1)
Including encouraging factors in the agreement increase to sale hotel products, (2) when rival companies want to
steal agencies, (3) whether the hotels maintain the relationship with the agencies to continue with them, (4)
establishing partner advisory council, (5) compensating the loss of reps due to direct sales,(6) agreeing a market
division belong to an agency (7) giving client list to agency in a market division (8) solving the conflict between
agencies and hotel company. Majority of agencies (66,1%) perceive that “solving the conflict between agencies
and hotel company” and “encouraging agreements to sale hotel company.
Table 4. Supports for Agencies
Perceived importance
Representative’s ability in communication
Hotels catalogs and brochures
Providing information for agencies about products and sales methods
Special communication opportunities between agencies and hotels
Training meeting
Rewarding successful agencies
Participating to fairs
Advertorials
Appropriating financial funds for agencies’ marketing activities
Certification programs for agencies
Allocating more financial funds for market development
Number of hotel staff for selling hotel products
Weighted mean
Mean
Std.
Deviation
1,11
1,27
1,47
1,47
1,52
1,53
1,55
1,58
1,76
1,74
1,89
2,08
,32
,55
,57
,74
,72
,79
,69
,76
,82
,73
,80
,94
Evaluation of current situation
(services of hotels)
%
Not
Enough No idea
Enough
77,8
87,8
70,6
76,2
68,8
50,8
58,2
64,0
37,0
54,0
42,8
74,6
20,1
4,2
17,6
15,9
11,6
21,7
21,7
13,8
27,5
20,1
28,6
17,5
2,1
7,94
11,8
7,9
19,6
27,5
20,1
22,2
35,5
25,9
28,6
7,9
1,58
Means= 1 very important, 2 important, 3 no idea, 4not important , 5 not very important
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Support methods for agencies are evaluated in Table 4. Based on the findings in the table, it could be
suggested that representative’s ability in communication is very important who represent the hotel against
agencies and it is found that majority of hotels are successful in this subject (77,8%). The findings also indicate
that brochures and catalogs are important to support agencies to find new clients. Hotels’ brochures and catalogs
are perceived successfully by agencies. Information about sales methods is perceived satisfactory (87,8%).
Providing information for agencies about products, sales methods, and number of hotel staff for selling hotel
products, special communication opportunities between agencies and hotels are found adequate.
Hotel companies’ financial funds which are kept for market development and agencies’ marketing
activities are perceived inadequate. While half of the hotel companies are found successful at rewarding
agencies’ performance, 27,5% of agencies believe that hotels do not reward their performance.
Table 5. Communication with the Agencies
Perceived importance
One to one relationship between representative of hotels and
agencies’.
Information on the internet (online support, training)
Using internet to communicate the agencies
Communication programs for better work relationships
Giving information about new products
Meeting for agencies
Defining price and quota automatically
Weighted mean
Mean
Std.
Deviation
1,32
,47
1,44
1,44
1,48
1,48
1,65
1,89
,59
,59
,50
,70
,98
,82
Evaluation of current situation
(services oh hotels)
%
Enough
No idea Not Enough
84,1
5,8
10,1
79,8
82,0
69,8
85,7
65,6
49,2
10,1
7,9
14,3
12,2
10,1
34,9
10,1
10,1
15,9
2,1
24,3
15,9
1,52
Means= 1 very important, 2 important, 3 no idea, 4 not important , 5 not very important
As long as hotels have enough information about agencies, they encounter fewer problems in dealing with
customers. Therefore, communication with agencies has special importance. The communication between hotels
and agencies is analyzed in Table 5. It is found that the most important variable concerning with the
communication is the person who represents the hotel against agencies; especially the skills of representative
have a decisive role. Majority of agencies (84,1%) perceive that one to one relationship between representative
of hotels and agencies’ is pleasing. Majority of the agencies think that using internet, giving information about
products, and communication programs are important.
Table 6. Out of Business Relations between Agencies and Hotel Company
Perceived importance
Entertainment together
Club activities for agencies
Join in adventure together
Weighted mean
Mean
Std.
Deviation
2,26
2,38
2,87
,96
,92
1,19
Evaluation of current situation
(services oh hotels)
%
Enough
No idea
Not Enough
39,6
28,6
21,7
30,2
32,8
42,9
30,2
38,6
35,4
2,50
Means= 1 very important, 2 important, 3 no idea, 4not important , 5 not very important
The findings of an analysis of out of business relations between agencies and hotel companies are shown
in Table 6. It is found that one third of hotel companies have out of business relations with agencies. However,
these kinds of activities such as entertainment, adventure and club activities are not important events for
agencies.
Table 7. Promotion Activities for Encouraging Agencies
Perceived importance
N
Mean
Std.
Deviation
Collectively advertising
62
1,66
,74
Providing payment options
62
1,85
,94
Bonus, reward, premium
63
1,87
,94
Gifts, promotional materials
63
1,90
,96
Financial programs (discounts even in small quantity)
63
1,94
,98
Giving agency firm identity card
61
1,98
,94
Rewarding new client by money (discount, cash)
62
2,53
1,05
Weighted mean
1,96
Means= 1 very important, 2 important, 3 no idea, 4not important , 5 not very important
288
Evaluation of current situation
(services oh hotels)
%
Not
Enough
No idea
Enough
52,9
21,7
25,4
46,0
30,7
23,3
50,2
24,9
24,9
58,7
18,0
23,3
49,7
30,2
20,1
49,2
25,4
25,4
24,9
30,7
44,4
�1. International Symposium on Sustainable Development, June 9-10 2009, Sarajevo
Table 7 shows the findings of promotion activities for encouraging agencies. According to table agencies
perceive that collectively advertising is important though it is found that half of hotel companies’ co-advertising
effort is enough(52,9%). Comparing with the other promoting activities, rewarding the clients by money, giving
firm identity card, discounts (even in small quantity), and promotion materials are relatively unimportant for
agencies.
Table 8. Promotion Activities Intended for Clients
Perceived importance
Sales campaigns
Informing the client concerning agencies (links on the web
etc.)
Advertising
Training the agencies at finding new clients
Demonstrations
Sales on internet
Co-marketing activities
Giving trials
Establishing quota for agencies
Weighted mean
Evaluation of current situation
(services oh hotels)
%
Enough
No idea Not Enough
Mean
Std.
Deviation
1,50
,67
76,7
13,8
9,5
1,59
,78
58,2
18,0
23,8
1,55
1,71
1,76
1,94
2,03
2,16
2,26
,72
,84
,84
1,19
,94
1,14
1,01
62,9
37,6
61,4
57,1
38,6
31,2
44,4
17,5
37,0
22,2
24,4
36,5
43,4
42,3
19,6
25,4
16,4
18,5
24,9
25,4
13,3
1,83
Means= 1 very important, 2 important, 3 no idea, 4not important , 5 not very important
Promoting activities intended for clients are examined in Table 8. The findings indicate that sales
campaigns are the most important promotion method. According to agencies’ viewpoint, majority of hotels are
successful at sales campaigns (76,7%). Informing client about the agencies and activities of advertising intended
for the clients are important promoting activities. Moreover hotels are successful at these activities. Hotel
companies are found relatively unsuccessful in training the agencies at finding new clients, giving trials and comarketing activities.
Conclusion
Tourism agencies are intermediaries between hotels and their customers. Therefore agencies have
enormous importance in finding customers for hotels. Despite the fact that hotels want to have a priority in the
list of tourism agencies, tourism agencies do not give equal opportunity for finding customers to all listed hotels
for some reasons such as lack of knowledge, weak communication, etc. Tourism agencies expect some
incentives. The channel relations between hotels and tourism agencies exemplify a business to business
marketing. This study investigates the relations between agencies and hotels in Turkey, from the perspective of
business to business marketing.
In this study, six main variables and their sub variables are investigated for examining agencies attitudes
to hotels. The findings indicate that, generally speaking, tourism agencies have positive attitudes to hotel
companies. Based on the findings, it could be suggested that the following factors are the most important ones
which determine agencies’ attitudes: communication with the agencies, supports for agencies, relationship
between agencies and hotel companies, promotion activities intended for clients and agencies, promotion
activities encouraging, and agencies out of business relations between agencies and hotel company.
The findings of the research indicate that the intermediaries are found the hotels successful. Factors which
are important for agencies also found adequate or vice versa. It could be investigated whether agencies’ demand
or hotels’ success dominate in this relation. This offers a direction for future research.
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Title
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An Analysis of the Impact of Motivating Factors on Tourism Agencies in Turkey
Author
Author
ÖZDEMiR, Suayip
KARACA, Yusuf
Abstract
A summary of the resource.
This study investigates the relations between agencies and hotels in Turkey, from the perspective of business to business marketing. Drawing on the data obtained from 189 agencies by a survey. The results of the research show that six variables are important. Their order of importance as followings: Communication with the agencies, supports for agencies, the relationship between agencies and hotel companies, promotion activities for clients and agencies, promotion activities encouraging and out of business relations between agencies and hotel company.
Date
A point or period of time associated with an event in the lifecycle of the resource
2009-06
Keywords
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Conference or Workshop Item
PeerReviewed
HB Economic Theory
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Text
2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
An Application of American Customer Satisfaction Index (Acsi) Government
Model to Health Services In Sarajevo, Bosnia and Herzegovina
Teoman DUMAN
Faculty of Economics
International Burch University
Bosnia and Herzegovina
tduman@ibu.edu.ba
Elif ÖZTÜRK
Faculty of Economics
International Burch University
Bosnia and Herzegovina
oztrkelf@hotmail.com
Muris MESETOVĠC
Faculty of Economics
International Burch University
Bosnia and Herzegovina
Muris.mes@gmail.com
Haris HOJKURĠC
Faculty of Economics
International Burch University
Bosnia and Herzegovina
hhojkuri@yahoo.com
Ahmet KANTÜRK
Faculty of Economics
International Burch University
Bosnia and Herzegovina
Akanturk85@yahoo.com
Zafer KONAKLI
Faculty of Economics
International Burch University
Bosnia and Herzegovina
zaferkonakli@yahoo.com
Abstract: The purpose of this research is to test the relationships between expectations, service
quality, satisfaction, complaints and citizen trust in the context of public health services in
Sarajevo, Bosnia and Herzegovina. American Customer Satisfaction Index (ACSI) government
model is used as the research framework in this study. Initially proposed by Fornell, Johnson,
Anderson, Cha and Bryant (1996), ACSI model is the most well-known customer satisfaction
model in the US and in most parts of the world. As part of the proposed framework, public
perceptions of service quality, expectations, satisfaction, complaints and citizen trust were
measured for public health services with a self administered questionnaire. 212 completed
questionnaires were used in the data analysis. Research results show that service process, service
quality and satisfaction peceptions are main indicators of citizen trust for public health services in
Sarajevo.
Keywords: American Customer Satisfaction Index, Public Health Services, Bosnia and
Herzegovina
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�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
Introduction
Bosnia and Herzegovina is a country with 4.6 million population. The country is composed of 10
cantons. The Sarajevo canton, which houses the central government, has around 423,000 population. The
Public Institution Medical Centre of the Sarajevo Canton is the largest institution in Bosnia and Herzegovina
providing primary health care to locals living in Sarajevo canton. The institution has 9 organizational units
comprising the main building and associate localities (family medicine clinics), with the total of 2186
employees, out of which 1761 are medical staff, and 425 administrative-technical staff. According to the
official statistics the institution served 3,202,081 patients and provided 8,934,285 primary health care services
in 2009. As the effects of devastating war in 1990s is disappearing in all aspects of life, studies are needed to
understand people‘s perceptions of recovery especially in terms of public services. Research studies about
public‘s perceptions of health services in Bosnia and Herzegovina is necessary for future planning but are
also very limited in scope. The purpose of this research therefore is to measure the relationships between
public‘s expectations, service quality, satisfaction, complaints and citizen trust perceptions in the context of
public health services in Sarajevo, Bosnia and Herzegovina. American Customer Satisfaction Index (ACSI)
government model is used as the research framework in this study.
Satisfaction Theory and Measurement
Perceived overall satisfaction is defined as ―fulfillment response, the degree to which the level of
fulfillment is pleasant or unpleasant‖ (Oliver, 1997, p.28). Marketing scholars usually agree that consumers
compare their product performance perceptions with some standard to reach satisfaction evaluations (Oliver,
1997). The standards used by consumers might be their expectations, values, past experiences or benefits
received by other consumers (Fournier ve Mick, 1999). The famous expectancy-disconfirmation theory of
consumer satisfaction suggests that disconfirmation results from comparisons of expectations and product
performace where positive disconfirmation occurs if product performance evaluations exceeds expectations
while negative disconfirmation occurs when product performance evaluations falls short of expectations
(Oliver, 1980, p.208). While developing expectations about products, consumers might use ideal standards,
same or similar products, market promises and industry norms (Barsky, 1992; Woodruff & Gardial, 1996).
Spreng et al. (1996, p.17) suggested that ―expectations are beliefs about the likelihood that a product is
associated with certain attributes, benefits and outcomes.‖ Expectancy-disconfirmation model of consumer
satisfaction represents a cognitive view where consumers are thought to make rational judgments to make
their evaluations. Later theories of consumer satisfaction proposed that consumers‘ affective states are also
important parts of satisfaction evaluations. Research showed later that affect was a separate and significant
antecedent of satisfaction (Dube-Rioux, 1990; Mano and Oliver, 1993; Oliver, 1994, 1997; Westbrook &
Oliver, 1991).
One of the main predictors of consumers‘ satisfaction evaluations is consumers‘ quality
perceptions. Zeithaml (1988, p.5) defined perceived quality of a product as ―the consumer‘s judgment about
the superiority or excellence of a product.‖ Service quality relates to consumers‘ evaluations of the services
and defined as ―global judgment or attitude, relating to the superiority of the service‖ (Parasuraman, Zeithaml
and Berry, 1988 p.16). Similar to disconfirmation theory of consumer satisfaction, service quality theory
suggests that consumers use their expectations when they make judgments about the quality of products.
Researchers argue that consumer satisfaction represents an end result of a consumption experience while
service quality serves as a cognitive evaluation of the superioriority of the product against others. To this end,
service quality is considered an indicator of consumer satisfaction.
American Customer Satisfaction Index (ACSI) Government Model
One of the well-known models of consumer satisfaction was proposed by Fornell, Johnson, Anderson, Cha
and Bryant (1996). In their American Customer Satisfaction Index Model (ACSI), Fornell and his colleagues
proposed that overall customer satisfaction is a result of customer expectations, perceived quality and perceived
value. In this model, satisfaction acts as a mediator between these constructs and customer complaints and customer
loyalty. These researchers proposed that their model of consumer satisfaction was an overall measurement of a firm‘s
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�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
market offering rather than an evaluation of a specific transaction. In this form, the ACSI model was primarily
measuring private sector transactions and a modified version was necessary for public agencies. In a later version of
the ACSI model, Fornell and his colleagues proposed ACSI government model (ACSI, 2010). This model is shown
in Figure 1. As shown in the figure, customer satisfaction for government agencies is influenced by customer
expectations and perceived service quality. According to the model, perceived service quality is a function of the
service process, information received, customer service and website. Consequences of satisfaction are customer
complaints ot citizen trust toward public services.
Figure 1:
The
American
Customer
Satisfactio
n Index
Government Model
Health Services Research
Customer satisfaction is an indication of success for every business today. Satisfied customers turn to be
loyal customers who are main income generators for most businesses. Customer satisfaction is more important for
service businesses especially where the nature of the service is highly technical and difficult to understand for service
recipients. In such services, higher satisfaction is likely to turn to repeat business. For government agencies, fewer
complaints and higher levels of citizen trust are possible with higher satisfaction with these services. Research shows
that programs to increase customer satisfaction and decrease consumer complaints have significant effects on
hospital financial performance (Howard, 1999). Research also suggest that customers who are encouraged to
complain show higher satisfaction with the services if their complaints are resolved well (Nyer, 2000). In a study
about health services quality, Shemwell and Yavas measured service quality in hospital services and found that
search, credence and experience are main indicators of service quality in health services settings. In another study,
Carman (2000) separated hospital services into operational and technical dimensions. Operational dimension
represented how the service is offered while technical dimension represented the results of the services. It was found
in this study that patients‘ perceptions about technical dimensions of the service is more important for their
perceptions of quality. Considering the complexity and technicality of health services, measurement of satisfaction in
this sector is a formidable task. Gill and White (2009) argued that standardization, reliability and validity issues for
the measurement of satisfaction of health services still remains an issue in academia. Previous research suggest that
service quality and satisfaction are major indicators of consumer loyalty and trust. Strength of these relationships
depend in part on the level of consumer complaints as lower levels of compliants result in higher satisfaction and
loyalty levels (Duman and Kozak, 2009). Nyer (2000) found that customers who are given chances for expressing
their complaints report higher satisfaction levels. In another study, Vukmir (2006) found that timing and amount of
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�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
caring are the two main indicators of customer satisfaction for health services. Timely and personalized services can
be expected to increase quality, satisfaction and loyalty levels for public services. Current research aims to measure
public perceptions of expectations, service quality, satisfaction, complaints and trust and test the relationships
between tehse variables in the context of public health services in Sarajevo, Bosnia and Herzegovina.
Research Methodology
Research design
Secondary sources were first explored to develop the research framework. A two-page questionaire with
three sections were used to collect data. The first section of the questionnaire included questions about general health
services experience. Questions such as type of clinic visited and wait time before treatment were asked in this
section. The second part of the questions included questions about the concepts that are included in the research
model (Figure 1). In this part 22 questions were asked, 19 of which were attitudinal questions and the rest were yesno questions. Questions refering to likelihood to recommend public services, overall confidence in relying on health
services, official and unofficial complaints, overall satisfaction, overall quality, clarity of information given by
hospital and professionalism of hospital staff were included in second section. Yes-no questions were used to
identify if the respondents had any official complaint and whether they used the web site to search information about
the health services. Questions in the second part were adapted from ACSI government model (ACSI, 2010) and
Fornell et al. (1996). Questions in the second section were measures with seven – point numerical scales where one
represented total disagreement and seven represented total agreement to the stated question. Finally, the last section
was about demographics. Questions such as age group, gender, education, occupation and monthly household
income were placed in the last section. The questionnaire was first prepared in English and transtlated into Bosnian
language. Translation of the questionnaire was done with experts in busniess who know both languages and
respective culture. Pretesting of the questionnarie was administered with 10 respondents chosen conveniently from a
diverse cross-section of the population. The purpose of the pretest was to assess the validity of the questionnaire. The
questions that were not fully understood were evaluated again and finalized for data collection.
Data collection and sampling
Information was gathered directly from actual users of hospital services in Sarajevo Canton. The sample for
this study was selected conviniently from a diverse cross-section of the population in Sarajevo Canton. The sample
included adults (18 years and older). Ten researchers from a marketing class distributed questionnaires personally to
the general public in different parts of Sarajevo between April 1 and April 17 2010. A total of 250 questionnaires
were distributed and 211 usable questionnaires were received during this time period, resulting in response rate of
84,4 percent. Respondents‘ anonymity was ensured by asking them not to identify themselves in any way. Gender
was represented by 55 percent males and 45 percent females. The age of the respondents is skewed in favor of the
younger population (64 percent in 18-35 age group). In the education category 67,2 percent of population had high
school or college degree. Finally 54,8 percent of population were employed and 31,9 of population had income
between 500 and 999 KMs.
Analysis
Frequency analysis was used to analyze demographic and visitation variables. The attitudinal variables were
analyzed with descriptive analysis was done sample t-tests. In one sample t-tests, means were compared with 4 (midpoint of the scale). The research model was analyzed with multiple regression analysis. In this analysis, three
regression models were run. In the first model, service quality was used as the dependent variable while process,
information and customer service was used as independent variables. Web site was not used as an independent
variable because response rate on this variable was too low. In the second model, customer satisfaction is used as a
dependent variable and expectation and service quality were used as the independent variables. Finally, in the third
model, citizen trust is used as the dependent variable and customer satisfaction and customer complaints were used
as the independent variables.
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�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
Results
Table 1 presents the demographic and visitation characteristics of the patients. 64 % of patients were in 1835 age range. Males constituted 55 % and females constituted 45 % of the sample. 64 % had college or graduate
education and 54,8 % were employed and 60 % had an income level between 500 – 1499 KM. 52 % of people
waited until they have received medical treatment between 1- 20 in minute. 64,2 % of patients were given clear
information by the hospital employees.
Demographic Variables
Age Group
18-25
26-35
36-45
46-55
56 or over
Total
Gender
Male
Female
Total
N
%
68
67
32
23
21
211
32,2
31,8
15,2
10,9
10
100
115
94
209
55
45
100
Education Status
High School
Vocational SchoolTechnical school
College
Graduate
Total
57
17
27,5
8,3
81
49
204
39,7
24
100
Occupation
Employed
Retired
Unemployed
Student
114
23
21
50
54,8
11,1
10,1
24
Total
208
100
Demographic and Visitation
Variables
Income Level
0-499 KM
500-999 KM
1000-1499 KM
1500 KM or more
Total
Clarity of information given
Yes
No
Partially
Total
Wait time before treatment
(in minutes)
1-10
11-20
20-30
31-60
61 or over
Total
Visited Polyclinic
Internal medicine
Gynecology
Pediatry
Orthopedy
Neurology
Ear nose and throat
Dermatology
Other
Total
N
%
36
65
57
46
204
17,6
31,9
27,9
22,5
100
124
13
56
193
64,2
6,7
29
100
38
49
30
29
21
167
22,8
29,3
18
17,4
12,6
100
48
20
25
17
10
18
12
56
206
23,3
9,7
12,1
8,3
4,9
8,7
5,8
27,2
100
Table 1: Demographic and Visitation Characteristics of Patients
Table 2 presents the results of descriptive analysis and one sample t-tests. The significance of the results in
one sample t-tests is measured by the comparison of 4 (nuetral attitude) with the mean values with a pobability level
of .05. As seen in the table, respondents have positive feelings toward recommending the services they received
(mean= 4,33; p=.01) and feeling confident in relying on these services (mean= 4,28; p=.02). However, respondents
find making a formal compliant difficult (mean= 3,33; p=.00) and their complaints were not handled well by the
officials (mean= 3,44; p=.00). Also, respondents feel that health services they recieved fell short of their expectations
(mean= 3,76; p=.03). Similarly, they feel negative about the quality of services they received (means= 3,72, 3,70,
3,56; p=.01, p=,01, p=,00 respectively) and they find service process as inconvenient as indicated by the mean value
of 3,52 (p=.00). Finally, respondents have neutral feelings in terms of expectations, information, customer service
and web site (p>.05).
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�2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo
Constructs and Items
Citizen Trust
Likelihood to recommend
Confidence in relying on the health services
Complaints
Difficulty or ease of making a complaint
Complaint handling by the officials
Satisfaction
Overall satisfaction
Expectation confirmation
Service Quality
Overall Quality
Quality in terms of fit to personal requirements
Quality in terms of how often things have gone
wrong
Expectations
Expectations of the overall quality
Expectations in terms of how well the services
fit to personal requirements
Process
Convenience
Timeliness
Information
Clarity of information
Accessibility of information
Customer service
Courtesy of health care staff
Professionalism of the health care staff
Web-site
Finding information through web-site easily
Usefulness of information
N
Mean
Standard
Deviation
t-value
p-value
212
211
4,33
4,28
1,82
1,71
2,60
2,41
0.01
0.02
84
118
3,33
3,44
1,90
1,90
-3,22
-3,20
0.00
0.00
208
213
3,85
3,76
1,74
1,63
-1,24
-2,18
0.22
0.03
211
210
3,72
3,70
1,52
1,58
-2,67
-2,75
0.01
0.01
208
3,56
1,48
-4,31
0.00
212
3,86
1,58
-1,26
0.21
208
3,87
1,47
-1,32
0.19
209
210
3,52
3,82
1,62
1,71
-4,30
-1,49
0.00
0.14
210
209
4,13
3,93
1,72
1,71
1,09
-0,56
0.28
0.57
209
210
3,94
4,12
1,78
1,66
-0,51
1,08
0.61
0.28
49
52
3,94
4,23
1,90
1,78
-0,23
0,94
0.82
0.35
Table 2: One sample t-test for measured variables (test value=4)
Model Tests
The relationships in the model were tested with three regression models. Before the model tests, correlations
between variables were analyzed and presented in Tables 3 and 5. As seen in the tables, variables show moderate to
high correlations in the range of .56 - .86 except for web site variable. Web site variable has low correlations with
other variables possibly due to low response rate on this variable. For this reason, web site variable is removed from
further tests of regressions. The other correlations in the table are significant at .05 probability level.
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Process
Information
Customer
service
Pearson corr.
Sig. (2-tailed)
N
Pearson corr.
Sig. (2-tailed)
N
Pearson corr.
Service quality
Process
Information
.785(**)
,000
211
,788(**)
,000
211
,782(**)
,755(**)
,000
211
,756(**)
,815(**)
Customer
service
Sig. (2-tailed)
,000
,000
,000
N
211
211
211
Pearson corr.
,203
,153
,337(*)
,396(**)
Website
Sig. (2-tailed)
,154
,283
,016
,004
N
51
51
51
51
** Correlation is significant at the 0,01 level (2-tailed). * Correlation is significant at the 0,05 level (2-tailed).
Table 3: Correlations ( Model 1)
Table 4 shows the results of first regression analysis. Independent variables explain 73% of variance in the
dependent variable and all the independent variables have high correlations with the dependent variable (p=.00).
Among the independent variables, service process has the strongest relationship with service quality followed by
information and customer service (t=5,96; 4,47 and 3,96 respectively).
Dependent Variable :
Service Quality
Independent Variables
Standardized Beta
t- value
p- value
VIF
Process
0,36
5,96
0.00
2,69
Information
0,30
4,47
0.00
3,44
Customer Service
0,27
3,96
0.00
3,46
Note: R² =0,73; VIF: Variance Inflation Factor
Table 4: Regression Analysis (Model 1)
Customer
Expectations
Service
Complaints
Quality
Pearson Corr.
,706(**)
Expectation
Sig. (2-tailed)
,000
N
119
Pearson Corr.
,698(**)
,750(**)
Service Quality
Sig. (2-tailed)
,000
,000
N
119
211
Pearson Corr.
,641(**)
,748(**)
,858(**)
Satisfaction
Sig. (2-tailed)
,000
,000
,000
N
119
213
211
Pearson Corr.
,555(**)
,601(**)
,667(**)
Citizen Trust
Sig. (2-tailed)
,000
,000
,000
N
119
213
211
** Correlation is significant at the 0.01 level (2-tailed).
Table 5: Correlations ( Models 2 and 3)
Satisfaction
,641(**)
,000
213
Table 6 and 7 show the results of second and third regression analyses. Independent variables in these
models explain 77% and 38% of variance in the dependent variables respectively. All the independent variables in
the models have high correlations with the dependent variables (p=.00). Among the independent variables in the
second model, service quality has the strongest relationship with customer satisfaction (t=13,09 and 5,10
respectively). In the final model, customer satisfaction has a stronger relationship with citizen trust compared to
customer complaints as indicated by t-values of 3,73. These findings are congruent with previous research on service
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quality and satisfaction where service quality is the most important indicator of satisfaction perceptions as
satisfaction is the most important indicator of recommending and trust perceptions (Cronin et al. 2000).
Dependent Variable:
Customer Satisfaction
Independent Variables
Standardized Beta
t- value
p-value
VIF
Expectation
0,26
5,10
0.00
2,29
Service Quality
0,66
13,09
0.00
2,29
Note: R² =0,77; VIF: Variance Inflation Factor
Table 6: Regression Analysis ( Model 2 )
Dependent Variable:
Citizen Trust
Independent Variables
Standardized Beta
t- value
p-value
Customer Complaints
0,32
3,44
0.00
Customer Satisfaction
0,36
3,73
0.00
Note: R² = 0,38; VIF: Variance Inflation Factor
Table 7: Regression Analysis ( Model 3 )
VIF
1,70
1,70
Discussion
This researched analyzed antecedents and consequences of customer satisfaction for public health services
in Sarajevo. Research results reveal insightful results for theory and managers of these services. In terms of the
model test, the results show that proposed three indicators of service quality, process, information and customer
service have positive and significant relationships with this variable. In other words, ease and timeliness of services
process, clarity and accessibility of information and courtesy and professionalism of health care staff are important
signs of quality service for public health services in Sarajevo. The features realted to web sites of the institutions may
not have a significant impact on service quality because of limited use of these sites by the public. Results further
suggest that expectations and service quality are significant indicators of customer satisfaction as satisfaction and
complaint handling are important indicators for citizen trust. Higher service quality and satisfaction perceptions
result in greater citizen trust perceptions.
Although research participants indicate that they trust the services they get from public institutions, they
feel negative about complaint handling, quality of service and convenience of service process. One reason for this
result might be related to the physical conditions of the facilities as the recovery process is stil continuing from the
recent war. Although not statistically significant, participants seem positive about professionalism of the health care
staff but they think that the service process is not as convenient as they desire. This may be related to the fact that
process of making an appointment is usualy slow in these instituions and patients have to wait from one to two
weeks to be on the appointment list. Once they are on the list, process of getting treatment is relatively good and fast.
Despite a general negative evaluations about service quality, participants show mix feelings about specific service
quality features. This might be a sign that they feel improvements in services and they are positive about future
expectations. Positive feelings of trust might indicate that participants are relying on their governmental services but
they don‘t see current situation as adequate for their expectations.
The results found in this study are coming from a limited sample and these results must be validated with
future studies in this area. Higher sample sizes can give better ideas of public perceptions about health services in
Sarajevo. Also, management of the health facilities should consider reasons of limited usage of their websites for
appointments and complaint reporting. The use of web sites can easily improve public perceptions about these
services. Also, detailed studies are needed to measure perceptions of public because there might be significant
differences between different demographic groups. For example, one generation lived through a devastating war
while another (younger) generation doesn‘t even remember these events. The management of public health services
in Sarajevo should consider using citizenship and nationalistic themes in promoting their services. Apperantly public
feels positive about their institutions and expect more in the future.
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Title
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An Application of American Customer Satisfaction Index (Acsi) Government Model to Health Services In Sarajevo, Bosnia and Herzegovina
Author
Author
DUMAN, Teoman
ÖZTÜRK, Elif
MESETOVİC, Muris
HOJKURİC, Haris
KANTÜRK, Ahmet
KONAKLI, Zafer
Abstract
A summary of the resource.
The purpose of this research is to test the relationships between expectations, service quality, satisfaction, complaints and citizen trust in the context of public health services in Sarajevo, Bosnia and Herzegovina. American Customer Satisfaction Index (ACSI) government model is used as the research framework in this study. Initially proposed by Fornell, Johnson, Anderson, Cha and Bryant (1996), ACSI model is the most well-known customer satisfaction model in the US and in most parts of the world. As part of the proposed framework, public perceptions of service quality, expectations, satisfaction, complaints and citizen trust were measured for public health services with a self administered questionnaire. 212 completed questionnaires were used in the data analysis. Research results show that service process, service quality and satisfaction peceptions are main indicators of citizen trust for public health services in Sarajevo.
Date
A point or period of time associated with an event in the lifecycle of the resource
2010-06
Keywords
Keywords.
Conference or Workshop Item
PeerReviewed
HB Economic Theory