SECURITY AND SUSTAINABILITY ISSUES

ISSN 2029-7017

SECURITY AND SUSTAINABILITY ISSUES

Ministry of National Defence Republic of Lithuania

Journal of

www.lka.lt/index.php/lt/217049/

The General Jonas ŽemaitisMilitary Academy of Lithuania

Vilnius Gediminas Technical University

University of Salford A Greater Manchester University

(online) ISSN 2029-7025

International Entrepreneurial Perspectivesand Innovative Outcomes

2013, 3(2)

NATO Energy SecurityCentre of Excellence

CONTENTS 2013 3(2) December)

Eugenijus VosyliusFOREWORD TO THE TENTH ISSUE OF PEER REVIEWED SCIENTIFIC JOURNAL OF SECURITY AND SUSTAINABILITY ISSUES

Alminas Mačiulis, Manuela Tvaronavičienė SECURE AND SUSTAINABLE DEVELOPMENT: LITHUANIA’S NEW ROLE IN TAKING THE PRESIDENCY OF THE EU 5

A.K. Mathur, Santanu Roy, Jay Mitra TOWARD SUSTAINABLE DEVELOPMENT OF ECONOMIC SUB-SECTORS: CASE OF INDIAN SERICULTURE 15

Mantautas Račkauskas, Vytautas Liesionis THE RELATIONSHIP BETWEEN GOVERNMENT EXPENDITURE AND PUBLIC SAFETY IN LITHUANIA 31

Anatoli Beifert, Laima Maknytė, Gunnar Prause SUSTAINABLE SUPPLY CHAIN MANAGEMENT ISSUES: CASE OF REGIONAL SMEs’ INVOLVEMENT IN THE AIR CARGO 41

Kristina Balkienė SUSTAINABLE INNOVATIVENESS: ISSUES AND PUBLIC POLICY 53

Gitana Dudzevičiūtė ENERGY INTENSITY IN THE LITHUANIAN MANUFACTURING SECTOR 77

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Contributions to the Journal of Security and Sustain-ability Issues must report original research and will be subject to peer-review.

General Information

All papers are to be written in English. The Journal of Security and Sustainability Issues is an internationally refereed journal designed to further the frontiers of knowledge in security and sustainability. Each article is reviewed by at least two experts, appointed by the Editorial Board, who will examine the manuscript through a double-blind refereeing process in terms of its relevance, academic rigor and high level ap-plications. An electronic copy prepared in MS Word and printed in Times New Roman typeface should be submitted to the Editorial Board following the re-quirements presented below.

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Foreword to the tenth issue of peer reviewed scientificJournal of Security and Sustainability Issues

The General Jonas Žemaitis Military Academy of Lithuania

Dear readers,

Today I have an opportunity to introduce to your attention the tenth, the jubilee issue of the Journal of Security and Sustainability Issues (2013, Volume 3, Number 2).

This issue is very important to the Military Academy of Lithuania, the publisher, for two reasons. The first reason is, as I already mentioned, the journal celebrates its first anniversary – the tenth issue is published. I am very glad to state that the issue I am introducing is devoted to the 12th International Entrepreneurship Forum Conference, which was held on September 4-6 in Vilnius. The conference was jointly organized by the University of Essex (UK), OECD and The General Jonas Žemaitis Military Academy of Lithuania.

I am delighted that our partner, International Center for Entrepreneurship Research of Essex Business School, looks at entrepreneurship through the lens of security. Security of the country is a fundamental need for every nation, which embraces a wide range of activities. Besides its very directly perceived core functions, the Military Academy of Lithuania pays special attention to the analysis of societal processes, which ultimately might trigger any form of insecurity. Hence, as the Military Academy of Lithuania, we foster scientific activities, perform a variety of relevant analysis and contribute to the development of sciences. We strive that our highly trained and educated people were at the hub of international events and shared, contributed and perceived contemporary phenomena. Timing of this conference carried much more resonance and symbolism as it was held during the Lithuanian Presidency of the Council of the European Union. Lithuania started a journey from regained statehood to full-blown membership of the European Union, a journey that all of us undertook. Today, Lithuania returns to the Parliament proud of the path it has taken, confident of its European choice and ready to put all its effort into building a European consensus for a better, stronger, and more united and secure future together. Each institution is responsible for the taken path. Here special role belongs to the Military Academy of Lithuania.

Sincerely,

Commandant Colonel EUGENIJUS VOSYLIUSThe General Jonas Žemaitis Military Academy of Lithuania


journal of Security and SuStainability iSSueS


20133(2)

Guest Editor-in-ChiefProf. Jay Mitra

University of Essex, UK

ISSN 2029-7017 printISSN 2029-7025 online



Volume 3 Number 2 December 2013



The Journal of Security and Sustainability Issues is a peer-reviewed journal which publishes original research papers. it is the international journal published cooperating with the institutions

indicated on the cover of the journal. it is published quarterly.

areas of research include, but are not limited to, the following: conceptual approaches towards Security and Sustainability Globalization Processes and Social Security defence and Security technologies innovations and technological development for Security and Sustainability energy Security regulation of the Security industry transition issues and Secure development computer and information Security Human and environmental Security biodiversity and ecological Sustainability economic Growth and Sustainable development economics of Sustainable organizations and industries Sustainable entrepreneurship intercultural communication for Security and Sustainability Secure development of Sector economics Sustainable finance and investment Strategic Management for Sustainability case Studies in the Process of Secure and Sustainable development evaluations of Security Measures

All papers published in the Journal of Security and Sustainability Issues are peer-reviewed by the members of the Editorial Board or by its appointed experts

The papers published in Journal of Security and Sustainability Issues are indexed/abstracted by:

• BusinessSource Complete ebSco Publishing • SustainabilityReferenceCenter www.ebscohost.com• InternationalSecurity&CounterTerrorismReferenceCenter http://search.ebscohost.com• ECONISoftheZBW–LeibnizInformationCentreforEconomics http://www.zbw.eu/ econbiz• RePEc http://repec.org/ econbiz• Ulrich’sPeriodicalsDirectory Serials Solutions http://www.serialssolutions.com/• Ulrich’sPeriodicalsDirectory aProQuest business http://www.proquest.co.uk/en-UK/• Crossref • GoogleScholar • SCIRUS www.scirus.com (elsevier b.V.)• TheEuropeanLibrary http://www.theeuropeanlibrary.org• DatabaseLituanistika http://www.lituanistikadb.lt

EDITORIALCORRESPONDENCEincludingmanuscriptsandsubscriptionProf.Dr.ManuelaTvaronavičienėTel.:+37068783944E-mail:[email protected],[email protected]

JOURNALOfSECURITyANDSUSTAINABILITyISSUES2013, 3(2)

http://www.lka.lt/index.php/lt/217057/

ThisworkislicensedunderaCreativeCommonsAttribution3.0License.

journal of Security and SuStainability iSSueSinternational entrepreneurial Perspectives and innovative outcomesISSN 2029-7017 print/ISSN 2029-7025 onlinewww.lka.lt/index.php/lt/217049/

editors-in-chief Prof. Dr. Manuela tvaronavičienė,VilniusGediminasTechnicalUniversity,TheGeneralJonasŽemaitisMilitaryAcademyofLithuania Prof. jay Mitra, University of Essex, UKProf. Dr. Valdas rakutis, The GeneralJonasŽemaitisMilitaryAcademyofLithuania

executive editor Prof. Mohamad Sepehri,JacksonvilleUniversity,USA

editors Prof. abel femi adekola,UniversityofWisconsin-Stout,USAProf. john Saee,Editor-in-Chief,JournalofManagementSystems,USA;Chairman-GlobalDivisions,AssociationofManagementandInternationalAssociationofManagement,USAProf. brian Maruffi,yeshivaUniversity,fordhamUniversity,USADr. evelyn Wamboye, Pennsylvania State University, USADr. Hideyuki doi, Institute for Sustainable Sciences and Development, Hiroshima University, JapanProf. edmundas Kazimieras Zavadskas,VilniusGediminasTechnicalUniversity,LithuaniaProf. eugenijus chlivickas,VilniusGediminasTechnicalUniversity,LithuaniaDr. ulku yuksel, The University of Sydney, AustraliaProf. Mathew j. Manimala,IndianInstituteofManagementBangalore,IndiaProf. christian friedrich,UniversityofAppliedSciences,Giessen,GermanyProf. Walter ruda,KaiserslauternUniversityofAppliedSciences,GermanyProf. em. Hanns Pichler, Vienna University of Economics and Business, AustriaDr. christopher j. rees,UniversityofManchester,UnitedKingdomDr. richard Haigh,UniversityofSalford,UnitedKingdomProf. Sharda nandram, HAN University of Applied Sciences and Nyenrode Business University, the NetherlandsProf. Massimo colombo, Politecnico di Milano, ItalyDr. rafael josé de espona y rodríguez, HonoraryConsuloftheRepublicofLithuania,SpainDr. Sibylle Heilbrunn,RuppinAcademicCenter,IzraelProf. Kari liuhto,Pan-EuropeanInstitute,TurkuSchoolofEconomics,finlandProf. ona Gražina rakauskienė,MykolasRomerisUniversity,LithuaniaProf. ruth alas, Estonian Business School, EstoniaProf. irina Sennikova,RigaInternationalCollegeofEconomicsandBusinessAdministration,LatviaProf. natalja lace,RigaTechnicalUniversity,LatviaProf. Mirjana radović Marković,InstituteofEconomicSciences,Belgrade,SerbiaProf. Vlado dimovski,UniversityofLjubljana,SloveniaProf. ing. Zuzana dvorakova,UniversityofEconomics,Prague,CzechRepublicDr. jerzy Stańczyk, Siedlce University of Natural Sciences and Humanities, PolandProf. ani Matei,NationalSchoolofPoliticalStudiesandPublicAdministration,RomaniaProf. Gediminas dubauskas, TheGeneralJonasŽemaitisMilitaryAcademyofLithuaniaProf. Dr. rasa Smaliukienė,TheGeneralJonasŽemaitisMilitaryAcademyofLithuaniaDr. renata Korsakienė,VilniusGediminasTechnicalUniversity,LithuaniaDr. agota Giedrė raišienė,MykolasRomerisUniversity,AVADA,LithuaniaAs. prof. Virginija Grybaitė,VilniusGediminasTechnicalUniversity,TheGeneralJonasŽemaitisMilitary AcademyofLithuania,LithuaniaProf. Mehmet Huseyin bilgin,IstanbulMedeniyetUniversity,TurkeyProf. Marina Sheresheva,LomonosovMoscowStateUniversity,facultyofEconomics,RussianfederationProf. ramaswamy Ganesan,KingSaudUniversity,KingdomofSaudiArabiaProf. bora aktan,UniversityofBahrain,theKingdomofBahrain

journal of Security and Sustainability Issues www.lka.lt/index.php/lt/217049/2011 1(1)



World Institute for Engineering and Technology Education

Energy Security Center


ISSN 2029-7017 print/ISSN 2029-7025 online

journal of Security and Sustainability Issues www.lka.lt/index.php/lt/217049/ISSN 2029-7017/ISSN 2029-7025 online

2013 Volume 3(2): 5–13http://dx.doi.org/10.9770/jssi.2013.3.2(1)






Secure and SuStainable deVeloPMent: litHuania’S neW role in taKinG tHe PreSidency of tHe eu

alminas Mačiulis1, Manuela tvaronavičienė2

1Chancellor, Office of the Government of the Republic of Lithuaniai of Lithuania, Gedimino av. 11, LT-01103 Vilnius, Lithuania

2Vilnius Gediminas Technical University, Saulėtekio av.11, LT-10223Vilnius, Lithuania2The General Jonas Žemaitis Military Academy of Lithuania,

Šilo str. 5A LT-10322 Vilnius, LithuaniaE-mails: [email protected] [email protected]

Received 15 September 2013; accepted 20 October 2013

abstract. ThepresentedpaperaimstodiscussnewLithuania’sinroletakingpresidencyoftheEUandtoevaluateLithuania’sdevelopmentprocess.StateofLithuanianeconomyisbeingpresented;aimsoffurtherdevelopmentare identified.ThecontextofotherEuropean countries is being taken into account.Authors relyon criticalanalysisofcontemporaryscientificliteratureandcomparativestatistics.Amongdrivingforcesaffectingprocessofeconomicdevelopmentinvestmentsofforeignoriginandincreasinglevelofeducationarebeingdistinguished..Insightsconsideringaroleofthelatterdrivingforcesarebeingoffered.

Keywords: secureandsustainabledevelopment,Lithuania’sPresidency,investments,education

reference to this paper should be made as follows: Mačiulis, A.; Tvaronavičienė, M. 2013. Secure andsustainable development: Lithuania’s new role in taking the Presidency of the EU, Journal of Security and Sustainability Issues3(2):5–13.http://dx.doi.org/10.9770/jssi.2013.3.2(1)

jel classifications: O10, O11, O15

1. lithuania in a new historic role in pursue secure and sustainable development1

ContemporarytheEUagendacapturestheacuteis-suesEuropeiscurrentlyfacing:thoseofeconomicse-curity, social sustainability, or put in other way, secure and sustainable development becomes an ultimate aim we pursue. The financial and economic mess that startedin2008threatensEurope’seconomicsecurityto this day, and it does not matter which factors you believe are tobeblamed for the crisis:whether it’s1 Thepaper ispreparedonbasisofOpeningKeynote speechofChancellorofGovernmentoftheRepublicofLithuaniadr.Almi-nasMačiulisat12thInternationalEntrepreneurshipforumconfer-ence,4-6September2013,Vilnius,Lithuania“SocialSustainabilityandEconomicSecurity:theAgendaforEntrepreneurshipinthe21st Century“http://jssidoi.org/esc/events/

excess bank lending and risk taking, loose centralbankregulation,whichneglectedtheexplodingbankbalancesheets,orgovernments,someofwhichbor-rowed excessively and lived beyond their means. All thesehaveonethingincommon:theyareexamplesof unsustainable actions.

However, historically, Europe has been the most unitedintimesofcrises.ThegreatestmanifestationofthisisthesigningoftheTreatyofRomein1957,inthe midst of the cold war. After two world wars we as acontinenthaverealisedthatonlysweepingchangescould prevent a new conflict. It was this treaty that createdtheEuropethatweliveintoday–peaceful,democraticandprosperous.Theon-goingeconomiccrisisthreatensthisorderandisonceagaindemand-ing radical changes, andrightly so. Europehasal-

A l m i n a s M a č i u l i s , M a n u e l a T v a r o n a v i č i e n ėSecure and sustainable development: lithuania’s new role in taking the presidency of the eu

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ready chosen the path of cooperation in 1957, and thecommonbeliefisthatitwillremainunchanged.Throughcooperationsecureandsustainabledevelop-ment is most definitely achievable.

Sinceitsindependence,Lithuaniahasstrivedforse-cure and sustainable development.To achieve this,we needed to integrate Lithuania into the interna-tional economic and political space, which led to set-tingmembershipinNATOandtheEUasourhigh-est priorities. And now, after almost 10 years in the EuropeanUnion,LithuaniahasbegunitsPresidencyof the Council of the EU and is determined to steer the union towards sustainability and economic secu-rity–thevaluesthatweasacountryhadsoughtitforfromthebeginning.

ItisworthnotingthatLithuaniaisholdingthePresi-dency less than one year before the new elections to the European Parliament, and this will also be the end of the period of five years for which the Euro-peanCommissionplansitstasks.Thismeansthattheagendawillbemoreintensivethanusual.

Main goal of Lithuania is to conduct an effective,open and results-oriented Presidency and consolidate itsmembershipintheEuropeanUnion.TheagendaforthisPresidencycorrelatesgreatlywitheconomicsecurity and social sustainability; it is necessary toshowtheworldthatEuropeiscredible,growingandopen. Credibility, confidence in the European mar-kets should be brought back through the develop-ment of the economy, fiscal sustainability and stabil-ity.During its Presidency of the EuropeanUnion,Lithuaniawillpoolallitseffortstocreatefavourableconditionsforalong-termsustainablegrowthinEu-rope and to ensure that these changes are irrevers-ible.Tothisend,itisimportanttofurtherstrengthencompetitiveness of the Member States, continue con-solidation of public finances, pursue the necessary structural reforms and restore confidence over the borrowinginfinancialmarketsinordertofacilitateinvestment in the economy.

We will focus on the future, as during Lithuania’sPresidency thefirst annual theEUbudget for year2014 of the Multiannual financial framework(Mff)2014–2020willbeapproved,whichwillgiveimpetustotheimplementationofnewprogrammes.Whatconcernsthefieldofsustainablefinances,Lith-uaniawillseektofurtherrestorecredibilityandsup-portthestrengtheningof integrationofastill frag-mentedfinancialmarket,aswellas the adoption of

necessarydecisionsregardingtheapprovalofasingleresolutionmechanismofbanks,andthepreparationfortheimplementationofasinglesupervisorymech-anism of financial markets as of 1 January 2014.LithuaniawillrelyonthereportmadebythePresi-dentoftheEuropeanCouncil“TowardsaGenuineEconomicandMonetaryUnion”,andthe“BlueprintforadeepandgenuineEconomicandMonetaryUn-ion”bytheEuropeanCommission,aswellaslegis-lative initiatives by the European Commission, and followinguponthedecisionstakenbytheEuropeanCouncil inJune2013onfurtherstrengtheningtheEconomic and Monetary Union. In a view of a bet-ter economic performance, Lithuania will seek tofacilitate for Member States the implementation of important social and economic reforms.

Growing Europe is another priority of the Lithu-anian Presidency, and it will be built on the Europe 2020agenda,makingsurethatattentionisgiventothe implementation of Compact for Growth andJobs. Even though the economies of the MemberStates have undergone structural transformationandgradual restorationof lostcompetitiveness, theconsequences of the financial crisis are still very tan-gible.This isespeciallyevident for thecomplicatedsocial situation in someMember states, givenhighunemploymentandsloweconomicrecovery.WewillfocusonfurtherdeepeningandintegratingtheSin-gleMarket,includingtheenergysector,asthemainforce for economic growth andbetter employmentopportunities.

TheMffagreement foresees increased funding forcompetitiveness and employment, in particular for research, youth education and employment, as well asthedevelopmentoftransport,energyandtelecom-municationsnetworks.Takingintoaccounttheevermore acute consequences of long-term unemploy-ment and growing social exclusion, youth employ-mentwillbeapriorityforthePresidency.Lithuaniawilltakeeverysteprequiredfortheimplementationoftheyouthemploymentpackage,withaspecialfo-cusonimplementationoftheyouthGuaranteeIni-tiativeandencouragementofapprenticeships.Withregard to thepromotionof social inclusion,Lithu-aniawill encourage the implementation of the So-cialInvestmentPackage,withaspecialemphasisoninvestment in children. Discussions on these topics willbeorganised in theCouncil.Betterprotectionofworkerrights,includingtheprotectionofmigrant

J o u r n a l o f S e c u r i t y a n d S u s t a i n a b i l i t y I s s u e s , 2 0 1 3 , 3 ( 2 ) : 5 – 1 3

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workers,willalsobeincludedinthelistofprioritiesfor the Presidency.

In order to achieve secure and sustainable develop-ment, short-term measures to increase the competi-tiveness of the EU economy must be developed with dueregardtolongtermcompetitivenessperspective.Thiscanbeachievedthroughagreenereconomy,re-newableenergyandbetteruseofnatural resources,allowingthesafeguardingofgrowthpotentialinthefuture.TheLithuanianPresidencyexpectstotakeupandcompleteon-goingnegotiationsregardingtran-sitmeasuresfortheCommonAgriculturalPolicy.

Wecannotfailtomentiontheenergysecurityissuesthat are of particular importance to the Baltic States. WestillremainenergyislandswithinEurope.Whilewe are Europeans in politics, law, economy and cul-ture,weremaindependentonRussiainenergy.True,powerbridgestoSwedenandPolandaswellthecon-struction of a liquefied gas terminal could resolvethese issues, yet today our competitiveness and some-times evendomestic politics arenegatively affectedbythehighcostsofenergyresourcesimportedfromasolesource,Russia.ThisiswhyLithuaniawillactive-lyworkontheInternalEnergyMarket.Onceestab-lished,thiswillprovideasignificantimpulseforaneffectiveSingleMarketandtheentireEUeconomy.TheEUhas set an objective to establish the inter-nalenergymarketby2014,andeliminatetheenergyisolation of certain member states by 2015. There-fore,actinginconcertwiththeEuropeanCommis-sionandtheMemberStates,Lithuaniawill seektostrengthentheimplementationofthecommitmentsby the Member States in this field, with particular fo-cusplacedontheThirdEnergyPackageandissuesofmarketdesign, infrastructureand renewableenergyresources. InNovember2013,Lithuania ishostingahigh-levelconference,concentratingonrelevantis-sues indevelopingamodernEUenergy infrastruc-

ture,anddiscussingthefirstlistofenergyprojectsofcommon interest.

OpenEurope-ThestartoftheLithuanianPresiden-cywassymbolicallymarkedbytheaccessionoftheRepublicofCroatia–the28th Member State. Dur-ingtheLithuanianPresidency,theEUCouncilwillsettheEUEnlargementpolicyguidelinesfor2014,whereLithuaniawillseektoensureacontinuousen-largementprocessbasedonprinciplesofownmeritsand clear conditionality.

In a broader sense, the EU competitiveness, sustain-ableeconomicgrowthandjobscanbesafeguarded,providedthattheEUcitizensfeelsafe,andthattheEU institutions remain active in their protection of fundamentalhumanrightsbothwithintheEUandabroad. for this purpose, the EU, acting throughconcertedeffortofthePresidencyandtheEUinsti-tutions, has to promote further democratic princi-plesintheneighbourhood,ensureregionalstability,openness for trade, promote interpersonal contacts anddevelopmentaid,andtogetherwithinternation-alpartnerstackleglobalchallenges.

This iswhymustalsonotforgetourneighbours intheMediterranean region andEasternEurope.WecannotbeindifferenttothespreadofEuropeanideasoutsidetheEUborders.Oureasternneighbourhoodis a living laboratory of the same European idea.Lithuania expected that an Association Agreementwith Ukraine would be signed during the EasternPartnership Summit in Vilnius this November. Alas, this aim, seems, to be postponed.

Despite all the difficulties after 2 years of the reces-sion,ourcountryreturnedtogrowth,andwhiletheeuroareaismiredinstagnation,Lithuaniahasonceagainemergedasoneofthefastestgrowingecono-mies in theEU. ItsGDPgrewby3.7% in2012,followinga6%growthin2011(fig.1)


8

Source: Eurostat, http://epp.eurostat.ec.europa.eu

Source: Statistics Lithuania, Ministry of Finance forecasts (April 2013)

Latvia Lithuania

EstoniaPolandIreland

BulgariaGermany

EU27 Czech Republic

HungaryCroatia

fig. 1.Lithuania’seconomicgrowthamongotherselectedEuropeancountriesSource: composedusingEurostatdata

AccordingforecastsofMinistryoffinanceofLithu-ania, the economy is expected to expand again by3%in2013.Duringthecrisis,wetooktoughdeci-sions to ensure soundpublic finances. fiscal tight-ening measures produced a budged balance im-provement totalling about 12% of GDP between2009 and 2010.Our budget for 2013 is on trackfor the target deficit of approximately 2.5%. This

was achieved without external help from organisa-tionssuchastheIMf.furthermore,thegovernmentdebt was at 40.7% ofGDP at the end of 2012 –thesixthsmallestamongEUmemberstates.Itisnosurprise that the international rating agencies suchasMoody’s,Standard&Poor’s andfitch rateLithu-ania above most of its Central and Eastern European peers(fig. 2).


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Source: Ministry of Finance (forecasts April 2013) Source: Eurostat, http://epp.eurostat.ec.europa.eu

Spain Greece IrelandUnited KingdomCyprusCzech Republic EU27 SloveniaPolandLithuaniaRomania

fig. 2. Lithuania’spublicfinancesSource:Eurostat;Moody‘s;fitchRatings

Economicrecoverywasinalargeparthelpedbyflex-ible labour force. A drop in unit labour costs led to enhancecompetitivenessgainsandlaidthefounda-tion for an export-led recovery. Lithuanian unem-ploymentrateisnowdecreasingandisprojectedtocontinuethatwayin2014(fig.3).

The recovery success story leads us to the next bigmilestone for Lithuania: European currency - theeuro.WeindenttoadoptthenewcurrencyassoonaswemeettheMaastrichteuroconvergencecriteria –currentlythetargetyearis2015.Oncethisisdone,thefinalstepinintegratingourcountryintoEuropewill be complete. But thework never ends, and ithastobeemphasizedthatLithuaniaseekssocialandeconomicsustainabilitybyintegratingitselfnotjustinto the European, but the world economy as well. WeareplanningtoopentalkswithOECDin2015

aimingtojointheorganisationassoonaspossible.

Letmeassureyou,economicgrowthandsocial in-clusionarenotjusttheEuropeanbuzzwordsforus.Economicgrowthandsocialinclusionhasbeenandwillbe apriority for theGovernmentofLithuaniainthecomingyears.Wehaveagreedonthenationalgoals foreconomicandsocialgrowthbyapprovingtheNationalDevelopmentProgramme2014–2020.Thisdocumentisaroadmapforgrowthunitingtheinstitutional efforts andfinancial resources, includ-ing theEUfinancial assistance.Moreover,wehaveapprovedGovernmentprioritiesfor2013and2014whichspelloutveryspecificactionsandprojectsthatour ministries and other institutions intend to carry outinthecomingyearstosupporttheachievementof economic and social priorities.


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Source: Eurostat, http://epp.eurostat.ec.europa.eu. European Commission forecasts (winter 2013). Statistics Lithuania. Ministry of Finance forecasts (April 2013): Note (1) IMF Country Report No. 13/081 as of March 2013

Source: Eurostat, http://epp.eurostat.ec.europa.eu. Index (2008=100) and percentage changes

LithuaniaEU27

EU27 Bulgaria Estonia Latvia Lithuania Romania

fig. 3. Lithuanianhourlycostindexandunemploymentrate

Source: Eurostat;EuropeanCommissionforecast(winter2013),IMfCountryReportNo.13/081asofMarch2013

Employment, competitiveness, business environ-ment, science and innovation, social inclusion and regionaldevelopmentwillbeourmaindirectionsforworkandaction.Inordertomovetowardindicatedtargets and foster secure and sustainable develop-ment inLithuania and other countries appropriateeconomicpolicyisneeded.Designofsuchpolicyisseen as a process rather than an act. Hence, analysis ofdrivingforcesandtheirperformanceindifferentconditionsstandsaskeytargetandaimofscientificanalyzes. Investments both domestic and, especial-ly, foreignare seenas fundamental factoraccelerat-ing economic growth.Thehigh level of education,whichservesascompetitiveadvantageofLithuaniahas to be exploited more intensively and efficiently. Anyway, impact mentioned and not mentioned here drivingforcesofsecureandsustainabledevelopmentremainsanimportantobjectofongoingscientificin-vestigations.

2. driving factors of secure and sustainable development: investments and education

Inordertoachieveasetofgoals indicatedabove,ageneral and sustainable path leading to secure andsustainable development has to be maintained. Se-cure and sustainable development can be achieved throughaccelerationofeconomicgrowth,whichhasitsdrivingforces.Therearealotoftheoriesofeco-nomic development (e.g. Vosylius et al.). Researchof economic growth causes and their outcomescomprise an area of economic science, which will remain urgent formany decades or even centuries.Despite intensive discussions about forces of eco-nomic growth and significance of their impact onGDP growth, importance of investments remainsunquestionable.Investmentscanbeofdifferentori-gin:localandforeign.Inmacroeconomicsandcom-parativeeconomicsdealingwithanarrayoftheoriesifeconomicofgrowth,itisinprincipleunanimouslyassumedassumedthatmajordrivingforcesofsecureand sustainable development are investments and la-


11

bour force. Investments have their sources. The main source is local private investment, which is very much related to savings’ level. Of course, public invest-ments are very important as well, but their source is statebudget,which,initsturnisdirectlydependentoneconomicgrowthand,respectively,ispartlycon-ditioned by private investments, which come from savings.Havinginmind,thatitisratherdifficulttoincreaselevelofsavingsinanycountry,investmentsofforeignoriginarebeingemphasized.Globalizationprocesses, which are very much related to movement ofcapital,facilitatechannellinginvestmentfromonecountry to another. Expectations, related to inflow of foreigncapitalespeciallyboostedinterestinthatphe-nomenonalreadyin1990’s.Theissueofforeigncapi-talattractionandconsequencesofinflowsofforeigncapital have remain an urgent issue (e.g. Adewumi2006;Sahoo2006;Šimelytė,Antanavičienė2013).

Asitwasalreadymentioned,theroleofforeigndi-rectinvestment(fDI)gainedsignificantimportanceduringthe90sasatoolforacceleratinggrowthanddevelopment of economies. In the 9th decade of pre-viouscenturypositiveeffectsoffDIwereespeciallyemphasized.One of themost prominent scientistsof that time was Dunning (Dunning 1997; Dun-ning,Narula2002)Heintroducedaconceptoftheinvestmentdevelopmentpath(Dunning1997).Iftorephrasehisideas,fDIintensitydependsonlevelofcountries development. The more country develops, themorefDIitreceivesand,atthesametime,in-vests abroad (Dunning andNarula 2002).Despitecitedideasarenotverynovel,itseems,theinsightspreserve their value and are valid in contemporary conditions (Tvaronavičienė, Lankauskinė 2011;Tvaronavičienėet al. 2013).fDIinflowsintoLithu-ania remainmuch lower comparing todevelop theEU countries, e.g. Austria, Belgium, Netherlands(Tvaronavičienė, Grybaitė 2013), most likely be-causeofdifferencesofdevelopmentlevel..

Despite controversial estimation of impact of fDIon host economies at various countries in differ-ent stages of their development (e.g. Busse et al. 2007; Tvaronavičienė et al. 2009; Tvaronavičienė,Kalašinskaitė 2010; Lankauskienė, Tvaronavičienė2011;Tvaronavičienė,Lankauskienė2011), initiat-ingofinflowsofforeigncapitalstandsapriorityofeconomicpolicyofLithuania.Hereweneedtoputemphasisthateachcase,especiallyrelatedtostrategicinvestments is context sensitive, and direction toward

fDI attraction is not unconditional. Nevertheless,thedirectionitselfremainsclearenough:additionalcapitalinflowsareseenasimportantdrivingforceofsecureandsustainabledevelopmentofLithuania.

This aim, we believe can be achieved through im-provingbusinessconditionsinthecountry.Despitea lot of indicators, reflecting business environmentcan be listed (e.g.Tvaronavičienė,Grybaitė 2012),tax burden remains an important characteristic of business environment among all other indicators.Lithuaniaexhibitsthelowesttotaltaxburdenat26.0% of GDP (including social contributions) in theEU. Compared to the two other Baltic countries the Lithuaniantax-to-GDPratioisclosetothatofLatvia(27.6%),but 6.8percentagepoints lower than theoneofEstonia(32.8%).Intermsofrevenuestruc-ture,Lithuaniareliesmostonindirecttaxes(11.9%ofGDPand45.6%oftotaltaxation).VATrevenueinGDPtermshasbeenstableat7.9%in2010and2011 while revenue from excise duties and consump-tiontaxesdecreasedduringlasttwoyears(from3.5%in2009to3.3%in2010andfurtherreductionto 3.1% in 2011).At the same time, the ratio ofdirect taxes toGDP continued to decrease for thefourth year in a row (9.3% in 2008 to 4.4% in2011) leading thecountry tohave the lowest shareof direct taxation in the EU-27 (Taxation. Coun-tryChapters).Lowtaxburden,webelieve,servesasindicator of favorable business conditions for both, localandforeignmarketplayers,hencemakeLithu-ania more attractive capital destination in compari-son with other countries.

Quality of human capital cannot be overestimated. Efficient adoption contemporary technologies haveto be paired with increase of education level, other vise a country can finish with underused equipment and facilities. Education level rises in all counties, and Lithuania is foundamong leading countries in thatrespect(fig.4).Anotherissueis,whichisbeingtack-lednow:increaselevelofemploymentofyouthinag-ingsocietyandpreventemigrationofqualifiedlaborforce to better economically developed counties.


12

Slovenia

Austria Belgium Bulgaria Estonia HungaryLatvia Lithuania Netherlands Romania Slovakia

Education index

1.00

0.90

0.80

0.70

0.60

0.501980 1985 1990 1995 2000 2005 2011

fig. 4. Education index Source: UNDP.EducationandHumanDevelopmentindexes,http://hdrstats.undp.org/en/indicators/default.html

3. concluding remarks

LithuaniaisthefirstBalticStatetakingovertheEUCouncil Presidency. Creation of favourable condi-tions for long-termsecureandsustainabledevelop-ment of Europe, restoration of confidence in econo-miesofEuropeancountriesserveasseveralgoalsoutoflist,whichadditionallytacklesdiminishingofun-employment,especiallyamongyouth,supervisionofbanks,diminishingenergysecurityissues.

Secure and sustainable development can be facilitated or hindered by economic policies, devised by coun-tries.Amongavarietyofdrivingforcesofeconomicdevelopment, investments, and where appropriate, investmentsof foreignoriginareemphasized.HighlevelofeducationofLithuanianlabourforcehastobe better employed in order to accelerate secure and sustainable development of host country.

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Adewumi S. 2006.TheimpactoffDIongrowthindevelopingcountry:anAfricanexperience, JonkopingInternationalBusi-nessSchool,JonkopingUniversity.

Dunning,J.H.1997.AllianceCapitalismandGlobalBusiness,LondonandNewyork:Routledge.

Dunning,J.H.;Narula,R.2002.TheInvestmentDevelopmentPathRevisited, in J.H.Dunning, J.H.TheoriesandParadigmsof International Business Activity. The Selected Essays of John H.Dunning,Volume1,Cheltenham,UKandNorthhampton,MA:EdwardElgar,pp.138-172.

EconomyWatch.AvailableontheInternet:<http://www.econ-omywatch.com/foreign-direct-investment/disadvantages.html>

European Commission forecast (winter 2013). Available on the Internet: <http://ec.europa.eu/economy_finance/publications/european_economy/2013/pdf/ee1_en.pdf>

IMf Country Report No. 13/081 as of March 2013. Avail-able on the Internet: <http://books.google.lt/books?id=KLUtRI2JuW8C&pg=PP3&lpg=PP3&dq=IMf+Country+Report+No.+13/081+as+of+March+2013&source=bl&ots=sqOEIXz6BC&sig=2gSiHzBOUyDie-yUDTqreTOvoAy&hl=en&sa=X&ei=cIWcUrvEL4WThQePyyGoAg&ved=0CEQQ6AEwAw#v=onepage&q=IMf%20Country%20Report%20No.%2013%2f081%20as%20of%20March%202013&f=false>

Lankauskienė, T., Tvaronavičienė, M. 2011. Interrelation of countries‘developmentlevelandforeigndirectinvestmentper-formance, Journal of Business Economics and Management 12(3): 546-565.


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Moody‘s. Available on the Internet: <https://www.moodys.com/>

Sahoo,P.2006.foreignDirectInvestmentinSouthAsia:Policy,Trends, Impact and Determinants, ADB Institute DiscussionpaperNo.56.

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fitchRatings.AvailableontheInternet:<http://www.fitchrat-ings.com/web/en/dynamic/fitch-home.jsp>

Šimelytė,A.;Antanavičienė, J.G.2013.foreigndirect invest-mentpolicyasaninstrumentforsustainableeconomicgrowth:a case of Ireland, Journal of Security and Sustainability Issues2(4):25–34.http://dx.doi.org/10.9770/jssi.2013.2.4(3)

Tvaronavičienė, M.; Grybaitė, V. 2012. Sustainable develop-ment and performance of institutions: approaches towards measurement, Journal of Security and Sustainability Issues 1(3): 167-175.

Tvaronavičienė, M.; Grybaitė, V. 2013. Towards sustainableeconomicdevelopment:estimationofinstitutions’roleinfDIattraction , Contemporary Research on Organization Management and Administration ISSN 2335-7959 1:109–118 Availableon the Internet: <http://journal.avada.lt/images/dokumentai/CROMA2013str/10.pdf>

OpeningKeynotespeechofChancellorofGovernmentoftheRepublic of Lithuania AlminasMačiulis at 12th International Entrepreneurshipforumconference,4-6September2013,Vil-nius, Lithuania “Social Sustainability andEconomic Security:theAgendaforEntrepreneurshipinthe21stCentury“AvailableontheInternet:<http://jssidoi.org/esc/events/>

Taxation.CountryChapters.AvailableontheInternet:<http://ec.europa.eu/taxation_customs/resources/documents/taxation/gen_info/economic_analysis/tax_structures/country_tables/lt.pdf>

Tvaronavičienė,M.; Grybaitė, V.;Tunčikienė, Ž. 2013. Glo-balization drivers in developed and less developed countries:if consistent patterns can be traced, Journal of Security and Sustainability Issues 2(4): 5–11 http://dx.doi.org/10.9770/jssi.2013.2.4(1)

Tvaronavičienė,M.,KalašinskaitėK.2010.Whetherglobaliza-tion in formof fDI enhances nationalwealth: empirical evi-dencefromLithuania,Journal of Business Economics and Man-agement11(1):3-18.ISSN1611-1699

Tvaronavičienė,M.;Kalašinskaitė,K.;Šimelytė,A.2009.Re-viewof approaches towardsfDI: driving forces andplausibleconsequences.Socialiniųmokslųstudijos.Mokslodarbai (So-cial Sciences Studies.Research papers)2(2):1-7.ISSN2029-2236.

Tvaronavičienė,M.; Lankauskienė,T. 2011. Plausible foreigndirect investment‘ impact on sustainabledevelopment Indica-torsofdifferentlydeveloped countries, Journal of Security and Sustainability Issues 20111(1):25-36.

UNDP. Education and Human Development indexes. Available ontheInternet<http://hdrstats.undp.org/en/indicators/default.html>

Vosylius,E.;Rakutis,V.;Tvaronavičienė,M.2013.Economicgrowth, sustainable development and energy security interre-lation, Journal of Security and Sustainability Issues 2(3): 5–14http://dx.doi.org/10.9770/jssi.2013.2.3(1)









toWard SuStainable deVeloPMent of econoMic Sub-SectorS: caSe of indian Sericulture

a. K. Mathur1, Santanu roy2, jay Mitra3

1Planman Consulting India Private LimitedNew Delhi 110 074, India

2Institute of Management Technology Dubai International Academic City

P.O. Box 345006, Dubai, UAE3Centre for Entrepreneurship Research

Essex Business School,University of Essex, Essex Business School,University of Essex, United Kingdom, E-mails: [email protected]; [email protected]; [email protected]

abstract. Agricultural extension servicesbeingprovidedpredominantlybypublic agencies in thedevelopingworldhavecontributedtoquantumjumpsinfoodproductionincountrieslikeIndia.However,theseserviceshavefailedtoeliminatepersistentstructuralpovertyamongasignificantproportionofthefarmerhouseholds.PartIofthepapersummarizesgenericproblemsthathavesofarpersistedintheprovisionofagriculturalextensionservicesinvariousdevelopingcountries(includingIndia)asgiveninthepublishedliterature.Itthenbringsoutvariouselementsofthereformprocessesthatarebeingrecommendedandimplementedindevelopingcountryprogrammesbyvariousdonoragencies,liketheWorldbank,fAO,GTZ,etc.Part II of the paper carries out in brief SWOT analyses of the Indian silk industry. It also highlights theorganizationandfunctionsofthevariousinfrastructureofthecentralandstategovernmentagenciesprovidingextension services for the sericulture industry. It then critically examines as to how this infrastructure and services aregearedtomitigatetheweaknessesandthreatsandexploitthestrengthsandtheopportunitiesofthesector.BasedonthistheframeworkofextensionservicesreformsoutlinedinPartIofthepaperisappliedtoformulaterecommendationsonthereorganizationofthisinfrastructureforitsbettercost-efficiencyandeffectiveness.

Keywords:Rural technology systems,agriculturalextension, sericulture, India,CentralSilkBoard, strategiclacunae

reference to this paper should be made as follows: Mathur, A.K; Roy, S.; Mitra, J.Toward sustainabledevelopment of economic sub-sectors: case of Indian sericulture, Journal of Security and Sustainability Issues 3(2): 15–30.http://dx.doi.org/10.970/jssi.2013.3.2(2)

jel classifications: O3, O13, O15

Part i: aPProPriate tecHnoloGy deliVery SySteMS – a reVieW

introduction

India’spopulationin2011wasover1.21billionrep-resenting17.31per centofworld’spopulation, in-creasingfrom1.02billionin2001,agrowthrateof

17.64 per cent (Census of India, 2012).Going bythe current populationfigures and the growth ratein population, the population of India is expected to cross that of China by the year 2030 (Indiaonlinep-ages.com, 2012). While India’s population growthrate has been more or less steady over the last four decades and even declined over the last decade, the workingage(15yrs. to59yrs.) population has in-

A . K . M a t h u r , S a n t a n u R o y , J a y M i t r a Toward sustainable development of economic sub-sectors: case of indian sericulture

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creasedfrom227millionto350millionto380mil-lion (that is, from 52% to 55% to 62%) betweentheyears1971,1991,and2000,respectively.(WorldBank,2002).Itisestimatedthatcurrentlyabout50percentofIndia’spopulationisbelowtheageof25(Indiaonlinepages.com, 2012). According to a pastestimate,India’soverallratioofruralpoortourbanpoorhadincreasedfromabout1.08inthe1990to1.4intheyear2000(DattandRavallion,2002).

Strategic investments are required for alleviationofpovertyamongtheruralagriculturalhouseholds.Thedirect anti-poverty programmes of the governmentmay have temporarily helped the poor in gettingfood, etc., but have failed to raise their capacities or productiveassetsforearninghigherincomesonsus-tainedbasis(Mukherjee,1995).

In India the volume of investment has been increas-ingduringthesuccessivefive-yearPlanperiods.Butthe use of increased capital has been considered to be eitherbelowpotentialand/orinefficientresultinginacommensuratelylowlevelofoutput–anindicationoftheslowrateoftechnologicalprogressintheIndi-anagriculturalandindustrialeconomies(Thimmai-ah, 1990). It has indeed been shown that additional governmentspendingontechnologicalup-gradationinagriculture(researchandextension)hasthelarg-estimpactonagriculturalproductivitygrowth,anditalsoleadstolargebenefitsfortheruralpoor(fanet al, 1999).

Moreover,theagriculturesectorindevelopingcoun-tries like India are faced with several additionalchallenges:maintainingthefoodsecurity,decliningcultivated area due to population pressure, declin-ingagriculturalproductivityduetosoilandnaturalresourcedegradation,andincreasingcompetitioninthe globalised markets. One fundamental elementinmeeting the challenges of the structural povertyand resource pressure is therefore raising the pro-ductivityofthelandthroughdiffusionofnewtech-nologies.Thistransitionfromaresource-basedtoatechnology-based systemof agriculture places greatimportanceonthetechnologygenerationandexten-sion system, being the vital source and channel oftransferringthenewtechnologiestofarmers(UmaliandSchwartz,1994).

The paper probes into the rural extension service sce-nario in India and presents a case study of sericulture sectorinIndiatoidentifythestrategiclacunainruraltechnologydeliverysystems.

Managing transfer of technologies for use in rural india – a Strategic Perspective

Technology transfer could be considered to be theprocess by which technological innovation effortsinitiatedindifferentbodiesandinstitutionsfructify,get commercialized and contribute to the nationaleconomy. This process is not an isolated one and cannotbemanagedassuch.However,themanage-mentofthetransferoftechnologiesincludingthosethat are developed for use in rural and semi-urban areasisanintegralcomponentofthemanagementofthetechnologicalinnovationprocess.Thisunderlinestheideathatformsoftechnologicalcooperationareno longer one way but involve a longer-termmu-tual benefit beyond a short-term commercial success. Andersen and Lundvall (1989) have pointed outthat ‘learningby interacting’ through technologicalnetworkshasbecomeasimportantasthetraditional‘learningbydoing’asthesourcefornewinnovations.

Inanearlierstudy,Roy(2001)hadhighlightedtheimportanceofadoptingthestrategyofnetworkinginthemanagementofinnovationoftechnologiessuita-ble for adaptation and use in rural India. He has pre-sented twocase studiesof technologydevelopmentefforts fordesalinationofbrackishandsalinewaterfordrinkingandotherpurposesundertakeninapar-ticularlaboratoryfunctioningundertheCouncilofScientific and Industrial Research (CSIR), namely,theCentralSaltandMarineChemicalsResearchIn-stitute(CSMCRI),Bhavnagar.Thecasestudieshigh-lightthattheissueofmanagementoftransferofsuchtechnologiesgoesmuchbeyondtheimmediateandshouldtakeintoaccountawholegamutofenviron-mental factors includinggovernment legislations aswellasawholerangeofeconomicaswellassocio-cultural parameters. Planning in such a frameworkshouldelevatefromthepiecemealtotheintegrated,whichnecessitatestheframingupofapolicyperspec-tivefortheplanningprocessforsuchtechnologies

Problems in delivery of agricultural extension Services

InIndia,asinmostdevelopingcountries,agriculturalextensionprogrammesofthecentralandprovincialgovernments remain thedominantmechanisms fortechnological transfer and diffusion in agriculture.These programmes have no doubt led to quantumjumps in agricultural productivity in major cerealcropsinirrigatedagricultureregions.However,there

J o u r n a l o f S e c u r i t y a n d S u s t a i n a b i l i t y I s s u e s , 2 0 1 3 , 3 ( 2 ) : 1 5 – 3 0

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have been a number of persistent problems with theagriculturalextensionsysteminIndiathathavehampereditseffectivenessinwidespreadagriculturaldevelopment and alleviation of rural poverty. These problems, as brought out in literature have beensummarised below:

Bureaucratic structure

forexample,ithasbeenfound(Macklin,1992;Ri-vera,1996;andThimmaiah,1990)that:(a)Exten-sion bureaucracies have developed with top-heavy andtop-downapproach;(b)Thefunctionarieshaverevealedabiasinfavourofricherfarmers,asagainstthe socio-economicallyweak anddeprived; (c)Thehouseholds located in remote inaccessible villagesareconvenientlyneglectedbythefieldfunctionaries; (d)Theinfrastructure,takenasawhole,isinefficient,lacksadequateresourcesandisspreadtoothinly;(e)Uniformityofinstructions,preventinganyflexibilityin adaptation and innovation at the local level, and thereforeirrelevantinmanycases;etc.

Reviewingagriculturalextensionsystemsindevelop-ingcountries,Riveraetal(2000)foundthat“govern-mentextensionsystemsareineffectiveandinefficientand have been too monolithic, heavy handed, and controlling.Thereisconcernthatgovernmentshavecreatedextensionbureaucraciesthatareoverstaffed,havelittlefundingforoperatingexpenses,useunsus-tainable approaches, and are overly supply-driven”.

Underdeveloped Services Sector

Agricultural production is closely tied to upstreamfactors (namely, supply of inputs, credit, technical knowledgeand training, etc.) anddownstream fac-tors(storage,marketinginformation,accesstomar-kets,transport,processing,etc.)anddependsonad-equateaccesstoresources,goodsandservices.Thus,agriculturalproductionandproductprocessingandthe services that accompany them function interde-pendently ineconomicterms.Alistofkeyagricul-tural serviceswould include(Dresrüsseetal,1998;GTZ,2000):

(i) Agricultural (technical) extension and infor-mation services,(ii)Educationandtraining,(iii) Rural financing (saving, credit) and insur-ance,(iv)Provisionofmarket information,marketinglinks,andmarketpromotion,

(v)Input delivery services for plant/animal pro-duction (seed/genetic material, fertilisrs, pesti-cides,irrigationwater,machines/implements,etc)(vi)Regulatoryservices(testingandcertificationof seeds and products, quality control),(vii) Provision of social and technical infrastric-ture(transport,testcenters,commonprocessingfacilities,markets,etc).

However, the extension services in India covers only the technical information and training [(i) and (ii)above].Training andVisit (T&V)model of exten-sion system followed in India does not cover farm in-put and credit supply. The provision of other services has remained largely underdeveloped, being partlyand uncoordinatedly covered by the trader, and a multiplicityof linedepartmentsof thegovernmentagencies (Macklin, 1992; feder at al, 1999).Thusthereexistsystemicgapsinthecomprehensivepro-visioningofvariousagriculturalservices,hamperinggrowthinagriculturalproductivity.

Fiscal deficits and Cost-inefficiency

Manydevelopingcountries,includingIndia,haveforyears found it difficult tomake adequate resourcesavailableforagriculturalextensionandotherrelatedservices.forsomecountries,recentstructuraladjust-ments have exacerbated the situation. In India, some 20%ofvillageextensionpostsarevacantatanygiventime,mostlyinthemoreremoteareas.About80%of the extension budget is spent on salaries, withminimalfundsforextensionoperations(farrington,1994). Thus the extension infrastructure functionssub-optimally with low returns on the investments madeforextensionprovisioning.

extension reforms

Given the pivotal role they have in enhancing theproductive potential of agricultural economy andfor alleviation of rural poverty, agricultural exten-sion and rural information and advisory services are likelytointensifyintheforeseeablefuture.However,the above difficulties demand a reform of the present structure and approaches to agricultural extension.Issuesregardingextensionreformhavebeenanalysedin greatdetail by anumberof experts.The relatedkey issues, as brought out by a number of expertsbased on implemented reforms in a number of devel-oped anddeveloping countries are summarisedbe-low (Umali and Schwartz, 1994;Umali-Deininger,


18

1996;Rivera,1996;Smith,1997;fAO,1997;Car-ney1998;federetal,1999):

Improving Extension Management

The World Bank sponsored Training and Visit(T&V) systemofagricultural extension was imple-mentedin76countries,includingIndia(late1970s).Thesystemstressedthatcertainkeyfeaturedhadtobepreserved–professionalism,asinglelineofcom-mand, concentration of efforts, time bound work,fieldandfarmerorientation,regularandcontinuoustraining,andcloselinkswithresearch.However,theT&Vsystem toohasnot escaped somedrawbacks,forexample:unaffordablestaffandoperationalbudg-ets, neglect of poorer/remote farmers, dependenceonotherruraldevelopmentprogrammes,neglectofbeneficiary participation in planning andmonitor-ing, and accountability to farmers.However, otherreforms,discussedbelow,relatedtosinglecommod-ityfocus,concentrationofeffortsinmorepotentialareas, decentralisation, and partnership with private, non-governmentalandfarmerorganisationsindeliv-eryofservicescaneffectivelymitigatethesaiddisad-vantageswiththeT&Vsystem.

Decentralisation

Decentralisation includes administrative and political-fiscal devolution of programmes, funding decisions,and staff accountability to local agencies.The effec-tiveness of decentralisation depends on the extent to whichthecentralandprovincialgovernmentsactuallydevolvefiscalanddecision-makingpowerstothelocaldemocraticallyelectedgovernment.Italsodependsontherevenueraisingabilitiesofthelocalgovernment.

Effectivedecentralisationwouldhelpbuilding localcapacity for beneficiary participation in planningand monitoring, replacing the top-down approachand employing locally suited programmes. It alsoallows better coordination with other development programmesadministeredbylocalbodies.

Single Commodity Focus

Manypublic agencies (like theCentralSilkBoard,Rubber Board, Coffee Board, etc, in India) focuson one commercial or export crop, or one aspect of farming,suchasdairyingorlivestock.Thedistinctivefeature of the commodity specific extension lies in vertically integrating services formost of the com-ponents of the production andmarketing systems,

including research, input supply, running commonfacility and testing infrastructure, product market-ing, credit, crop-insurance andminimumprice as-surance.Thesinglecommodityfocuscanpotentiallyachievecost-effectiveness,throughleviesonproductsales, or by factoring cost-recovery intoproduct orinput prices.

As an alternative model, agro-processing, or inputsupplying firms provide extension services to theirfarmer-clients to reduce input supply risks, reducepost harvest losses, and improve quality, quantity, andtimelinessofoutput.UmaliandSchwartz(1994)havedocumentedanumberofexamplesoffarmers’associations and cooperative commodity ventures which provide extension services to its members.

Paid Extension Services

Somegovernmentagencieschargeafeeforservicestorecoverpartofthecosts.Thegovernmentbearstheremainingexpensesfortheservices.Thiscontributesto fiscal sustainability, accountability, and more pro-fessionalism and client-orientation. However, paid service extension is likely to exacerbate the genericproblem of non-coverage of lower-income groups;this may also clash with political commitments for freeservices.Stratifyingtheclientmarketbyincomelevel,andrequiringprogressivelygreatercost-sharingbyhigherincomegroupsreducesbothgenericfiscalandliabilityproblems,andreleasingpublicresourcesforan‘extensionsafetynet’targetedatlow-tomid-dle-income producers in priority areas. The for-fee extension services have been implemented in Mexi-co,NewZealand,UK,etc.

Plural Service Provision – Redefining the Role of Public Agencies

Involvingavarietyofstakeholdersthroughcontractsandcollaborativepartnershipsforprovidingarangeof extension services helps resolve problems of ac-countability or incentive to deliver quality service. Oneofthewaystogetaroundthisissubcontractingthat‘getsaroundtheinstitutionalinefficienciesasso-ciatedwithpublicdelivery’(Umali,1997).Involvingnonprofit NGOs may further improve responsive-ness,cost-effectiveness,andequityincoverage.

Several principles underpin innovations in this cat-egory. first is delinking public funding from pub-licdelivery.Second,akeygovernanceprincipleistoopen anddemocratize extension control so that all


19

stakeholdersmayexpress their perspectives and inter-ests,andplayappropriaterolesinextensiondesign,implementation, and evaluation.

Third,withpluralismthegovernmentrecognizesthattomeetdiverseneedsandconditionsinthefarmingsector,itshouldinvestmorebroadlyinthewholeag-riculturalknowledgeandinformationsystem,ratherthan in public sector extension services alone.

yet another problem arises in federal governmentswherebothacentralgovernmentministry,agencyorR&Dbody aswell as the provincial public bodieshave roles in development of the same sector. In such cases (inIndiaanumberof sectors, includingagri-culture, sericulture, etc. are in theConcurrentListof the Indian Constitution), there appear problems ofoverlapping functions, lackofcoordination,andinvariably loss of synergy of efforts andwastage offunds.Insuchcases,onlytechnologygenerationandtransfertostatebodiesandtrainingoftrainers(drawnfromtheprovincialextensionagencies,NGOs,etc.)shouldbe retainedby thecentralagencies.Implied in each of the above principles are significant rolechanges for government ministries/departments ofagriculture or commodity specific agencies as theymoveawayfromservicedeliverytowardprovidinganenablingpolicyenvironment,coordinatingandfacil-itatingtheworkofotherplayers(emphasisoriginal).

Recognizing that complete privatization of agricul-tural extension services is often not feasible, devel-opingcountriesaroundtheworldhavetrieddiverseinnovative methods to address problems of fiscal sus-tainability and poor client orientation by integrat-ingtheprivatesectorintoextensionsystems.Insuchcasesthegovernmentretainsarolenotonlyin(part)financing, but also in regulating extension provid-ers. The methods include: subcontracting of extension services, coupons attachedtoagriculturalbankloanscommittingacertainpercentageoftheloanforex-tension services, collaborative arrangements with the NGO and nonprofit sector including cooperativearrangementswith universities, commodity boards,and commodity cooperatives or associations (Umali andSchwartz,1994;fAO,1997).

Beneficiary participation and empowerment

Evolvingcontrolbyandparticipationofbeneficiarieshaspositiveeffectsformostofthegenericproblemsof extension: (a) problem of scale and coverage issolvedbygroomingfarmerleaderswithappropriate

localbackgrounds,includingwomen,whoareabletoperformmanyextensionagentroles inacost-effec-tivemanner; (b) complementary services are tunedmorecloselytofarmerneeds;(c)farmerdependenceonexternalinputsisreduced;(d)fiscalsustainabilityandcost-effectivenessis improvedthroughmobiliz-ing localresourcesandusingrelevantmethodsthatfocusonexpressedfarmerneeds;(e)interactionwithtechnologygenerationisimprovedthroughfeedbackinto the research system.

Some decentralized, cost-recovery, subcontracting,andcofinancingarrangementsfollowedinanumberof countries compulsorily require farmers’ groupsasbeneficiaryorganizations.Elsewhere, farmers’as-sociations organized on commodity lines actuallyprovide extension services to their members (Umali-Deininger,1996).ChamalaandShingi,(1997)havefoundthatcommodity-basedfarmers’organizationshavebeenhighlysuccessfulinthedairyindustryinIndia.Thesegroupspaygreatattentiontomonitor-ingandself-evaluation,haveasignificantimpactinraising the level of trust, understanding, and linksamongthevariousactorsandagenciesinvolvedinarural situation.

Privatization

The private sector has the incentive to provide infor-mationandservicesto‘better-off’commercialfarm-ers and members of private associations for whom extension service delivery is profitable. Input suppli-ersalsohavestrongincentivestoprovideadviceonarangeofcropandlivestockactivities.However,fullyprivatized extension is not economically feasible inregionswitha largebaseof small-scale, subsistencefarmers. In such circumstances, public sector finance remains essential, mixed with various cost-recovery, co-financing,andotherinstitutionalpartnershipar-rangementsthatareappropriatetothepaceofstruc-turalandcommercialchangesinagriculture.

Allprivatizationefforts report improvements inac-countability, improved efficiency, cost-effectiveness,and reduced public sector costs and dependence on fiscal allocations. Incentives exist for private provid-ersofextensiontomaintaincloselinkswithknowl-edgegenerationagenciesinordertohaveamarket-able product. However, stratification and separate, publicly-funded targeted programs are needed tocounter this risk of neglect of poorer and remotefarmers.


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Inthiscontext,a listofdifferentways inwhichanextension serviceorganizationmaybefinancedhasbeengivenbyvandenBan(2000)thatoffersausefulcheck-listforthepublicbodiestoconsiderdifferentfinancingoptionforagri-services.Accordingtohimanextensionorganizationmaybefinancedby:1.Agovernmentservicepaidforbytaxpayers;2.Agovernmentservicepaidforbyalevyoncertain agriculturalproducts;3.Acommercialcompanyselling inputs to farmers and/or buying their products, which in its rela- tionshipwithitscustomersalsousesextension;4.A farmers’ association which pays for extension fromitsmembershipfees;5.Afarmers’associationwhichissubsidizedbythe government;6.Anon-governmentalorganization (NGO)which is financed by donations from inside or outside the country and/or by commercial companies for publicrelationspurposes;7.AnNGOwhichisfinancedbysubsidiesfromor contractswiththegovernment(eitherthenational oradonorgovernment);8.A consulting firmwhich charges a fee from the farmers,whoareitscustomers;9.Apublishingfirmwhichsellsagriculturaljournals orotherpublicationstofarmers;10. Differentcombinationsoftheabove.forexample, it is possible for a government to pay the salariesof extension agents,whilstmostof the operational expenses are covered by a farmers’ association, or for a commercially-oriented cooperative or input-supply company to send a farmjournaltoitsmembers/customers.

Harnessing information technologies

Notwithstanding the importance of the more tra-ditional extension methods, such as radio and tel-evision,groupmeetings,fielddays,demonstrations,andexchangevisits,etc.,greatpotentialexistsforin-novative applications of the latest information and communicationtechnologies(ICTs)toenhanceex-tension delivery.

To harness its full potential requires considerablecommitment, investments in information and tel-ecommunication infrastructure, and some radical changes inperspective.Onechange is to lessenthereductionist, sectoral orientation in favor of a plural-ist, cross-sectoral, systems perspective of a commu-

nity–forexample,aimingtomeetacomprehensiveset of information needs of a community, which may relate to health, taxation, long distance telephony,education of children, agriculture, agro-processing,storage, marketing and commerce, various govern-ment development schemes, etc. Community com-municationcenters(variouslycalledinternetkiosks,telecottages,or,telecenters),exemplifythenewpart-nershipsemergingforlocalinformationaccess,com-munication, and education in rural areas. The owner-shipandfinancingarrangementsofthesetelecentersare as diverse in nature as the types of communities theyserve,andthetypeofservicestheyoffer.

Experiences and recommendations brought fromvariouspartsoftheworldtoafAOsponsoredwork-shop(fAO,2000)indicated(amongothers)thefol-lowing important considerations necessary for suc-cess and sustainability of telecenters:(a) BroadbasedandequitableaccesstoICTsrequires as a pre-condition processes of decentralisation, democratization, good governance considera- tionshonouringcitizens’righttoinformation,etc.(b)A high level “championing” of ICTs education andcapacitybuildingofthevariousstakeholders is required.(c) financialsustainabilityofthetelecentersrequires investments for both, the supply of diverse in formation needed by the community as well as forstimulatingdemandforinformationthrough usereducationandICT-capacitybuilding.(d)The employment of particular ICT technology as well as the information content should be de- cidedwithcommunityparticipation,takinginto account their language, culture, information requirements, etc.(e) Beyond physical access, information needs to be timely, retrievable, and easily utilized by a broad range of users, accessible in their own languageandconsistentwiththeirvalues.

In India, anumberofdonordriven (UNDP, ITU,etc) and government sponsored programmes fordiffusion of telecenters have been initiated cover-ingmanyprovinces(Shanmugavelan,2000).Thusagreatopportunity exists for thevarious agriculturalservicesprovidingagenciestoharnesstheICT’spo-tentialformeetingtheirobjectivesmoreeffectively.


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The indian extension scenario

AfterfollowingtheT&Vsystemofagricultureexten-sionduringtheperiodof late1970stomid1990s,andrecognizingsomeoftheinherentdrawbacksinitsefficacies, Indiangovernment launchedareformdrive, and thekeyelementsof the reformedexten-sion model currently being implemented in India(World Bank, 1998, as revealed by Ashok KumarSeth)arebeingexcerptedbelow:

Decentralization of decision-making. Much of thedecision-making will be done at the district level,which, in the Indian administrative situation, is an important element. l Developingdistrictlevelstrategicextensionplansbased on participatory techniques in which farmers areinvolvedinassessingtheirneeds,andthenbuild-ingtheextensionmessagesaroundthose.l Gettingfarmersorganizedintogroups,ultimatelyinto associations.Then looking for a sharingof re-sponsibilities, so that certain functions which have beenundertakenbyvillageextensionworkers,forex-ample,canbetakenoverbyafarmerrepresentative.l findingwaysandmeansofwithdrawinggovern-ment’sinvolvementininputsupplyactivity-sothattheseactivitiescanbetakenoverbytheprivatesec-tor,whichisbeginningtobethecasealreadyanyway. l Bringing theprivate sector as apartner into theoverallschemeandrecognizingtheyplayanimpor-tantroleintechnologytransfer.l Allowingmuchmoredirect interactionbetweenfarmerorganizationsandtheprivatesectorwithoutnecessarilyhaving itmediated throughapublic in-stitution. l focusing on upgrading the skills of public em-ployees so that they can increasingly play the roleofspecialistratherthanbeinginvolvedsoheavilyinmuch more frontline extension delivery, which can besharedwiththefarmersandtheirorganizations.‘Some obstacles remain in the government publicinstitutions– they arewell entrenched, they are inapositionofpower,andtheysee themselves losingout in this process a little bit. Not only is it the fear ofloss,butthefearofchangeaswell,andthereforethis whole process of education about their new role is crucial.

‘The role of a newCoordinatingCommittees con-stitutedistoprovidepolicyguidance,tocoordinate,topromoteconceptsthatarebeingputintothepro-jects,andtoeducate.Themembershipofthatcom-

mittee will include both public as well as private parties andNGOs…Working alongside themwillbeaTechnologyDisseminationUnit,whichwillnotonlycoordinateimplementationofprojectactivities,butalsotakeanimportantroleinpromotingprojectconcernsandeducatingallthestakeholders.

‘Amongtheinnovativeideasofhowtobringaboutthischangeistocreate,atthedistrict level,abodythatwilltakeresponsibilityfortheoverallplanningandmanagement of extension programs.The gov-erning board of a district’s programwill include across section of persons from public institutions, re-search,extension,NGOs,andfarmerorganizations.Thisbodywouldberegisteredasanon-profitmakingsociety so that the rules of bureaucracy would not apply as strictly.

‘Inordertoovercometheissueofbudgetgettinglostat the state level, the funds will be allocated directly tothatsocietywithoutgoingthroughthestatebudg-et. But the fact remains that the society will still be dependent upon public funds.Ultimately the goalis,thatifthesocietyisdoingagoodjobofdevelop-ingtheworkprogramandrespondingtotheneedsof farmers, itmaywellbe inapositiontogeneratesome revenues through the services it is providing.But perhaps more important, is that it will be freer to develop partnerships with the private sector. And some cost sharing elements may begin to emergethroughthatprocess.

‘It is anew experiment, therefore it needs to showthat it works and is able to effectively deliver onfarmers’needs.Oncethecredibilityoftheapproachand the system are established, then it will become easiertobegintogeneraterevenuethroughservicesprovidedaswellasthroughdevelopingpartnershipswith other agencies. But public fundingwill obvi-ously continue to play a very important role even in thelong-term.foraverylongtimetocomeintheIndiancontext,amajorityofthebudgetwillneedtocomefromgovernmentinstitutions’.


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Part ii: tHe caSe of Sericulture Sector in indiaSericulture: an `appropriate’ technology for poverty alleviation

Sericulture has the potential to play a dominant role in uplifting the economic conditions of the ruralpoor.Asanagro-basedindustry,sericulturefitsverywellinIndia’sruralstructure,whereagriculturecon-tinues to be the main occupation and where farmers are constrained by increasing fragmentation of thelandholding.Thisisbecauseofthefollowinguniquefeaturesassociatedwithsericulturetechnology[Patel,1992, Panda, 1993]: (a) Labour intensive, capable of developing into a subsidiary family-levelenterprise forbigaswell smalllandholders(thelatterbeingimportantfor subsistencefarmers);(b)Low investment and quick returns (30-35 day cycleinsilkwormrearing);(c) A huge domestic and international market for rawsilk.(d)The technology is not new to most regions in India, with silk weaving traditions dating back to ancient times and spread over many states; Most Indian states have an established infrastructure and extension support services for promotion of the sector.(e) Mulberry plant, central to cocoon production technologycangrowinalmostalltypesoflands andeveninrainfedconditions;

Recognizingthesignificanceofsericulture,thecen-tralandstategovernmentsinIndiahastakenaseriesofdevelopmentalmeasurestodiffusethetechnologyfarandwideinIndiathroughsuccessivePlanperiodsandalsothroughspecificdonor-fundedprojects.

What is Sericulture?

The term ‘sericulture’ includes the following eco-nomicactivities:(i)raisingfoodplants(intheformof mulberry plantation1) on farms for feeding thesilk-worms;(ii)productionofdisease-freesilkworm

1 Indiahasthedistinctionofbeingtheonlycountryintheworldwhichproducesallfourtypesofsilk,namely,mulberry,tasar,mugaanderi types.However, themulberry silk, thecommonlyknownsilk,dominatesthesilkindustryinIndiaaswellasinternationally.Therelativecontributioninnationalrawsilkproductionfrommul-berry,eri,tasar,andmugatypesofsilk,respectively,are92%,5%,2%,andlessthan1%(outoftotal15236MTin1998).forthepurposeof thispaper, the terms silk and sericulture referonly tomulberrytypesilk.

layings(dfls),eggs,orseeds–aspecializedcommer-cialactivityundertakenbycentralandstategovern-ment agencies and (only in four states) by privatelicensedseedproducers; (iii) indoorrearingof silk-wormstillthestagetheyproducesilkcocoons(about30dayegg-to-cocooncycle),and(iv)saleofsilkco-coonsproduced.Silk industry,however, consistsof(a)sericulture,(b)post-cocoontechnology–reeling,spinningandtwistingofsilkyarnfromthecocoons;and(c)weaving,printinganddyeingofsilkcloth.

Table1presentsthedetailsofthecommerciallyex-ploited sericigenous insects of the world and theirfood plants:

table 1: Commercially Exploited Sericigenous In-sectsoftheWorld

Common Name

Scientific Name Origin

MulberrySilkworm Bombyx mori China

OakTasarSilkworm Antheraea yamamai Japan

OakTasarSilkworm Antheraea pernyi China

OakTasarSilkworm Antheraea compta India

OakTasarSilkworm Antheraea frithi India

OakTasarSilkworm Antheraea proylei India

TropicalTasarSilkworm Antheraea mylitta India

MugaSilkworm Antheraea assama India

EriSilkworm Philosamia ricini India

Source: CentralSilkBoard,India (http://www.csb.gov.in/silk-sericulture/silk/)

Inthesectionsbelow,abriefanalysisofthestrengths,weaknesses, opportunities and threats (SWOT) thatcharacterize the Indian silk industry has been car-riedout.Thechiefcharacteristicsoftheorganizationand functions of the various infrastructural facilities ofthecentralandstategovernmentagenciesprovid-ingextensionservicesforthesericultureindustryarethenbrieflyhighlighted.Itthencriticallyexaminesastohowthis infrastructureandservicesaregeared tomitigate theweaknesses and threats and exploit thestrengths and the opportunities of the sector.Basedon this the frameworkof extension services reformsoutlined in Part I of the paper is applied to formulate recommendationsonthereorganizationofthisinfra-structureforitsbettercost-efficiencyandeffectiveness.

The importance of sericulture for India can also be ascertainedfromthe followingTable(Table2) that


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lists out the top 10 cocoons (reelable) producers in theworld(2005figures)–IndiafiguresatNumber2inthisTable.

table 2:TopTen Cocoons (Reelable) Producers -2005

Country Production (Int $1000)*

Production (1000KG)**

People’sRepublicofChina 978,013 290,003

India 259,679 77,000

Uzbekistan 57,332 17,000

Brazil 37,097 11,000

Iran 20,235 6,088

Thailand 16,862 5,000

Vietnam 10,117 3,000DemocraticPeople’sRepublicofKorea 5,059 1,500

Romania 3,372 1000

Japan 2,023 600

*OfficialfAOfigures,productioninINT$1000hasbeencalculated based on 1999-2000 international prices**Calculatedfigures

Source:http://en.wikipedia.org/wiki/Silk

AperusalofTable3thattherawsilkproductionfig-uresfromIndiawithdatafromtheyear1980-81to2010-11,itisclearthattheproductionofrawsilkinIndiahasbeenrisingsteadily.

table 3: RawSilkProduction (MT) in India from1980-81to2010-11

year Mulberry Tasar Eri Muga Total

1980-81 4593 265 135 48 5041

1981-82 4801 257 147 44 5249

1982-83 5214 284 213 37 5748

1983-84 5681 418 270 54 6423

1984-85 6895 444 279 55 7673

1985-86 7029 464 352 52 7897

1986-87 7905 548 392 55 8900

1987-88 8455 463 522 58 9498

1988-89 9683 358 565 45 10651

1989-90 10805 465 589 57 11916

1990-91 11486 380 624 70 12560

1991-92 10658 329 704 72 11763

1992-93 13000 382 726 60 14166

1993-94 12550 299 766 76 13691

1994-95 13450 257 798 74 14579

1995-96 12884 194 745 86 13909

1996-97 12954 235 864 73 14126

1997-98 14048 312 814 62 15236

1998-99 14260 242 970 72 15544

1999-00 13944 211 974 85 15214

2000-01 14432 237 1089 99 15857

2001-02 15842 249 1160 100 17351

2002-03 14617 284 1316 102 16319

2003-04 13970 315 1352 105 15742

2004-05 14620 322 1448 110 16500

2005-06 15445 308 1442 110 17305

2006-07 16525 350 1485 115 18475

2007-08 16245 424 1530 117 18320

2008-09 15610 603 2038 119 18370

2009-10 16322 803 2460 105 19690

2010-11(P) 16957 1166 2760 122 21005

Sources: AnnualReportsofCentralSilkBoard, Indiaforthefinancialyears1980-81to2010-11

However,asper2009figures(Table4),India’scon-tribution to world raw silk production was only15.5% as compared toChina’s 81.89% (Varmudy,2011).ItisalsoclearfromthefollowingTablethatMulberry silk forms the overwhelming bulk of allrawsilkproduction throughout theworld. It is forthisveryreasonthatinthispapertheanalysisofsilkandsericulturerefersonlytomulberrysilk.

table 4: WorldRawSilkProduction(MT)2009

CountryMulberry

Raw Silk

Per C ent

inTotal

Total Raw Silk

Per Cent Share of Country

China 84,000 80.77 104,000 81.89India 16,322 82.89 19,690 15.50Brazil 811 100 811 0.65Uzbekistan 750 100 750 0.59Thailand 665 100 665 0.53Vietnam 550 100 550 0.44Korea Republic 135 100 135 0.10

Japan 90 100 90 0.07Others 304 100 304 0.23Total 103,637 81.60 126,995 100

Source:http://www.ffymag.com/admin/issuepdf/ 17-22_silk_dec11.pdf


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SWOT analysis of indian Silk industry

Strengths of the Indian silk Industry: (a) A largeandexpandingdomesticproductionbasespreadoveralmost all the states exists in India. India’sproduc-tionofrawsilkhasgrownfrom11,486MTin1991,about15,000MTin2000-2001,andabout21000MTin2010-2011Table3)–currentlybeingnum-ber two in the world, next only to China. (b) In spite ofstiffcompetitionfrommainlyChinainthehighvolume, low priced every day wear, readymade mar-kets,Indiahastheabilitytoofferthehighvalue,lowvolumeitemsofcraftvalueandhavingagreatvarietythat havemarkets inUS,WestEurope and almostallothercontinents.(c)About85%ofnationalrawsilk production is consumed by the domestic sari market – offering a steady and assured demand todomesticsericultureandactingasabuffertointer-nationalfluctuationsinsilkindustry.

Weaknesses of the Indian silk industry:majorweak-nesseslieinthesub-optimalityandskewedproduc-tivitiesinvariousregions,andapartialdependenceonimportofthesuperiorbivoltinesilkyarnusedaswarpinthesilkweavingindustryandexportofsilkclothandmadeups.Inthisrespectthefollowingisnoteworthy: (a) Skewedness in contribution by differ-ent practicing states: Whereas mulberry sericultureis practiced in 21 states in India, Karnataka alonecontributednearly46.4%in2009-09and45.1%in2009-10 (Table5).Thefive traditional states (Kar-nataka,AP,TN,WB,andJ&K)togethercontribute96.4%(in2008-09)96.7%(in2009-10)tothetotalnationalrawsilkproduction.Themulberryrawsilkproductioninthecountryis largelymulti-bivoltinecross-breed type in contrast to the superior, bivoltine rawsilk,whichistradedininternationalmarkets.(b) Skewedness in contribution by different practicing districts in each State:Thepictureof skewedness inthe proportion of contribution by states is also re-peatedindifferentsub-regionswithineachstate.Sta-tistics(notgivenhere)showsthatwhereassericultureispracticedin20to40districtsineachstate,70-90%contributioncomesfrom3to8districtsonly.(c) Skewedness in Farm Productivity: The cocoon pro-ductivity per unit area of mulberry plantation varies verywidelyamongstates–from10kg/hainNaga-landto651kg/hainAP(atthegrossstatelevel).ThethreeleadingstatesinhighproductivityareAndhraPradesh(651kg/ha),WestBengal(646kg/ha),andTamilNadu(601kg/ha).Whatisdistressingisthat

as many as 12 states have unit area productivity fall-ingbelow100kg/ha.Thesefieldachievements may be contrasted with the Chinese achievement of 2000-2200kg/ha.(d) Weaknesses in the non-farm areas: Half of the co-coon reeling sector (which produces silk yarn) ca-pacity in India is still dominated by the traditional charkha devices, which are characterized by lowerqualityandproductivityinrawsilk.Atthenationallevel thereappears tobeanacute shortageofwarpqualityrawsilk(whichispartlymetfromimports)obtainable from the improved cottage basin ma-chines(constitutingonly40%ofthenationalreelingcapacityatpresent)andmulti-endreelingmachines(10%).Indiaislosingpreciousforeignexchangebyimportingrawsilk,yarnandfabrics(ref:Table6be-low)tocopeupwiththisweakness.

table 5:State-WiseMulberryRawSilkProductioninIndia(MT)

2008-09 2010-11

A(TraditionalStates)

Karnataka 7238 7360

Andhra Pradesh (AP) 4492 5119

TamilNadu(TN) 1411 1233

WestBengal(WB) 1809 1865

JammuandKashmir(J&K) 102 110

Sub-Total(A) 15052 15687

B(Non-TraditionalStates)

Assam 15 16

Arunachal Pradesh 4 3

Bihar 9 16

Chhattisgarh 5 9.7

Himachal Pradesh 22 20

Jharkhand 1 3

Kerala 20 22

Madhya Pradesh 96 95

Maharashtra 200 218

Manipur 96 101.5

Mizoram 9 16.5

Meghalaya 2 5.2

Nagaland 2 3.4

Orissa 4 8.8

Punjab 4 5.3


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Rajasthan 1 1.55

Sikkim 1 3

Tripura 8 12.5

Uttarakhand 17 14

Uttar Pradesh 42 60.45

Sub-Total(B) 558 635

GrandTotal(A+B) 15,610 16,322

Source: http://www.ffymag.com/admin/issuepdf/ 17-22_silk_dec11.pdf

table 6:India’sImportofRawSilk,yarnandfabrics(in Million $)

Items April-March 2010-11

April-March 2011-12

RawSilk 203.60 232.05

NaturalSilkyarn 46.29 28.09

SilkfabricsandMade-Ups 134.03 79.93

Total 383.92 340.07

Source: CentralSilkBoard,India(http://www.csb.gov.in/statistics/silk-exports-and-imports/total-import/)

Opportunities: A supply-short environment of raw silk,increasingdemandworld-wide,andarelativelydeveloped domestic industry offer great opportu-nities for growth and expansion of this agro-basedindustry, and therefore for poverty alleviation in po-tential areas. This is evidenced from the followingtrends:(a)Theworld’stotalrawsilkproductionhaddeclinedfrom95,980MTin1993to86,812MTin1996,andincreasedoverthelastdecadeto126,995MTin2009.Thereexistsanaggregatedshortfallinrawsilksupplyagainstdemandatinternationallevel.Inthedomesticmarket,thedemandexceedsproduc-tion met by imports from China. (b) The demand forsilkgoodshasbeenincreasingsteadilyaroundtheworlddependingon the regionof theglobe.Apartfromthefashionableitemsofhighervalue,therehasbeenagreatspurtintheproductionanddemandofsilkgarmentsofeverydayuse,sportswear,hometex-tiles,knit-wears,etc.,allaroundtheworld. (c)TheproductionofrawsilkinChinahasbeenquitestag-nant over the years. (d) India’s export of silk goodscontributes significantly to the country’s coffers asperTable7shownbelow.However,thelatesttrendshowsthattherehasbeenaslightdeclineinIndia’sexportearningsintheyear2011-12ascomparedto

the previous year.

table 7: TotalExportEarningsofSilkItems(inMil-lion $)

Item-WiseExport April-March 2010-11

April-March 2011-12

NaturalSilkyarn 8.65 3.76

fabrics,Made-Ups 457.38 194.28

ReadymadeGarments 149.98 264.42

SilkCarpet 4.63 4.01

SilkWaste 7.93 10.39

Total 628.57 476.86

Source:CentralSilkBoard,India (http://www.csb.gov.in/statistics/silk-exports-and-imports/

total-export-earnings/)

Threats to the sericulture/silk industry are posed from (a) the post-WTO, liberalized trade regimeswhereby cheap raw silk may be dumped in Indiafromcountries likeChina,Brazil,Korea, renderingsericulture unattractive for the farmers; (b) the in-creasingfiscaldeficitsbeingfacedbythecentralandstate government promotional agencies threateningthe fiscal sustainability their support infrastructure andprogrammesandservices.

Public infrastructure for research and extension in Sericulture

SericultureformspartoftheConcurrentListoftheIndian Constitution. Public infrastructure for pro-motion of sericulture in India, therefore, exists at twolevels:acentralagency,namely,theCentralSilkBoard (CSB),currently functioningunder thecen-tralMinistryofTextiles;andthestatelevelDirecto-rates of Sericulture2.

TheCentralSilkBoardInfrastructure

TheCentralSilkBoardwasestablishedbyanActofParliamentin1948totakecontrolofthethenfledg-lingsilkindustry.However,withincreasingPlanal-locations,andparticularlyafteraWorldBankaidedproject (1989-96), its infrastructurehasundergoneamassiveexpansion.Currently,ithasthefollowing2 In states where sericulture production levels are low, the promo-tional functions have been put under the Ministries/Departments ofTextiles,SmallScaleIndustries,Handlooms,etc.(likeinGujarat,Punjab,HimachalPradesh,etc.)


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units under its direct fold:

I. RESEARCH,REGIONALRESEARCH&RE-SEARCHEXTENSION

On-farm(pre-cocoon)Technologiesn ResearchInstitutes(6):MulberrySilk–3,Tasar–1, Muga-1,Eri–1.n RegionalResearch Stations (21):Mulberry Silk– 12,Tasar–8,Muga&Eri–1.n ResearchExtensionCentres(62):MulberrySilk– 46,Tasar–10,Muga&Eri–6.n SericultureTrainingSchools(13)n ExtensionCentres(46)

Off-farm(post-cocoon)Technologiesn ResearchInstitute(1)n Demonstration/Training/Service Centres (21) (MulberrySilk–12,Tasar–9,Muga&Eri–1)

II. MASS PRODUCTION Of SILK-WORM EGGS(SEEDS)n Basic (parental) Seed Production farms (57) – MulberrySilk-worm(26),TasarSilk-worm(23), Muga&EriSilk-worm(8)n Commercial Seed ProductionCentres (27) –M MulberrySilk-wormSeeds(24),Tasar(nil),Muga &Eri(3)

III.INDUSTRIALSERVICES

n SilkConditioning&TestingHouses(5)n Eco-TestingLaboratories(4)n (Export) Certification Centres (2)n CommonfacilityCentre(1)

TheStateGovernmentInfrastructure

Karnataka and Andhra Pradesh are the only stateshavingtheirownR&DInstitutesforsericulture.Themain infrastructure common under each of the state governments(exceptafew)includes:n CommercialSilkwormSeedProductionCentres;n Extension Centres for transfer of new technologies,input(eggs,disinfectants)supplies;n ReelingTrainingandfarmerTrainingSchoolsn MarketInfrastructureforgovernmentmonitored saleofcocoonandrawsilk.

organization of infrastructure and Services versus Sector characteristics

AsshowninTable5,ThesericulturedevelopmentinIndiahasbeenhighlyskewed.Whereasfivestates –Karnataka, Tamil Nadu, West Bengal, AndhraPradesh, and Jammu and Kashmir (called the tradi-tionalstates,orTS)–contributeoverwhelminglytothenational raw silkproduction, another19 states(calledthenon-traditionalstates,orNTS)togethercontribute only a fraction of the total production.

IncreasingPlanallocationsandtheemphasislaidonthesector,andparticularlyduringtheimplementa-tionofaWorldBank(andSwedishDevpt.Corpn.)aidedproject(1989–1996),theextensioninfrastruc-tureoftheCentralSilkBoardandthestategovern-ment directorates expanded rapidly. The infrastruc-ture added included, extension centers, centers for massproductionofparental and commercial gradesilkwormseeds,technologydemonstrationandtrain-ingcenters.ThisalsostrengthenedtheCSBresearchinstitutes and the regional research stations locatedindifferentagro-ecologicalregionsofthecountry.Itis noteworthy that the extension infrastructure un-derCentralSilkBoardwasaddedinparalleltothatalready existing or added infrastructure under thestategovts.Thespatialdistributionoftheinfrastruc-tureincludedalltheTSandtheNTS.Thepremisewas that after an initial and decisive fillip is givenfor growth and expansion of sericulture, the CSBinfrastructurewouldbetakenoverbythestategov-ernments. However, none of the states have actually takenovertheCSBextensioninfrastructure(barringthat theTShave takenover someof the extensioncenters), as the concerned directorates/departments in the states did not have an assured fund allocation for the maintenance of the same.

The above developments have placed the CSB and the state government directorates in a mix of ad-vantageousanddisadvantageoussituationsfromthepointofviewofthegrowthofsericultureandthefi-nancial sustainability of the extension infrastructure. Thesehavebeensummarizedbelow:

(a) CSB well placed for technology generation/transfer and advisory role for states: CSB is well equipped for formulation of unified national strategies / policiesandPlans,providingconsultancyforstate-levelstrat-egy formulation, providing coordination requiredfor implementation of various state-, national-, and


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international - levelprogrammes; It alsohas an ad-equate research infrastructure and has developed a goodstockoftechnologypackages(andcapacityfortransferringthemtothestates)forhigherproductivi-ty and quality in the pre- and post-cocoon areas for all regionsandseasons.Thesecapabilitiesareaugerwelltoexploitthestrengthsandopportunitiespresentedbytheinternationalandnationalsilkindustries.

(b) Rapid Area expansion but poor linkages: Conse-quenttotheWorldBankproject,CSB,throughitsowneffortsandextensioninfrastructure,rapidlyex-panded mulberry area plantation in the country (by 25,000 ha). However, after an initial expansion, there wasasubstantialuprootingofmulberryplantations,particularlyinalloftheNTstates.Thiswasmainlydue to the facts that:(i)ThecapacityofthestategovernmentstocarryontheextensionworkafterthewithdrawaloftheCSBwas not developed.(ii) The up-market post-cocoon industrial sector,like reeling, weaving, which place demand on theproducts of sericulture and therefore encourage itsgrowth,washighlyunderdevelopment,ifnotabsent,inthenewareas;(iii)ThenewreelingmachinesdevelopedbyCSBandsoughttobediffusedamongenterpreneurs(throughthetechnologydemonstrationandtrainingcenters)forprovidingup-marketdemandforsericulture,re-quired high investments and year round supply ofraw material to be viable.(iv) The newer sericulture areas in the non-tradition-al states were mostly rain-fed areas with the farmers mostlypracticingsubsistenceagriculture,andthere-forenot inapositionto invest inthebuildingandequipment prescribed under the technology pack-age.The regional research stations located in theseregions also failed todevelopappropriate silkwormrearing equipment which would suit the peculiarcharacteristics of the local enterpreneurs. This has re-sulted in comparatively low productivities, seriously hamperedgrowthof sericulture and theup-marketreelingsector,andcontributedtothehighlyskeweddevelopment of sericulture in the country as a whole (Mathur, 1995).

(c) Poor Financial Viability of Commercial Silkworm Seed Production Centers: The commercial silkwormseedproductioncenters(24inno.)wereestablishedtogiveaninitialfilliptothesericulturesectorbypro-ducingqualitydiseasefreeeggsofthedevelopedsupe-

riorracesofsilkworm,whichformimportantinputsto sericulture. These centers were mandated to were required to maintain strict financial discipline by re-covering its costs (including establishment, operat-ing,anddepreciationofplantandbuilding)throughthe price mechanism. However, each of these centers hassofarbeenrunninginanetlossduetotypicallyhighestablishment expenditures andpoorfinancialdiscipline associated with public infrastructure.

(d) Duplication of activities between CSB and state di-rectorates: fromacomparativegeographicalmappingofsupportinfrastructurespreadoverdifferentstatesandrunningunderCSBandthestateleveldirecto-rates, and from the comments received from the state govt.directoratesofsericultureontheutilityofCSBinfrastructure located in their respective states (par-ticularly in traditional states), it was found that there existsheavyduplicationofextensionactivities–in-cludingproductionandsaleofcommercialsilkwormseeds,technologydiffusion,trainingoffarmersandreelers, etc.

(e) Undue Centralised Bureaucracy and Control within CSB:TheCSB’s Institutions, regional stations, andcenters (numbering about 400 in total and spreadthroughoutthecountry)presentlyoperateinanen-vironment of undue control and very limited free-dom.forexample,foreveryitemofpurchaseorex-penditurebeyondRs.2,000(till1999)anInstituteoritssub-unithastoseekscrutinyandsanctionofCSBHQ. Similarly, all new aswell as ongoing researchprojects being carried out in all the Institutes andstations of CSB are reviewed quarterly by the Head-quartersinspiteoftherespectiveResearchAdvisorybodies. The pre-cocoon research and extension, the post-cocoon research and extension, and the silk-worm seed production organisations of CSB alsofunctioninverticallycompartmentalizedcontrols–resultinginlackofintegrateddevelopmentofvariouscomponentsof the sericulture sectorofanyregion.This invariably results in bureaucratic delays, lackof flexibility required to meet the local conditions, and poor coordination with the state directorates and otherlocalauthoritiesandR&Dlaboratories.

(f ) Poor Sustainability and Development of Partnerships: Seriouseffortsfordevelopmentofpartnershipsintheprovision of extension services, and privatization ofmassproductionofsilkwormseeds,havenotbeenun-dertakenbyeither theCSBor the statedirectorates.In most of the states (except in some of the traditional


28

states like Karnataka, TN, and AP), even nurseriesforthemulberryplantsandtheyoung-agesilkworms(chawki farms)areownedandrunbythestategovt.di-rectorates.Thishasresultedinever-increasingdemandsonbudgets,veryhighproportionofestablishmentex-penditures(asmuchas70-80%),andseriousconcernson sustainability of the support infrastructure.

recommendations on reform of extension infrastructure and Services

Theframeworkandprinciplesthatunderpinthere-formprocessesofextensionservices,broughtoutinPart I of the paper are utilized below to formulaterecommendationsthatarelikelytoremedythesetoflacunaeinskeweddevelopmentofsericultureinthecountry,aswellasintheorganizationoftheexten-sion infrastructure and services under the CSB and thestategovernmentdirectorates.

(a) Improving Extension Management: There is need forbetterfeedbackfromthefieldtotheresearchsys-tem in case of dry-land regions inhabited by poorfarmers, so that proper efforts aremade for devel-opmentofmoresuitabletechnologypackages.Thiswould lead tobetterproductivities,widerdiffusionof sericulture, and help development of up-marketreelingsector.Alsosuitablereelingmachinesneedtobe developed which require lower investments and adoptablebypoorerenterpreneursintheseregions.

(b) Decentralisation: The CSB needs to devolve ad-ministrative and financial authority to its regionalcenters and research Institutes. It must allow the regional offices to develop partnerships with state-level governments departments, district and villagebodies,NGOs,farmerorganisations,enterpreneurs,etctodrawupintegratedplansfordevelopmentofforward and backward linkages. Itmust also bringabout a better role clarity in its functions, namely, (i) Itmustconfine itself to technologygenerationandtransfertostatelevelfunctionaries,NGOs,andpri-vate enterpreneurs, and divest the infrastructure and extension activities meant for end-beneficiaries. It must also have better coordination and role division with the state sericulture directorates, which are in a better position to understand the local conditions and coordination with the local actors.

(c) Privatization:Asubstantialproportion(50-60%)ofsilkwormseedproductionisbeingcarriedoutbylicensed producers in the traditional states. These

producers also extend credit and quality control fa-cilities to the sericulturists. However, the balance de-mandismetbycommercialsilkwormseedproduc-tion centers under the CSB and the state directorates. These are inherently unviable financially due to bu-reaucraticcontrolsandhighestablishmentcosts.Theproduction activity (if not the entire infrastructure) must be transferred to private enterpreneurs under suitable incentive schemesandcontractualarrange-ments, so as to maintain quality and production lev-els, etc. Suitable partnerships can also be developed withthemforrenderingextensionservices,etc.

(d) Plural Service Provision and Beneficiary participa-tion: So far thementioned central and state agen-cies have more or less a monopoly in the provision of extensionservices.EffortsmustbemadetodevelopalternativeserviceprovidersfromtheNGO,privateand cooperative sectors. Sericulture cooperative so-cietiesmustbeencouragedandtrainedforcommer-cial operation of nurseries, providing extension totheirmembers (perhapswithpartfinancingby thegovt.).Synergisticpartnershipsmustbeforgedwiththeregionalruralbanks(andmicro-financeinstitu-tions),whoarespearheadingthecurrentmovementin formation of credit related self-help groups, forprovision of credit and insurance facilities to sericul-ture cooperative societies. The private commercial silkworm seed and disinfectant manufacturers andNGOs may be provided incentives and partial fi-nancingforprovidingvariousextensionservices.

(e) (Harnessing information technologies: The CSB and stategovernmentsmusttakeadvantageoftherecentspread of telecenters movement in India to develop alternative modes of extension delivery.Telecenterscovering information services for sericulture and/orreeling/weavingsectorsmaybegiven initial supportin the form of capital, information content etc. In-ternetlinkstodedicatedwebsitesofthegovernmentandmanufacturers associations canhelp get instantinformationonmarketpricesofcocoons/rawsilkinurbancenters,technologypackages,supplyofinputs,traders, etc. These possibilities, however have to be explored in conjunction with recommendations onprivatization,developingpluralserviceprovision,etc.

conclusions

Utilizing thepublished literature, effortshavebeenmade to synthesize in one place various develop-


29

ments in extension reforms in various parts of the developingworldandasrecommendedbytheInter-nationaldonoragencieslike,theWorldbank,fAO,GTZ,etc.Thishasresultedinasetofunderpinningprinciplesthatmustguidethereformprocessforex-tensionservicesinanyagro-sector.Attempthasbeenmade to apply this framework to sericulture sectorin India, taking into account an earlier availableSWOTanalysis for this sector. It ishoped that theset of recommendations formulated for sericulture, alongwiththereformprinciplesenunciated,wouldbeusefulforapplicationstootheragro-basedsectorswhicharefacingmoreorlesssimilarproblems.

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2013 Volume 3(2): 31–40htpp://dx.doi.org/10.9770/jssi.2013.3.2(3)






tHe relationSHiP betWeen GoVernMent eXPenditure and Public Safety in litHuania

Mantautas račkauskas1, Vytautas liesionis1,2

1 Vytautas Magnus University, S. Daukanto Str. 28, LT-44246 Kaunas, Lithuania2 The General Jonas Žemaitis Military Academy of Lithuania, Šilo Str.5A, LT-10322 Vilnius, Lithuania

E-mails: [email protected], [email protected]

Received 10 August 2013; accepted 10 October 2013

abstract.Thisarticleaimstofindhowgovernmentexpenditureforthesectorsofdefense,publicorderandsafetyinfluencetheeconomicsituationandnationalsecurityinLithuania.Theproblemhowgovernmentexpenditureforpublicsafetyrelatestostatisticsofnationalsecurityandeconomicsituationinthecountryisanalyzedinthearticle.Thefundamentalaspectsofthestructureofpublicexpenditureandrelationshipbetweenmajordefense,publicorderandeconomicindicatorsareanalyzedinthearticle.Analysisismadeusingself-madefiguresandcountedcoefficientsthatshowthestrengthoftherelationoftheanalyzedfactors.Resultingconclusionsgiveananswerhowgovernmentexpenditureaffectseconomicsituationandsafetyofthecountry.

Keywords: governmentexpenditure,publicsafety,productiveexpenditure,crime

reference to this paper should be made as follows: Račkauskas,M.; Liesionis,V. 2013.The relationshipbetweengovernmentexpenditureandpublicsafetyinLithuania,Journal of Security and Sustainability Issues 3(2): 31–40.htpp://dx.doi.org/10.9770/jssi.2013.3.2(3)

jel classifications:H56,H76,f52.

1. introduction

Governmentexpenditurehasalwaysbeenachallengeforthegovernmentandcountryleaders.Inordertohaveabalancedbudgedeverycountryeachyearhasdiscussions about how to collect revenue, which taxes mustberaisedandwhatchangesandreformshastobe done. Other discussions, no less than previous are about the expenditure of the government anddependingonacountrysizeitcanalsobedifferentextent,becausedifferentsizeofacountryinfluencedifferentquantityofexpenditure(Senjur1996).Thedecisionstakeninfluencewhichsectorswillgetmorefinancing,butsometimesthesedecisionsarenottak-encorrectlyand fairly, somorefinancingmightbeassignedforsectorsthatneedlessofit.

Public order and safety is one of the sectors that are financed mainly by the government, so only deci-

sionsfromthegovernmentinfluencetheamountofit.Differentgovernmentsafterelectionsmaychangetheirattitudeforthissectordependingontheopin-ion for the safety of the country, and this can be ap-pliedforallothersectors.Whenwespeakaboutpub-lic safety it covers not only safety in the streets, but alsosafetyinaregionasacountry.AndthisisveryimportantinLithuania,becauseourcountryisattheEastern border of the European Union, so it is must tohavesafeguardattheboard.

The problemanalyzedinthisarticleishowgovern-ment expenditure for public safety relates to statistics of national security and economic situation in the country,andifthistypeofgovernmentexpenditureis really productive: the analysis of statistical data will helptocheckifgovernmentexpenditureisproduc-tive or not. In order to solve the problem - crime, economicandotherstatisticaldataisanalyzed.The

M a n t a u t a s R a č k a u s k a s , V y t a u t a s L i e s i o n i sThe relationship between government expenditure and public safety in lithuania

32

aim of this article is to find how government ex-penditure for the sectors of defense, public order and safety influence the economic situation and national securityinLithuania.Therearefewobjectives of this article:1)Torevealthefundamentalaspectsofthestructureofpublicexpenditure;2)Tomakeanalysisofthelateststatisticsoffundingondefenseandpublicordersectors;3)Tofindrelationshipbetweenmajordefense,pub-licorderandeconomicindicators;4)Tofindouthowexpenditureforpublicsafetyaf-fectscountry’seconomicsituation.

The methods that will be used in this article are these: systematic socio-economical literature review, analy-sis of statistical data, generalization methods, com-parative, structural and logical analysis. Correlation analysis will be used to find the relationship between government expenditure and public safety and othereconomic indicators.Analysisandthe strengthof theobtained results that will be made in this article will helptoreachtheaimsandmakefinalconclusions.

2. Structure of Government expenditure

AccordingtoSpanisheconomistJ.ferreiro(2009),governmentexpenditureatfirst shouldbeanalyzedbased on functional expenditure. It is convenient, because expenditure is divided into sectors. It is also recommended to use the same expenditure classifi-cation that is accepted by the European Union. It allows comparing different countries between eachother. There are the sectors in functional classifi-cation: social protection, housing and communityamenities, education, economic affairs, defense,health, public order and safety, environmental pro-tection, general public services, recreation, cultureandreligion.Expenditureforrecreation,cultureandreligioninsomeliteraturemightbefoundtogether,andinsome-separatedintodifferentsub-sectors.InLithuaniawe canfindanother two sub-sectors: ex-penditureforthedebtmanagementandexpenditureforthebudgetofEU.Accordingtofunctionalclas-sificationthesesub-sectorscouldbeputtogetherintosectorofgeneralpublicserviceswithoutdistinguish-ingthemfromwidelyacceptedclassification.

There are different opinions about how to dividegovernmentexpenditure.Ravallion(2002)isdivid-ingtheseexpenditureintosocialandnon-social,butfrom this point of view, some of social expenditure

might be productive, and other not productive atall,soitisbettertodividegovernmentexpenditureaccording to its productivity. A.U.I. Clement andE.O.Dickson (2010) are dividing government ex-penditure into recurrent and expenditure for capital creation.Recurrentexpenditurearenotaccumulatedand are used for consumption, so such sectors are financedeverytimefrombeginning,whileexpendi-ture for capital creation has lasting value, are de-signed for investmentandhave long-termaccruals.T.StratmanandG.Okolski(2010)haveanopinionthatgovernmentexpenditureincreasestheconsump-tion of private sector, and money that are collected tothebudgetareallocatedunproductively.Thereisalsodifferentopinionthatseemstobethefairest-todividegovernmentexpenditureintoproductiveandunproductive expenditure. There were a number of researches made, which divided mentioned sectors of expenditureintothesegroups.AsGray(2007)wrote,propermanagementofproductiveandunproductiveexpenditure(notbalancingthem!)mighthaveposi-tiveimpactforeconomicgrowthofthecountry.Ir-men and Kuehnel (2008) states that unproductiveexpenditurehasinstantaffectandhasinfluenceonlyin the short-term, while the productive expenditure are effective in long term andhave a lasting value.ThisclassificationwasalsoanalyzedinresearchesofLiubimovaandŽigienė(2010),ferreiro(2009).Asproductive expenditure we can assign expenditurefor education, defense, economic affairs, housingand community amenities, health, environmental protection and public order and safety. Expenditure for education enhances improvement, so educational servicesathigherqualityaregivenforthosewhowillcreateGrossDomesticProduct(GDP)ofthecoun-try: schoolchildren, students, teachers, academics and their higher competences. Expenditure for de-fense, public order and safety are productive expend-iture, because it influences activity of Lithuaniansoldiers, public order officers and their competitive. ItcanbesaidthathigherGDPwillbecreatedinacountry that is safe. Expenditure for environmental protectionpromotesusingvariousprojects that areintended to avoid harm for the nature, promotes us-ingalternativeenergyresources,pollutionreduction.New inventory andmethods help to create highereconomic value more effectively and cleaner. Ex-penditure for health is needed for researches and new medical equipment. This helps to find illnesses faster and apply correct type of treatment immediately.


33

Societythathasguaranteedhigh-qualityhealthcarecanworkwithoutfearanddevelophighercountry›swelfare. According to ferreiro (2009), expenditurefor the economy includes research and development, transport, communications and foreign relation-ships. Most scientific researches that promote econo-mies to invent a new, alternative, more efficient and environmentally-friendly inventions get quitemea-gerstatebudget.

Unproductive expenditure hampers economic develop-mentand inhibits itsgrowth.Largeunproductiveex-penditurerequireadditionalfinancing,whichisoftenobtainedthroughhighertaxes,andallmoneythataretakenfromtheprivatesectorisusedtospend,insteadofbeinginvestedandwouldgenerategreatereconomicreturns, higherGDP and interest rates in the future. Professor Holcombe (1998) claims that increase ingovernmentexpenditureby10%influencedecreaseofthe country’sGDP growth by 1%.Unproductive ex-penditure includes expenditure on recreation, culture and religion. Although these sectors are important,theyonlysatisfytheneeds,beliefsofcertaingroupsofpeople, and create a short-term, non-persistent value. Otherlargepartofexpenditurethatconsumesalotoffinancialresourcesfromcountry’sbudgetissocialpro-tection. Social benefits and allowances are classified as non-productive not only because they do not create economic value, but also because they motivate people not to create it. Paying unemployment benefits fromthebudgettheirneedsaresatisfied,anditdemotivatesand inhibits theirwillingness towork. Other unpro-ductive expenditure is contributions for European Un-ion,fundsforgovernmentdebtmanagement,andex-penditureforgeneralgovernmentservices.Thesecostsare necessary, but it inhibits economic growth.Hugegovernmentborrowingduringcrisisperiod leads to asignificant need for funds to debt repayment obliga-tions and the redemption of bonds. As a member of the EULithuaniacommitstopaytheircontributiontothecommonEUbudget.

Both, productive and unproductive expenditure is needed, but anyway - both of them are expenditure. Without active government management of pro-ductive and unproductive expenditure, economic growth would show up only in long term period(Irmen,Kuehnel2008).TheCOfOGclassificationthat isgiven isdivided intoproductiveandunpro-ductive sectors, and itmight be, that these sectorsdifferindifferentcountries,sothesameclassification

cannot be applied for all countries. In some cases COfOGclassificationmight beused, i.e. compar-ingexpenditureofdifferentcountriesbetweeneachother,butwhentalkingfromnationalaspect,someof productive expenditure might be unproductive,andviceversa.Thisarticleanalysesifgovernmentex-penditure for public safety and defense is really pro-ductive.Tofindoutthat,itisnotenoughtomakeaconclusionaccordingtounsubstantiatedstatements,but the analysis of statistical data must be done. It ispossiblethataccordingtostatistics,someofgov-ernmentexpendituresectorsnationallymightdifferfromCOfOGclassification.

3. Government expenditure for defense and public safety

Governmentexpenditurefordefenseandpublicsafe-typuttogethertakesasignificantpartinproductivegovernmentexpenditure,soitisinterestingtoseeifitis healthy for economy and conductive to reduction of crime.When being a part ofNATO,Lithuaniahas international soldiersandfighter jetsdislocatedat the north of the country which also requires ad-ditionalfinancing.Butbeingapartoforganizationhelps to reduce expenditure on safety, because some of the expenditure is common for all the members of organization.

Defense sector is very important for the country in ordertokeepitssovereigntyandtobereadyforthepossibleattacksfrominimicalneighbors.Whensay-ingthatwedisposeofEuropeanunioncountries,butwehaveinmindRussia,whichwouldlikedictatetoBalticcountriesitsownrulesforgasandoil.Thede-fensethatwehaveinLithuaniawouldnotbeabletostandaloneagainstthisgiant,butbeingapartofbigorganization gives opportunity to join forceswherethe most help is needed. Because of this fact we have foreignmissionsandoursoldiershelpothercountries,soitiseasiertoreachthesameaimsandobjectives.

Public safety sector is not as broad and international asdefensesector.Itworksnationallyanditisintend-edtokeeppublicorder inthecountry.Ifwethinkthat unemployment and poverty have direct impact onthegrowthofcrimes(ŠileikaandBekerytė2013),then it is a signofweakeconomic situation in thecountry. If economic situation is good, then un-employment level is lower, thefinancing forpublicsafety is higher and level of public order is higher.AsŠileikaandBekerytė(2013)wrote, for many peo-


34

ple,especiallyforimpoverishedones,goodsacquiredfromcrimecanoutweightherisks,soitcanbesug-gestedthatpovertyshouldincreasecrimerate.Butif

thegovernmentassignsenoughfinancingforpublicsafety,thisthreatcanbeminimizedandpublicordercanbekeptatthebestappropriatelevel.

Defense in total Public order and safety in total Defense +Order in total

2007 2008 2009 2010 2011 2012

1.20%

1.00%

0.80%

0.60%

0.40%

0.20%

0.00%

fig. 1. GovernmentexpenditurefordefenseandpublicorderintotalgovernmentexpenditureinLithuania

Source: DepartmentofstatisticsofLithuania.

Inorder to seewhichpartofgovernmentexpendi-ture is given for each of these sectors, statisticalanalysis shouldbemade.figure1 showshowgov-ernment expenditure for defense and public order changesduring the last six years according to totalgovernmentexpenditure.Aswecansee,governmentexpenditurefordefenseisdecreasing:duringlastsixyearitdecreasedby41%.Butgovernmentexpendi-ture for public order and safety increases, so total re-sultisthatgovernmentexpenditureforbothsectorsincommonisincreasing.fromthefigurebelow,wecan see that the level of these expenditure fluctuate dependingonthetotalexpenditure.fromstatisticswecanseethatlocal(micro)issuesgetmorefinanc-ingthanbroadissues(macro),wheremicroisPublic

orderandsafetyandmacro-defense.Let’ssaythatdefense is needed, but people barely feel its existence, while public safety and public order can be seen everyday.Ofcourse,beingapartofglobaldefenseorganizationhelps tominimizeexpenditure forde-fense,sothebiggerpartofmoneycanbeassignedforlocal problems. If there would be a demand for more expenditure for defense, it would be easier to real-locateassignmentsandswapsomemoneyfrompub-lic order and safety. There are authors who state that better economic situation influences lower level of crimeandhighersafetyinthecountry,butIhaven’tfoundresearchesontheeffectivenessofgovernmentexpenditure for defense and public safety and its rela-tionstoeconomicsituationinLithuania.


35

Bulgaria

Denmark

Estonia

Italy

Lithuania

2005 2006 2007 2008 2009 2010

100.0

90.0

80.0

70.0

60.0

50.0

40.0

30.0

20.0

10.0

0.0

fig. 2. Criminaloffencesper1000inhabitantsinsomeEUcountries

Source:PreparedbyauthorsaccordingtoEurostat.

Itmightbestatedthattherearelesscrimeinrichercountries, but it is needed to substantiate that by statisticaldata.Infigure2,numberofcriminalof-fences per 1000 inhabitants is showed. There were Lithuaniaand4othercountries selected randomly.Let’s say, according toGDP, that two of them aresmalleconomies(Bulgaria,Estonia)andothertwo-biggereconomies(Denmark,Italy).Asweseefrom

thegraph,thosecountrieswithbigeconomieshavehigherrateofcriminaloffencesthanthosecountrieswith smaller economy. Because of this fact we can-not state, that richer countries have less crime. As we can see from the statistics, poorer countries have lowerrateofcriminaloffences.Thiscanbedescribedbythedifferencebetweenrichandpoor-wherethisdifferenceishigher,therearemorecriminaloffences.

Bulgaria

Denmark

Estonia

Italy

Lithuania

2007 2008 2009 2010 2011

3.5

3.0

2.5

2.0

1.5

1.0

% o

f GD

P

fig. 3. AssignationsforpublicorderandsafetyinsomeEUcountries



36

Othergraphshowswhatdifferenceinthesamecoun-tries,whengivingassignationsforpublicorderandsafety, is.Aswecanseefromfigure3,assignationsforthissectorarehighest inthosecountries,wherethenumberofcriminaloffenceswaslowest.Itcanbethoughtthatassignationsarelowerbecauseeconomy

Bulgaria

Denmark

Estonia

Italy

Lithuania

2007 2008 2009 2010 2011

2.4

2.2

2.0

1.4

1.2

1.0

% o

f GD

P 1.8

1.8

fig. 4.AssignationsfordefenseinsomeofEUcountries


isbig andas anumber, government expenditure issufficientenough,andthesectorissaturated.Butthestatisticaldataaboutcriminaloffencesshowsoppo-site-thosecountries,whichtakemoreattentiontothis sector, have better results.

Whentalkingaboutassignationsfordefense(figure4),wecanseedifferentsituation:assignationsforde-fenseinbigeconomiesarequitestable,butinsmallereconomiesitisfluctuating.GovernmentexpenditurefordefenseinLithuaniaisdecreasingandisamonglowest inEuropeanUnion.Lithuania,accordingtothe latest certified statistical data, feels safe as much asGermany,SpainandSwitzerland.Butdowefeelsosafeanddon’thavewhattofearabout?

Statistical data analysis showed that opinion that richer countriesaresaferandtherearelesscriminaloffences,iswrong.Itwasfoundthatpoorercountriesinvestmoreinpublicsafety(accordingtoGDP),andtherearelesscriminaloffencesandinrichercountriesitisopposite.GovernmentexpenditureforpublicsafetyinLithuaniaisincreasing,whileexpenditurefordefenseisdecreasingand now is at quite low level and needs more attention.

4. relationship between government expenditure and public safety.

Public safety and defense depend on the financingfrom the government. Because government has toallocaterevenuefromthebudget,it ispossiblethatthere isarelationbetweengovernmentexpenditureandcriminaloffencesinthecountry.Ifwetalknotonlyaboutgovernmentexpenditure,butaboutsafetyin the country, it is possible, that there would be rela-tionsbetweenGDPandcrimes,unemploymentandcrimes.Toanalyzetheseandotherrelationscorrela-tion analysis will be made. These relations will show howcrimestatisticsandsafetyinthecountryongov-ernmentdecisionsandhowstrongtheserelationsare.


37

2007 2008 2009 2010 2011 2012

Number of police officers (right)

GDP, in thousands (left)

120000 11500

100000 11000

80000 10500

60000 10000

40000 9500

20000 9000

0 8500

fig. 5. RelationbetweenGDPandnumberofpoliceofficers

Source: PreparedbyauthorsaccordingtoEurostatandStatisticsdepartmentofLithuania.

When looking at various different possible relationsbetween economic and safety statistical information, thereareseveralstrongerrelationsfound.Therelationwas foundbetweenGDPandpoliceofficers,whoareresponsible for public order and safety. The relation is notverystrong,butwecanmakeintensionsaboutpos-siblereasons,whythesefactorsarecorrelating.

R2forGDPandnumberofpoliceofficersis-0,57.Nega-tive shows thatnumber of police officers is decreasing

whenGDPisincreasing.Itcanbesaidthatwhenthereis better economic situation in the country, less police officersareneeded.Ofcourse,ifwelookatfigure5,wecan state that number of police officers was constantly decreasing, but from 2010, after economic burst aftercrisis, the number started to decrease rapidly. And if we lookatlongtimeperiodandexpelcrisisfromourgraph,wewouldsee,thatisincreasingeveryyear,soitispossi-bletoexpectstrongerrelationbetweenthesetwofactors.

2007 2008 2009 2010 2011 2012

Criminal offences done

Unemployment level, %

84000 20

82000 18

80000

78000

76000

74000

72000

70000

68000

16

14

12

10

8

6

4

2

0

fig. 6.Relationbetweenunemploymentandcriminaloffences

Source:PreparedbyauthorsaccordingtoStatisticsdepartmentofLithuania.


38

Other relation was found between unemployment andcriminaloffences(figure6).Itislogicthatthereismorecrimewhenunemploymentishigh,becausepeoplefeel lackofmoney,sotheytrytofindother

(illegal)waystoliveout.R2 between these variables is0,72.Itisquitestrongandreliablerelation,whichshows that country’s safety depends on economicsituation and level of unemployment.

2007 2008 2009 2010 2011 2012

Criminal offences done

Wage netto, LTL

84000 1800

82000 1600

80000

78000

76000

74000

72000

70000

68000

1400

1200

1000

800

600

400

200

0

fig. 7. RelationbetweencriminaloffencesandwageSource:PreparedbyauthorsaccordingtoStatisticsdepartmentofLithuania.

There is also a relation between Criminal offencesandwage(figure7).Thelogicofthisrelationisverysimilartothelogicaboutrelationbetweencriminaloffencesandunemployment:whenpeoplearelackofmoney,theymakeoffences,andwhenpeoplegettoolow salary, they also are susceptible to perpetration. Thisresearchshowedabitdifferenttrendofthislog-ic:R2betweenNetwageandcriminaloffencesdoneis0,79,whichisstrongrelationandshowsthatwhen

people gets more salary, they make more offences.It ispossiblethatthose,whoearnmore,canaffordthemselvestopaymorefines.Increaseinaveragesal-arydoesn’tmeanthateverybodystartstoearnmoremoney: it is possible that there was increase in salary forthose,whoearnmorethanaveragesalary,sobe-causeofthataveragesalaryinthecountryincreased.Sothedifferencebetweenminimumandmaximumsalary in the country increased, and despite


39

2007 2008 2009 2010 2011 2012

Public order and safety, LTL (right)

120000

100000

80000

60000

40000

20000

0

GDP, in thousands LTL (left)

fig. 8. RelationbetweenGDPandgovernmentexpenditureforpublicsafetyandorderSource: PreparedbyauthorsaccordingtoStatisticsdepartmentofLithuania.

that, producers inordertobeuptothemarketin-creases the price of their products, the retailers in-creases their prices a bit more and the final price of theproductbecomestoobigforthose,whosesalarydidn’tincreasedwhencountingaveragesalary,sohe/sheisconstrainedtomakeanoffencetoliveout.

finalsignificantrelationthatwasfoundduringthisresearchwasfoundbetweenGDPandGovernmentexpenditureforpublicorderandsafety(figure8).Itwas found that the relation between these two factors is very strongandR2 is 0,92. It means that if eco-nomicsituationinthecountryisgettingworseandGDPisdecreasing,thentheexpenditureforpublicsafety and order will decrease as well and opposite. WecanmakeanassumptionthatifGDPisincreas-ing,expenditure forpublicorder increases,becauseof thatnumberofcriminaloffencesdonedecreasesandbecauseofincreaseofGDPdecreaseslevelofun-employment, what alsodecreasescriminaloffences.

conclusions

Every topic about government expenditure is very interesting,becauseitisalwaysaboutourmoney,sowe must be aware where and how this money is al-located. One of the sectors is defense, public order andsafety,anditisveryimportantforthecitizenofLithuania, because their safety andwelfare dependon that.

Thisarticleshowedthestructureofgovernmentex-penditure:both,productiveandunproductive.Gov-ernment expenditure for defense and expenditure for public order and safety is a part of productive ex-penditureandisthoughttomakepositiveinfluencefortheeconomy.Theresearchshowedthatgovern-mentexpenditure fordefense isdecreasing,but forpublicorderandsafetyitisincreasingseveralrecentyears.

When comparing criminal offences done inLithu-ania and in other European countries, we can clearly see that situation in our country is not bad at all - there aremore criminal offencesper1000 inhabit-ants done in western countries than in Lithuania.Thiscanbea resultofgovernmentexpenditure forpublicorderandsafety:inLithuaniathisexpenditureaspercentofGDPisnotashighas inotherEuro-pean countries.

Theresearchshowedinterestingfact,thatthenum-berofpolicemen isdecreasing andespeciallywhenGDP is rising.This fact can also be influenced bynewtechnologies,speedcameras,streetviewcamerasandsoon.Itwasfoundthatcriminaloffencesrelatesto unemployment, which is related to economic cri-sisandGDP.Itwasalsofoundthatgovernmentex-penditureforpublicorderandsafetyrelatestoGDP.It means that if there is better economic situation in thecountryandgovernmentassignsmorefundsfor


40

thissector,thereishighersafetyinthecountry.

It ishardtosay ifgovernmentexpendituredirectlymakesinfluenceforeconomyofthecountry,butitisafactthatthroughothereconomicelementsgovern-ment expenditure is positive for the economic wel-fareofthecountryandsafetyofitscitizen.

references

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Department of Statistics of Lithuania. 2013. Unemployment level. Available on the Internet: <http://db 1.stat.gov.lt/stat-bank/default.asp?w=1280>.

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Kneller, R., Bleaney,M. f.,Gemmell,N. 1999. fiscal PolicyandGrowth:EvidencefromOECDCountries,Journal of Public Economics, Vol.74(2).AvailableontheInternet:<http://www.mathematik.uni-ulm.de/wipo/lehre/ws 200708/public_eco-nomics/Kneller_Bleaney_Gemmell.pdf>.

Liubimova, A., Žigienė, G. 2010. Valstybės išlaidų apimtiesir struktūros įtaka šalies ekonominiam augimui [Governmentexpenditure extent and its structure influence on economic growth],Taikomoji ekonomika: sisteminiai tyrimai [Applied eco-nomics and systemic researches] 2010.4/1. Available on the Inter-net: <http://web.ebscohost.com/bsi/pdf?sid=7dbdb8d4-6564-4c35-9830-aecca9dbe9ae%40sessionmgr13&vid=4&hid=21>.

Račkauskas, M., Liesionis V. 2011. Valstybės išlaidų poveikisekonomikai [Government expenditure influence on econom-ics], 8-th International Scientific Conference, Economic expansion: theory and practice.ISBN9789955634911.

Račkauskas, M., Liesionis V. 2012. Neproduktyvios valstybėsišlaidos ir jų poveikis ekonomikos augimui [Unproductiveexpenditure and its influence for economic growth], Vadyba:mokslotiriamiejidarbai [Management: scientificresearches],No.1(20). Available on the Internet: <http://www.vlvk.lt/private/Vadybos%20turiniai/Vadyba_2012_1.pdf>.

Račkauskas,M.,LiesionisV.2012.Produktyviosvalstybėsišlaidosirjųpoveikisekonomikosaugimui[Productiveexpenditureanditsinfluenceoneconomicgrowth],Taikomoji ekonomika: sisteminiai tyrimai [Applied economics and systemic researches], 6(2). Available on the Internet: <http://vddb.library.lt/fedora/get/LT-eLABa-0001:J.04~2012~ISSN_1822-7996.V_6.N_2.PG_73-86/DS.002.0.01.ARTIC>.

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Stratmann,T.,Okolski, G. 2010.Does government spendingaffect economic growth?, Mercatus on policy. George Mason University. No. 76. Available on the Internet: <http://mercatus.org/sites/default/files/publication/MOP76_ Spending%20and%20Growth_web.pdf>.

ŠileikaA.,BekerytėJ.,2013.TheoreticalIssuesofRelationshipbetween Unemployment, Poverty and Crime in Sustainable Development, Journal of Security and Sustainability Issues 2(3):59-70. Available on the Internet: <http://www.lka.lt/EasyAdmin/sys/files/Journal%20of%20Security%20and%20Sustainability%20Issues%20Nr.2_3%20-5.pdf>.









SuStainable SuPPly cHain ManaGeMent iSSueS: caSe of reGional SMeS’ inVolVeMent in tHe air carGo

anatoli beifert1, laima Maknytė2, Gunnar Prause3

1,2Wismar University of Applied Sciences: Technology, Business and DesignPhilipp-Müller-Str. 14, 23966 Wismar, Germany

3Tallinn University of TechnologyAkadeemia tee 3, 12618 Tallinn, Estonia

1E-mails: [email protected]; [email protected]; [email protected] abstract. This paper aims at conceptualising and assessing operational environment of small andmedium-sizedenterprises(SMEs)insustainablesupplychainsinregionalcontext.Thepaperstartsanattempttoexplorehow SMEs inMecklenburg-Vorpommern inGermany from transport, logistics related value-added servicesand especially from the air freight sector collaborate, perform and develop from supply chainmanagementperspective, andwhat crucialdeterminants forburgeoningbusinessperformance and sustainable strategy areeffectivelytobe linkedforthebenefitsofSMEs.Usingaqualitativecasestudyapproach,thepaperbearsonempiricalevidencesoftheproject“Baltic.AirCargo.Net”financedbytheEuropeanRegionalDevelopmentfund/EuropeanNeighbourhoodandPartnershipInstrumentintheframeworkoftheBalticSeaRegionProgramme2007-2013.Thepaperbuildsuponaqualitative research approach involving expert interviews, focusgroupsanalysis and secondary data research based on relevant project documentation and field notes from projectmeetingsandworkshops.findingsofthecasestudyfromtheGermanaircargoserviceprovidersareexploredanddiscussedthroughkeytheoreticalconceptspertainingtosustainablesupplychainsandlogisticsofSMEs.Basedontherelevantscholarlyworkandresultsofempiricalevidenceandcasestudies,aconceptualmodelisdesignedwithpropositionsandpossiblefuturedirectionsforSMEs.ThepapershowcasesempiricalfindingsgatheredfromthepracticesofregionalSMEsoperating intheaircargotransportand logistics servicefield, thusexpandingthispoorlyconceivedresearcharea.TheresearchisbasedondirectinformationandinsightsfromSMEslocatedinMecklenburg-VorpommernandhighlightshowSMEsunderthegivencircumstancesmaystreamlinetheirdevelopmentpathsoperationally,tacticallyandstrategically.InsightsobtainedfromthispapercanbeemployedascriticaltoolamongSMEs’managers,strategyplannersandpolicydecision-makersonhowtoutilizeSMEs’practicesinthecontextofsupplychains,logisticsnetworksandemergingscopeofglobalisationandtrade.

Keywords: Sustainablesupplychainmanagement,sustainablestrategy,aircargo,smallandmedium-sizeden-terprises,roadfeederservices,Mecklenburg-Vorpommern

reference to this paper should be made as follows:Beifert,A.;Maknytė,L.,Prause,G.2013.Sustainablesupplychainmanagementissues:caseofregionalSMEs’ involvementintheaircargo,Journal of Security and Sustainability Issues3(2):41–52.http://dx.doi.org/10.9770/jssi.2013.3.2(4)

1. introduction

Being already known as crucial players in national economiesandtrade,SMEshavegainedalsoanin-dispensible role in modern supply chains. Enhanc-ingcompetitivecapabilityandsustainingthecurrentcompetitive position of SMEs on regional,macro-regional andpan-European levels have shaped cur-

rent and future-directed policy agendas in Europe.TheissuesofSMEs’behaviourintheaircargosector,bearingopportunities to strengthen their contribu-tiontotheregionaldevelopmentaswellasboostingentrepreneurshipintheairfreightsector-havebeentackled in the project “Baltic.AirCargo.Net – Im-provementoftheaircargotransportsectorbyservice

42

A n a t o l i B e i f e r t , L a i m a M a k n y t ė , G u n n a r P r a u s eSustainable supply chain management issues: case of regional SMes’ involvement in the air cargo

oriented ICT-methods and processing logistic net-work”thatisbeingimplementedintheframeworkoftheEUProgramme“BalticSeaRegionProgramme2007-2013”. The focus on SMEs here implies that SMEs’ role and impacts on supply chains and lo-gistics networks have been prioritised on regionalandEuropeaneconomicdevelopmentagendas.ThepaperinvestigatesSMEs’behaviourintheaircargotransport and logistics sector from the NorthernGerman region Mecklenburg-Vorpommern andshowcaseshowSMEsmaybenefitbylearningfromairfreightforwardersandaircargorelatedtransportandlogisticsserviceprovidershowtoperform,col-laborate, network, design and implement strategicdecisions.The paper calls for an integrated frame-work,whichfindsitsconceptualrootsindomainsofsupply chain, strategic and small businessmanage-ment,enterprisedevelopment,supplynetworksandsupply chain management, enterprise culture andbehaviour.Basedontheexistingthematicconcepts,adaptedtotheenvironmentofSMEsintheregionalcontext, the paper streamlines the pathway of explor-ingSMEsbehaviour in theair cargo supply chainsandsupplynetworks.

Supply chains structure and theirmanagement arecore issues indiscourses related to large enterprises(LEs).Asaresult,topicalresearcheshavegeneratedanumber of literatures on supply chains, supply chain management. However, scientific works on thosethemesregardingSMEsaresporadic(Daintyet al., 2001;Macpherson;2001;MacphersonandWilson,2003;GunasekaranandNgai,2003;Quayle,2003;Arend andWinser, 2005; Hong and Jeong, 2006;Thakkar et al., 2008a and 2008b; Thakkar et al., 2009 etc.). As it is apparent from the topical research scrutiny, SMEs behaviour in supply chains has been increasingresearchinterest inthelastdecades.Thiscan be traced back to diverse developments on re-gionalandglobalscale.However,themostimportantcriteria, which implied the shift in the research focus is a rational outcome. Since SMEs are of crucial im-portanceforregional,nationalandglobaleconomicsandasignificantshareofeconomicperformanceandvalue has been recently ascribed to SMEs, they are gainingarisinginterestintheresearchcommunity.SMEs foster entrepreneurial talent, employment generation and industrial development, as they areoperatinginallindustrysectors.

However, beyond the trend of increasing research

literature dealingwith SMEs in supply chains andaffects of supply chain management paradigm forSMEs, the most of the research has concentrated on manufacturingSMEsbehaviourinsupplychainsandsupplychainmanagementformanufacturingSMEs(upstream).ThelinkbetweenSMEsfromtheservicesector and supply chains & management is ratherunderestimated with an exception of several case studies.furthermore,averysmallshareofresearchisdonepertainingtotheaircargoindustryandaircar-goservicesector.Bernaletal.(2002)explores,how-ever,acaseofsmallfreightforwardersinthecontextof competitor networks, whereasGunesekaran andNgai(2003)explainsintheircasestudymanagementofsmalllogisticscompany,andHalleyandGuilhon(1997)behaviourofsmallenterprisesinlogistics.Be-yondthis,studiesonsmallbusinessesinthelogisticsdiscoursesarelikelytoanalyseSMEsthroughinter-nationalisation theories (Chetty and Cambell-Hunt, 2003;Bernalet al., 2002).

ItishighlyimportanttoredesignandreengineertheroleofSMEsintheregionalcontext.Todate,inthecaseregionofMecklenburg-VorpommernSMEs’roleiscrucial,sincenearlytheentireregionaleconomicstructure is scaled by small businesses. Around 91 per centofSMEsoperatingonthemarkethavelessthan10 employees. Despite this prolific number SMEs are likely toremainat thegrassroots levelwhenspeak-ingaboutthespecificareaofthesupplychainintheaircargotransportlogistics(StatisticalOfficeofthefederal State Mecklenburg-Vorpommern, 2011).Currently,wemostlyspeakoflargeshippersandfor-warderswhoprocessaircargovolumes.Inthisregard,thepaperathandsaimsatcontributingtotheemerg-ingresearchonSMEsbehaviourandperformanceintheservice-orientedsector.Morespecifically,thekeyobjectiveistounderpintheroleofregionalSMEsintheaircargoindustry,andespecially,aircargoserviceproviders’paradigm.

The paper is structured as follows. The research has firstsetaboutidentifyingkeyphenomenaandissuesfrom the fragmented literature base pertaining tosupply chains (especially downstream activities) and SCM. Afterwards, elements and methods of the re-search are explained. The next section reflects results from the case study. Subsequently, implications are derived from the observed SMEs behaviour and per-formanceintheaircargosupplychainandnetworksandpresentedbykeymanagerial,strategicandoper-

43


ationalconcludinginsightsintermsofSMEsfuturedirections and research contributions.

2. literature review

In the scientific circles, SMEs have been largelyperceived from the perspective of Large enterprises(LEs),i.e.mostoftheconceptsandapproachesde-veloped to understand SMEs behaviour and per-formance in supply chains flow from the scholarly works, once generated forLEs. SMEsperformanceandoperationalconfigurationsinsupplychainshavebeendealtindifferentresearchstreamspertainingtosupplychains,namely,strategicalignmentofsupplychains, coordination of players in supply chains and configurationsoflogisticsnetworksincludinginfra-structuredesign,marketservicingetc.(Creazzaet al., 2010, p. 155). Cooper et al. (1997) believes that all these processes mentioned are encapsulated by the SCMconcept.Respectively, scholars underpin thatSCM incorporates supply chain players with whom to link processes (1), the processes themselves (2)and how these processes are linked, managed andintegrated (3) (Cooper et al, 1997, p. 6).Whereasplayers in supply chains constitute networks, busi-nessprocessesareactivities,whichgenerate specificoutputofvaluetothecustomer.finally,themanage-ment impliesmanagerial skills, resources and vari-ablesbywhichthebusinessprocessesareintegratedandmanagedacrosssupplychains.Herein,crucialisidentification of supply chain members, processes to belinkedandoftype/levelofintegrationofthoseprocesses(Lambertet.al,1998,p.4).

Taking into account the present research scope, itinterferes with phenomena ascribed to all the three research lines, as differentiated by Creazza et al. (2010), as the research addresses issues concerningSMEsstrategicbehaviour,involvingquestionsrelat-ingtoSMEspartnersandcollaborationwithinsup-plychainsorpertainingtologisticsnetworksthroughplacing a focus on the air cargo industry servicingSMEs.BearinginmindthatSMEsbusinessbehav-iour and operational activities in the service-oriented sector(here:SMEsasaircargotransportandaircar-gorelatedserviceproviders),theconceptualfounda-tion of the research derives from the concepts and approaches elucidating SMEs strategic thinking,planningandacting,organisationalbehaviour(inte-grationandnetworking)andperformanceintheaircargo supply chain. In this light, phenomena,pro-

cesses and activities are referred from the entrepre-neurialandmanagementperspective.Consequently,the research pertains management-related practicesofSMEs.Hence,asupplychainmanagement(SCM)within the context of SMEs refers to set of business activities,frompurchaseoverprocessingtodeliverytoLEs(Thakkaret al.,2008a,p.98).Moreexplicitly,SCM is integration of key business processes fromend user through original suppliers that providesproducts, services and information, which add value forcustomersandotherstakeholders(Lambertet.al,1998,p.1). Inorder toensureregularorders fromLEs,SMEsareforcedtoenhancevalueofendserviceproductsthroughofferingspecialanddifferentiatedfeaturesandquality(Thakkaret al.,2008a,p.98)orstressing behavioural qualitative differentiation andinnovation(O’Gorman,2001,p.61).Thisisacriti-cal issue,asdeliveringqualitativeanddifferentiatedservices underlie a set of physical tangible and in-tangibleresourcesandorganisationalcapabilities,asneededbySMEs,suchastechnologicalpeculiarities,infrastructural facilities, financial resources, informa-tionandknowledgeinSCM,managementskillsetc.(Kraus et al., 2006; p. 335-337). Strictly speaking,SMEshave to possess specific organisational, tacti-cal, operational and strategic advantages tobe ableto compete efficiently in supply chains and transport networks. According to Porter, competitive advan-tagederives fromorganisation’s activities in theex-ternalenvironmentoronthemarket,i.e.howthoseactivitiesstrategicallyfitintheexternalenvironmentoronthemarketandthereforecreateseconomicandcustomervalue(Porter,1985,p.35;1991,p.103).In the present context, SMEs have to fit their service-oriented activities, technology and the marketingstrategy to theircustomers, i.e. toLEs thatoperateintheaircargosupplychains.Nonetheless,progressanddifferentiationisneedednotonlyexternallybutalsointernally,i.e.throughadvancingorganisationalinternal structures, resources employment, capabili-ties streamlining and development of core compe-tences, as anchored in treatises on the resource-based view(Wernerfelt,1984;Barney,1991;Peteraf1993,Prahalad andHamel, 1990; Boxall, 1996 etc.). Asaresult,ingainingcapabilities,effectivelydeployingresources, advancing organisational internal activi-tiesandadaptingthemtothecustomersandtheaircargosupplychainenvironment,SMEsmaybebothproactive and reactive in terms of their performance andstrategy.Hence,itisnotenoughanymoretobe

44


onlyreactiveandmorecashfocused,ignoringpowerofcommunications,internalknowledgeandlearningcapacity,offeringfewservicesanddeploying“classi-cal” resources. The resources should be valuable, rare, imperfectly imitable and non-substitutable (Barney, 1991,pp.105-106;Boxall,1996,p.65).Herein,amorenovelwayofthinkingandoperating(Thakkaretal,2008a,p.99;2008b,p.77;Krauset al.,2006,p.341-342)ornewapproachtowardsmutualunder-standing of different operational cultures of SMEsand LEs, trust building and communication skillsadvancing areneeded (Dainty et al., 2001,p.171;Machpherson, 2001, p. 9). As stressed by Vaaland and Heide (2007), SMEs will not be able to harness afullpotentialofSCMintermsofdiversemanage-mentandintegrationproceduresasappliedtobusi-ness process within the supply chains anymore, since SMEsaremanagedbyLEsatarm’slengthandhaveto follow their standards and norms. Moreover, due to the price factor and relatively high supply side,already involved SMEs may be easily replaced by the competitors in the supply chains (Vaaland and Heide, 2007, p. 21).

Nevertheless, in many respects, SCM enables to com-bine external and internal processes and activities of SMEs. More specifically, SCM implies a streamlined approachtoadvanceorganisationalperformancetac-tically,operationally,andstrategically.for instance,integrationwithinthesupplychainscanbeimprovedby means of internal processes and activities, such as communication,collectivedecision-making,partner-ing,trustbuildingetc.,whereasSMEs’performanceinsupplychainsaffectsSMEsgrowth,planningandstrategy(Thakkaretal.,2008a,pp.110-112).fromthe external perspective, SMEs need to decide where to compete and how tocompete(O’Gordman,2001,p.60).Theyneed to clarify their strategicpositionin the supply chain and focus, i.e. compete in terms of low costs operations or value added operations (HongandJeong,2006,p.295).

Beyondacertainqualitativedifferentiationandlevelof innovation with combining resources and capa-bilities, important is in the supply chain context alsoaclusteringperspective.Asoriginallydevelopedconcept of clusters by Porter in 1990, clusters as geographic concentrations of companies, suppliers,service providers or institutions are crucial for com-petitiveadvantage,innovation,knowledgeandtech-nologyexchangeandabsorptionaswellas learning

capacity. They enable both competition and coopera-tion(Porter,2000,pp.15-16).Networkingandco-operationhelpsSMEstoovercomesizeandresourceconstraints, reduce costs and circumstances of uncer-tainty (Thakkar et al.,2009,p.982).furthermore,it facilitates development of individual relationships as part of a network, which is, in turn, perceivedas construct of interdependent relationships. Since relationships are connected, they may positively or negativelyaffectSMEsbehaviourinothernetworks.However, largely, through exchanging relationshipsacrossSMEsor, inotherwords,networking,SMEsareabletoprovidetheircustomerswithgreatervaluethanifSMEswouldworkindividually.Throughin-terconnectedactivitiesSMEscanwork faster,moreefficiently than competitors outside their networkand therefore they can achieve flexibility, develop new business opportunities or find sources of new ca-pabilities,resourcesandadvantages inthenetwork.Herein,throughnetworkingSMEsgaincompetitiveadvantageor, throughdeveloped collaborative rela-tionships able to achieve critical resource of interna-tionalisation, intra- or inter-organisational learning(Bernal et al., 2002, pp. 244-245). Key reasoningbehindenteringandpursuingcollaborativerelation-ships is asset specificity and uncertainty. Herein, mu-tual trust and experience in collaborative relation-shipsarelikelytoreduceuncertaintyoftransactionswithin those relationships, and therefore the transac-tion costs. Hence, due to informal contracts, mutual trustetc.ahighermotivationmightbeobservedbyorganisations to enter the supply chains. In termsofspecificity,throughnetworkingactivities,i.e.lessgeographical, physical andhumandistance, the re-lationships can be more specific, thus the SCM be-comesmoresimplified(Macpherson,2001,pp.6-8).

SMEsbusinessperformance,competitiveadvantagesand strategy can be sustained in the SMC contextthroughintertwiningofallthreedimensionsofsus-tainability, i.e. economic, environmental and social ones (Cliberti et al.,2008,p.1580).Ithasbeenfre-quently referred to more specific focus by SMEs on social responsibility, environmental awareness etc. The aspects of sustainability in the SCM discourses aregainingmoreresonanceasaresponsetothecur-rent environmental challenges, globalisation trendsetc. Nonetheless, an increasing incorporation ofsustainability phenomenon is frequently tapped in the context of SCMof LEs.However, in terms ofSCM of SMEs, sustainability issues can cover such

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criteriaasproduct-basedgreensupply,environmen-tallyfriendlydecision-making,costreducing.Strictlyspeaking,sustainabilityreferstoissuesinSCMpara-digm,whetherenvironmental,ethicalorsocialones(Seuring and Müller, 2008, p. 456). for instance,Jorgensen and Knudsen (2006) interpret sustain-able SCM as a form of value chaingovernance,sincesustainable SCM encompasses aspects of labour, en-vironmentalstandardsetc.Inthisregard,valuesareaffectedintermsofsocial,environmentalorlabour-relatedsettingsandthroughtwokeyfunctionswith-inthevaluechain,i.e.rulemakingandrulekeeping.Whereas LEs as rule-keepers control technologies,brands and access tomarket have started to applycertain sustainable standards, e.g. environmentalprotectionorlabourrightsetc.,rulekeepers(SMEs)havetocomplywiththosestandardsappliedbyLes(JorgensenandKnudsen,2006,pp.450-451).Con-sideringourresearchcontext,SMEsbehaviourintheaircargo supplychainmaybealsocharacterizedasinfluencedby“modern”sustainableissues,sincetheproductsdeliverybyairmaybehardly“greener”ascompared with other modes of transportation (rail, sea, road). As a result, an environmental issue here is a sustainability criterion. furthermore, SMEs havetofollowrulesandstandardsonLEsasapplicableintheaircargoforwardinginordertostayintegratedintheaircargosupplychain.

4. Methods

Case study has been used as a technique in explor-ing SMEs behaviour and performance in supplychains,logisticsorwhenexaminingtheroleofSCMfor smallbusinesses (GunesekaranandNagi,2003;Bernal et al., 2002 etc.). A case study method is as-sumed in this research paper as an appropriate one. The justification behind this choice is that the re-search aims at answering the questions how SMEsaslocal/regionalairfreightforwardersandaircargorelatedtransportand logistics servicesprovidersareoperatingatpresentwithin thenationalandglobalaircargosupplychainsornetworksaswellaswhatdeterminants (capabilities, competences and other requirements) must be available to enable to outline asustainablestrategyforSMEsperformance.follow-ingyin(2009),acasestudyresearchplacesfocusoncontemporary phenomena rather than on historical events. It normally addresses questions “how?” and “why?”.Althoughthisqualitativemethodleaveslittleroom for researchers to control events (yin, 2009,

p. 2), it enables to catch the particularity and com-plexityofasinglecase(Stake,1995,p.xi).Inorderto provide the most comprehensive view on develop-ment of SMEs, this research follows a collective case study,whichencompassesanumberofsinglecases,i.e. SMEs operating in the air cargo supply chainexistinginthecaseregionofMecklenburg-Vorpom-mern (federal state level).Herein, single case stud-ies frame a collective or a multiple-case study. The qualitative case study approach is exploratory and explanatory(yin,2009,pp.8-9),astheresearchsetsout to scrutinise development patterns of SMEs in theaircargosupplychainandtotesthowSMEsmaypursueasustainablewayincollaborating,operatingandbenefitingintheaircargosupplychainandbymeans of SCM.

Empirical data used for the cross-case analysis were obtainedintheframeoftheproject“Baltic.AirCargo.Net”financedbytheEUtheProgramme“BalticSeaRegionProgramme2007-2013”.Theempiricalma-terial was collected from diverse sources of evidence over the period of project life cycle (2011-2013):qualitative observations of researchers involved into the project activities, external experts’ evaluations,project documentation and observations gatheredfromrespectiveprojectactivitiessuchasworkshops,conferences as well as from the field notes from pro-ject meetings. Empirical data pertaining to SMEsare explored. furthermore, a record of empiricalevidence is complemented by semi-structured inter-views conducted with the SMEs representatives or relatedstakeholders.

The analysis of qualitative empirical data builds upon topical concepts and approaches introduced above. The paper portrays the results in line with the con-cepts and approaches synthesised in the previous section. The observed and evaluated outcomes and outputs from the SMEs practices serve then for out-lining propositions. Respectively, the propositionsaretestedanddiscussedbybearingontheempiricalevidence.

5. findings

Current SMEs practices in terms of the air cargosupply chain and the air cargo transport networksinMecklenburg-Vorpommernhavebeentracedandevaluated on the basis of evolutionary approach, i.e. how these practices emerged, how do SMEs per-form and what future directions do result. In other

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words,thefindingsarereflectedthroughSMEspaceofdevelopment.Besides,followingHongandJeong(2006,pp.297-298),amodelasproposedbyLevyin2001hasbeenadopted.ReferringtoChettyandCambell-Hunt (2003, p. 813), some conceptualstageswereslightlymodified.Asaresult,SMEsprac-tices and performance are explored through threeexternal or internal contextual dimensions: (1) air cargoforwardingsectorandpositionintheaircargosupply chain (external environment), (2) external relationship patterns of SMEswithin the air cargosupplychainand(3)SMEsstructures,managementand competences.

Air cargo forwarding sector and position in the air cargo supply chain

In this context, regional airports and other serviceprovidersarereferredtoaslogisticsserviceprovidersfocusingonregionaloperations,andthelogisticsasathird-partylogistics(GunasekaranandNgai,2003,p.826).TakingintoaccountSMEsperformanceintheaircargosectoron the regional scale,empiricalevidence has shown that the airfreight volumes, ashandledby the regional airportsParchimandRos-tock-Laage,areratherscarce.Thisisduetothelargeair cargo forwardersTNT,DHL,feDex and alike,whicharetreatedontheaircargomarketasthefirst-tier transport providers. This, in turn, reduces the number of second-tier service providers in the down-streamaircargosupplychain.furthermore,ofvitalimportance is in this particular case the prevalence of clusters.With the key air cargo forwarders con-centratingaroundBerlinandHamburg,theairportsin Berlin and Hamburg have gained competitiveadvantageoveraircargo transport serviceprovidersinMecklenburg-Vorpommern.Herein,clusteredaircargoforwarderscancompeteandcooperatedirectlyagainst service providers operating individually inthe region of Mecklenburg-Vorpommern throughtheiralreadysettledstrategicalliancesandcollabora-tion with more dominant suppliers, distributors or carriers (Hong and Jeong, 2006, pp. 293-294). Inthiscase,regionalairportsofParchimandRostock-Laagearemissing resources, andcompetences suchasinter-partneringorshareofvaluableinformation,knowledgeetc.Thefearofsharingthevaluedorgani-sational information and knowledge can come tothreatenthemarketpositionandorganisationalper-formanceoftheregionalairports(Bernalet al., 2002, p.242).Hence,itbecomesquitedifficulttocompete

withoutbeingnetworkedorapartofcluster.None-theless,asempiricaldatademonstrate,ageographi-calproximityandlimitedresources,suchasaircargohandling capacity in Berlin and Hamburg due to,e.g.increaseddemandinaircargoforwarding,pro-videfeasibleopportunitiesfortheregionalairports.

External relationships patterns of SMEs within the air cargo supply chain

Amoreisolatedpositionoftheregionalairportshasaffected their external relationships within the aircargosupplychain.Operatingonbehalfofcorena-tionallogisticsservicesproviders(DeutschePostandLufthansaCargo)tomeettheirobjectives,i.e.toen-ablethemcostsreduction,covertheirfluctuating(in-creased) demand or reduce their capital investments, regionalairportshavefailedinsustainingtheirposi-tion.Itisbecausetheregionalairportswerenotabletodelivermoredifferentiatedandqualitativelyhigh-er services,andthe large logistics servicesprovidersexertingamore influence in the freight forwardingindustry could easily replace them or cancel their ne-gotiationsduetolesflows(operations)throughtheaircargosupplychain.Asaresult,theregionalair-portofRostock-Laage,asinitiallyincorporatedintothenetworkof“DeutschePost”tohandletheairmailforwardingatnightduetoincreaseddemandintheairmail forwarding in Mecklenburg-Vorpommern,has been cancelled to deliver this service. Hence, fre-quently the external relationships are of more short-termmanner.This,again, isshapedbytheexternalenvironment in which the relationships emergenceand are maintained. By echoing Hong and Jeong(2006, p. 298), in the environment of low costscompetition, especially in this particular case, where the core focus is on cost reduction and capital-based savings, regional airports, as exemplified in case ofRostock-Laagetendtoacceptcostsreductiontargetterms dictated by their customers (Deutsche Post) due to theirweaknegotiatingpositions, as theydonothavenegotiatedacquisitionexante(Thakkaret al.,2009,p.983).

IncaseoftheregionalairportParchim,themanagershavesettokick-offaircargotransportandrelatedser-vicesattheairportthroughcooperationwithChinaandpotentialaircargoflowsfromChina.However,herein in this particular case, it is to note that the air-portisnotlikelytoharvestbenefitsofbeingintegratedintheglobalaircargosupplychainandthenetwork

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duetoverylimitedresources.Sinceaircargoprocess-es and activities cannot be performed at the Parchim airportasaresultofinfrastructuralshortcomings,theairportandtherelatedaircargoserviceprovidersarenot able to follow and adopt to the requirements as posed by the LEs in the air cargo industry.This isalsocurtailedduetoregulatoryconstraintsapplyingintheaircargoforwardingandhandlingindustry.Aslongas therewillbenovaluable resources availableat the airport, it will be not possible to deploy them and to built up distinctive competences that, in turn, allowobtaining competitive advantages in themar-ket(Thakkaret al.,2008b,p.81).Inthisparticularcase, Parchim airport underlies, first, reengineeringor acquisition of physical resources such as facilities (runway, apron, airport tower and business settlement area).With resources (facilities)builtup, theaiportwillbeabletoservicelargeinternationalcarriersandachieveinternationalstandards(CATIII),andthere-foregainingcompetitiveadvantageoverotherregionalaircargoforwardersandserviceproviders.Positivelyinfluencedisalsothecompetitivenessthroughintan-gibleresourcesorinvisibleassets,suchasgoodknowl-edgeandmanagementskills.Herein,fromthecaseitisevidentthatgoodknowledgeofcustomersenabledthroughChineseownershipoftheairport,canaccel-erateaircargohandlingactivities(aircargoflowsbe-tweenEuropeandChina),thusallowingtheairporttocarryoutactivitiesdifferentlyfromthecompetitors(gainingpositionaladvantagethroughhandlingcargodirectly from China).

Overall, potential positioning advantages for bothregionalairportsarelikelytoemergefromtheirnet-workingwiththegloballyoperatingairportsandaircargohubs,suchasBerlin,Hamburgetc.Bearinginmind geographical proximity with the existing aircargohandlingclustersinBerlinandHamburg,itisarguedherethatregionalairportswillbecapabletodeliverqualitativeanddifferentiatedservicesthroughdeployinggeographicallocationasaresourceforaircargohandlingattheRostock-Laageairport,forin-stance,atnight,whichispossibleduetoeitherruralcharacteroftheregionandlowerpopulationdensityandnonightnoise restrictions.further advantagesforthisairportderivefromtheinfrastructural(goodtrafficconnectionby road,business enabling facili-tiessuchasbusinessparks),business(globalcarrierslocated such asLufthansaCargo) and geographicalpeculiarities(accesstotransportmodebyseathroughRostockportasamaritimenode).

SMEs structures, management processes and capabilities

In terms of SMEs structures, currentmanagementprocess and capabilities, it is evident from the em-pirical data that the regional airports and SMEsface organisational, management and institutionalconstraints. To exemplify, as evident from the in-terviews and experts’ analyses, regional capabilitiesare jeopardisedbymissing knowledge, informationand experiences in foreign business development,marketsettinginthetargetcountries,lackofskilledlabourorhumanresourcesprocessing internationaltrade agreements etc. This embraces corporate ororganisational resources that are a prerequisite forbuilding up core competences, as to Prahalad and Hamel(1990,pp.5-7).furthermore,asarticulatedby interviewees and experts, there has been observed shortcomingsinknowledgegatheredthrougheduca-tion.followingDaintyet al., 2001, for the SMEs to beintegratedintothesupplychain,there isaneedfor specific trainingprogrammes for SMEsprovid-ingbothspecialisedknowledgeandsoftskillssuchasinterpersonal skills, customer care, communicationskills and collective learning (Dainty et al., 2001, pp. 169-170).Tounderpinthis,byreferringtoob-servationsmadeonaregional scale,oneof thekeyweaknessesofSMEsas logistics serviceproviders islackofinternationalcompetencesandinternationalorientationaswellasmissingtrainings.

furthermore, as it is apparent from the evidence,SMEs,especiallyincaseoftheregionalairportsarenot willing in exploring and realising possibilitiesthroughsharedknowledgeandhorizontalcollabora-tion. In this, the smallbusiness sector inMecklen-burg-Vorpommern can be recognised as a reactiveone, since it is drive by the visions and aims corre-spondingtotheexternalenvironmentinwhichthosebusinesses are operating.Thisisamorepassiveviewincontrasttobusinesses,whichshowhigherdeploy-mentofintangibleorganisationalcompetencessuchasknowledgeandinformationshareaswellastrust.

6. implications for SMes: determinants for SMes future directions

Referring to the past and current SMEs practicesandtheirendeavourstoengageintoaircargosupplychainandtheaircargonetwork,asetofimplicationscan be drawn to facilitate future-oriented directions of SMEs. The central clue is a need to decide where tocompeteandhowtocompete(O’Gordman,2001,

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p.60).Itisanexternalview. On the one hand, SMEs needtoclarifytheirstrategicpositioninthesupplychainandstrategicfocus.Ontheotherhand,thereis a deficit in internal capabilities, trust built up, management skills, team building, understandingof business etc. (Dainty et al.,2001,p.169).Again,whenrecallingthedualityofmarketsandresources(Wernerfelt,1995,p.172).Hence,combinationofboth perspectives is needed.

As a result, SMEs have to make strategic choices(O’Gorman,2001,p.60)andtoclarifytheirstrategicfocusandsupplychainrelationshipposition(HongandJeong,2006,p.295).Basedontheempiricalre-sults,SMEsneedtoredirecttheirstrategicchoicestothefollowingexternalandinternalcontexts.

Hence, the present research reasons that:

Proposition 1: SMEs strategic positioning in the air cargo supply chain and their growth underlies a type and degree of collaboration with large air cargo forwarders operat-ing in the air cargo supply chains and global networks.

ThepresentresearcharguesthatSMEs involved into theaircargoforwardingorhandlingservicesaswellasregionalairportsastheaircargooperationshavetoin-tensifycollaborationpartnerswithlargeandgloballyoperating enterprises in the air cargo industry.Thisenables the small businesses, first, a better relationship positioninginthesupplychain,sincelargeairfreightforwardersasthefirst-tierlogisticsprovidershavefo-cused on deliveringmultiple performance based ontheir competences. In this sense, SMEs could focus on the specific competences andofferdifferentiatedservices, thus meeting qualitative requirements oftheir customers.Through specific anddifferentiatedservices SMEs and regional airports are capable togainastrategicpositiononthenicheaircargomar-ket,which isnot fullypenetratedby largeair cargoforwardersandhandlingenterprises.ConsideringtheregionalcaseofMecklenburg-Vorpommern,regionalairports and SMEs should endeavour to foster collab-orationwith thenational /globalfirst-tieraircargoforwarderssituatedinGermany,e.g.fedExinfrank-furtamMain,DHLinLeipzigHalleandUPSoperat-inginCologne/Bonn.Inthisregard,theycouldplacemore focusonbuildingcompetences in thefieldofwarehousing,aircargohandlingandtransportation.

According the finding from Baltic.AirCargo.Netproject, one of the most promising opportunities intermsofairtransportationservicesthatmightbe

suitable for SMEs or entrepreneurship is a so-called “flying Truck” concept or Road feeder Service(RfS),whichwouldenableprovidingdifferentiated,specialised qualitative services. In fact, the pure air-freight-forwarding sector implies very high invest-ments for the buying, leasing,maintaining, etc. ofthemachinerypark,i.e.aircrafts.Itwillberatheraprovocative assumption that SMEs may possess the required financial resources to start / enter pure air-freight operations. However, according to the sec-ondaryresearchdatagainedbythe“Baltic.AirCargo.Net”project,amongca.18companiesthatofferair-freighttransportservicesinGermanyonlyfewpos-sess real aircrafts.Thewholefleetofmajorityofair-freightforwardersconsistsofnormaltrucksonlyandthemajorityofthesetransportcompaniesthathavebeensuccessfullyoperatingontheaircargotransportmarketareregardedasSMEs.Andthatwerenotthehugeinvestments inthe“hard-ware” infrastructure,i.e.aircraftsthatallowedthemtoenterairfreightfor-wardingbusiness,butratherstrategicallyconceptualand“soft”changes.Rathersmallandmediumtrans-port companies with a “fleet” ranging from 10 to30ordinarytrucksqualifiedthemselvesforaircargotransport business. According to the results of the“Baltic.AirCargo.Net”, the importance of the RfSis constantly growing nowadays, e.g. in 2012 therelative volume of air cargo transported by “flyingtrucks”inthebiggestaircargohubintheBalticSeaRegion -CopenhagenAirport is ca.35%fromthetotalcargovolume.

Thedefinitionof“flyingtrucks”isscheduledtrucksoperatingbetweentwoairportsonly,onbehalfofanaircarrier.Trucksareoperatingunderaflightnum-ber and the cargo ismovedunder sameconditionsasnormalaircargoandtheliabilityisinaccordancewiththeMontrealConvention.Inotherwords,“fly-ing truck” operates as a normal truck between toairports (departure froman airport security zone –andarrivaltoanotherairportsecurityzoneonly)onso-called Air Waybill (AWB) or air consignment.Thesameasarealaircarrier,a“flyingtruck”mighthaveseveralroutenumbersorflightnumbersifitistransportingfreightfrommorethanoneairline.Theflyingtrucksare treatedandhandledexactly in thesameway like real aircrafts, i.e. the “flying trucks”possess herewith exactly the same insurance as if thegoodsweretransportedbyaircraftandonroutenumber, they are fulfilling all custom and securityregulations set by the relevant authorities as if the

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goodswerereallyflyingbyair(Grandjotet al., 2007, p. 87).The cargo transported by “flying trucks” isa realaircargo thatmusthave fulfilledall requiredsecurityandtransportnormsthatapplytoaircargo.

ByprovidingsuchroadfeederservicesSMEswouldobtain essential advantages in the air cargo supplychain.Thiscanbejustifiedasfollows.first,aircar-gohandlingbymeansofflyingtruckswouldallowSMEstotakeadvantagesoftheaircargomarketandintegrationwithlargeaircargoforwarders,e.g.fromHamburg,Berlin.To exemplify, road feeder servic-es do not require intensive capital investments and physical resources what would be a premise in case ofprovidingair cargo servicesbymeansof air-car-riers (airlines). SMEs do not simply possess such re-sources.Naturally,byofferingRfStotheircustom-ers fromtheair cargohubs inHamburgorBerlin,SMEswouldbetterengageintotheaircargomarketandtheaircargosuppliernetwork.Thisisessential,since, as elaborated by Thomas and Barton, low tech-nical capabilities of suppliers and limited physical resources (facilities, physical capital etc.) are likelytokeeplargeaircargoforwardersandcarriersfromusing in their supplynetworks andaspartof theirsupplychains(ThomasandBarton,2007,p.491).

Second, integrationof road feeder services into theSMEs operations would maintain their flexibility both in terms of costs and investments. Indeed, it isevidentthatSMEsprovidingflyingtruckserviceswouldnotbesubjecttohighinvestments,asopposedto investments related, for instance, to facilities if op-eratingthroughregionalairports.InthiscaseSMEswouldalsobelessexposedtoriskassociatedwithfly-ingtrucksoperationcosts.

Naturally,SMEscouldofferdistinctiveservicecom-ponents totheir largerpartnersduetomeetingtheorder qualifier requirements of qualitative and time-sensitive delivery, as posed by large collaborationpartners(HongandJeong,2006,p.295).followingLevyet al.(2001),byprovidingroadfeederservicesSMEswouldstrategicallyfocusonoperatingatcom-petitive rates, as they do not usually have substan-tial financial resources to handle air cargo throughcarriers (airports), andmeet changing customer re-quirements, e.g. reduced demand on air cargo for-wardingorhandling.Overall,itisveryessentialforSMEs to bear on this business opportunity, especially as customers, in this particular case large air cargoforwardingcompanies,arenotkeen toengage into

relationships with suppliers if they are inflexible and lack technical capabilities. In such cases, large cus-tomers aremore likely to outsource their air cargoforwarding activities to such suppliers,whichmeettheir requirements, even despite the fact that these may be located in more remote regions. The roadfeederservicesoffercertainopportunities,e.g.SMEswouldbecomecapableofobtaininghigherpositionintheaircargosupplychainasaresultofthedistinc-tive values they may provide to their customers, such as flexibility, time and costs savings for outsourcedactivitiesbylargeaircargoforwarders.

Proposition 2: Through interlinking with regional, na-tional or international networks, organisations and in-stitutions SMEs are capable to integrate in the air cargo supply chain and improve their relationship position.

Networksarecrucialforsmallbusinesses.Thisisduetothefactthatnetworksimplyinterdependentrela-tionships, which can positively or negatively affectinteractionsofSMEswithinthenetworks.Moreover,collaborative relationships within the networks areof paramount importance for competitiveness and competitiveadvantage.AselaboratedbyBernalet al. (2002), collaboration within the network may en-hance capabilities of SMEs, since these obtain access toresourcesandcapabilitiesofotherSMEsororgan-isations involved in those networks. Relationshipswithin networks enable the firms to gain, as whatKanter (1994) calls, collaborative advantages. Be-yond this, collaborative activities of the SMEs within thenetworksarelikelytobeconducivetoaccesstonewresources,enhancefinancialandorganisationalflexibilityandcontribute to inter- and intra-organ-isational learning and fostering absorptive capacity(CohenandLevinthal,1990,p.128).Toexemplify,duetolowdemandforaircargoforwardingandhan-dling inMecklenburg-Vorpommern,SMEstendtobelocked-up.Incaseofenteringandintegratingintonewnetworkswithenterprises(e.g.manufacturing,maritime etc.) from Mecklenburg-Vorpommern,SMEs would gain possibilities to increase the de-mandforcargoforwarding.Regionalairportsshouldalsoengageintothebusinessnetworks,asaccordingtotheresultsfrom“Baltic.AirCargo.Net”uptodatesmall and regional airports operate rather isolated.The role of networks is inevitable, since involvedbusinesses are capable to develop new business op-portunitiesandgainaccesstostrongersupportstruc-tures (Bernal et al.,2002,p.245).

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Networking facilitates sharing of information andknowledge among partners who are geographicallydispersed (Gunasekaran and Ngai, 2003, p. 830).Partnership is not a question of resources, but of es-tablishingdemand for services. It facilitatesknowl-edgeandinformationsharingandtransfer,whichareespecially importantwhenSMEsaredevelopingorenteringthemarket(GunasekaranandNgai,2003,p.836).Itisworthmentioningthatintermsofin-ter-organisationalrelationshipstheoriginalfocusonprovidingaircargoforwardingservicesshouldbeex-tendedtoavarietyofotherareas.IncaseofregionalSMEs, these should focus on additional services pro-vidingaddedvaluefortheircustomers.

Practically, inter-organisational relationships canbebuiltup andmaintained throughanetwork, as settobeestablishedbytheBaltic.AirCargo.Netproject.This network may provide compelling opportuni-ties for both regional airports and SMEs dispersedacrosstheBalticSeaRegion(BSR).Troughnetwork-ingactivities,regionalairportsandSMEswouldbebetteroffinutilisingroadfeederservices,especiallywhen these ones will be underpinned by the entire networkandnetworkingregionalagents,i.e.airportsand small andmedium-sized businesses.Moreover,theroleofnetworkfocusingoneffectiveandefficientutilisationof theflying truck conceptmightbe fa-cilitatedbycross-networking,i.e.engagingintoandpromoting this concept in other regional, nationallogistics,businessdevelopmentandbusinesssupportnetworks.Therefore,theSMEsandregionalairportsshould pursue the way in promoting the value ofdifferentiated qualitative value through road feederservicesandthepromisingeconomic,organisationalandstrategicbenefitsthereof.

In this respect, organisationally and strategicallySMEs and regional airports can develop throughstreamlining their internal resources deployment,engaging into knowledge transfer and gaining coreaircargoforwardingservices-relatedcapabilitiesandcompetences.Hence,thepaperarguesthat:

Proposition 3: SMEs building up (internal) organisa-tional capabilities and core competences through learn-ing, training and business networking SMEs obtain bet-ter competitive positions in the air cargo supply chain and network.

SMEsdofacechallengesalsoontheorganizationalbehaviourlevel,i.e.inmanagement.Inorder,howev-

er,toovercomechallenges,SMEsneedtoundertakechanges.This,inturn,requiresshiftsinmanagementstructuresandskills.forthispurpose,individualandorganisationallearning,trainings,skills(especially,asdemanded, languageandinternationalbusinessop-erationsskills)areneeded.Learningprocessesareofparamountimportancenotonlytobringforwardor-ganisationalperformance.Indeed,theycanaccumu-late economic benefits. By drawing onCohen andLevinthal, absorbing new information and knowl-edgeandinternalisingit,SMEsarebetteroftogaincommercial profits (Cohen and Levinthal, 1990,p. 128).Therefore,informationandhumanresourcesmanagementstructuresaresubjecttochanges(Hal-leyandGuilhon,1997,pp.491-492).SMEshavetobuildupkeycapabilitiesorcorecompetences,asun-derpinnedbyPrahaladandHamel,1990,pp. 5-7).furthermore, having streamlined internal capabili-ties (management skills on business and logisticsprocesses,languageskillsetc.),SMEsarecapabletoobtainadifferentiatedpositioninaoperatingenvi-ronment.Tofillis,intermsofsuchdeterminantsasintangibleskillsandotherresourcesaswellascreativ-ity,trustleveletc.,SMEscompeteunequally(fillis,2001,p.777).Naturally,thisenablestodistinguishthemselves.Asaresult,SMEshavetokick-offindi-vidualandorganisationallearningandtotransformitintoaregularcycle,what,inturn,isconducivetosustainability.

7. conclusions

SMEs reveal shortcomings and challenges in bothexternal and internal contexts (Halley andGuilhon,1997,p.482).Sustainablemanagementsuccessesun-derlie, however, an implementation of a holistic and dynamic model (Chetty and Cambell-Hunt, 2003, p.82).Bybuildinguponpracticesandlessonsfromtheregional small andmedium-sizedbusinesses it is ap-parent that SMEs have come to be isolated and usually act individually beyond the boundaries of the specific aircargologisticsandtransport-relatednetworks.This,however,bringSMEsintounfavourablesituation,andthe entire regional businesses are being jeopardised.SMEs face problems in obtaining capital, resources,skillsandnovelknowledgeandinformation.

AsaresponsetotheregionalanalysisandscrutinyofSMEspractices on the air cargomarket the presentresearch calls for a holistic and interactive model for SMEs,whichenablesthemtorespondtothechanging

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externalandinternalaircargosupplychainparadigm.

Empirical evidence demonstrates that SMEs lackstrategicplansandarecharacterisedratherbyshort-term advantages (Gunasekaran andNgai, 2003, p.830). To encounter such situation, SMEs shouldcombine their technological, organisational and fi-nancial resources and deploy them respectively. This combination will allow them to acquire capabilities that,first,aretobeusedintermsoftechnology.Asenlightenedintheimplications,SMEsshouldplacetheirstrategicfocus,onnewtechnologiesforaircar-gotransportation.Inthisparticularcontext,thisre-ferstoaflyingtrucksmodel.Hence,bearinginmindmarket position and market share of SMEs fromMecklenburg-Vorpommern, SMEs should adapt totheexternalenvironmentinsteadofrelyingonineffi-cient financial and physical capital resources (airport facilities etc.), which then lead to scarce orders or low demandfromlargecontractors.

Subsequently, SMEs have to learn from the current practices and to combine proactive and reactive vi-sionwhat,inturn,enablesbetterpositioningintheaircargosupplychainandsustainablemanagement.Being reactive, SMEs can adapt to air cargo mar-ket changes or customers requirements (increasingair cargo forwardingdemand from, e.g.Berlin andHamburg). With the flying trucks concept SMEscouldeasieradapttothedemandsoflargeaircargoforwarders. Acting with a proactive vision, SMEsare able togainbenefits through theirorganisation/internaldifferentiation.Naturally,bothvisionsen-able to sustain the position and performance. Con-sequently, this helps SMEs to overcome some tradi-tional problems.

furthermore,abetterbargainingpowerandintegra-tionoftheflyingtruckconceptintosmallbusinessesmightbeachievedthroughbuiltupcollaborativere-lationships in the specificnetworks.Abetter inter-partneringcanenhanceoperationalperformanceofSMEsandprovidethemanopportunityto linkupwithothernetworksbeyondtheregionalornationalboundaries.

Overall, the authors believe that empirical insightsfromthecurrentpracticesofSMEsintheregionofMecklenburg-Vorpommern can be useful in bothcurrentresearchdiscoursesonaircargosupplychainand in termsofSMEs’ role in it as well as in busi-nesses circles. Lessons and experiences learnedmaybenefitSMEsinotherEuropeanregionsinstrength-

eningtheirperformanceandrethinkingtheirstrate-gicchoices.

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SuStainable innoVatiVeneSS: iSSueS and Public Policy

Kristina balkienė

Mykolas Romeris University, Valakupiu 5, LT-10101 Vilnius, LithuaniaJan van Goyenstraat 132, 1816 EH, Alkmaar, The Netherlands

E-mail: [email protected]

abstract.Apaperseekstojustifyaneedforthebetterdevelopmentofsustainableinnovativeentrepreneurshipbypublicpolicyinitiatives.Ittakesintoaccounttwosidesofthisissuegoingfromthemainchallengesofbusinessinnovationactivity to thepossiblepublicpolicyactionsnecessary to improve theexistingsituation.ThemainfocusofthispaperisdirectedontheimprovementofcurrentLithuania’sinnovationpolicyforthemoreeffectivebusiness innovation promotion. Moreover, a concept of the innovative entrepreneurship is also discussed here asafoundationofthelinkagebetweeninnovationandentrepreneurshippolicies.Theresearchisbasedontheinterpretative, systematic and comparable analysis of the quantitative and qualitative data. The paper provides the resultsofLithuania’sinnovativeenterprisessurveyperformedbytheauthor.Thefindingsincludetheissuesrelatedtotheinnovativebusinessneedsandtheroleofinnovationpolicyactionsinthepromotionofthiskindofbusiness.

Keywords: business innovation, sustainable entrepreneurship, public policy.

reference to this paper should be made as follows:Balkienė,K.2013.Sustainableinnovativeness:issuesandpublic policy, Journal of Security and Sustainability Issues3(2):53–76.http://dx.doi.org/10.9770/jssi.2013.3.2(5)

jel classifications: M21, M29

developingcountries(OECD2006).Moreover,itisalso pointedout, that the growth and job creationeffects happen through innovation (OECD 2010)while the entrepreneurship without innovation can onlytemporaryboosttheeconomicgrowth(ArizonaStateUniversity2006).

Withregardtoeconomicandsocialvaluecreation,itis noted, that entrepreneurs who do not innovate do not createwealth (Michael&Pearce 2009, p.290-291). As Peter Drucker (1985) indicated, innova-tion is a specific tool of entrepreneurs, the means by which they exploit change as an opportunity for adifferentbusinessoradifferentservice.Inthemean-while, Schumpeter (1934, 1939) defined innova-tion as behaviour and activities, based on destruc-tionofcontemporaryframesofthoughtsandaction,whichleadstothecreationofnewgoodsorqualityofgoods;developmentofnewmethodsofproduc-tion; establishment of new markets; utilization of

1. introduction

It is stated, that the innovation process of the 21st centuryisradicallydifferenttothatoftheprecedingone.Thechangecanberesumedasashiftfromthe“ManagedEconomy”tothe“EntrepreneurialEcon-omy.”Intheformer,scienceandsystematiclargefirmresearchanddevelopment(R&D)wasthekey.Cur-rently, entrepreneurship is one of the foundations of innovation (OECD 2010).

Inrecenttimeagrowingnumberofresearcherstendto underline a significance of the entrepreneurshipbased on innovation activity because of its positive effectsatthemacro(country;society)andmicro(en-terprise) levels.

The entrepreneurship is viewed as a critical activity toregenerateandsustaineconomicgrowthinstrongeconomiesandalsoasameansofboostingemploy-ment and productivity in depressed regions or in

K r i s t i n a B a l k i e n ėSustainable innovativeness: issues and public policy

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newsupplysourcesor;industrialreorganization,andhence breaks with the existing. Audretsch (2006)emphasized an essential entrepreneur’s role for theknowledge commercialisation and designated theentrepreneurasthemissinglinkbetweentheknowl-edgeandtheinnovation(Vinnova&GeorgeWash-ingtonUniversity2006).

Thus,itisobvious,thattheprogressiveandsustain-ableeconomicdevelopmentrequireseffortsnotjustfor business creation, but also for the development of business innovation activity. According to this,an article takes into account a concept of innova-tive entrepreneurship and discusses a public policy role in business innovation promotion. It is assumed, thatalackofpublicsupporttothedevelopmentofinnovative business sector or public policy actions’inefficiency hampers the formation of sustainable in-novativeness in the country.

Themainobjectiveofthispaperistojustifyaneedfor the better development of innovative entrepre-neurship by public policy initiatives with the focus ontheLithuania’scase.Inordertodothat,thefol-lowinggoalsweredefined:1)Toprovidea theoretical viewonwhich thecon-cept of innovative entrepreneurship and its role in public policy field is based.2)Todiscussthepublicpolicyroleinbusinessinno-vationpromotiontakingintoconsiderationthestra-tegicfacetsofcurrentLithuanianinnovationpolicy.3)Topresent theresultsof recentLithuania’s inno-vative enterprises survey performed with the aim to investigate themain challenges of business innova-tionactivityinLithuaniaaswellasthesignificanceofvarious innovation policy actions in the promotion of this type of activity.

The common research provided in the article is based on the interpretative, systematic and compara-ble analysis of the quantitative and qualitative data. More specifically, the following research methodswere applied in this article:- Analysis of relevant scientific literature and policy documents in order to: form the common conceptual picture of the innovative entrepreneurship phenom-enon;summarizethepreviousempiricalfindingsinfieldofbusiness innovationactivity; justify the sig-nificance of innovative entrepreneurship policy for the promotion of business innovation activity.- ContentanalysisofLithuanianpublicpolicydoc-umentsusedtoidentifytheLithuania’sstrategicap-

proach to business innovation promotion.- Quantitative business survey focused on Lithua-nia’sinnovativeenterprises(moredetaileddescriptionofsurvey’smethodologyisprovidedinchapter3.

The outcomes of this article can be useful for the fur-ther improvements of national public policy actions formoreeffectiveandsustainablepromotionofbusi-ness innovation activity.

Definitions used in this article:l Innovation–theimplementationofaneworsig-nificantly improved product (good or service), orprocess,anewmarketingmethod,oraneworgani-sationalmethodinbusinesspractices,workplaceor-ganisationorexternalrelations(OsloManual2005,p.46).Ameaningofnoveltyisunderstoodherefromthebusinessormarketpointofview.l Business innovation activity is defined here as a complex of creation, development and commerciali-sationprocessesof anewor significantly improvedproducts, processes or business organisation formswhichbringsahigheraddedvaluetothemarketorbetter performance results inside enterprise. The us-ageofnewknowledgeandentrepreneurialskillscanbe indicated as an anchor of such activity.l Innovative enterprise is one that has implemented at leastoneinnovationduringtheperiodunderre-view,includingthosewithsuccessful,on-goingandabandoned innovation activities (Oslo Manual 2005, p.47,59).l Entrepreneurship is explained as a mind-set and process to create and develop economic activity by blending risk-taking, creativity and/or innovationwithsoundmanagement,withinaneworanexistingorganization (Commission of the European Com-munities 2003). l Innovative entrepreneurship is equated with the business innovation activity taking into account aconceptual interface between the innovation and en-trepreneurship.

2. literature review

concept of innovative entrepreneurship

Entrepreneurship is multi-dimensional and can be consideredindifferentcontexts,but its importancefor economic development and social wellbeing isunquestionable.Itisusuallyrelatedtothefollowingpositive effects as: economic growth through newbusinesses creation; increased competitiveness at


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firmsandcountrieslevels;employmentgrowth;pro-ductivityandunlockedpersonalpotential(Balkienė&Jagminas2010).

Economists tend to define entrepreneurship from an occupational, a behavioural or an outcomes point of view. from the occupational point of view, en-trepreneurs are simply those who are self-employed and/or business owners. Behavioural definitions of entrepreneurshipare related to the ‘Schumpeterian’behavioural view by which entrepreneurship needs to be distinguished from other related activities, suchas business ownership, business financing or busi-nessmanagement.Asitisstated,todaymanyentre-preneurshipscholarstendtoagreethatthedefiningfeature of entrepreneurship is innovation throughspotting and utilizing opportunities (Naudé 2011,p. 5-6). from the outcomes perspectives, entrepre-neurship is usually examined by its contribution to different parameters of the economic developmentand quality of life.

Thewordentrepreneuroriginatesfroma13th-centu-ryfrenchverb“entreprendre”meaning“todosome-thing”or“toundertake”(Hall&Sobel2006).Thefirst time the term of entrepreneurship was defined bythefrencheconomistRichardCantilloninabout1730. He defined entrepreneurship as self-employ-mentofanysort,andentrepreneursasrisk-takers,inthesensethattheypurchasedgoodsatcertainpricesin the present to sell at uncertain prices in the future (OECD2006;Casson2010,p.7).EversinceCantil-lon’s(posthumous)publication“EssaisurlaNatureduCommerce enGénéral” in 1755, entrepreneursappeared in economic theory as contributors to soci-ety’seconomicvalue(MirjamVanPraag1999).

An Austrian American economist Joseph Schumpeter (1934)madeagreatinputtothedevelopmentofen-trepreneurshipdefinitionbyhighlightingaroleoftheentrepreneur as an innovator.According toMirjamVanPraag(1999),heturneddownthepredominantparadigmofentrepreneurshipasmanagementofthefirm and replaced it with an alternative one: the en-trepreneur as leader of the firm and as the innovator and therefore, prime mover of the economic system. Schumpeter was also very clear about what entrepre-neurs are not: they are not inventors, but people who decide to allocate resources to the exploitation of an invention;theyarenotrisk-bearers:risk-bearingisthefunction of the capitalist who lends funds to the en-trepreneur(Kuper&Kuper1996,p428-429).

Baumol(1990)tooknoteoftheexistenceofproduc-tive, unproductive and destructive entrepreneurship. Thatdependsonthecreationofthewellbeingofso-ciety.forBaumol, aproductive entrepreneurial ac-tivity refers to any activity that contributes directly or indirectly to net output of the economy. An un-productiveentrepreneurengagesininnovativeactiv-itybutmakesnocontributiontotherealoutputoftheeconomy.Adestructiveentrepreneurengagesininnovative activity that leads to the misallocation of valuable resources into pursuits that from the view-point of the economy are useless and are carried out for the self-serving purposes of the entrepreneur(Baumol 1993).

Drucker (2002,p.95) said that the termentrepre-neurshiprefersnottoanenterprise’ssizeoragebuttoacertainkindofactivity.Attheheartofthatac-tivity is innovation: the effort to createpurposeful,focusedchangeinanenterprise’seconomicorsocialpotential.

Blakemore (2006) took into consideration an im-pact of replicative and innovative entrepreneurs on economic growth. Innovative entrepreneurs cre-ate and commercialize new products, services andbusiness practices, in contrast to the replicative en-trepreneurs – thosewho open businesses that sup-port a growing population Blakemore highlighted,that entrepreneurship without innovation can only temporaryhaveapositiveeffect,whilethelong-termeconomicgrowthrequiresinnovation(ArizonaStateUniversity2006).

Stam(2008)tooknoticeofthefollowingnecessaryconditions under which the concept of entrepreneur-ship is defined: 1) existence of entrepreneurial op-portunities (environmental changes: technological,political/regulatory, social/demographic); 2) differ-encebetweenpeople(intheirwillingnessandabilitytoactuponanopportunity);3)riskbearing,uncer-tainty until the entrepreneur pursues the opportuni-ty;4) organizing(newwayofexploitingtheopportu-nity);5)innovation:recombinationofresourcesintoa new form that is by implication not a perfect imita-tion of what has been done before, and thus involves achangeinthemarketplace.

Thedifferentconceptsofentrepreneurshipandtheirlinkswithinnovationareprovidedintable1.


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table 1. Evolution of entrepreneurship concept

Source Concept of Entrepreneurship Referencetoinnovation

Scientific sourcesCantillon (1730) Anykindofself-employment -Schumpeter (1934)

Activity based on purposeful and systematic innovation. +

Kirzner(1973) Equilibratingforceinwhichentrepreneursdiscoverpreviouslyunnoticedprofitopportunities and act on them -

WennekersandThurik(1999)

Manifestabilityandwillingnessofindividuals,ontheirown,inteams,withinandoutsideexistingorganizations,to:(i)perceiveandcreateneweconomicopportunities(newproducts,newproductionmethods,neworganizationalschemesandnewproductmarketcombinations);and(ii)introducetheirideasinthemarket,inthefaceofuncertaintyandotherobstacles,bymakingdecisionsonlocation,formandtheuseofresourcesandinstitutions

+

Drucker(2002) Certainkindofactivityfocusedoninnovation +Shane (2003) Activity that involves discovery, evaluation and exploitation of opportunities to introduce

newgoodsandservices,waysoforganizing,markets,processes,andrawmaterialsthroughorganizingeffortsthatpreviouslyhadnotexisted

+

Stam(2008) Introductionofneweconomicactivitybyanindividualthatleadstochangeinthemarketplace,takingintoaccountthenecessaryconditionsforentrepreneurship,oneofwhich is innovation.

+

Policy documents and other sourcesEuropean Commission (1998)

Dynamic process by which individuals constantly identify economic opportunities and act uponthembydeveloping,producingandsellinggoodsandservices -

European Commission (2003)

Mindsetandprocesstocreateanddevelopeconomicactivitybyblendingrisk-taking,creativityand/orinnovationwithsoundmanagement,withinaneworanexistingorganisation

+

United Nations (2004)

Sourceofinnovationandchange,andassuchspursimprovementsinproductivityandeconomic competitiveness +

OECD (2005) Anaction,process,oractivity,inwhichcreativity,risk-takingandinnovationplayasignificantrole +

OECD (2007) The phenomenon associated with entrepreneurial activity, which is described as the enterprisinghumanactioninpursuitofthegenerationofvalue,throughthecreationorexpansionofeconomicactivity,byidentifyingandexploitingnewproducts,processesormarkets

+

Encyclopedia of Business in Today’sWorld(2009)

Practiceofstartingabusinessor“breathinglife”intoanexistingbusiness

-

GlobalEntrepreneurship Monitor (2012)

Any attempt at new business or new venture creation, such as self-employment, a new businessorganisation,ortheexpansionofanexistingbusiness,byanindividual,ateamofindividuals, or an established business

-

Source: formed by author

As it is seen, on the one hand, a number of the scien-tific sources and policy documents relate the concept of entrepreneurship to the creation and development of new businesses. However, on the other hand, most of them(Schumpeter1934;Baumol1968;Drucker1985; et al.) alsohighlight a roleof entrepreneur asan innovator, who is able to find and exploit the new opportunities, to take a risk and transform thenewknowledgeintopractice.

Thus, there is a two-sided conceptual issue which needs to be more deeply considered: Could the en-trepreneurshipbe seen just as aneconomicactivitywith the aim to crate and/or develop business with-out the focus on novelty as it is described in the con-ceptof innovation?Orshould itbedirectlyrelatedtotheinnovationactivity?Whatisdifferentbetweentraditionalbusinessactivityandentrepreneurship?


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Audretsch(2006)noted,thatentrepreneurialmodelofdoingbusinessisabouttakinganewidea,typicallybasedonnewknowledge,andturningitintoahighgrowthfirm.Heindicatedthefollowingfeaturesofentrepreneurshipmodel:newemergingsectors;highR&D;highhumancapital;highwages;turbulence;new sources of finance; high growth (Vinnova &GeorgeWashingtonUniversity2006).

Lindholm(2006)distinguishedbetweensmallfirmsandentrepreneurialfirmspointingout,thatalotofentrepreneurial firms are small, but that is not always thesamething.Bysayingthis,shegavereferencetothe public policy actions what sometimes have not equal influence on SMEs and entrepreneurship (Vin-nova&GeorgeWashingtonUniversity2006).

Stam(2008)pointedouttwoimportantdisclaimersconcerningthemeasurement(noteverythingthatiscounted as entrepreneurship concerns innovation) andsystemiceffects(moreentrepreneurshipdoesnotalways mean more economic growth) of entrepre-neurship, what should be considered by innovation policymakers.

Thus,takingintoaccountallthescientificandpoliti-caldiscussionsprovidedabove,thispaperemphasizesthe concept of innovative entrepreneurship, which clearly indicates the business innovation activity as a core element within the concept of entrepreneurship. Thedifferencesidentifiedbetweenentrepreneurshipand innovative entrepreneurships are provided in the table below (table 2).

table 2. Entrepreneurship vs. Innovative entrepreneurship

Entrepreneurship Innovative entrepreneurshipfeatures l Knowledge

l Competences l Culturel Sciencel financing

l Usageofexistingknowledgel Business competencesl Entrepreneurial culturel TraditionalactivitywithoutR&Dl Traditionalsourcesoffinancing

l Usageofnewknowledgeornewwaystoapplytheexistingknowledge

l Toinnovationorientedcompetencesandcreativity

l Innovation culturel R&DactivityandR&Dpersonnell Newsourcesoffinancing

focus Successfulpractice;market’shabits Commercialisation of noveltyEffect Self-employment;jobcreation Progressive development of economy and

societyDefinition Business activity based on replication of

alreadyexistingoneintheneworexistingenterprise

Business activity based on the new knowledgeand/orR&Dresults,andtheirimplementation in the form of the new products or processes


Some sources of the literature (Lundström & Ste-venson2005;Dahlstrand&Stevenson2007,2010)relate the concept of innovative entrepreneurship to technologicalcompaniesorhighgrowthcompanies.However,accordingtothedefinitionofinnovation,thispapersuggestsassociatingtheinnovativeentre-preneurship with business innovation activity with-out distinction between its technological or non-technologicalnature.

It can be assumed, that an application of the concept of innovative entrepreneurship in public policy area couldcontributesignificantlytothepurposefulandsystemic approach based efforts for the sustainabledevelopment of favourable conditions for business innovation activity. Moreover, in respect of innova-tionrole,theusageoftheconceptofinnovativeen-trepreneurship would narrow the interpretations of

entrepreneurship’sphenomenondown.

Thus,withregardtowhatwasmentionedbefore,thefurther sections of this article will be focused on the business innovation related issues.

Previous empirical researches on business innovation activity

In recent time a growing popularity of innovationrelated surveys can be observed. In the business in-novation surveys’ area, a great focus on innovativeSMEs is seen. The most common issues analysed include: the role and sourcesof innovation; factorsinfluencingbusinessinnovationactivity;innovationimpactonbusinessperformanceresults; innovationcapacities;government’srole inbusiness innovationpromotion;etc.Ashortreviewofpreviousresearches


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concerned with business innovation activity is pro-vided below.

Lundström&Stevenson (2005,p.144,146), ana-lysingthegovernmentpracticeofdifferentcountriesin the business innovation promotion, indicated a numberofbarriersinhibitingthedevelopmentofin-novativenewfirms:intellectualpropertyissues,lackofadequatepremises,lackofpre-seeddevelopmentaland early-stage equity financing, lack of entrepre-neurial and management skills, lack of interactioneffects between possible innovations and potentialentrepreneursandlackofadynamicenvironmenttostimulate overall entrepreneurial activity. They also stated that evidence exists to support the idea that innovativeentrepreneurshipis likelytobemoreef-fective in environments where entrepreneurship is highlyvaluedandsupportedbysociety.

McAdam, Reid, Harris and Mitchell (2008) con-ducted an empirical study of innovation incorpora-tioninSMEsasakeysustainablesourceofcompeti-tiveadvantage,bycontrollingforkeytechnologicalandorganisationaldeterminants.Thesurvey’sresultsare based on the investigation of 2086UK SMEs.Authorsfoundthatinnovationwasmoststronglyre-lated to government grant aid, firm size, industrialsector,andtheapproachtakenbythefirmtoorgan-ise how it develops products and processes.

Oksanen andRilla (2009) analysed the role of in-novation in small finnish entrepreneurial firms.The study was based on a questionnaire survey (220 finnishcompanieshavingintroducedaninnovationtomarketin1999-2004)andsemi-structuredinter-views (70 finnish innovative SMEs). According tothe survey results, innovation is a crucial factor for existence of business. An identification of marketniche and customer needs identified as the most im-portantsourceforinnovationamongcompanies.In-crease inprofitability and competitiveness emergedas the most beneficial impacts of innovation in all companies but also new contacts and co-operation that arise in the process of innovative activity were highlyvalued,especiallyinmicrofirms.

Chamberlin, Doutriaux and Hector (2010) explored the relationship between innovation and various businesssuccessfactorsin3701firmsacross34Ca-nadian service sectors.Thefindings confirmed thatinnovativefirmsaremorelikelytodeveloptheirhu-man talent, to activelymanage their organisationalknowledgeandadoptnewtechnologiesthannon-in-

novative firms, while non-innovative firms are more likelythaninnovativefirmstoidentifyproximitytoclients and suppliers.

JørgensenandUlhøi(2010)investigatedhowfirmsdevelop their innovation capacity throughnetworkparticipation. The results have shown that the net-workrelationshipsformedduringtheearlieststagesofthefirm’slifecycleplayedacriticalroleindevelop-ingtheSME’scapacityforsustainedinnovation.

Kaufmann,TsangarandVrontis(2012)studiedtheexistinghurdlesforinnovationandthelevelofsys-tematic application of differentmanagement func-tions relevant for innovation management in 204European SMEs. The research performed in six Eu-ropeancountries(UnitedKingdom(30SMEs),Cy-prus(30),Spain(28),Italy(30),Greece(23:Thes-saloniki;33:Athens),Lithuania(30))resultedinthefollowingmajorfindings:- The two major reasons blocking innovation arelack ofmoney and lack of time, while the lack ofmoneywas strongestperceived inItaly,GreeceandLithuania.- Thefactorsthatsignificantlyleadtosuccessfulin-novation, in order of importance, are: 1) Corporate culture;2)If thecompanyhasadepartmentof in-novationoraformalprocessforinnovation;3)Thenumberof employees, i.e. the size of the company(themoreemployeesthehigherthelevelofinnova-tion);4)whetherexistingproducts, even successfulones,getreviewedfromtimetotime.- Very low level of SME co-operation with universi-tiesinallsixcountriesfound:62.2%ofallcompa-nies do not co-operate with universities in terms of innovation.- Bettertechnology,newmarketopportunitiesandcustomers’requirementswereperceivedbyallcom-panies as reasons for improvements.- New product ideas come from owners, what showed a contradiction between the awareness of the importance of customer requirements and the actual involvement of customers in the innovation and cre-ativity process.- Companies prefer more incremental rather than radicalproductchanges.- SMEsdonotfeeltobesupportedbygovernmentsas to innovation activities. The reasons for this per-ceptionweresuggestedtobesubject for furtherre-search.

At national level some authors also performed to the


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business innovation activity oriented surveys.

Tvaronavičienė and Korsakienė (2007, 2008) ex-plored an approachof1264Lithuanian companiestowards innovations, taking into account the eco-nomic conditions and public policy. The survey re-vealed the limited government role in innovationpromotion: business companies did not feel the ef-fects of active state policy for innovation promotion and were not aware of state and other external avail-ablesourcesoffinancing.Theauthorsalsoindicatedtheweak relationshipsbetweenbusiness companiesand scientific institutions,whatwas emphasized asoneofthefactorsimpactinglowvalueaddedinnova-tionsdevelopedwithoutinputfromtheR&Dsector.

Masiulis, Sudnickas et al. (2009)measured an im-pact of innovation policy on the SMEs development inVilnius region (Lithuania).The SMEs indicatedthatinnovationpolicyinVilniusregionisnotprop-erly implemented. The financial support and support forR&Dactivitywasperceivedasthemostimpor-tant areas for SMEs, while an establishment of busi-nessincubatorsandtechnologytransfercentreswastheleastsignificant.Therewasalsodenotedaweakcooperation between SMEs and public administra-tion institution.

Baležentis andŽalimaitė (2011) conducted the re-search aiming to identify the innovation develop-mentfactorsinLithuania.Theresults,reflectinganopinion of 7 Lithuania’s innovative companies, in-dicate the following factors hindering the businessinnovationactivity:financingproblemsas thehighinnovation costs; lack of creative and skilled per-sonnel;andmotivationproblems.Accordingtothecompanies interviewed, the main factors influenc-ing the slow innovation development in Lithuaniainclude: insufficient collaboration between business andscience;andfocusonlow-value-addedproductsand services.

The annual survey “Innobarometer” (2001, 2002,2003,2004,2007,2009,2013)coordinatedbytheEuropean Commission’s on innovation issues col-lectedthefollowingsetoffindings:

Ø Typesofinnovationintroducedbythecompaniesin the EU:- 2007:Goods-relatedinnovationisthetypethat‘sthe most widespread across the EU, while the service innovation are less frequently reported. At the same time the least widespread innovation activity of com-

panies is application for patents.- 2013:Companies aremost likely to have intro-ducednewor significantly improvedproducts, ser-vices, or processes than other innovation forms (or-ganisational, managerial, marketing innovations)between 2009 and 2011.

Ø Reasonsandincentivesforinnovationactivity(byorder of importance):- 2001:1)thedesiretobuildupmarketsharesandcompanyprofitability;2)awishtopreservethein-dependenceofthecompany;3)thedesiretocreatejobs;4)compliancewithenvironmentalstandards.- 2003: 1) consumers’ needs; 2) increasing pricecompetition;3-4)needtoimprovetheproductivitylevel of personnel as well as need to improve the ef-ficiencyofmachineryandequipment;5)increasingproductcompetition;6)responsetonewregulatoryorlegislativeobligations.- 2009:1)increasedpressurefromcompetitors;2-3)increaseddemand fromexisting commercial clientsas well as the new opportunities to expand within existingmarketsorenternewones.

Ø Contributors to companies’ strengths in innova-tion (by order of importance):

- 2002: 1) qualifications and professionalism of staff;2)goodco-operationwithsuppliers,customersortradeassociations;3)flexibilityandadaptabilityofproductiontomarketneeds;4)efficientproductionmethodsmakingbestuseofresources;5)leadershipinfindingoutandexploitingnewmarkettrends;5)technologicaladvanceandR&Dcompetencies.

Ø Companies’ unsatisfied needs for innovation (byorder of importance):- 2001, 2002: 1) accessing innovative customersand/ormarkets;2)findingormobilisinghumanre-sources;3)financialresources;3)findingandusingnewtechnologies;4)knowledgesharingornetwork-ing;5)protectingknowledge.

Ø Networking and cooperationof innovative com-panies:- 2002, 2003: The innovative companies would preferablyseekadvicefromprivateexternalconsult-antsormostlikelyfromtheirsuppliersorcustomersforintroducingofnewmanagementapproachesthanfrom research institutions or public advisory centres.- 2004:The proportion of enterprises which con-firmedtheirparticipationintheinnovationnetworksincludingotherfirms,universitiesor research insti-


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tutes was very low.- 2007: Companies tend more to carry out in-house R&D than to contract outR&D to other compa-nies, consultants, universities and research institutes.

Ø Publicsupportorinitiativesforcompanies’inno-vation activity:- 2003: The support of national authorities for com-panies’innovativeeffortswasindicatedasratherdis-satisfied than satisfied.- 2004:Nine in ten enterprises which introducedneworsignificantly improvedprocessesdidnotre-ceivepublicsupportforthis.Latvia,Lithuania,Lux-embourg, Poland,Estonia and theCzechRepublicwere the countrieswhere public support forR&Dactivities was either absent or its availability was un-knowntocompanies,asalmostallinnovativeenter-prises in these countries did not obtain public sup-port for this.- 2004:Publicsupportfortrainingstaffinordertoimprove innovation capabilities was perceived by the companies as the most valuable form, while public supportfortheintroductionofneworsignificantlyimprovedprocessescamenextinthisranking.- 2007: Only less than half of innovative enterprises in the EU have received public support for their in-novation activity, where large enterprises have bet-ter access to public assistance. The most widespread forms of public assistance do not involve direct or indirect financial benefits, while the participation in trade fairs or trade missions and information provi-sion were themost likely activities received publicassistance.

Summarising,itcanbeseen,thatdespitethediffer-entgeographicalandmethodologicalfacets,thepre-vious researches clearly show the two common chal-lenges concernedwithbusiness innovationactivity:(i) aweak cooperationbetweenbusiness, especiallySMEs,andscienceaswellasalackofinteresttopar-ticipate in the innovationnetworks ingeneral; and(ii)alackofpublicsupport,includingthefinancialinitiatives, for business innovation activity.

Ingeneral,theareasofpreviousresearchesrelatedtobusiness innovation activity vary widely. However, they canbedividedintothetwomaingroups:1) researchesconcerned with business internal environment and ac-tions(issuesatmicrolevel);and2) researchesorientedtotheexternalfactorsinfluencingbusinessinnovationactivityincludingpolitical,economic,socialandtech-nologicalaspects(issuesatmacrolevel).

Additionally, it is important to note, that the scien-tificpapersreferringtothepromotionsofinnovativeentrepreneurship are still rare. Moreover, the public policy actions and their impact on business innova-tion activity are mainly investigated by request ofpublicinstitutionsandorganisations(i.e.initiatedbythe European Commission, the OECD, the United Nations,nationalgovernments,etc.).

from innovation Policy to the innovative entrepreneurship Policy

In the emerging market economies (countries intransition)thesustainedeconomicgrowthbasedontheuseofinnovationhascomeforwardasthemajorobjectiveofgovernmentpolicy.Incountriesrichinresources,decisionmakershaveincreasinglyrealizedthat economic development based on their exports ishardly sustainable given the volatilityof externalmarketdemandandprices.Inothercountries,poorin natural resources, there has been no alternative to innovation-based development since the start of transition(UnitedNations2012).Thus,thisjustifiesan important role of national innovation policies for the development of sustainable innovativeness ensur-ing higher economic and social value creation andfuture prosperity.

Goingbacktothehistory, it isstated,that innova-tion policy was developed on a basis of science and technologypolicyand industrialpolicy, and its ap-pearancesignalledagrowingrecognitionthatknowl-edgeinallitsformsplaysacrucialroleineconomicprogress(OsloManual1996).

Some sources relate an explicit formulation of in-novationpolicytothe1960s(Aubert2004),othersindicate,thatthe“Innovation”wasonlybeginningtoemergeasapolicyareain2000-2001(Lundström&Stevenson 2005, p. 123).

Takingintoaccountthebroadunderstandingof in-novationanditsdifferentfactorsofinfluence,thein-novation policy can be defined as the public policy initiativesandactionsimplementingwiththeaimtofoster the development of innovation activity both at macro(country;society)andmicro(enterprise)levels.

According to the analysis ofEU strategic prioritiesfor innovation development in period from 1993 topresent-days, the followingmain areasofpublicpolicy actions are identified:- Innovation and entrepreneurship culture (educa-


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tionandtraining;researchers’andstudents’mobilitypromotion;innovationinpublicsector;focusonallformsofinnovation;etc.);- Collaboration culture (collaboration between business and science; public-private partnerships;cross-borderknowledgetransfer);- Sufficient investment in R&D and innovation(betterbusinessaccesstofinance;increaseofpublicinvestments inR&D&I; increaseofprivate sector’sinvestment inR&D&I;public-privatepartnershipsforinnovationfinancing;etc.);- favourableregulatoryframework(Intellectualandindustrialpropertyrightsprotection;regulatoryandadministrativesimplifications);and- Otherpublicactionsthatshouldensuretheeffec-tiveness of innovation policy implementation (e.g.effective innovation governance; monitoring andforesightactivities;improvementofinnovationsup-portservices)(Baležentis&Balkienė2011).

In the meanwhile, the innovation policy instruments and measures include those to: increase basic research and R&D investments; facilitate collaboration be-tweenenterprisesandotheractorstopromotejointinnovation activities and knowledge exchanges andfoster spin-offs firms (e.g., cluster networks); sup-port innovation infrastructure, such as technologytransfer offices, science parks, and business / tech-

nologyincubators;encouragetheuptakeofstrategictechnologies amongSMEs; promote an increase inthepercentageofscienceandengineeringgraduates;improvetheintellectualpropertyrightsregime;im-prove access to pre-commercialization funding andventurecapital;providetaxandotherincentivesandsupportstoacceleratethecommercializationofnewtechnologies andproducts (Lindholm&Stevenson2007, 2010).

However, in regard to business innovation promo-tion, a link between innovation and entrepreneur-shippoliciesshouldbehighlightedhere.Onetheonehand, it is obvious, that the promotion of business innovation activity requires favourable conditions forthebusinessdevelopmentingeneral(businessde-velopmentandentrepreneurshippolicies),includinglegislativeandregulatorysystem,entrepreneurialcul-ture,businessskillsensuringeducationandtrainingsystem, etc. But, on the other hand, the specific focus areas(e.g.scienceandR&Dactivity;specificinnova-tivebusinesssupportinfrastructure;innovationori-entedcompetences;fundingsourcesforinnovation;etc. (innovation policy)) essential for the innovative businessactivityshouldbetakenintoconsiderationproperly.Agreeablytothis, thetable3presentsthedifferences between public policies concernedwiththe entrepreneurs and innovative entrepreneurs.

table 3.Differencesbetweenpublicpoliciesforentrepreneursandinnovativeentrepreneurs

Policy features Entrepreneurs Innovative entrepreneursRationaleforpolicy

Jobcreation,socialinclusion,diversity;genderequity

Wealthcreation;innovation;creationofvaluefromR&D

Basis of demographicselection

Groupswithlowerthannationalaverageself-employment or business ownership rates

Peoplewithpost-secondaryeducations;workinginpostsecondaryeducationalenvironments(graduates,researchers,technologists)

Objectives Developentrepreneurialpotential;increasestart-up rates

Stimulateinnovativestart-ups;fosterdevelopmentofhigh-growthpotentialfirms

Dominant policy areasfinancing Microloanprogrammes;loanguarantee

schemesEquityfinancingschemes(pre-seedfunds,angels,venturecapital)

Support Infrastructure

Dedicatedenterprisecentres/agencies Technologyincubators/innovationcentres

Business supportmeasures

Adviceandcounselling Technicalassistanceandconsulting

Regulatoryissues

Governmentprocurementset-asides Reviewofintellectualpropertyrules;simplificationofpatentinglawsandprocedures

Networks Support for formation of entrepreneur associations

Supportforclusternetworks;networksofhigh-growthfirms

Skillsdevelopment

Self-employmenttraining Entrepreneurialskills,businessdevelopmentsupport

Source: Lundström&Stevenson2005,p.124


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As a source of the United Nations (2012) states, the business climate in which the innovation-based en-terprisesoperate is influencedbythe followingfac-tors:thescopeofR&D,whichdeterminesthestockofinventionsandinnovationstobecommercialized;the quantity and quality of human resources avail-able for R&D; regulatory and institutional envi-ronment conducive to innovation, including stableproperty rights; transparent and simple rules, andlowcostsgoverningtheregistrationandoperationofenterprises;intensityoflinkagesbetweenthevariousactors involved in innovation; openness to foreigntechnologiesandtocross-bordercooperationin in-novation;andthewideuseofinformationandcom-municationtechnologies.

Thus, in accordance with information provided above,itcanbestated,thatthelinkanddifferencesbetween the innovation and entrepreneurship poli-cies serve as a precondition for the application of the term of innovative entrepreneurship policy (concep-tual view provided in picture 1).

Summing up, it is necessary to highlight, that theemphasizedconceptof innovative entrepreneurshippolicy is based on the requirement to perceive the promotion of business innovation activity in the sys-temic and complex way, where interaction between innovation and entrepreneurship policies ensures the purposeful and comprehensive implementation of public policy actions for the productive and sustain-able innovation development.

As Audretsch (2004) noted, an important new di-rection for public policy to promote innovation and economic growth involves instruments promotingentrepreneurship. future research needs to explic-itly identify what exactly those instruments are and how public policy can best be deployed to promote innovativeentrepreneurship(Audretsch2004;Lind-holm &Stevenson2007,2010).

Business idea

Business policy

Education and science policies

Innovation policy

Innovative Entrepreneurship

policy

Entrepreneurship policy

High growth companies

figure 1. Conceptual view of innovative entrepreneurship policy


3. Methods and Methodology of empirical Survey

Lithuania’s innovative enterprises survey was initi-atedinordertoidentifythemainchallengesofbusi-ness innovation activity inLithuania aswell as thesignificance of various innovationpolicy actions inthe promotion of this type of activity. In order to do that,thesurveyinvestigated:l A range of the reason for innovation activity inbusinesssector(WhydoLithuanianenterprisesper-formtheinnovationactivity?);l Themainchallengesperceivedbytheenterprisesintheirinnovationactivity(Withwhatobstaclesdothe innovative enterprises face when they perform theinnovationactivityinLithuania?);l The needs of Lithuania’s innovative enterpriseswith regards of public policy initiatives for busi-ness innovation promotion (In what fields of actions should the public policy intervene in order to help companiestodeveloptheirinnovationactivity?);l Asignificanceofexistingandotherpossibleinno-vation policy actions for business innovation activity inLithuania(HowtheLithuania’sinnovativeenter-prisesassessthedifferentpublicpolicyinitiativesintermsoftheirinnovationactivity?).

As itwasmentioned in the beginning of this arti-cle, the empirical researchwas performedbyusingquantitative research data collection method – thequantitative business survey. The empirical data were collected between 29thMayand8th July 2013 by us-ingastructuredonlinequestionnaire(astructureofthequestionnaireisprovidedintable4).


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table 4.Astructureofbusinesssurvey’squestionnaire

Intotal:14questionsPartI.Informationaboutcompany’s

innovation activityPartII.Informationaboutthesignificanceof

publicpolicyforcompany’sinnovationactivityPart III. Information about company and respondent

l Nature of innovation activityl Duration of innovation activityl Reasonsforinnovationactivityl Obstacles for innovation activityl fieldsofpublicpolicyintervention

required in order to support business innovation activity

l Collaboration in innovation activity

l Significanceofpossiblepublicpolicyinitiatives/actions for business innovation activity

l Assessment of current innovation policy intermsofitsusefulnessforcompanies’innovation activity

l ImportanceofcurrentLithuanianInnovationStrategyimplementationmeasuresforcompanies’innovationactivity

l Respondent’spositioninthe company

l Legalstatusofthecompany

l Number of employeesl fieldofcompany’sactivityl Suggestionsand

comments

A content of thequestionnairewasdesignedaccord-ing to: (1) the results of international innovationexperts’ surveyperformedbytheauthor inthesec-ondpartof2012;(2)theanalysisofpolicymeasuresincludedintheLithuanianInnovationStrategyIm-plementationPlanfor2010–2013;(3)thereviewofscientific literature on business innovation activity.

The survey sample formed from all the Lithuania’sinnovative enterprises that met at least one of the fol-lowingcriteria(intotal:303enterpriseswereinvitedto participate in the survey):- Companyisincludedinthecatalogueofinnova-tivecompaniesoperating inLithuania“GatewaytoInnovation in Lithuania” (http://www.inovacijos.lt/gate2inno/);or/and- CompanygottheInnovationAwardintheperiod2005–2012(alltheLithuania’sinnovativecompaniesawarded are announcedherehttp://www.inovaciju-prizas.lt/).

Theinvitationstoparticipateinthesurvey,includingthelinktotheonlinequestionnaire,weredistributedamong companies electronically by using their e-mailaddresses(apreferencewasgiventothecontactdetailsofcompanies’managersorowners).

The factual sample consisted of 84 Lithuania’s in-novativecompaniesthatfilledthesurvey’squestion-naire(aresponserateis27%).

However,despitethelownumberofcompaniesagreedtoparticipateinthesurvey,thefindingsobtainedareconsidered as valuable taking into account the factthat all enterprises were included in the sample by the samecategorizationcriteriaof innovativeness.Addi-tionally, it is important to note, that this survey does notseektoreflecttheopinionofallLithuaniancom-panies and is only related to those companies, which were indicated as innovative. Thus, this survey can be considered as pilot research requiring additional

time and financial resources to ensure its continuity by complementary research data collection methods.

4. findings

review of national innovation Policy: challeng-es, current Strategic View and actions

TheinnovationactivityinLithuaniastillneedstobeenhancedconsiderably.Lithuanialagsbehindalmostall the EU countries by the Summary Innovation Index (23th place out of 27) announced annually by the European Commission (Innovation Union Scoreboard 2013) for the evaluation of countries’innovation performance results. According to thisand other international innovation assessment tools (i.e.SummaryInnovationIndex(SII);GlobalInno-vation Index (GII); Global Competitiveness Index(GCI)),Lithuania’sinnovationstrengthsareusuallyrelated only to an education of human resources and the information and communication technologies,while the following areas of weaknesses talk aboutthe requirement to strengthen public policy efforts(EuropeanCommission2013;CornellUniversity&INSEAD&WIPO2013;Schwab2012):- BusinessR&Dexpenditure (SII;GII;GCI) (thiscanbenamedasoneofthebiggestchallengesintermsofbusinessinnovationactivity:in2011theR&Dex-penditureinLithuania’sbusinessenterprisesectorwasonly0.24%ofGDP,whileatthesametimetheEU27averageaccountedfor1.26%(Eurostat2011));- SMEsinnovationactivity(SII);- Intellectualassetsincludingdifferentformsofin-tellectualpropertyrights(SII;GII);- Quality of science and research systems, takingintoaccountthescientificoutputs(SII;GII);- fundingopportunities, includingaffordabilityoffinancial services, ease of access to loans (GCI) aswellasventurecapitalavailability(GCI,GII);

- Collaboration networks in regard to the state ofclusterdevelopment(GCI,GII).

Thus, in order to better react to innovation related challengesandtoensuremoreeffectivedevelopmentofinnovativeeconomyandsocietyLithuaniahasap-proved itsfirst Innovation strategy for2010–2020.This strategy highlighted a need to implement ahorizontalapproachbasedpolicy formoreeffectivedevelopment of innovative economy and society in

Lithuania.The following four priorities of innova-tion policy actions were determined: 1) accelera-tionofLithuania’s integration into theglobalmar-ket;2) educationof a creative and innovative soci-ety;3) developmentofbroad-basedinnovation;and4) implementation of a systematic approach to in-novation(GovernmentoftheRepublicofLithuania2010).ThefullpictureofcurrentLithuanianinno-vationpolicy,includingthemainobjective,priorityareasandgoals,ispresentedinfigure2.

figure 2. CurrentNationalInnovationDevelopmentframework

Source:Baležentis&Balkienė2011

However, in the context of this article, it is important todiscusstheLithuanianstrategicapproachtobusi-nessinnovationpromotion.fromthispointofview,it can be stated, that Lithuanian innovation policyinitiatives are not sufficient. An analysis of current in-novationpolicymeasuresincludedintheLithuanianInnovationStrategyImplementationPlanfor2010–2013showed,thatonly18%ofallstrategy’smeasures(i.e. 21 out of 119) are directly oriented to business needs,includingthosethatareconcernedwithbusi-ness innovation activity (i.e. 11 out of 21). By the na-ture these measures encompass: 15 measures focused on financial support to various business related ac-tivities (clusterization;R&Dprojectsandinfrastruc-ture; internationalization; protection of intellectualpropertyrights;etc.);2measuresdirectedtobusiness

and science cooperation (researchers employment in SMEs;innovationvouchersscheme);and4measuresfor education and information services (dissemina-tionofinformation;trainings)(Balkienė2013).

In terms of financing, around 716 million euros(only30%oftotalfundingforallstrategy’sactions)planned to the implementation of these business re-latedmeasures,wherethemainsourceoffundingistheEUstructuralfunds(Balkienė2013).

In conclusion, there should be emphasizedaneedtostrengthenthenationaleffortsforfasterandmoreef-fective promotion of business innovation activity in Lithuania.Itisessentialinordertoensuretheprogres-sive and sustainable development of national economy aswellasthebetterlivingconditionsforwholesociety.


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results of lithuania’s innovative enterprises Survey

Part I. Information about company’s innovation activity

InordertoknowhowLithuania’sinnovativecompa-nies vary by their innovation activities, the respond-entswere asked to identify a nature of their inno-vation activity. According to the results (figure 3),

aroundhalfof all companies (47%)performed theinnovation activity oriented to manufacture of the neworsignificantlyimprovedproducts,whilethein-novativeservicesectorwasrepresentedonlyby15%of enterprises interviewed. It is important to note, thatthemajorityofrespondentsindicatedmorethanonekindofinnovationactivity.

What kind of innovation activity is performed in your company?

Manufacture of new or significantly improved products

Provision of new or significantly improved services

Deployment of new or significantly improved operational processes (e.g. production methods)

Deployment of new or significantly improved marketing strategies (i.e. marketing innovations)

Deployment of new or significantly improved organisational structures (e.g. knowledge management structures)

16%

15%

13%

9% 47%

figure 3. Distribution of the companies by types of innovation activity

Analysing the duration of companies’ innovationactivity, it is seenthat74%ofthemperformedtheinnovationlongerthan3years,12%ofwhichimple-mented the innovation based activities more than 10 years(figure4).Asthemainreasonsforcompaniesto be involved in innovation activities were indicated thefollowingwishesto:respondtothemarketneeds;increase company’s profitability; improve the prod-

ucts’ quality; and increase themarket share (figure5).Theseresultsjustifytheinnovationmotivesindi-catedbydifferentliterature(e.g.OsloManual1996).However, the companies’ orientation to social andpublic interests, such as the development of environ-mentallyfriendlyproducts,jobcreationorimprove-mentofworkingconditions,ispoorlyexpressed.

How long (by years) does your company perform the innovation activity?

37%

25%

12% 3%23%

< 1

1>3

3>5

5>10

>10

figure 4. Distribution of the companies by duration of their innovation activity


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For what reasons does your company perform the innovation activity?To ensure the company’s independence

To develop environmentally friendly products To reduce environmental damage

To improve manufacturing flexibility To create jobs

To improve the working conditions To enter new markets in Lithuania

To reduce the production costs To maintain the market share

To enter new international markets To change the existing products

To expand the products range To increase the market share

To improve the products quality To increase company’s profitability

To respond to the market needs

0 10 20 30 40 50 60 70

figure 5.Reasonstobeengagedintheinnovationactivity (bynumberofcompaniesreporteddifferentkindsofreasons)

Which of the following factors are the major obstacles for your company’s innovation activity?

Lack of high skilled employees in the company Limited technological possibilities

Lack of high skilled employees in the labour market Limited business organisation and management skills Lack of science

orientation to business needs Lack of company’s internationality

Lack of technological and R&D competences Weak innovation policy

Lack of information Insuficient quality of innovation support services

Lack of innovation competences Legal and administrative obstacles

Cultural obstacles Limited external collaboration

Market related obstacles Lack of financial resources

Lack of financial instruments for business innovation promotion

Absolutely not obstacle Usually not obstacle Neutral factor Small obstacle Big obstacle

0 10 20 30 40 50 60 70 80 90

figure 6. Majorobstaclesforcompanies’innovationactivity

furtherinthissurveythemainobstaclesforbusinessinnovationactivityinLithuaniawereinvestigated.Alist of factors, that impede the innovation activity, wasformedaccordingtothefindingsofinternationalexperts’surveypreviouslycarriedoutbytheauthor.

The results show that companies have the same ex-perience based opinion on the innovation obstacles provided, what at the same time confirms the infor-mation obtained by the former research. Despite the fact that all factors provided in the list were indicated ashinderingthecompanies’innovationactivity(fig-ure 6), themajor obstacles for business innovation

inLithuaniainclude(asabigobstacleindicatedbymorethan50%ofallrespondents):1)lackoffinan-cialinstrumentsforbusinessinnovationpromotion;2) lackoffinancialresources;3)marketrelatedob-stacles (e.g. limiteddemand;non-transparent com-petition; etc.); 4) limited external collaboration;5) culturalobstacles(e.g.lackofrisktolerance;weakinnovationculture;lackoftrust;etc.).

In themeanwhile, a lackofhigh skilled employeesinthecompanyaswellasinthelabourmarket,andthelimitedtechnologicalpossibilitiesweremarkedasmoreneutralthannegativefactors.


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Inregardstopublicsupportforinnovation,theLith-uania’sinnovativecompaniesindicatedthefollowingkey areas in which government should take initia-tives: 1) better communication between business and

policymakers;2)morecollaborationopportunities;3)improvementofbusinesslegalandregulatoryen-vironment;4)financialsupportforinnovationpro-jects(figure7).

Should not take any actions in these areas

Education system

Education and competences of human resources

Protection of intellectual property

Quality of science and research

Technological progress

Information and consultancy

Availability of knowledge and technologies

Communication between policy makers and business

Collaboration opportunities

Business legal and regulatory environment

Tax system

Business competences

Innovation demand

Financial support for innovation projects

figure 7. Themainareasinwhichgovernmentshouldtakeinitiatives forbettersupportofcompanies’innovationactivity

Agreeablytosurvey’sresults,itshouldbenotedhere,that the collaboration related issues play a very im-portantroleinthecompanies’innovationactivity:alimited external collaboration was identified as one of themajor challenges for companies to innovate;

the collaboration opportunities underlined as a sec-ondpriorityareaofgovernmentactionsforbusinessinnovationpromotion;andallthecompaniesinter-viewedhadatleastonekindofpartnershipsfortheinnovationpurposes(figure8).

Does your company collaborate for innovation purposes?

Yes, with science institutions and research institutes

Yes, with other Lithuaniancompanies

Yes, with other companies abroad

Yes, with government institutions

Yes, with organisations providing the innovation support services

Yes, with society

No

11%

8%9% 0% 16%

24%32%

figure 8. Distribution of companies by their collaboration partners


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Part II. Information about the significance of public policy for company’s innovation activity

In this part of survey, an attempt was made to evalu-ate the innovative companies’ needs for different

types of policy actions.

first of all, the significance of various innovationpromotion initiatives pointed out by innovation ex-pertsinformerresearchwasinvestigated(figure9).

In your opinion, how significant are the following public policy initiatives for business innovation activity?

Focus on regions

Development of clusters and other business networks

Consolidation of education system for the development of necessary competencies

Finansavimo priemonių prioritetų nustatymas su atitinkamu lėšų paskirstymu

Innovation support programmes and cohesive system of innovation promotion measures

Support for business and science cooperation

Continuity and consistency of strategic priorities for innovation

Simplification of public procurement procedures

Financial instruments oriented to high growth and innovative approach based companies

Network of organisations providing the professional advice and technical support services for business

Science orientation to business needs

Persistent development of business, especially SMEs, skills for innovation through innovation support services

Decisions based on the communication with business

Dissemination of information relevant to innovation activity

Funding not only for research but also for prototyping, testing and demonstration activities

Red tape reduction for business

Tax reliefs

Easy to apply R&D funding schemes

0 10 20 30 40 50 60 70 80 90

Absolutely insignificant Insignificant Low significant Significant Very significant

figure 9. Thesignificanceofvariouspublicpolicyinitiativesforbusinessinnovationactivity

Accordingtomorethan70%ofallrespondents,themostsignificantpublicpolicyinitiativesforbusinessinnovation promotion are: 1) easy to apply R&Dfundingschemes;2) taxreliefs forbusiness innova-tion related activities; and3) actions related to redtape reduction for business.

In addition to initiatives mentioned above, the fol-lowingpolicyactionswerealsoperceivedbyLithua-niancompaniesashavingsignificantroleforbusiness

innovation activity: funding not only for researchbutalsoforprototyping,testinganddemonstrationactivities; dissemination of information relevant toinnovationactivity;decisionsbasedonthecommu-nicationwith business; science orientation to busi-nessneeds(e.g.industrialPhDstudies;orientationofR&Dactivitiestothefutureneeds;researchersmo-bilityandinternshipsinbusinesssector;etc.);conti-nuityandconsistencyofstrategicprioritiesforinno-


6969

vation;supportforbusinessandsciencecooperation.

Atthesametime,a focusonregionswas indicatedastheleastsignificantpolicyinitiativeforinnovation(markedby50%ofallrespondents).However,thiscan be explained by the geographical distributionof companies interviewed: the majority of innova-tive companieswerebased in thefivebiggest citiesofLithuania(i.e.Vilnius,Kaunas,Klaipėda,Šiauliai,Panevėžys).

In order to assess the national policy actions for busi-nessinnovationpromotion,thecompanieswereaskedtosharetheiropiniononthesignificanceofcurrentLithuanianinnovationpolicyintermsoftheirinno-vationactivity.Theresultsshow,thatonly12%ofallLithuania’s innovative companies think that currentinnovation policy is beneficial to them (figure 10).Thisclearlyjustifiesaneedtobetterfocusthenationalpolicyeffortsonbusinessinnovationpromotion.

18%

In your opinion, is the current innovation policy beneficial for your innovation activity?

48%

22%

1%11%

Useless

More useless than usefulCannot say exactly Usually useful Very useful

figure 10. Usefulnessofcurrentinnovationpolicyforcompanies’innovationactivity

Moreover,inregardstoconcretenationalinnovationpolicyactions,thesurveyinvestigatedthecompanies’attitudes towards current Lithuanian innovationstrategy implementation measures (figure 11). Thefindingsdemonstratethatthemostsignificantmeas-uresforcompanies’innovationactivityare(indicated

bymorethan60%ofallrespondents):thefundingforbusinessR&Dprojects andpublic support ser-vices for business (i.e. dissemination of information relevanttobusinessactivity;varioustrainings;assis-tanceinfindingthecooperationpartners;etc.).


7070

In your opinion, how significant are the following Lithuanian innovation strategy implementation measures for your company’s innovation activity?

Implementation of financial instrument “SMEs venture capital funds”

Promotion of business and science cooperation through researchers employment in SMEs

Support for business incubation activities

Implementation of financial instrument “SMEs credits”

SMEs loans compensation

Funding for SMEs technological innovation projects

Funding for business start-up and development

Financial support for innovative clusters projects

Funding for business R&D infrastructure projects

Financial support for the protection of intellectual property rights

Funding for the promotion of companies internationality

Promotion of business and science cooperation through Innovation vouchers scheme

Public support services for business

Funding for business R&D projects

0 10 20 30 40 50 60 70 80 90

Absolutely insignificant Insignificant Low significant Significant Very significant

figure 11. ThesignificanceofLithuanianinnovationstrategyimplementation measuresforcompanies’innovationactivity

In the meanwhile, the majority of measures whichhave been designated as insignificant belong to theSMEs oriented actions’ field. Knowing that morethan 90 per cent of all companies participated in the surveywereSMEs, thesedata shouldbe taken intoaccountproperly.Thetwomostlikelypreconditionscan be made here: (i) the SMEs interviewed have a lackofrelevantinformation;or/and(ii)anaccesstoSMEs oriented innovation policy tools is too difficult regardingthecomplicatedadministrativeproceduresand bureaucratic requirements. However, a verifica-tion of these preconditions requires further researches.

Part III. Information about company and respondent

Thesurvey’sdatashowthatthemajorityofrespond-ents(84%)wereresponsibleforcompanies’manage-ment functions, including the top level managers(26%),managers in specific areas (45%) andbusi-nessowners(13%).Otherpartofrespondentsindi-cated themselves as the specialists.

By legal status, 82% of all companies interviewedwereprivate limitedcompanies (figure12) and themajorityof themhad less than250employees (i.e.93%ofallinnovativecompaniesparticipatedinthesurveywereSMEs)(figure13).However,bybusinesssector the Lithuania’s innovative companies variedsignificantlyandonlytheICTsectorwasrepresentedby20%ofcompaniesinterviewed(figure14).


7171

82%

Sole proprietorship (Individual enterprise) Private limited companyPublic limited companyOther

1%

6%11%

figure 12. Legalstatusofthecompaniesinterviewed

17%

7% 23%

53%

up to 9 from 10 to 49 from 50 to 249 250 and more

figure 13. Number of employees in the companies interviewed

ICT Other

Food and beverages Electronic and optical products

Chemicals and chemical products Machinery and equipment

Transportation and logistics services Furniture

Metal products Wood and wood products

Textile and Apparel Rubber and plastic products

Financial and insurance activities Pharmaceutical products

Business consultations Construction

Biotechnology

0 1 3 4 60 9 10 11 12 13 14 15 16 17 187 82 5

figure 14. Distribution of companies interviewed by field of their activity


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Summarising, it can be stated, that the promotionofbusiness innovation activity inLithuania shouldbecome a clearly explicit priority, while the improve-mentofexistinginnovationpolicyactionsshouldbebasedontherealbusinesschallengesandneeds.

5. discussion and implications

As it is stated, the innovation and entrepreneurship policies are both relatively recent as distinct policy ar-eas,andthereforeseldomintegratedinthemostcoun-tries.However,accordingtoLindholmandStevenson(2007), for innovative entrepreneurship to be able to fullycontributetoeconomicgrowthanddevelopment,its importanceneeds tobe further acknowledged ininnovation as well as entrepreneurship policies.

Additionallytothesestatements,thefindingsobtainedfromtheinternationalexperts’surveyperformedpre-viously by the author can be mentioned here. The in-novationexpertsfromsixcountrieswereaskedtosharetheiropinionabouttheneedtointegratetheinnova-tionandentrepreneurshippolicies/determinethejoininitiatives and actions for business innovation promo-tion. The majority (72%) of all innovation expertsconfirmed that innovation and entrepreneurship poli-ciesshouldbebetterinterlinked(figure15and16).

The experts, who agreed that innovation and en-trepreneurship policies should be related for better business innovation promotion, also indicated the arguments, justifying their views,which have beensystematizedintotable5.

Necessary Not necessary Do not know

17%

11%

72%

figure 15. Aneedtointegratetheinnovationandentrepreneurshippolicies(%ofallexperts)

Source: formedbyauthoraccordingtothedataofexperts’surveyperformedin2012

Number of experts

Necessary

DK FI NO SE LV LT In total

181716151413121110

9876543210

figure 16. Distributionofexpertswhoindicatedtheneedtointegratetheinnovationand entrepreneurshippolicies(bynumberandcountriesoforigin)

Source: formedbyauthoraccordingtothedataofexperts’surveyperformedin2012


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Thus, taking into account all the information pro-vided, the public policy actions directed to better integrationofinnovationandentrepreneurshippoli-cies could lead to themore effective promotion ofbusiness innovation activity.

However, from the traditional business perspectives, therearestillmanydoubtsontheadvantagesofin-novative entrepreneurship policy. Therefore, it is im-portanttonote,thatthispaperdoesnotargueabout

theneedtodevelopthebettergeneralconditionsforbusinesstoflourish,buthighlightsanideaofinnova-tive entrepreneurship policy as the precondition for moreeffectivepublicsupporttoinnovationorientedbusiness, which always needs both: the general fa-vourable environment for business start-up and de-velopment,andspecialconditionsfosteringtheirin-novation based activities.

table 5.foundationoftheinnovationandentrepreneurshippoliciesintegration

need focus areas of integration benefit

l Innovation and entrepreneurship as closelyinterlinkedelementsshouldbecometheintegratedpartofeducationsystem

l Entrepreneurship is often related to start-ups, but this type of companies is usually also innovative companies

l Business without innovation will not be abletorespondtomarket‘sneeds

l Lithuaniadoesnothaveinstitutionresponsible for entrepreneurship policy implementation

l Lithuanianinnovationandentrepreneurship policies are currently disconnected

l Education systeml Innovation schemesl Toentrepreneurshiporiented

trainingsl fundingoptimizationl Responsibilityand

Coordinationl Collaborationl Continuity and consistency

of policy actionsl Business orientation to

innovation activity

l More efficient development of entrepreneurship and innovation culture

l Better business orientation to activity based on innovation (motivation and support)

l Economicaluseofresources,includingfinance

l Better coordination of policies implementation

l Cooperation and liaison between differentelementsofinnovativeentrepreneurship

l Better focus on entrepreneurship promotionthanonjustbusinessdevelopment

Source: formedbyauthoronthebasisofexperts’surveyperformedin2012

6. concluding observations

Thispapermakesacontributiontotheliteraturedis-cussingtheinnovationandentrepreneurshiprelatedissues from the business innovation promotion point of view. The issues analysed serve as the precondi-tions for the formation of sustainable innovative en-trepreneurship policy.

Thenumberofempiricalfindingspresented inthisarticle leads to thefinalconclusionhighlightinganunquestionable requirement to strengthen nationalpublicpolicyactionsforthemoreeffectiveandsus-tainable business innovation promotion in Lithua-nia.Inordertoimprovetheexistingsituation,betterattention shouldbepaid to the real challengesandneeds of innovative business sector, taking into ac-count the great importance of bilateral-goals-basedcommunicationbetweenbusiness, scienceandgov-ernment. Thus, the development of sustainable inno-vativeness requires not only formal implementation ofpublicpolicyactions,butalsocallsforthelong-termstrategicviewclearly showingbusiness role in

buildingprogressiveandcompetitiveeconomy.

from theperspectives of future researches, the fol-lowing facets of business innovation promotioncouldbeinvestigated:aneffectivenessofnationalin-novation policy measures in terms of their impact on variousbusinessperformanceresults;theargumentsjustifyingtheusefulness/uselessnessofseparateinno-vation policy actions for the development of busi-nessinnovationactivity;thechallengesofinnovativebusinesswith regards to public support received; arole of sustainability in the content of national inno-vation policy and its impact on business orientation to sustainable innovation.

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enerGy intenSity in tHe litHuanian ManufacturinG Sector*

Gitana dudzevičiūtė

The General Jonas Žemaitis Military Academy of Lithuania, Šilo Str.5A, LT-10322 Vilnius, LithuaniaVilnius Gediminas Technical University, Saulėtekio Av. 11, LT-10223 Vilnius, Lithuania

E-mail: [email protected]

Received 29 September 2013; accepted 1 December 2013

abstract. ThereismajorconcernwithLithuania’sindustrialdevelopmentbecauseitsmanufacturingstructureisincreasinglydependentontheconsumptionofenergy.InspiteoftheLithuanianenergyintensitydecreasemorethan35percentinthelastdecade,theenergyrequiredtoproduceaunitofoutputinLithuaniatwiceexceedstheaverageoftheEuropeanUnioncountries.Thispaperinvestigatestheenergyintensityfromaproductiontheoreticframeworkandusesannualdataof1998-2011tomeasureenergyintensityintheLithuanianmanufacturingsector.Theinvestigationcomparesenergyintensityinmanufacturingacrossdifferentactivities,basedonseveralmodels.Theresultsoftheresearchshowconsiderablevariationinenergyintensityacrosstheactivities.Basedonenergyintensityratio,theLithuanianmanufacturing activities are classified into three categories, such ashigh energy- intensive,moderate energy-intensiveandlowenergy-intensive.Theresearchrevealsastrongandnegativeinterrelationshipbetweenintensityofenergyconsumptionandmanufacturingproduction.Overaperiodof1998-2011,thecontributionofhighenergy-intensiveindustriestototalmanufacturingvalueaddedwasincreasingandamountedto30percentattheendof2011.finally,theresearchprovidesinsights,thatrestructuringoftheactivitiesfromenergyintensiveindustriestowardsmoretechnologicallyadvancedonesmightpotentiallyleadtohigherenergyefficiencyanditcould be one of the most important routes to sustainable development. Keywords:energyintensity,energyefficiency,manufacturingsector,industry

reference to this paper should be made as follows:Dudzevičiūtė,G.2013.EnergyintensityintheLithuanianmanufacturingsector,Journal of Security and Sustainability Issues3(2):77–85.http://dx.doi.org/10.9770/jssi.2013.3.2(6)

jel classifications:L16,L6,Q40.

1. introduction

Energy,asaproductofeconomicactivities,compris-esgoodsandservicesrelatedtoheat,fuel,andpower.“Asanyothercommodity,energyistheresultofpro-duction, such as extraction from mineral resources or transformation of materials and substances into a

newproduct,whichcanbeexchangedonthemarketorserveasinputforproductionofothergoodsandservices or be used for final consumption” (Upad-hyaya2010,2p.).Intheeconomicstudies(Mukher-jee2008,IndustrialDevelopmentreport2011),en-ergy intensity ratioof themanufacturingprocess isdescribedastheamountofenergyusedtoproduceone unit of economic activity, for example, tonnes ofoilequivalentper$1000inmanufacturingvalueadded(inconstantprices).Itistheinverseofenergyefficiency,i.e.decliningenergyintensityovertimeisinterpretedasimprovingenergyefficiency.

* Researchwaspreparedwithinframeworkof long-termEcono-micResearchProgram, topicEnergetically secure and sustainablerestructuringofLithuanianindustrysectorsinthecontextofworldeconomydevelopmenttendencies´confirmedbyResearchCouncilofLithuania,IEP-01/2012.

G i t a n a D u d z e v i č i ū t ė Energy intensity in the lithuanian manufacturing sector

78

Atindustrysectorlevel,energyintensityintheEu-ropean Union recorded a decrease of more than 10 %between2000and2011(Eurostatdatabase).Themost significant decreases (over 30 %) were regis-tered in Slovakia, Lithuania, Bulgaria and Roma-nia.Inspiteofthisdecrease,theenergyintensityinall four countries remainedhigh. InLithuania, theenergy required to produce a unit of output twiceexceeds the average of the EuropeanUnion and itis three times above average of the countries withthe lowest energy intensity (Denmark, Ireland andUnitedKingdom)(Eurostatdatabase).InthecaseofLithuania,highenergyintensitymightimpactonin-ternational competitiveness of the country and pose constrainsforsustainabledevelopment.Growingde-mand for energy raisedoubtswhether a secure en-ergysupplywillbesatisfiedinthefutureandwhetherLithuaniawillbeabletoremaincompetitiveintheinternational markets (Travkina & Tvaronavičienė2011;Smaliukienėet al.2012;Dudzevičiūtė2012,Lankauskienė&Tvaronavičienė2012;Dudzevičiūtė2013;Vosyliuset al.2013).

Manufacturingaccountsabove25%oftotalenergyconsumptionintheworldandenergyhasbeenthemajorconcernforsustainabledevelopment,environ-mental protection and a decent standard of living(Upadhyaya 2010). According to UNIDO Report2011, increased industrial energy efficiency is oneof the most important routes to sustainable develop-ment,particularlyindevelopingcountries.Industryremainsamongthemostenergy-intensivesectors.ItcontributestoglobalGDPlessthantoglobalshareofenergyconsumption.

Lithuanian manufacturing contribution to totalvalue added increased from 17 % in 1990 to 21%in2011(UNStatisticsdata)andhaveremainedrelatively significant in comparison with advancedeconomies of the Scandinavian countries with aver-agecontributionof13%in2011.Duringthesameperiodof time theLithuanianenergyconsumptioninmanufacturingdecreasedabout70%,butenergyintensity ratio remained above average in compari-sonwithmanytheEuropeancountries.Onaverageoveraperiodof1990-2011,low-incomedevelopingeconomieshadthehighestenergyintensityandde-veloped economies had the lowest one (UN Statis-ticsdata).Industrialenergyintensitydeclinesduetocontributionofstructuralchangesandasaresultoftechnological changes. In high income economies,

thestructuraleffectismorevisiblethanthetechno-logicalone(IndustrialDevelopmentReport2011).

This research attempts to provide more reliable esti-mates of the Lithuanianmanufacturing energy in-tensity fromaproductiontheoretic frameworkandusesannualdataof1998-2011.

Thepaper isorganizedasfollows.Section2givesashort summary of the relevant empirical literature onenergyintensityissuesandresearchmethodology.The investigations of different researchers are sum-marizedandthemaininsightsareprovided.Section3analysestheLithuanianenergyintensityacrossdif-ferent industrial activities and classifies them by ener-gyintensitylevel.Section4concludessummarizingthe main trends observed.

2. empirical studies’ review and research methodology

An overview of empirical studies has showed that the assessment of energy intensity and its trends isa research topic that continuously attracts research-ers fromdifferent countries.The interest of energyconsumptionandeconomicgrowthgrewinthesev-enties,andtherelevanceofthistopicistakingonanevengreatermeaningnowadaysdue to the scarcityof energetic resources andgrowing theirprices.Alleconomicsectorsandactivitiesdependonenergeticresourcesandstronglyaffectedbythem(Munimet al.2010,Smaliukienėet al.2012,Tang&Tan2012;Dudzevičiūtė2013).

Manyresearchersagreethattheinteractionbetweenenergy intensity and economic growth depends onthecountry’s levelofdevelopment,economic state,technologythatisused(Akinlo2009,Li2010,Ama-dor2011,Zhenget al. 2011,Bojnec&Papler2011,Sadorsky 2012). Some studiesGrebliauskas&Ra-manauskas2007;Zhenget al. 2011, Amador 2011, Sadorsky2012)revealthatinmediumandhigh-techcountrieseconomicgrowthandenergyintensityin-teract closely, while in low-tech countries this rela-tionshipisnotsignificant.Energyintensivesectors,such as chemical and petrochemical, steel and iron accountedforevenabout70%oftheEuropeanUn-ion’stotalindustrialenergyconsumption.

Threeapproachesaremainlyprevailinginthescien-tific literatureregardingenergyconsumptionor in-tensityandeconomicgrowthissue.Theseapproachesareasfollows:1)growth(Hoet al.2007;Chontan-


79

awat et al.2008;Ozturk2010;Leeet al.2011;Geor-gantopoulos2012;Apergiset al.2012);2)feedbackapproach(Ozturk2010;Leeet al.2011;Apergiset al.2012);3)neutralinterrelationship(Payne2009;Chen et al. 2012).

Thegrowthapproachdescribesthatenergyconsump-tionisanessentialcomponentineconomicgrowth.Thepresenceofunidirectionalcausalityfromenergyconsumption to economic growth means that theeconomyisenergydependent(Apergisu&Danuletiu2012;Dudzevičiūtė2013).

feedback approach supports bidirectional causalitybetweenenergyconsumptionandeconomicgrowth,while neutral approach shows the absence of causal-ity.Neutralcausalitymeansthatenergyconservationpolicywillnothaveasignificantimpactoneconomicgrowth (Apergisu &Danuletiu 2012; Dudzevičiūtė2013).

The researchers have concluded that there are in-terdependency of energy consumption or intensityandeconomicgrowth,butthepracticesofdifferentcountriesleadtodifferentresultsregardingthepres-ence of causality.

In the Lithuanian context, however, there is theshortageofdetailed researchonenergy intensity inmanufacturingsector.NotablestudiesoftheLithu-anian scientists includemore general investigationsatmacroeconomicslevel.Bobinaitėet al. (2011) as-sessed the causality relationship between renewable energyconsumptionandeconomicgrowthinLithu-ania; Smaliukienė et al. (2012) investigated inter-relationship between energy consumption and theLithuanianeconomicgrowth;Konstantinavičiūtėet al. (2010) examinedthedynamicofenergydemand;Dudzevičiūtė(2013)didresearchoneconomicstruc-turalchangesandenergyconsumption.

Theresearchwasguidedbythemeasurementofener-gyintensityfromaproductiontheoreticframeworkapplied inMukherjee’ s (2008) and sUpadhyaya’s(2010)surveysandusesdata involvingenergycon-sumptionandoutputbytheLithuanianmanufactur-ing sub-sectors.The comparative statistical analysisoftheenergyintensityofdifferentindustrialactivi-ties was applied in order to devide observed activities intohigh energy intensive,moderate energy inten-siveandlowenergyintensiveones.TheauthorrefertoUpadhyaya’s(2010)andUNIDO’smethodologyonenergy intensity considered in IndustrialDevel-

opmentReport2011(UNIDO2011).

Energy intensity indicator is based on the relation of energyinputandoutput.It isoneofthemajorin-dicators of energy efficiency,which is calculated asfollows:

t

tt Y

EE =int (1)

where: E int t-energy intensityratio;Et- total con-sumption of energy by manufacturing sector for tyear;yt-outputofmanufacturingormanufacturingvalue added (MVA) for t year.

Energyintensitydecreasesintwocases:1)whenlessenergyisusedtoproducethesameamountofpro-duction or 2) when production increases per unit of energyused.

Havingmanufacturing sub-sectorsdata, the energyintensity described in formula (1) can be decom-posed in order to measure energy intensity at sectoral levelandstructuralchangeonoverallenergy inten-sity. The formula (1) is expanded as follows:

titit

tt SE

YE

E ,,intint ∑== (2)

where: E int t-energyintensityfortotalmanufactur-ingforyeart;Einti, t-energyintensityforimanufac-turingsubsectorforyeart;Si,t- share of i sub-sector in total MVA..

t

titi Y

YS ,

, = (3)

where: Si,t- shareof i sub-sector in totalMVA;yi,t- MVAforisubsectorfortyear;yt- total MVA for t year.

further, manufacturing sub-sectors were arrangedbyrankscore inorder to identifyhighest to lowestenergyintensivemanufacturingactivities.Obtainedresults were compared to the mean energy intensity ratio calculated as follows:

nE

E t∑= int (4)

where: E -meanenergyintensityratio;Eintt- en-ergyintensityfortotalmanufacturingforyeart;n-number of observations.

Inthescientificworks(Sheehan,Sun2007;yao,Luo2012; Bobinaitė et al.2011; Steinbuks 2012) ener-gy use elasticity is analyzedwith different respects.Referringtotheproposedmethodologyoftheseau-thors,energyelasticitywithrespectofmanufacturing


80

production is calculated as follows:

%%

M

E

PQE

∆∆

= (5)

where: E- energy elasticity with respect of manu-facturing production; ∆QE- percentage change inenergy consumption; ; ∆PM- percentage change inmanufacturingproduction.

These above described indicators are easy to calcu-late, they are informative for interpretation of their impact on economic development. However, they giveonlygeneralinformationanddonotrevealthereasonsforenergyefficiency.

3. The lithuanian manufacturing dependence on energy consumption

3.1. Manufacturing sector’s trends and energy intensity

Twoapproachesareemployedinthisresearch.first,annualdataanalysisoftheLithuanianmanufactur-ingsectoriscarriedoutintheperiodof1998-2011.The aim of this exercise is to analyze the relation-

ship among manufacturing sector’s trends, energyconsumptionandenergy intensity.Second, the en-ergyintensityatthesub-sectorslevelisdecomposedintoactivities and three categoriesbasedonenergyconsumption intensity aredistinguished as follows:1) highenergyintensity,2)moderateenergyintensi-tyandlowenergyintensity.Thetwelvesubsectorsaredefinedforeachanalysis,i.e.1)food,beverages,andtobacco; 2) textile and leather; 3)wood andwoodproducts;4)paperandprint;5)chemicalandchemi-calproducts;6)rubberandplastics;7)non-metallicmineralproducts;8)basicmetal;9)fabricatedmetalproducts;10)machineryandequipment;11)trans-portandequipment;12)furnitureandother.

figure 1 reveals the relationships among the Lithu-anian manufacturing production development, en-ergyconsumptionandenergyintensityaswell.Overaperiodof1998-2011,theLithuanianmanufacturingproductionhasincreasedtwicefromLTL17.7milliontoLTL34.5millionwhile energy consumptionhasdecreasedby5%from39505TJto37715TJ.Thesechanges have impacted on energy intensity ratio,whichhasdroppedfrom2.3to1.1JperLTL1000.

fig. 1. TheLithuanianmanufacturingproductionandenergytrendsin1998-2011

Source: author’scalculationsbasedontheLithuanianStatisticsdepartmentdata

The analysis has shown moderate and positive interre-lationshipwithcorrelationcoefficientof0.6betweenmanufacturingproductionandenergyconsumptionandaverystrongandnegativerelationship(correla-tionis0.9)betweenmanufacturingproductionandenergyintensity(fig.1).Asmanufacturingproduc-tionisincreasing,energyintensityisdecreasingoverthesameperiodoftime.Thesignificanceofthecor-relationcoefficientisprovedbythehelpofStudent’scriteria t. In this case tst >tcr (7,16>2,18), itmeans

thatsignificantrelationship is confirmed.

Theexaminationof the long- run(1998-2011)en-ergyusepercentagechangeandmanufacturingpro-duction change has described that the Lithuanianindustry is inelastic of energy consumption. Over2000-2011, the average elasticity coefficient hasmade0.6.ItmeansthattheLithuanianmanufactur-ing was improving its energy efficiency over time.Table1describespercentagechangeinmanufactur-ingproductionandenergyconsumption.Ingeneral,


81

energyconsumptiongrewatamuchlowerratethanmanufacturingproduction,excluding1999and2008.

table 1. Thechangesinmanufacturingproductionandenergyconsumption

The analysis of separate years has revealed that in 1999 and 2008 the energy use in the Lithuanian

manufacturingwaselasticofproduction(fig.2).

yearChanges,%

Manufacturingproduction Energyconsumption1999 -1,3 -17,52000 7,2 -4,82001 -3,4 -0,62002 14,3 11,42003 12,5 5,42004 7,6 2,92005 11,3 5,92006 15,3 6,42007 14,3 0,72008 -7,9 -11,22009 -17,0 -12,62010 9,4 9,52011 12,4 5,0


fig. 2. EnergyelasticitywithrespectofproductionintheLithuanianmanufacturingsector

Source:author’scalculationsbasedontheLithuanianStatisticsdepartmentdata

Theelasticityofenergyusewithrespectofproduc-tionvariedfrom13.2in1999to1.4in2008.Manyfactors impacted on it, but the most influential ones couldbenamedaseconomicalcrisisinRussiainthemiddleof1998andfinancialandeconomicalcrisisallovertheworldin2008.ItshowedtheLithuanianmanufacturing sensitivity anddependenceon trad-

ingpartnersandsituationintheworldeconomy.

Detailedanalysis isneededatmanufacturingsectorleveltoidentifythemostenergy-intensiveactivitiesaswellasthelowestones.Nextpartoftheinvestiga-tion is devoted for this issue.


82

3.2. analysis of energy intensity at manufacturing sector’s level

Averagemanufacturingenergyintensityfellinallac-tivitiesover1998-2011.Non-metallicmineralsand

basicmetalssub-sectorsreportedthemostsignificantimprovementofenergyefficiencyfrom1998to2011(Table2).Energyintensityratiowasreducedby6.1and4.0J/LTL1000respectively.

table 2.Energyintensity(J/LTL1000)ofmanufacturingactivities

Manufacturing sub-sectors 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

foodandtobacco1,24 1,18 1,07 0,99 1,07 0,98 0,90 0,85 0,78 0,74 0,69 0,70 0,76 0,75

Textilesandleather1,48 1,24 1,01 1,01 1,00 1,08 1,02 0,99 0,93 0,78 0,57 0,78 0,64 0,49

Woodandwoodproducts

3,21 1,72 1,28 2,02 2,43 2,30 2,39 2,15 1,98 1,99 2,08 1,79 1,88 1,46

Paper and print2,87 2,53 3,10 3,15 1,89 1,63 1,13 1,26 1,03 1,03 0,97 1,63 2,01 1,35

Chemical and chemical products

4,36 3,11 2,84 2,91 2,66 2,86 3,15 3,03 2,83 1,98 2,36 2,56 2,39 2,45

Rubberandplastics1,11 0,92 0,57 0,60 0,51 0,32 0,44 0,45 0,39 0,44 0,46 0,58 0,45 0,46

Non-metallic minerals 11,69 10,73 9,90 10,89 9,23 7,20 6,60 5,70 5,12 5,09 5,17 6,10 5,78 5,56

Basic metals4,60 2,18 1,38 1,58 1,07 1,42 2,34 2,10 2,14 1,82 0,68 0,58 0,70 0,61

fabricatedmetalproducts

1,70 2,86 0,71 0,93 0,91 0,57 0,62 0,52 0,41 0,22 0,29 0,35 0,39 0,33

Machinery and equipment (instruments)

1,66 1,32 2,07 1,89 1,67 1,42 1,37 1,15 0,60 0,37 0,34 0,27 0,27 0,24

Transportandequipment

1,55 0,93 0,75 1,04 1,02 0,61 0,44 0,43 0,41 0,34 0,26 0,45 0,34 0,21

furnitureandother0,80 0,63 0,67 0,95 0,86 0,97 0,79 0,70 0,56 0,44 0,32 0,29 0,29 0,33

total2,26 1,89 1,68 1,73 1,68 1,58 1,51 1,43 1,32 1,17 1,12 1,18 1,18 1,11


Manufacturing sub-sectors were arranged by rankscore in order to identify highest to lowest energyintensive activities. Obtained results from every sub-sector were compared to the mean energy intensity ra-tio of totalmanufacturing sector.After comparisonoftheresults,manufacturingactivitiesweregroupedintothreecategoriesofenergyintensity(Table3).

Asanalysisshows,thatfivemanufacturingsub-sectors

(wood and wood products, paper and print, chemi-cal and chemical products, non-metallic minerals and basicmetals) belong to high energy- intensivegroup, three industries (food and tobacco, textilesand leather,machinery and equipments) belong tomoderateenergyintensivegroupandfourindustries-tolowenergy-intensivegroup.

table 3.Manufacturing classificationbasedon en-ergyintensity

energy intensity Manufacturing activities

Highenergy-intensive

WoodandwoodproductsPaper and printChemical and chemical productsNon-metallic mineralsBasic metals

Moderateenergy-intensive

foodandtobaccoTextilesandleatherMachinery and equipment

Lowenergy-intensive

RubberandplasticsfabricatedmetalproductsTransportandequipmentfurnitureandothers

Source:author’scalculations


83

Over1998-2011,totalcontributionofhighenergy-intensive industries to total manufacturing valueaddedincreasedfrom23.8percentto30.8percent,low group’s increased from 15.2 to 24.6 percent

whilemoderateenergy-intensivegroupreportedde-creasefrom61.0to44.6percent(fig.3).

fig. 3.Industriesshare(%)intotalmanufacturingvalueaddedbyenergyintensity

Source:author’scalculationsbasedontheLithuanianStatisticsdepartmentdata

Theintensityofenergyconsumptionvariedfrom5.3in1998to2.4J/LTL1000inhighenergy–intensivegroup,from1.3to0.6inmoderateenergy-intensivegroupandfrom1.2to0.3inlowenergy-intensivegroup.

As historical data confirmed, energy- intensive ac-tivitiesshareintotalmanufacturingproductionwasincreasing over 1998-2011. Referring to this factas well as evidence that energy-intensive branchesamountedto30percentoftotalmanufacturingvalueadded, the danger for the Lithuanian competitive-ness exits. The restructuring of the activities fromenergyintensiveindustriestowardsmoretechnologi-callyadvancedcouldleadtosustaintheLithuanianmanufacturingdevelopmentandcompetitionintheglobalcontext.

4. conclusions

The research is based on the production theoretic framework and measures energy intensity in theLithuanianmanufacturingsector.Theresultsoftheresearchshowvariationinenergyintensityacrossthemanufacturing activities.The Lithuanianmanufac-turing activities are classified into three categories,such as high energy- intensive, moderate energy-intensive and low energy- intensive. According toenergyintensityratio,fiveindustriesbelongtohighenergy-intensive group, three industries- tomoder-

ateenergy-intensivegroupandfourmanufacturingactivities-tolowenergyintensivegroup.

Over a period of 1998-2011, the contribution ofhighenergy-intensiveindustriestototalmanufactur-ing value addedwas increasing and these activitiesaccountedto30percentoftotalmanufacturingvalueadded.Theriskforthefurthermanufacturingdevel-opment efficiency exists and high energy-intensiveindustries should be under special consideration in ordertoavoidlossesintheglobalcontext.

Theexaminationofthelong-run(1998-2011)energyusepercentagechangeandchangeinmanufacturingproductionhasdescribedthattheLithuanianindus-try is inelasticofenergyconsumption.Energycon-sumptionhasgrownatamuchlowerratethanmanu-facturingproduction,excluding1999and2008. Ingeneral,itmeansthattheLithuanianmanufacturinghasimproveditsenergyefficiencysince1999.

Lithuania’smanufacturingsectorwithrespecttoen-ergysituation involvesaneedto lowerenergycon-sumptionandincreaseenergyefficiency,particularlyof wood and wood products, paper and print, chemi-cal and chemical product, non- metallic minerals and basic metals.


84

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Foreword to the tenth issue of peer reviewed scientificJournal of Security and Sustainability Issues


Dear readers,

Today I have an opportunity to introduce to your attention the tenth, the jubilee issue of the Journal of Security and Sustainability Issues (2013, Volume 3, Number 2).

This issue is very important to the Military Academy of Lithuania, the publisher, for two reasons. The first reason is, as I already mentioned, the journal celebrates its first anniversary – the tenth issue is published. I am very glad to state that the issue I am introducing is devoted to the 12th International Entrepreneurship Forum Conference, which was held on September 4-6 in Vilnius. The conference was jointly organized by the University of Essex (UK), OECD and The General Jonas Žemaitis Military Academy of Lithuania.

I am delighted that our partner, International Center for Entrepreneurship Research of Essex Business School, looks at entrepreneurship through the lens of security. Security of the country is a fundamental need for every nation, which embraces a wide range of activities. Besides its very directly perceived core functions, the Military Academy of Lithuania pays special attention to the analysis of societal processes, which ultimately might trigger any form of insecurity. Hence, as the Military Academy of Lithuania, we foster scientific activities, perform a variety of relevant analysis and contribute to the development of sciences. We strive that our highly trained and educated people were at the hub of international events and shared, contributed and perceived contemporary phenomena. Timing of this conference carried much more resonance and symbolism as it was held during the Lithuanian Presidency of the Council of the European Union. Lithuania started a journey from regained statehood to full-blown membership of the European Union, a journey that all of us undertook. Today, Lithuania returns to the Parliament proud of the path it has taken, confident of its European choice and ready to put all its effort into building a European consensus for a better, stronger, and more united and secure future together. Each institution is responsible for the taken path. Here special role belongs to the Military Academy of Lithuania.

Sincerely,

Commandant Colonel EUGENIJUS VOSYLIUSThe General Jonas Žemaitis Military Academy of Lithuania

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2013, 3(2)


CONTENTS 2013 3(2) December)

Eugenijus VosyliusFOREWORD TO THE TENTH ISSUE OF PEER REVIEWED SCIENTIFIC JOURNAL OF SECURITY AND SUSTAINABILITY ISSUES

Alminas Mačiulis, Manuela Tvaronavičienė SECURE AND SUSTAINABLE DEVELOPMENT: LITHUANIA’S NEW ROLE IN TAKING THE PRESIDENCY OF THE EU 5

A.K. Mathur, Santanu Roy, Jay Mitra TOWARD SUSTAINABLE DEVELOPMENT OF ECONOMIC SUB-SECTORS: CASE OF INDIAN SERICULTURE 15

Mantautas Račkauskas, Vytautas Liesionis THE RELATIONSHIP BETWEEN GOVERNMENT EXPENDITURE AND PUBLIC SAFETY IN LITHUANIA 31

Anatoli Beifert, Laima Maknytė, Gunnar Prause SUSTAINABLE SUPPLY CHAIN MANAGEMENT ISSUES: CASE OF REGIONAL SMEs’ INVOLVEMENT IN THE AIR CARGO 41

Kristina Balkienė SUSTAINABLE INNOVATIVENESS: ISSUES AND PUBLIC POLICY 53

Gitana Dudzevičiūtė ENERGY INTENSITY IN THE LITHUANIAN MANUFACTURING SECTOR 77

SECURITY AND SUSTAINABILITY ISSUES

Documents