Volume 2 Issue 2 December 2010

Volume 2 Issue 2 December 2010

Volume 2 ♦ Issue 2 ♦ December 2010

Editorial Board Guler Aras, Yildiz Technical University, Turkey Tomasz Bernat, University of Szczecin, Poland David Crowther, De Montfort University, UK Mihaela Diaconu, University of Pitesti, Romania Sebastian Ene, University "Constantin Brancoveanu", Romania Dainora Grundey, Vilnius University, Kaunas Faculty of Humanities, Lithuania Ecaterina Ionescu, University of Medicine and Pharmacy "Carol Davila", Romania Luise Mladen, National Scientific Research Institute for Labour and Social Protection, Romania Emil Petrescu, University Politehnica of Bucharest, Romania Lavinia Stan, St. Francis Xavier University, Canada Carmen Stoian, University Of Kent, UK Lucian Turcescu, Concordia University, Canada Editor-in-Chief Rodica Milena Zaharia, The Bucharest Academy of Economic Studies, Romania Assistant Editor Alina Popescu, The Bucharest Academy of Economic Studies, Romania Email: [email protected] Publisher ASE Publishing House 6 Piaţa Romană, District 1, cod 010374 Bucharest, Romania www.ase.ro

EJIS is published under the research grant no. 91-058/2007 “THE DEVELOPMENT OF INTERDISCIPLINARY ACADEMIC RESEARCH AIMED AT ENHANCING THE ROMANIAN UNIVERSITIES` INTERNATIONAL COMPETITIVENESS”, coordinated by the Bucharest Academy of Economic Studies and financed by CNMP Romania.

@Copyright 2010, European Journal of Interdisciplinary Studies

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European Journal of Interdisciplinary Studies

Contents

Pages 4-7

Capitalism: Wherefore? Virgil GHEORGHIŢĂ

8-15

From International Trade to Firm Internationalization Stela Crina DIMA

16-28

An Introduction to Hypersensitive Analysis by AMS Cătălin STAN – SION, Mihaela ENĂCHESCU, Cristina CÎRTOAJE, Emil PETRESCU

29-35

Energy Insecurity Crisis: The Case of Georgia Ioana – Iulica VOICU, Madelaine PEPENEL

36-44

Sustainable Development Strategies in Domestic and International Tourism Sebastian George ENE, Mădălina BĂRĂITARU

45-52

The Organisational Structure of Telecommunications Companies Case study: The OTE Group Madelaine PEPENEL, Ioana – Iulica VOICU

53-59

Foreign Direct Investment Theories: An Overview of the Main FDI Theories Denisia VINTILA

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Capitalism: Wherefore? Professor Virgil Gheorghiţă, PhD

Abstract: This paper provides a brief overview of economic thinking about the capitalist system. The clash between defenders and detractors highlights the system’s strengths and weaknesses as well as possible improvement vistas. As pro- and anti-capitalist theories are examined and compared against real world developments, a number of implications for current-day policymaking are outlined.

Key words: capitalism, social organisation, classical liberalism, Marxism, neoliberalism By and large, the ideology behind the capitalist system is rather controversial, as it puts forth opposite ideas, besides the adjacent nuances. Actually, with the end of the Middle Ages, the thinking of the nouvelle bourgeoisie coexists with a communist-socialist strand of thinking , as illustrated by Thomas Morus (1478-1535) Utopia and Tommaso Campanella (1568-1639)’s City of the Sun, followed by still others over the next centuries. Bourgeois thinking dominates, of course, with due nuances. Speaking of economic thinking, one should mention a vast bibliography: from the first mercantilists (Stafford, Antoine de Montchretien, Jean Bodin, a.s.o.), classical economists (Adam Smith, David Ricardo, etc.), liberals and neoliberals up to the harshest critics of the capitalist system, like Karl Marx, to half-critics suggesting ways to improve the system going all the way to outright defenders of the system. In this profusion of ideas a peculiar trait of the system’s ideology in the 20th c., but especially after World War 2, stands out: the belief in “popular capitalism” given the ownership of shares by some employees, probably also in order to set it apart from socialism, an altogether opposite economic system, that had appeared in Russia, and collapsed in 1989. In a short while this term undergoes a transformation, and turns into “market economy”. Will this term change stop here? Currently the need for a third way of development has become a topical subject. This change in terms for the system of the ongoing social order seems to occur at ever shorter intervals. Reactions in the economic realm seem to answer a historical necessity. In point of fact, if we observe the evolution of human society, we realize that its organization as an economic system changes, with longer periods giving way to shorter ones. If one compares the time spans of the primitive communal system, slavery, and the Middle Ages, one can assert without fail that societies’ historical duration is compressed. The current system can be deemed fairly young historically speaking. Economic thought from the latter half of the 17th c. has seen radical changes. Both the transition from mercantilism to liberalism, with Adam Smith’s invisible hand regulating the economy, and individual freedom posited as a precondition for decision-making for one’s self-development, and the transition from classical liberalism to neoliberalism reflect a compression of historical time, and hence changes in society alongside the economic system.

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This theoretical framework includes some economists who start addressing the system’s imperfections, which was not altogether difficult given the recurrence of crises, the disorder originating in missing out on proportions in the economy; the market no longer regulates itself, Adam Smith’s invisible hand no longer intervenes, thus an antiequilibrium trend appears in economic thinking. In the 19th c. Karl Marx straightforwardly attacks the system through his work Das Kapital. The cyclical development of capitalism cannot go on indefinitely, failure to find the right proportions in the economy and the social crisis aggravate paving the way to revolution. Vladimir Lenin reaches the same conclusions in the context of heightening contradictions in the imperialist stage of capitalism. This inexorable state of affairs is underlain by the need to substitute private property over the means of production with a new property type, a socialist one. Obviously, political thinking, especially Western one, reacted against Karl Marx. Some social democrats, like Karl Kautsky for instance, amend this theory contending that monopolistic developments and inter-monopoly rivalry will ultimately lead to a unique monopoly, and hence fight cessation, therefore there is no need for a revolution to change the system. Indeed the system has not been altered but not because there is only one monopoly. In the wake of World War I the German Oswald Spengler (1880-1936) also declared the demise of capitalism in his famous work The Decline of the West. Originally a philosopher historian, Spengler contended that history unfolds in a cyclical fashion, with the philosophy of culture going through various stages likened to organic evolution: spring stands for birth and childhood, summer for youth, autumn for maturity, winter for old age and death. Thus, just like the prior seven cultures (Egyptian, Greek, Roman, Chinese, Babilonian, Indian) have vanished so will the Western (Faustian) one. This is naturally a fallacy since it equates the social organism with a living one, and social sciences (history and culture in this case) with life sciences (such as biology). This view was indeed very successful at the time but it was short-lived. A climax in pro-capitalist economic thinking is John Maynard Keynes (1883-1946). He witnessed the period of the greatest economic depression and the most poignant suffering, hence his firm stance in his famous work The General Theory of Employment, Interest and Money: the system can be saved through state intervention, renouncing thus the renowned adage “laisser faire, laisser passer” and attaining the equilibrium necessary for growth. To this end the state needs to heavily invest in the economy, plunge money in big-scale projects employing workforce, which will thus fuel credit and make macroeconomic aggregates take off. Indeed the economic machine started rolling first in the US where Keynesianism took hold, and subsequently in Europe, especially Hitler’s Germany, with its war preparations and the incentives granted for boosting production. Post-war geopolitics is a turning point, with nation-states concerned with economic reconstruction in the wake of huge devastation. Hardly a few years after the war fascism and dictatorship show up first in Italy, next in Germany. Joseph Schumpeter is an economist who puts forth a theory opposed to Keynes’, yet he is not opposed to the system. His major work Capitalism, Socialism, and Democracy (1942) suggests that the future belongs to socialism but, paradoxically enough, this occurs in the absence of state intervention and monopoly-generated benefits. This thinker was famous not just for upholding socialism but also for his concept of ‘creative destruction’.

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One trait of post-World War 2 economic thinking is that the current social organization is the most adequate, despite its imperfections, which, if removed, can lead to an improved system. Thus, in the context of two coexisting ideologies until 1991, i.e. capitalism and socialism, a new metamorphosis occurs in Western thinking, the theory of system convergence: the new system brings together the good sides of the two aforementioned ones. But this system did not come into being as socialism broke down in 1991. After World War 2, as the critiques levied against capitalism become more vocal, the system is no longer called capitalism but ‘market economy’, ‘global economy’, ‘knowledge economy’ or even ‘open society’ in George Soros’s view. Many wonder about the economists’ concerns about changing the façade of capitalism. Have its faults disappeared? Are crises gone? Does the same apply to unemployment, poverty and low living standards, gaps between rich and poor countries, state hegemony and rivalry, geopolitics, and strife? Is a change in ideology wanted? Some thinkers claim these are just beautiful labels grounded in new elements that inevitably show up with the due progress in economy, society in general, and naturally, capitalist society, a number of basics that ideology puts together under the guise of new theories. Do they address capitalism and its essential premise, property over the means of production? Obviously some economists have thought the matter over but human interests are hard to be overlooked. This very fact was theorized three to four centuries ago as it is inextricably linked to human nature. Even today human nature is explained by referring it to private property. Stripping someone of his possessions is tantamount to tampering with individual freedom. If projected to a national level dictatorship occurs. This position is aptly illustrated by Friedrich August Hayek’s famous work The Road to Serfdom (1944) and by Milton Friedman’s Capitalism and Freedom (1962). The former departs from Hitler’s nationalist socialism and its dire consequences, which inevitably lead to dictatorship. Strangely enough he contends that socialism could lead to dictatorship in England like in Germany yet believes this is not the case because conditions in the two countries differ. He also mentions centralised planning, a prerequisite of socialism, which prevents individual decision-making. In Capitalism and Freedom Friedman observes that Hayek’s prior work Constitution of Liberty was overlooked by reviewers for seven years only to be noticed after the Vietnam war shock. Friedman’s approach to freedom seems more refined as he links it to the way paternalism is commonly envisioned. Liberty means first and foremost responsibility, ‘a free man is held responsible for his own destiny’. That is why state intervention in the economy should be limited, the individual should take his fate in his own hands, the state should decentralize as individualism is incompatible with collectivism. In fact, since economic liberty cannot be separated from political freedom, and man is imperfect, social organisation should induce constraints and pursue the extension of individual freedom. Recently a new book was published in the US, The Death of the West, by Patrick Buchman. Its outlook is pessimistic yet it envisions rescuing capitalism. This work is reminiscent of Oswald Spengler’s Decline of the West, which saw history unfolding in cultural cycles, with the Western one vanishing just like the prior seven. Buchman instead claims the death of capitalism is due to external causes, emigration to the US. Falling birth rates in developed countries, the US included, the need for workforce and too liberal access cause waves of people from developing countries (Asia, Africa, Latin America) to

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invade the US. The West will thus succumb to immigrants without fighting a war, and the children of originally Western parents will shrink to a minority. In order to deal with this situation, a selective and restrictive immigration policy coupled with preferential employment opportunities is needed alongside a policy for family development and raising birth rates. Last but not least, a set of measures conducive to the development of the West’s social values need to be taken. So, the West stands to fall not because of inner causes but rather external ones, and there are policies that one can resort to in order to rescue capitalism. In the context of 21st c. geopolitics, capitalist ideology advocates the development of economic globalism all the more so since our century is the century of American power, according to George Friedman in his work The Next 100 Years. This book predicts a global war between the US, Turkey, Poland and Japan. Even before that Mexico will challenge the US in 2010, and China will break down in 2020. Under these circumstances the question is if the economic system can take a third way. References: Buchman Patrick, The Death of the West, 2002. Campanella Tommaso, City of the Sun, 1623 republicată. Friedman George, The Next 100 Years, 2009. Friedman Milton, Capitalism and Freedom, 1962. Hayek Friedrich August, The Road to Serfdom, 1944. Hayek Friedrich August, The Constitution of Liberty, 1960. Keynes John Maynard, The General Theory of Employment, Interest and Money, 1936. Marx Karl, Das Kapital, 1867, republicată 1973. Morus Thomas, Utopia, 1516 republicată. Schumpeter Joseph, Capitalism, Socialism, and Democracy, 1942. Spengler Oswald, The Decline of the West, 1922-1923.

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From International Trade to Firm Internationalization Stela Crina DIMA [email protected]

Abstract This paper aims to investigate the evolution of economic theories that explain firms’ internationalization and the development of foreign direct investments. Arguments are intended to show that theoretical approaches in this field are rooted in the period of classical theories of the international trade. Theoretic fundamentals regarding the internationalization of the firm comprise of the literature review, mentioning the main theoretical trends based of which present understanding on transnational companies is formulated. Conclusions show that as the complexity of larger companies’ activity increases, the need for a new theoretical development to explain the relationships among different economic actors appears. Also, the evolution of the economic theories shows that a single theory cannot explain by itself the complexity of the present and especially of the future economic environment.

Keywords: theories of international trade, theories of foreign direct investment, theories of firm internationalization JEL Classification: F10, F20

Introduction Literature’s development on the transnational companies starts from the theories of international trade, where from, in time, theories on foreign direct investments (FDI) and theories on firm internationalization, two interdependent aspects, came apart. Towards the last half of the century, neither the theories of international trade, nor those of foreign direct investments have been sufficient to describe the movements of the merchandise, services and financial flows of large companies. Theories of firm internationalization became more and more parts of international trade theories, a good example in this respect being the theory of competitive advantages that integrates both macroeconomic (the role of the production factors, the demand) and microeconomic approaches (competitors). Firm’s internationalization was explained by many theorists (Penrose, 1968; Caves, 1969; Kindleberger, 1971; Hymer, 1976; Dunning, 1980, quoted in Morgan and Katsikeas, 1997) by relating it to the competitive mechanism and firm’s behaviour in the circumstances of this mechanism.

1. Theories of International Trade Classical theories of international trade, although not considering firm’s earnings from free trade, but nation’s earnings, constituted a theoretic key start point in the explanation of the internationalisation’s rationales. Advantages offered by specialization, explained by the theories of absolute advantage (Adam Smith, 1776) and of comparative advantage (David Ricardo, 1817), and later by the theory of factor endowments, have been taken and adapted for the level of the firm. The theory of absolute advantage brought to the attention for the first time the possibility

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for a country to produce cheaper a given product than another country. In this case, countries’ specialization in the production of goods with smaller costs and the trade of the production surplus was beneficial for both countries. Although it represented a major step in demonstrating the benefits of specialization, Adam Smith’s theory could not offer the same perspectives for the countries that did not poses an absolute advantage for any category of products. From this situation, David Ricardo demonstrated that specialization is possible and beneficial even when a country doesn’t poses and absolute advantage in the production of any good. Resources’ allocation toward those goods that can be obtained cheaper than others and their export can bring benefits to both countries. This was a major demonstration that fundament the theories developed later, regardless of the fact that they confirmed, enriched or contradicted the hypotheses of the comparative advantages theory. At the beginning of the 20th century, two Swedish researchers Ohlin and Hecksher argue that the difference between countries is given by the production factors, and the products are different because of the production factors incorporated. According to the model (Ohlin – Hecksher factor proportion theory), a country holds a comparative advantage and thus will export the product that incorporates the abundant production factors in the respective country. Thus, the more abundant a production factor is, the cheaper it becomes. So, the difference in the production factors is given by the difference in their prices, generating the competitive advantage. Technological developments in the ’60-ies and the substantially ample development of multinationals lead the specialists to look for new theoretical fundamentals that explain the complex evolutions of the international trade. The product life cycle theory developed by Vernon in the ’60-ies proved to be a good frame of reference for explaining and predicting patterns of international trade, but of multinational companies as well. This can be considered the theory that unifies the development of multinational companies, showing without a doubt that trade flows are linked to the international trade (Morgan and Katsikeas, 1997, p. 69). The life cycle theory suggests that a trade cycle begins when a product is made by the mother company, then by its subsidiaries, and then by any other company anywhere in the world, where the production costs are the lowest possible. At the same time, the theory explains how a country that initially appears as an exporter of the products can end as an importer, when the product reaches the last stage of its life cycle. The essence of this theory is influenced by the technological innovations and market expansion. Technology is the main factor in the development and creation of new products, whereas the size and the structure of the market are generated by the expansion and the type of internationalization adopted by the firm. The new theory of international trade developed by Krugman in the ’70-ies constitutes a critique brought to the classical theories of international trade based on free trade. The supporters of this new theory questioned the positive effects of free trade in the case of infantile industries. An important argument of the new theory is represented by the fact that, using protectionist measures to sustain certain industries for a given period of time, conditions for those industries to become leaders on national and international markets can be created. A good exemplification of this theory is that of the Asian countries like South Korea and Japan, that sustained the representative companies from specific industries to penetrate the international markets and afterwards they became leaders of international level (for instance, the case of Samsung).

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Of much interest is the new theory of competitive advantages launched in the last decade of the last century by Michael Porter in his book “The Competitive Advantage of Nations”. Porter’s diamond, as the fundamental elements of the theory were called, represents an economic model that explains why some industries become competitive in certain situations. The diamond has four constitutive elements, plus two factors of influence: production factors, demand, support industries, firm structure and competition at branch level, governmental regulations and the chance. The theory of competitive advantages considers those six elements interact one with each other, allowing the creation of those combinations to enhance competitiveness’ increase. The development of transnational companies from certain countries and industries verify some applications from Michael Porter’s theory. In media, for instance, American firms have a higher level of competitiveness. The come from a market where advanced production factors are very well emphasized, meet a sophisticated demand from buyers with strong purchasing power and requirements, where upstream and downstream industries function without problems, and the competition within the industry is extremely high. Apart from the theories of the international trade, firm’s development was explained by a series of other theories that showed the reasons that could determine a company to expand, not only within the national borders, but also beyond them. The theories of the international trade have failed to explain why firms choose a specific location instead of another, why they prefer the production abroad and not the export towards another country. On the background of the expansion of large firms and the theoretical approaches to analyze market imperfections, a category of theories trying to extend the limits of the international trade theories and to explain foreign direct investments have emerged.

2. Theories of Foreign Direct Investments Market imperfections represent, according to some specialists (Hymer, 1970; Kindleberger,1971, Caves 1969, quoted in Morgan and Katsikeas, 1997) the main factor that determined firm’s internationalization. According to Hymer, market imperfections are of structural nature and come from the deviation from the perfect competition on the final product’s market, as a consequence of an exclusive and permanent control of property rights on technology, access to resources, scale economies, distribution system and product differentiation. Profits decrease, due to competition increase, may lead to the reduction in the number of companies, by mergers and acquisitions, as a way to counteract competition effects (Pitelis and Sugden, 2000). Firms are permanently looking for market opportunities raised by these imperfections in the endowment with production factors and in the production of goods, their decision to invest abroad being considered a strategy to capitalize on the advantages competitors do not poses on those markets. The theory of international production suggests that the ability of a firm to produce abroad depends on the particular attraction of the country of origin in relation to the advantages offered by other markets. The additional element brought by this theory is the identification of multiple factors’ importance in the decision to externalize the production of a company and to proceed with foreign direct investment. Not only the endowment with production factors and their productivity make a company to invest beyond the

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borders of its own country, but also the governmental actions that transforms into an attraction factor for investors. Strongly connected to the international production theory was developed the theory of internalization, that introduces the idea that firms wish to create their own internal market to outrun the borders of their country of origin. The internalization implies a form of vertical integration, that includes activities once performed by intermediaries (Morgan and Katsikeas, 1997, p. 70). Location theory - initiated by the German school starting with Johann Heinrich von Thünen at the beginning of the 19th century - , is linked to the geographical location of the economic activity (Crosier, 2001). The base of this theory is given by the answers to the following questions: what economic activity needs to be located, where to and why is that? Thus, as spaces and local and national economic environments open to the global economy, it becomes more obvious that large corporations are the coordinating units of the current economic relations, much more than national economies. And, once with the opening of the national economies, it proves to be possible and advantageous for a corporation to benefit of the existent differences between regions and cities in terms of salary levels, market potential, employment regulations, taxation, environmental regulations, local infrastructural facilities and human resources. Thus, firms will choose locations that will maximize their profits, and consumers will choose those locations that will maximize their utility. Although the location theory does not provide criteria to determine a firm to choose the best locations, it can provide details on the ways companies internationalize, at global level, based on the elements associated to the location: tax level, technological transfer’s requirement, political risk, unions’ power, attitude towards foreign companies etc. Demand structure hypothesis, that starts from the classical economic theories (initiated by the one that used the terms demand and supply for the first time - James DenhamSteuart1) and continues with the post-Keynesian approaches of Hicks or Phillips, considers that a similar structure demand existing in two countries will favour the commercial flows between those countries. To exemplify, at the level of the transnational companies, the heading of their investments shows an attraction to those countries with a demand structure similar to that of their home country, rather than to countries with a different demand structure. Trade flows between developed countries dominate the international trade, as foreign direct investments from developed countries target mainly developed countries as well. Transaction costs theory, developed by Ronald Coase in 1937 and afterwards by McManus in 1972, Buckley and Casson in 1976, Brown in 1976 and Hennart in 1977 brought in the discussion the differences between the transactions within the company and those outside the company. Coase argues that although the transactions outside the company cannot be necessarily controlled by the company, those within the company are performed according to company’s interest. Extrapolating this behaviour of the firm, the development of the transnational companies allows the manipulation of the transactions within the company, so as to lower losses. Thus, the concept of the internalisation of the international trade associated with the transnational companies and the way they utilize transfer prices between subsidiaries to maximize profits emerged.

1

In 1767, James Denham-Steuart published Inquiry into the Principles of Political Oeconomy. Actually, this represented the first book on economics published in the world.

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An extension of the costs theory was represented by the eclectic theory. The reasons for which transnational companies make foreign direct investments, according to the eclectic theory developed by John Dunning in the ’80-ies do not consider only the structure of the firm, but also some advantages raised by ownership (brand - if owned by the company, managerial capabilities), location (availability of raw materials, salary level, tax level) and the international environment (the advantages of licensing and joint ventures). Known also as the OLI Model (Ownership, Location, Internationalisation), the theory tries to explain the reasons and the motivational power of foreign investments and the way in which resource allocation and the organisational structure of the firm are interconnected. The theory allows the analysis of market advantages, both at the level of firm’s needs and from the perspective of the international environment. Also, with the use of OLI theory one can make a prediction of the areas (countries or regions) where the probability for firms to invest is the highest (Dunning, 1993). Firm-specific advantages (ownership) can be easily transferred in the case of internationalisation, comprising of technology, brand etc. They can generate a higher profit or can contribute to the decrease of the production cost at global level. Unlike a firm that activates in the home market, the one present at international level is confronted with additional costs due to the differences in the legislative environment, the knowledge regarding the external market, the communication costs and the operation at larger distances. Thus, to reduce these costs there must be another advantage for the internationalized firm as opposed to the local firms. These advantages, leveraged by internationalization, translate into abilities raised by the monopoly position (patents, ownership rights for rare resources), technology (innovation and research within the firm that can be easily exported to foreign subsidiaries) or firm’s size (financing is more available, specialisation is more profitable). The advantages that derive from location are, in fact, accessible to everyone. Natural resources, the workforce, the capital, the technology, or the organisational and information systems are available to all competitors. They are exploited and transformed into advantage if their use generates profit and superiority in competing. Location – specific advantages are generated by economic factors (the quality and quantity of the production factor, telecommunications and infrastructure costs, objectives and size of the market), political factors (incentives for foreign direct investments), social and cultural factors (language spoken, cultural diversity, and attitude towards foreign investors). Advantages of internationalization appear when the export costs are much higher than the costs generated by the establishment of a subsidiary. The internationalization is generated by the perception a company has, both internally and externally, regarding the comparison of benefits resulted from the internationalization in relation to the costs it implies.

3. Theories of Firm Internationalization The movement to internationalization, as theoretical approach, was needed due to the fact the more and more theorists noticed that the performances in the field of the international trade cannot be explained only by referring to macro-economic phenomena. Firms’ role is very important and it influences the commercial performances of the nations. As opposed to the theories of the international trade and foreign direct investments, the theories of firm internationalization explain how and why a firm engages in foreign activities and how the dynamics of the nature of this behaviour can be conceptualized.

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The internationalization can be described as a movement of firm’s operations beyond the borders of the home country, a process of the increase of firm’s implication in complex operations outside national borders. This acceptance of the internationalization process allows the analysis of the multiple activities performed by firms abroad, which are of extreme complexity: from licensing, to franchising, to joint ventures or mergers and acquisitions. The theory of firm internationalization allowed the broadening of new horizons for the analysis of the corporative phenomenon: management, marketing, finances or human resources. If at macro-economic level, between the firms that perform activities at international level distinctions are not made, at micro-economic level, management and marketing strategies identify particularities specific to each internationalisation level. Firm internationalization theories analyze the factors that generate the advance firms win in the process of internationalization, the stages firms cover in the process of internationalization, and the elements that define the internationalization behaviour of firms. A model for firm internationalization is represented by the Uppsala Model, developed by the Swedish researchers (Blomstermo and DeoSharma, 2003). They consider that the internationalization process is an evolutionary and sequential one, which develops as the firm becomes more and more involved on the international market. According to the approach of the Swedish theorists, firms enter foreign markets in a gradual way, in accordance to the level of knowledge and the information accumulated about the destination market. Firms gain knowledge and experience from their activity on the internal market, and, at a certain point, turn to external markets. The external markets have different degrees of attractiveness, in accordance to the geographical and cultural proximity to the home country. The Uppsala Model considers that the firms starts the approach of the international markets with the usage of the traditional export methods to countries closer from the perspective of geographical and cultural proximity, gradually developing complex ways to operate, at firm level, at destination country level, and towards geographical and cultural more distant countries. There can be distinguished four such methods for market penetration: irregular export, export through an agent, subsidiary and production. The lack of information and knowledge about the international markets represents a major obstacle in the way of internationalization, but this can be overcome by researching the peculiarities of the target markets. The decisions regarding the investment arrangements are made as the degree of non-information decreases. The more the firm knows about a foreign market, the perceived risk is lower. As consequence, the level of investments increases. The level of knowledge about the new market directly influences firm’s involvement, generating a certain degree of involvement towards the external market. Innovation-related internationalization taxonomies examines the way in which firms progress in the process of internationalization and suggest that this process is a sequence of stages with stagnation periods, influenced by the degree of involvement in the global economy. Over these static periods, firms accumulate the needed resources to reply to the challenges launched by the international environment and to pass to the next level (Morgan and Katsikeas, 1997). Innovation allows firms to obtain new products with superior features and to decrease costs by developing new production processes and production technologies etc. In this way, using innovation, firms obtain advantages that allow them to be competitive in international environments distinct from that of the home country. The higher the level of

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innovation absorption is, the competitive ability increases and firma expand on markets even more different than the origin market (Stoian and Zaharia, 2009). The synthesis of the main theories that lead from the international trade to the internationalization of large firms is presented in Table 1 below. Table no. 1. Main theoretical approaches that lead to the explanation of the development of transnational companies Theories Absolute advantage theory Comparative advantage theory Factor proportion theory

Product life cycle theory

New theory of international trade Competitive advantage theory

Market imperfections theory

International production theories: Demand structure theory

Location theory Eclectic theory

Internalization theory - Transaction costs theory

Uppsala Model

Innovation-related

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Emphasis International trade theories Countries win if they specialize in the production of goods for which they hold an absolute cost advantage. Countries win if they specialize in the production of goods for which they hold a comparative cost advantage. Countries tend to specialize in the production of those goods that intensively use the most abundant production factors. Different stages: production and export to a foreign country, external production, external production for export, product import from abroad. Utilizing protectionist measures to develop an important industrial base in some industries allows these industries to dominate the global market. Advantages are given not by the endowment with production factors, but by the availability of advanced production factors and the degree of competitiveness of an economy. Foreign direct investment theories Market imperfections are structural and come from the deviations from the perfect competition on the market of the final product, as a consequence of an exclusivist and permanent control on the rights of property on technology, access to resources, scale economies, distribution system and product differentiation.

- Investments direction shows a higher attraction to the countries with a similar demand structure to that in the country of origin, in relation to countries with a different demand structure - What economic activity needs to be located, where and why? - The reasons for localization are linked to several advantages generated by ownership, firm’s location and the international environment The development of transnational companies allows the manipulation of the transactions within the firm, so as to minimize losses Internationalization theories of the firm Firms penetrate foreign markets in a gradual way, in accordance to the level of knowledge and information they accumulate about the destination market The internationalization process is a stepwise

Credited writers Adam Smith, 1776

Ricardo, 1817

Hecksher and Ohlin, 1933 Vernon, 1966

Krugman, 1970

Porter, 1990

Hymer, 1970

Hicks, 1939 Phillips, 1958 Weber, 1929 Dunning, 1980

Ronald Coase, 1937 Buckley and Casson, 1976, 1985 Johanson and Wiedersheim-Paul, 1975 Bilkey and Tesar,

European Journal of Interdisciplinary Studies internationalization taxonomies

process, with stagnation periods, over which firms utilize innovation to respond to the challenges launched by the international environment and to move to the next level.

1977, Cavusgil, 1980, Czinkota, 1982, Lim, 1991, Rao and Naidu, 1992

Source: Prepared by the author after Morgan and Katsikeas, 1997, p.70

Conclusions Classical theories of the international trade lead to the idea that the fundament of the international trade is given by the differences that exist in production and in the endowment with resources. In general, they tried to explain how and why the trade between two countries develops and what earnings could be obtained as a result of specialization. The removal of monopoly and the emergence of an increasing number of firms lead to the development of the theories on the international trade which, this time, made clear reference to certain industries, or to certain companies. More than that, some theoretical approaches of the international trade set the theoretical base for firm internationalization theories. On the background of the expansion of large firms and of the theoretical approaches that have analyzed market imperfections, a new category of theories has emerged that tried to expand the limits of the theories on the international trade and to explain foreign direct investments. The move to internationalization as a theoretical approach was needed due to the fact that more theorists noticed the performances in the field of the international trade cannot be explained only in relation to the macro-economic phenomena. Firms’ role is very important and influences the commercial performances of nations. As opposed to the theories of the international trade and foreign direct investments, the theories of firm internationalization explain how and why a firm engages in foreign activities and how the dynamics of the nature of this behaviour can be conceptualized. It is obvious that as the complexity of large firms’ activity increases, the need for new theoretical development capable to explain the relationships between different economic actors appears. Also, from the evolution of the economic theories it results that a single theory is unable to explain the complexity of the present and future economic environment. References [1]. Blomstermo, A., Deo Sharma, D. (2003): “Learning in the Internationalization Process of Firms”, http://books.google.com/books?id=e_gkLdF1ocwC&printsec=frontcover#v=onepage&q=&f=false [2]. Crosier, S., von Thünen, J.H., (2001): “Balancing Land-Use Allocation with Transport Cost”, http://www.csiss.org/classics/content/9 [3]. Dunning, J. H. (1993): “Multinational Entreprise and the Global Economy”, Edison- Wesley Publishing Company, Wokingham, England. [4]. Morgan, R.E. and Katsikeas, C.S. (1997): “Theories of International Trade, Foreign Direct Investment and Firm Internationalization: a Critique”, MCB University Press, http://www.standrews.ac.uk/business/distance/Economics/Reading/Critique_trade_theories.pdf [5]. Pitelis, C. and Sugden, R. (editors) (2000): “The Nature of the Transnational Firm”, http://books.google.com/books?id=mXjeiQYR088C&printsec=frontcover#v=onepage&q=&f=false [6]. Stoian, C. and Zaharia, R.M. (2009): “Corporate social responsibility in Romania: trends, drivers, challenges and opportunities”, International Journal of Economics and Business Research, 1(4), pp. 422 – 437.

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An Introduction to Hypersensitive Analysis by AMS Cătălin Stan-Sion National Institute for Physics and Nuclear Engineering, Department for Applied Physics, Bucharest

Mihaela Enăchescu National Institute for Physics and Nuclear Engineering, Department for Applied Physics, Bucharest

Cristina Cîrtoaje University “Politehnica” of Bucharest, Physics Department, Bucharest, Romania

Emil Petrescu University “Politehnica” of Bucharest, Physics Department, Bucharest, Romania

Abstract: Rare radio-isotopes can give valuable information in different scientific areas, from medicine to cosmic rays studies. This is the reason why Accelerator Mass Spectrometry (AMS) has been developed to perform analyses at highest sensitivities, able to detect radio-isotopes concentrations where other methods fail. AMS with 14C performs precise dating of objects of biologic origin using only very small samples reducing relic destruction.10Be is a long lived isotope used in historical studies of samples from the last ten million years. It can also be used in geology and its high analysing sensitivity allows measuring the 10Be produced directly inside the rock by the cosmic rays. From only 1 ml of blood AMS can detect the aluminium (26Al) absorption in different human organs. 36Cl is a good atmospheric circulation tracer that can be detected by AMS. 129I has a reduced specific activity but high volatility and can be used efficiently as a tracer of nuclear pollution. The paper will present the method of AMS and will give the reader an introduction into the possibilities of using this analysing method in different research activities.

Keywords: Accelerator mass spectrometry, radio-isotope. 1. Introduction The modern society, through its permanent development, encourages rapid absorption of the newest scientific progress, encouraging discoveries with worldwide applications in different human fields. As such, scientific progress in regard to atomic and nuclear physics is of major importance. It contributes to the permanent development of the newest methods for the investigation of our “universe”. Among these methods, the analyzing techniques are essential in modern microscopic investigation of matter. Accelerator Mass Spectrometry (AMS) is a very unique and special method of selecting and individually counting atoms of a certain kind. It has the highest analysis sensitivity known today: 10-16 (ratio: isotope/element). This sensitivity is equivalent with the possibility to select and count one single type of atom from one million of billions of other types of atoms. The applications of AMS are meant for many different fields: medicine, biology, environmental physics, geology, forensic science, nuclear pollution, solid state physics, etc.

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2. AMS General Description AMS is measuring the rare isotopes concentration in a sample material. As mentioned above, it has a very high sensitivity, being able to separate and register one single atom from more than one billion of millions of other atoms. A typical AMS facility, as presented in Figure no. 1, consists of four major parts: the ion injector (containing the ion source); the tandem accelerator; the high energy analysing systems and the particle discrimination and detection system. As it will be described in more detail below, these parts contain a series of mass filters that produce the desired separation and at the end they are able to produce the high sensitive analysis of certain atoms. Basically, this kind of analysis is performed by producing an ion beam from the sample material itself. This beam is produced by the ion source and afterwards it is accelerated to high energies enough for using efficiently the electromagnetic devices that separate the desired ions from the rest of the ions produced from the sample material. Finally, a particle detector is counting the selected ions one by one and as a result, the concentration of the enquired element in the analyzed sample can be determined. Figure no. 1. Schematic diagram of an AMS- facility Detecting system

(F6)

Wien Filter

(F3)

(F5)

Tandem Accelerator

(F2) H.E. Analysing magnet

Analysing magnet

(F4) (F1) Ion Source

Sursa

Photo no. 1 is showing the injector deck, where the ion source is located. Fig.2 shows the schematic drawing of the sputter ion source and its functioning. It represents the first AMS filter (F1), since it produces as output only negative ions (see fig.1). Positive molecular ions or neutrals are also produced but will be removed from the beginning and in this way, the perturbing interferences are avoided. In order to get an adequate form for their use in ions sputtering source, the probes to be analyzed are first chemically prepared. The AMS sample should have a solid substance, with good thermal and electrical conductivity. Inside the ion source, an accelerated beam of positive ions of 133Cs is focused and bombards the sample to be analyzed. By a sputtering process, all kinds of atoms will be scattered out from the sample material. However, only the negative ions will be extracted from the ion source. The extraction energy is about 25 keV. These negative ions can be further accelerated by the tandem accelerator on its first acceleration path up to the positive loaded HV terminal.

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The second filter is the 900 double focusing analysing magnet (F2), located on the injector deck, too (see Photo no. 1). By passing through this magnet, the negative ions (q= -1) extracted from the ion source will be selected according to their mass value with a resolution of ∆m/m=1/250. Then, before entering into the tandem accelerator, the selected ions species will be further accelerated up to about 70 keV. The acceleration tubes (NEC type) are located at the injector exit.

Photo no. 1. The new upgraded ion injector deck of the AMS facility in Bucharest: 1) Injector deck polarized -100 kV, 2) second platform, polarized -30 kV with respect to the injector deck, 3) the 40 NC-SNICS, 4) the analyzing magnet, 5) Slits and retractable Faraday Cup, 6) pre-acceleration NEC tubes.

This energy increase is necessary to reduce the source emittance and in this way to match the entrance acceptance of the tandem accelerator. The emittance is a measure of disorder of the accelerated particles inside the ion beam and is given by the ratio: transversal momentum/ axial momentum (pt/px). When the 70 keV negative ions (q = -e) enter the tandem accelerator, they are further accelerated by the potential difference between the input of the system and the terminal of high voltage (typically, from Vp = 0 to Vt = 8 M V). At the central terminal position, the accelerated ions have to pass through the stripper foil (carbon foil, 6m/mg, or gaseous medium) and loose part of their exterior electrons by the stripping process in the foil. In this way, the negative ions will change to positive charge, with different values (q = 2+,3+,4+,5+,6+,7+,..). The charged values depend on the incident energy on the foil. Molecules passing through the terminal stripping foil are exploded and therefore are removed from the ion beam. That is the reason why the stripper foil is considered to be the third filter (F3). After the stripper foil, the now positively charged ions will be repelled by the positive high voltage terminal. They will be accelerated in the second half of the accelerator system, down to the ground potential value and up to the exit of the tandem accelerator. At this location, the energy will be about 48.07 MeV ( E Tandem =U(q+1) = 8x(5+1) =48 plus 70 keV).

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At the tandem exit, after ion focusing and a few meters of free flight, a large and powerful magnetic analyser is performing the high resolution of mass separation. This is the fourth filter (F4). Since the magnetic field cannot separate particles with the same p/q ratio a Wien velocity filter can be used to separate the ions according to their velocity and in this way remove the magnetic degerency. The velocity filter is located in between the HE analysing magnet and the detection system. This is the fifth filter (F5). Finally, the AMS facility ends with the particle detection system, which is the last filter (F6). However, there is a major difficulty in the AMS analysis: because of the very small concentrations to be determined, the intensity of the corresponding produced ion beam intensity is only of a few ions per minute. There is no way of measuring this extremely low beam current intensity, excepting in the final detector system. Moreover, the transporting of such a low intensity ion beam through a long (more than 35 m) and complex beam transport system that preserves high vacuum is not directly possible. First, one has to use an ion beam with a measurable electric intensity to tune the beam transport through the entire AMS facility. This pilot beam will be produced from the substrate of the sample material. For example, 26Al will be measured in a substrate sample of 27Al and 27Al will be the pilot beam, 129I will be measured in a substrate sample of 127I, with this ion used as pilot, etc. The pilot beam will be used to adjust the focusing of ion optics for the entire ion beam transport up to the entrance into the detection system. Once the tuning of the AMS analyzing system was optimized, the rare isotope beam can be extracted from the ion source (the analysing magnet on the AMS injector will select blindly the microscopic beam). If the condition of constant rigidity is preserved, this beam will be transported exactly on the same path with that of the pilot beam, all the way down to the detection system. This condition is given by the relation: (BR)2 = 2 EM/q2=constant

(1)

Where M, q, E represent the mass, the charge state and the energy of an ion, B and R, the magnetic intensity and the curvature radius of the magnet bending respectively. Practically, one has to maintain most of the tuned values for the devices from the AMS facility unchanged, with two exceptions. These are: 1) the value of the magnetic analyser on the injector deck and 2) the value of the tandem terminal voltage. Let us consider the 26Al /27Al concentration measurement as an example. The pilot beam will be of 27Al ions. According to the constraint given by the relation (1), the analyzing magnet of the ion injector, together with the terminal voltage of the tandem accelerator has to be changed to new values: B26= B27 x (26/27)1/2. Furthermore, since the energy gained in the accelerator is related to the terminal potential value by the relation E=U (q+1), the change for the terminal voltage will be U26 =U27 x 27/26, if q1=q2. After this change, the detector will be registering the pure 26Al ions and the interference from 26Mg. However, this interference can be removed by the velocity Wien filter. AMS is usually a relative analysing method and requires standard samples. In this way one can obtain absolute values of the measured concentrations.

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3. Several Applications of AMS The AMS method is used in many and various applications [1, 2, 3] and because of its exceptional analysis sensitivity it managed to open new applications. One of the most important aspects of Accelerated Ions Mass Spectrometry is its potential to give a good understanding of natural phenomena and transformations suffered by the Earth along its long history. In this respect, radio-nuclides with long life represent a valuable instrument. They represent very good tracers or markers of processes and are not affected by interferences from the environment. Since long life radio-nuclides have also very low concentrations, these cannot be measured directly by disintegration. Hence the advantage of AMS that measures the radio-nuclides by counting the atoms individually. As an example, for the efficiency of the AMS, we shall consider the measurement of the C quantity contained in a hair wire with the length of 2 cm. Such a hair wire contains usually about 1mg of carbon in the form of the protein compound called keratin. The carbon milligram contains 5 × 1019 stable 12C atoms. From the natural concentration ration 14 12 C/ C = 1.2 × 10 −12 , it results that the hair contains 6 × 10 6 radioactive atoms of 14C. The half time of the radio-nuclide is 5730 years. It needs about an hour for a single atom to disintegrate and emit the specific radiation that can be detected with a specialized apparatus. When using the AMS method, with an efficiency of 10% for 14C detection, the result is that in the same interval of one hour 6 × 10 5 atoms will be counted and the registering statistics is greater by about six orders of magnitude in comparison with the measurement of radioactive decay. This difference is even more relevant for the radioisotopes with longer half times. 14

Today, after about 25 years of scientific and technical development, from the 100 radionuclides that can be used for AMS, the following ones are currently used: 2H, 3H, 10Be, 14 C, 16Al, 36Cl, 41Ca, 44Ti, 53Mn, 59Ni, 60Fe, 63Ni, 129I, 236U, 244Pu, etc. In the last decade, there is a large list of applications of the AMS in geology (subterranean water tracers and erosion rate determinations of earth crust), in medicine (in vivo tracers of human bio-kinematics and cell level changes), in astrophysics (material composition of extraterrestrial and meteoric studies, the studies of solar activities), nuclear physics (measurements of reaction sections and life times of radio-nuclides produced by cosmic and solar radiations), paleontology (studies of human fossils), paleclimatology (climate evolution determinations), pale-geomorphology (relief evolution in the past of our planet and geo-morphological processes), atmosphere physics (the stratosphere-troposphere changes and the study of the dynamics of the atmosphere), contamination tracing (produced by nuclear power stations) around the country, current production (in areas like metallurgy, construction materials, fine mechanics, semiconductors, composites, pure and ultra-pure materials). In the next chapters, we will present some of the applications listed above in more detail. However, it has to be emphasised that each application has been developed nowadays to such an extent that only a short introduction to those subjects serves sufficiently the purpose of this paper. For a more detailed description of the individual studies, the interested reader is advised to follow the indicated bibliography.

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3.1.14C Radio-isotope 14

C has a half time of 5370 years. Its usage with the AMS method allows exact dating of objects for a very long period in our history. It is produced in the earth’s atmosphere by the reaction of high energetic neutrons with nitrogen: 14 7

1 N+10 n →14 6 C+1p

The isotope forms easily the carbon dioxide which is then assimilated by plants, similarly with the stable isotope 12C. Then, 14C will be spread over air, plants, food, etc. and it will be found in the tissue composition and in different organs. At each time in our history, the ratio 14C/12C has a certain value. If an organism dies, the assimilation of carbon dioxide stops and the ratio between the isotopes 14C and 12C starts decreasing. This is valid for plants, humans or living animals and one can measure the time period from the moment when the carbon assimilation was stopped. AMS measurements performed on samples from the wooden substance of secular tree rings determined the values of the 14 12 C/ C ratio along the history of the past 9000 years. This time curve is correlated with the existence of major processes on Earth and with periodic solar activities. The 14C curve is currently used for the interpretation of carbon dating. A recent scientific study of the presumed shroud of Christ from Turin [1] pointed out the advantages of the AMS method as the only method capable of using an insignificant mass of sample material for the most sensitive and precise analysis. After considerable negotiations with the church authorities, three AMS laboratories were chosen (from Arizona, Oxford and Zürich) to make the measurements with radiocarbon on a small piece (50 mg) from the presumed shroud of Christ from Turin. The three laboratories found a good correspondence between the experimental results for the age of the shroud and other three probes of known ages. It was concluded that the shroud came from the Middle Ages (1260-1390 AD), the result having a 95% confidence limit. This result is also in accordance with the opinion of art history experts stating that the shroud is a medieval icon rather than one from the time of Christ. Similar AMS studies identified that the iced man from the Tyrol Alps is from the Late Neolithic (3120 - 3350 BC) rather than from the Bronze Age [4]. Recent 14C AMS dating produced a real revolution in pale-anthropology. Measurements were possible on collagen and even amino acids. Many of the important dates in human history were corrected. Also, AMS measurements are currently made by the World Ocean Community. This organization launched a global program to determine 14C distribution in planetary oceans to understand the major circulation of deep and surface sea currents. From the content study of the 14C in foraminifers, microscopic molluscs and various species living in oceans on different depths, one could determine circulating diagrams of ocean water in the past. In a sediment probe, the ratio 14C/C from plankton foraminifers gives a measure of the difference of the ratio between the surface water and the deep water at the sedimentation moment. This difference can be interpreted as an age difference between the surface and deep waters. By using the AMS method, the conclusion of these results was that the deep water of the Atlantic Ocean was twice as old in the Ice Age as it is in

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our day. This involves a slower surface circulation of the deep waters in the Ice Age than now [5]. 3.2.10Be Radio-isotope 10

Be (T1/2=1.6 x 106 years) is produced in the atmosphere by spallation reactions induced by secondary protons and neutrons (the result of galactic cosmic radiation) on nitrogen or oxygen. It has one stable isotope, 9Be. Because 10Be connects to aerosols, its residence time in the atmosphere is short (one year) compared to the marine residence time (102-103 years). However, it remains deposited in rocks, sediments and soil and glacier cores. The residence time of Be inside the soil is about 105 years, a property that permits the use of 10Be in geophysics for the dating of evolution processes. A disadvantage in the use of 10Be is that this radioactive isotope does not mix enough and in constant proportions with the stable isotope. Therefore, it does not provide a characteristic ratio isotope/element at the moment of its formation. Thus, the stabile beryllium cannot be used to correct for dilution or elimination effects as in the case of 14 C. However, in ocean sediments, 10Be and 9Be almost reach a perfect equilibrium. In other reservoirs, like ice sediments or the earth’s atmosphere, the relative 10Be concentrations can be used to evaluate the variations of the isotope content. The medium residence time in the atmosphere of about one year makes this radioisotope a good tracer for different intensity variations of cosmic radiations. These variations are the result of solar activity oscillations. Thus, in the high solar activity periods (great number of solar spots), the cosmic radiation screening effect appears due to the intense highly magnetized plasma region produced by the Sun and spread in the cosmic space. In these periods, only low intensity proton fluxes in the atmosphere are registered and, consequently, the production of beryllium has a minimum. The history of 10Be is very well preserved in ice deposits from Greenland and Antarctica. From the atmosphere 10Be is eliminated through rains. Annual ice layers can be distinguished by measuring the ratio 18O/16O. This ratio has a biannual oscillation, with a maximum in summer and a minimum in winter. Generally, the observations proved the existence of an anti-correlation of the 10Be content in the ice layers of glaciers with the number of the solar spots in the last 400 years. This is only one effect of the AMS usage of 10Be in understanding and determining the solar activities in the past as well as in the present times. The 10Be measurements on the glacier cores can also be used in geomagnetic field history by long time observations (hundreds or thousands of years). Beryllium low mobility once attached on minerals surface lead to the 10Be use in marine sedimentation rates, in Mn “nodules” growth and in plate glittering in volcanic eruptions. The resistance time deep inside the sea is long enough for the side mixing to make the 10Be concentration in deep waters almost constant even if some differences were noticed in the deep waters of the oceans. In the past, erosion rates of rocks, ice stage timing and young volcanoes flowing were areas difficult to explore because an adequate chronometer was missing. In our days, the

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AMS technique is used in many soil erosion studies. Also, under special conditions, when production start time is without inherited 10Be and well defined, then the 10Be concentration measuring can be used for soil age determination. AMS also allows the measurement of 10Be produced directly on the rocks by way of cosmic radiation irradiation on the Earth surface. The production rate of 10Be depends on the altitude and latitude where the probes were collected. Thus, even at the sea level, the production rates are sufficient for the thousands years exposure to produce enough 10Be to be measured by AMS. Once the production rates “in situ” are known [6], the sample exposure history can be determined with high precision by measuring only a few isotopes with different life-spans. It is very useful to combine the measurements of several isotopes to ensure the absence of meteoric contaminations and obtain the exact erosion rates. This method was used for meteor crater dating and erosion rate determinations in Antarctica rocks. 10

Be was an important nuclide used in meteorites study even when they were used only as conventional techniques. 10Be measuring was used for the study of Stone Age and Iron Age meteorites, for studying moon and interplanetary dust samples. In most cases, since there is no significant contribution of solar cosmic rays, the production of 10Be being due to the galactic cosmic rays, such measurements can be used as indicators of the exposure time [7]. In many cases, the exposure time can offer important information about the object origin. For example, using the determined value of exposure time it was proved to be true that the meteorites from the Mac Alpine Hill in Antarctica originate from the moon [8]. Furthermore, because of its low solubility in non-acid waters the applied in Hydrology.

10

Be measuring was

Even more, recent studies using 9Be can be found in [9], [10], [11] and [12]-for geosciences, in [10], [11], [12] and [13]– for polar ice, in [13]– for sediments, in [11]– for soils and in [14] – for meteorites. 3.3.26Al Radio-isotope Although aluminium is toxic for the human body, animals and plants, its biochemistry was seldom studied and was rarely fully understood. Accumulated aluminium within the human body can lead to serious and possibly deadly diseases such as: encephalopathy, osteopathy and micro-cystic anaemia. In alimentation, aluminium is further accumulated from natural sources including water, alimentary additives and vessel contamination during the washing process. Individual daily consumption from natural sources varies from 1 mg to 10 mg. In the USA, high level aluminium consumption is owed to alimentary additives used. It was estimated that the American people eat about 20 mg of aluminium every day from chemical additives. In Europe, the aluminium consumption is far more reduced because of a low additive ratio in aliments and far more restrictive regulations. Aluminium in potable water is also a natural contamination source. In many parts of the world, the aluminium sulphur is used in the treatment of water. The European Community Directive Council has defined the consumption level of aluminium to50 µg/l with a maximum level of 0.2 mg /l. The studies lead to a possible connection between the aluminium content of water and Alzheimer disease. Typical aluminium quantities from

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food and drink mean less than 1% of the maximum quantity achieved from pharmaceutical products such as antacid, analgesic, antidiarrhoeal and ulcer drugs. For years, phosphate gels containing aluminium were used for hyperphosphatemia on patients with kidney chronic diseases. Unfortunately, in some paediatric cases, on hyperphosphatemia control, great amounts of aluminium were necessary (100 mg/Kg every day) and in these cases, bone disease symptoms were noticed. A major problem in aluminium distribution in the biological system study is the omnipresent nature of the element. In practice, there is a great probe contamination. The detected aluminium by chemical analysis in the fragments prepared from biological material could be from the system itself or from the sample contamination before the analysis. Therefore, the adequate use of an isotopic tracer in the biological system is a technique used to solve this problem. It would also eliminate the possibility of later contamination with a tracer. Aluminium, the third most abundant element in lithosphere (8%), can be found in nature as 27Al (100 %), with only one long life radionuclide, which is 26Al (T1/2 = 0.716 x 106 years). AMS needs for the analysis less than 1mg of 27Al, at a concentration of 10-13 for the radioactive tracer 26Al. Together with the low isotope abundance used and the extremely decreased radiological risk, this method is extremely useful for research in human toxicology. Furthermore, because it does not interfere with the stable isotope 27Al, AMS using 26Al as a tracer can be very important in aluminium metabolism studies but also for pharmacology when this tracer is adjusted to pharmacologic products. Conventional mass spectrometry method is not practical because of the 26Mg interference. Recently, AMS with 26Al and opened a new way for biochemical studies [3], [15] of models and aluminium distribution kinetics "in vitro" and "in vivo. Recent studies were developed about aluminium absorption in different organs and penetration of cellular membrane. Detailed studies about aluminium bio-kinetics in metabolism were developed in laboratories located in Germany (Aachen Hospital and Technical University Münich) and in the USA (West Lafayette University). Further on, 26Al radioisotope can also be used in Earth corrosion measurements. In the terrestrial shell (lithosphere) the 26Al isotope is produced by the reaction of negative muons with silicon: 28 Si(µ - , 2n)26 Al . The SiO2 is a good target, for 26Al synthesizes on the earth surface and the production yield of 26Al decreases with the depth. The terrestrial erosion can then be obtained from the AMS measurement of the 26Al concentration and by comparing this value to the calculated production in relation of the depth in the Earth’s crust. 3.4.36Cl Radio-isotope 36

Cl (T1/2= 3.02 x 105 y) is very soluble in water and has low cohesion on solid surface contacts. It is naturally produced in the higher atmospheric layer (high stratosphere) by spallation reactions on 40Ar induced by secondary neutrons and protons flux from the cosmic radiation (40Ar (n, p4n) 36Cl and 40Ar (p,2p3n)36Cl). The nuclide takes part in air transfer between stratosphere and troposphere and finally reaches the Earth’s surface through rain. Then, it reaches the subterranean water

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reservoirs and it is absorbed by the biomass. Therefore, AMS analysis of 36Cl can be used to measure the age of the water reservoirs, aquifers, evaporation rates for surface waters, source debit, etc. 36

Cl is also produced in nuclear reactors and nuclear explosions and is a good signature of nuclear pollution produced by nuclear power plants (NPP). There are also additional sources of atmospheric 36Cl concentrations that can contribute to the tropospheric 36Cl deposition. These sources are: the cosmogenic in-situ production of 36Cl in the lithosphere, the Chernobyl fall-out and the 36Cl production by nuclear weapon tests. To obtain a good estimate of the produced nuclear pollution at a certain location, one has to take into account all the other sources of 36C production. 36

Cl was also used in hydrology, in subterranean water dating (time spent from precipitations falling), in water mix detection from different sources, in water path drawing, in the study of net infiltrations in arid regions, for the study of meteorological conditions in the past [16], [28], for evaporating rate [17], etc. However, 36Cl cannot be used for subterranean waters dating with the same confidence level as 14C. This is due to 36 Cl/Cl ratio modifications in water, which is not determined by the disintegration process. An important contribution to 36Cl inventory was represented by the bomb explosions in 1953 and 1958. A concentration peak for 36Cl was observed in the Alps and the Dye-3 glacier during this period of time (the bomb-test peak was approximately 3 orders of magnitude above natural levels) [18, 19]. One can conclude that 36Cl is an important atmospheric tracer and a good indicator of nuclear pollution. 3.5.129I Radio-isotope After 1945, the radiation level inside the oceans has clearly been increasing due to nuclear experiments that had been contaminating very large sea regions. An important contribution to sea or ocean contaminations were not only the radioactive discharges of 129 I from nuclear reprocessing plants but also the contaminations from vessels using nuclear propulsion and navigating all over the sea and oceans. During their cruises, considerable quantities of fission products are discharged into the planetary ocean. 129

I (T1/2=15.7 Myr) is a fission product. Starting with the 60’s, the 129I was emitted by nuclear installations either in the liquid or in the gas form and it became the highest source of nuclear pollution for the environment. Furthermore, between 1966 and 1994 the biggest Western Europe nuclear reprocessing plants from La Hague (France) and Sellafield (Great Britain) contributed with an input of 906 kg of 129I, discarded in the English Channel and an input of 534 kg of 129I, discarded in the Ireland Sea. The only stable isotope of iodine is the 127I. The natural production of the 129I is based on the spallation reaction of cosmic rays on atmospheric Xe with a low production yield. As a consequence, the natural background for the measurements is practically negligible. Due to its high volatility, when entering the atmosphere, the 129I is transported over large distances. The major problem in the application of the 129I has always been the combination of a low natural abundance with the long average life, which results in a very low activity. Given the required limit of detection, which is usually dictated by the mass of available sample (some milligrams of iodine), detection is only possible to achieve by using the AMS technique.

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In the light of the ultra-sensitive measurements of the 129I, the monitoring possibilities of the AMS were evaluated by the Vienna Agency of Atomic Energy (IAEA). This was accomplished as a follow up to the inter-comparison exercise from July 1997, which was done in cooperation with the U.S. Department of Energy and the International Safeguards Division. As a result, IAEA has identified and recommended the measurement of the 129I as a potential signature of the reactor or reprocessing operations, or for the detection of undeclared nuclear activities [20]. The detection of 129I using classic measurement techniques is very difficult. AMS is the only method capable to determine the 129I content with 106 atoms detection sensitivity and isotopic ratio 129I/127I = 10-14 [21]. As presented in the introduction of this paper, an important task is the prevention and monitoring of the nuclear pollution of the planetary ocean. AMS with 129I is a useful tool for such a task. The iodine discharged into the ocean will suffer a strong dispersion due to ocean water currents. 129

I can also be used as a tracer to study hydrodynamic mechanisms inside the oceans. Thus, iodine is present in sea water under two ionic forms: IO3-and I-. This makes iodine to have a great solubility and water mobility and it can be easily transported over long distances by the ocean water currents. 129I tracer studies lead the researches to a better knowledge of the oceanic water circulation and deep waters current formation [22, 23, 24, 25, 26]. In case of a nuclear accident, iodine is considered to be one of the most dangerous emitted elements. It is discharged into the atmosphere and from here it spreads into water, vegetation, animals, etc. In such situations, the main emitted isotope is 131I (T1/2 = 8 days). Due to its very short half-life it can be measured only for a short period of time but it has a severe radiologic consequence. The 129I fraction emitted into the atmosphere is harmless from this point of view. However, since it has a very long half-life it can be followed over a long time. 129I measurements made after the Chernobyl accident, could be used to trace the iodine evolution in the atmosphere, biosphere, and hydrosphere [27]. In order to determine this fission product’s mobility induced by mineral erosion and its migration in mineral waters [28], in hydrology, studies about 129I were made on uranium minerals. Because of its mobility, iodine can escape from uranium minerals and dissolve in subterranean waters. These types of studies are very interesting because the uranium minerals can be considered in geo-chemistry to be an analogue of nuclear combustible deposits. Thus, useful information about path and velocity prediction of activities around nuclear combustible deposits is very interesting for radioprotection [29]. In geology, 129I, based on its very long life time and biofilic nature, was used to investigate the petroleum synthesis and migration, about the salted water that follows it [30] and about digenetic processes of marine sediments [31]. 129I can also be used for dating applications up to 108 years period of time [32]. 4. Conclusions AMS together with ERDA, RBS, NRA, PIXE, PIGE perform elemental analysis with a manifold application area. When the research requires highly sensitive analysis, detecting the atoms individually, AMS is the only method able to accomplish such a task. It

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represents today a complementary experimental method for the other classical nuclear and atomic analyzing methods. Environmental physics, biophysics, medicine, geology, anthropology, forensic science, etc. are some of the researches to benefit from the high analyzing power of AMS. Whenever human research requires a measurement at the nanoscale of a process, AMS might be applied. The aim of the present paper was to give an introduction in the AMS analyzing technique and to present some of the possible applications. The paper presentation was meant as a guide for a user from any areas of human activity. End Notes: [1]. P. E. Damon, “Radiocarbon dating of the shroud of Turin”, Nature, 611, 337, 1989. [2]. Stan-Sion, M.Enachescu, M.S.Dogaru, “Environmental radio nuclides measured by AMS”, Advanced Training Course: New Techniques for the Detection of Nuclear and Radioactive, Mugla, Turkey, 2008.

[3]. J. Baker, J. P. Day, T. W. Aitken, T. R. Charlesworth, R. C. Cunningham, P. V. Drumm, J. S. Lilley, and G. W. A. Newtonand and J. M. Smithson, “Development of aluminum – 26 accelerator mass spectrometry for biological land toxicological applications”, Nucl. Instr and Meth B, 52, 540-543, 1990. [4]. K. Spindler, “The iceman’s last week”, Nucl. Instr. And Meth B, 92, p 274-281, 1994. [5]. W. S. Broecker, T. H. Peng, S. Trumbore, G. Bonani and W. Wolfli, “The distribution of radiocarbon in the glacial ocean”, Biogeochimical Cycles, 1990. [6]. K. Nishiizumi, E. I. Winterer, C. Kohl, J. Klein, R. Middleton, D. Lal and J. R. Arnold, “Cosmic ray production rates of 10Be and 26Al in quartz from glacially polished rock”, J. Geophys. Res. 94, 17907-17915, 1989. [7]. K. Nishiizumi, M. Imamura, C. P. Kohl, H. Nagai, K. Kobayashi, K. Yoshida, H. Yamashita, R. C. Reedy, M. Honda and J. R. Arnold., “10Be profiles in lunar surface rock 68815”, Proc. Lunar Planet. Sci. Conf. 18 th, pages 79-85, 1987. [8]. O. Eugster, M. Burger, U. Krhenbhl. Th. Michel, J. Beer, H. J. Hofmann, H. A. Synal, W. Woelfli and R. C. Finkel, “History of the paired lunar meteorites MAC 88104 and MAC88105 derived from noble gas isotopes, radionulides, and some chemical abundances”, Geochim. Cosmochim. Acta, 55, 3139-3148, 1991. [9]. G. M. Raisbeck, F. Yiou, D. Bourles, J. Lestringuez and D. Deboffle, “Measurement of tandetron accelerator operating at 2 MeV”, Nucl. Instru. And Meth. B, 5, 175-178, 1984.

10

Be with

[10]. L. Brown, “10Be: Recent applications in the Earth science”, Phil. Trans. R. Soc. Lond., A323, 75-86, 1987. [11]. L. R. McHargue and P. E. Damon, “The Global Berylium – 10 cycle”, Rev. of Geophys., 29, 141-158, 1991. [12]. D. L. Bourès, “Berylium isotopes in the Earth’s environment”, Earth Planet. Sci. Lett., 96, 287-304, 1990. [13]. R. F. Anderson, Y. Lao, W. S. Broecker, S. E. Trumbore, H. J. Hofmann and W. Wolfli, “Berylium isotopes in the Earth’s environment”, Earth Planet. Sci. Lett., 96, 287-304, 1990. [14]. K. Nishiizumi, “53Mn, Meas, 13, 209-273, 1987.

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Al,

10

Be and

36

Cl in meteorites data compilation”, Nucl. Track Radiations

[15]. O. Meirav, R. A. L. Sutton, D. Fink, R. Middleton, J. Klein, V. R. Walker, A. Halabe, D. Vetterli and R. R. Johnson, “Application of accelerator mass spectrometry in aluminum metabolism studies”, Nucl. Instru. Meth. Phys. Res. , 52, 536-539, 1990. [16]. M. Paul, A. Kaufman, M. Magaritz, D. Fink, W. Henning, R. Kaim, W. Kutschera and O. Meirav, “A new 36Cl hydrological model and 36Cl systematic in the Jordan River/Dead Sea system”, Nature, A321, 511-515, 1986.

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Volume 2 ♦ Issue 2 ♦ December 2010 [17]. M. Margaritz, A. Kaufmann, M. Paul, E. Boaretto and G. Hollos, “A new method to determine regional evapotranspiration”, Water Res., 26, 1759-1762, 1990. [18]. H.A. Synal, j. Beer, G. Bonani, M. Suter, W. Wolfli, “ Atmosferic transport of bomb-produced 36Cl, Nucl. Instr. Meth. Phys. B52, 483-488, 1990. [19]. H. A. Synal, “Beschleuninigermassenspektrometrie mit 36Cl”, Phd, ETH Zurich, 1989. [20]. UCRL-ID-128218,in Rep. LLNL, July, 1997. [21]. C. Stan-Sion, O. Constantinescu, M. Enachescu, M. Dogaru, A. Petre, I. Stefanescu, C. Pearsica, “Monitoring the nuclear pollution in the environment by ultra-sensitive measurements of tritium and 129iodine”, 13th Progress in Cryogenics Separation, ICTI, Rm. Valcea, Romania, November 7-9, 2007. [22]. Ch. Heinze, P. Schosser, K. P. Koltermann and J. Meincke, “A trace Study of Deep Water Renewal in the European Polar Seas”, Deep Sea Research, 37, 1425, 1990. [23]. P. Schlosser, G. Bonisch, M. Rhein and R. Bayer, “Reduction of Deepwater Formation in the Greenland Sea during the 1980’s”. Evidence from Tracer Data, Science, 251, 1054, 1991. [24]. H. D. Livingston, J. H. Swift and H. G. Ostlund, “Artificial Radionuclides Tracer Supply to the Denmark Strait Overflow between 1972 and 1981”, Journal of Geophysical Research, C4, 6971, 1985. [25]. K. Aagaard, J. H. Swift and E. C. Carmack, “Thermohaline Circulation in the Artic Seas”, Journal of Geophysical Research, C3(90), 4833, 1985. [26]. A. J. Watson, R. R. Dickinson, E. M. Gmitrowicz, “Deep-water Renewalin the Northern North Atlantic”, Nature 344, 848, 1990. [27]. M. Paul, D. Fink, G. Hollos, A. Kaufman, W. Kutchera and M. Magaritz, “Measurement of 129I Concentrations in the Environment after the Cernobil Reactor Accident”, Nucl. Instr and Meth B, 29, 341, 1987. [28]. J. Fabrika-Martin, S. N. Davis and D. Elmore, “Applications of Instr. and Meth. B, 29, 361-371, 1987.

129

I and

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Cl in hydrology”, Nucl.

[29]. J. Fabrika-Martin, S. N. Davis, D. Roman, P. L. Airey, D. Elmore and P. W. Kubick, “Iodine -129 and Chloride -36 in Uranium Ores”, Chemical Geology, 72, 7, 1988. [30]. U. Fehn, S. Tullai-Fitzpatrick, R. Teng, H. E. Gore, P. Sharma and D. Elmore, “Dating of oilfield brines using 129I”, Nucl. Instr. And Meth B, 52 , 446, 1990. [31]. Fehn, R. Holder, D. Elmore, T. Brunelle, R. Teng and P. W. Kubick, “Determination of natural and anthropogenic I in marine sediments”, Geophysical Research Letters, 13, 137, 1986. [32]. Fabryka Martin, H. W. Bentley and D. Elmore and P. L. Airey, “Natural tracer”, Geochimica et Cosmochimica Acta, 429, 337, 1988.

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I as an enviromental


Energy Insecurity Crisis: The Case of Georgia Ioana-Iulica Voicu ”Constantin Brâncoveanu University” of Piteşti, [email protected]

Madelaine Pepenel ”Constantin Brâncoveanu University”of Piteşti, [email protected]

Abstract: Competition for energy resources in the contemporary world remains a source of crises and conflicts as long as demand increases faster than supply, and major oil reserves are located in areas characterized by profound political-economic imbalances and instability. Energy security is a matter of fact that states, international organizations and non-state actors contribute to significantly, but in different ways. Crisis prevention and the energy issues meant to resolve them are one of the most complex scientific challenges because they involve a comprehensive understanding of the types of determinations governing the organization and social processes.

Keywords: energy insecurity, strategic regions, energy, energy independence JEL Codes: A1, F5. 1. Energy, a Reason for War It is of an indisputable importance that energy resources, oil included, are a product of strategic importance. No modern Defense Force can be maintained and no military conflict can be conducted without significant oil reserves. “Oil is a vital responsibility and planning for national security policy is to ensure that State may rely on sufficient oil reserves to support its own defense system”.2 World War I provided the first practical demonstration of the revolutionary effect of using ships, aircraft and vehicles powered by oil. In World War II, the strategic importance was crucial and oil installations were the main targets of attacks. Today the strategic importance of oil for the military has not diminished, but even increased due primarily to two main factors characterizing modern conflicts, such as mobility and extensive mechanization using new technologies. Oil consumption during a war is calculated according to the type of war, its duration and the environment in which it takes place. In a small conflict, the burden on energy resources available in the State economy may be tolerable. During the Vietnam War, the press noted that one factor that led to intensive bombing halt over parallel 20 and slow offensive was U.S.A’s fuel oil crisis.3 Excluding nuclear energy use, oil represents 72% of fuel for the U.S. Department of Defense, which uses it most for its transport systems (63.7% and 14.9% respectively for air operations and for naval operations in 1974). Nuclear power is already considered a power source for naval forces and it is used in 20% of the U.S. Navy4. 2

Allen L. Hammond, Energy and the future, American Association for the Advancement of Science, Washington, 1973 The Times, American fuel oil found insufficient for peak bombing of N. Vietnam, 13 January 1973. 4 US Department of Defense, Management of defense energy resources, Report of the Defense Energy Task Group, 15 November 1973. 3

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2. Wars for Resources. The Case of the Georgian Conflict On the 8th of August 2008 a short war is initiated, this time not in the Middle East, but in the Caucasus, turning a frozen conflict in South Ossetia into an open one, in which Georgian forces are to oppose secessionist forces from Abkhazia and South-Ossetia, then the Russian ones, to implement the peace agreement brokered by the French head of state, chairing the EU in the second half of 2008. The announced secession of South Ossetia and Abkhazia from the Georgian State forced the government in Tbilisi to take action to restore constitutional order by armed force. In Russia’s interpretation, these were measures against the population inhabiting Russian origin territory, which justified Moscow’s military intervention “in defense of” ethnic Russians. Subsequent developments are well-known. The Russian Federation’s attack, considered as disproportionate, put the Georgian leadership in difficulty. There followed a series of international negotiations that brought to the fore the EU, which managed, through the efforts of French President Nicolas Sarkozy, to halt the conflict and to mediate peace. 3. Caucasus - an Area of Major Interest There are a few issues that have aroused the great world leaders’ interest: which was the real interest of the five-day war in the Caucasus; who were the main actors in the region; how will it ensure a safe environment in the near future? One can try and find as many reasons for the dramatic happenings in Georgia, they all pale before an item of cardinal importance, which is actually the source of the conflict: the region's rich energy resources as it occupies the next position after the Gulf and, incidentally, it crosses through pipeline the Georgian territory en route to the Black Sea, Turkey and the EU. If Russia controlled the troops into Georgia, it could, as the well-known American analyst Zbigniew Brzezinski stated, into the fire events of August, “...wipe Georgia from the energy map and impose the Russian Federation as the sole territory of transit of oil from producing countries of Central Asia and Caucasus”5. The actions led by Russia against Georgia, during the Beijing Olympic Games (2008) have shaken the global equilibrium formed after the end of the Cold War, which issued the USSR collapse. In fact, the whole context of international relations in recent years began to undergo symptomatic changes. Dynamics of these changes was generated by post-Soviet Russia's revival, China’s progressive development, the U.S.’s weakening, and the EU trend to act as an independent international actor.

5

http://www.monde-diplomatique.fr/carnet/2008-08-15-Georgie

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Figure no 1: Stake energy resources in the Russian-Georgian conflict

Russian peacekeeping forces Russian military base Western Route Export Pipeline (WREP) Pipeline BTC (BakouTbilissi-Ceyhan) Gas pipeline Origin of Meskhel Turks Important Azerbaijani minority Mostly Azerbaijani population Important Armenian minority Mostly Armenian population Armenian-controlled

Source: http://www.monde-diplomatique.fr/carnet/2008-08-15-Georgie

Caucasus and the way it opens to the Caspian basin have become major objectives in international relations due to its heavy concentrations of hydrocarbons and its proximity to several clusters of strong international relations. The active presence of the EU through the European Neighbourhood Policy, as well as of the U.S., through pro-American states in the EU and Pan-Euro Atlantics from the ex-URSS (Ukraine, Georgia, Azerbaijan with some reservations), reverted Russia’s attention to this area, where she was the dominant actor. From the point of view of the Russian elite, the sovereignty of these former Soviet countries, to which the West tries to promise more than sovereignty and stability, may create competition in the delivery of Russian energy from Central Asia and the Caspian Basin. This competition is materialized by the tendency of energy independence from the Russian monopoly over the transportation of energy resources. Therefore, Georgia’s different behavior is significant for both Russia and the West. After the parliamentary and presidential elections in this country have been won repeatedly by M. Saakashvili and his followers, the number of completed and planned projects in energy with the Georgians has increased. Thus was put into operation the route Tbilisi-Poti, which facilitates the transport of oil from Azerbaijan to European markets via the Georgian railway.

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4. Georgia's relationship with Russia There are also other oil and gas pipelines (Baku-Tbilisi-Ceyhan, Baku-Tbilisi-Sup'sa, the Baku-Tbilisi-Erzurum, etc.)6 operating in Georgia. Furthermore, Georgia together with Ukraine, Poland and the Baltic countries agreed to establish the Caspico-Pontico-Baltic Area, designed to deliver oil from Azerbaijan, and possibly other Caspian states to the EU, bypassing Russian territory. Figure no. 2: Europe-Asia oil and gas network

Source: http://www.eia.doe.gov/.../bosporus%20bypass%20map.pdf

Moreover, Georgia is the attraction point for both the EU and the U.S. due to the Nabucco pipeline, which, according to current estimates, could run from 2013 (the beginning of pipeline construction is sluggish because of "pressure" exercised by Russia on oil exporting countries in Central Asia, but also due to the initiation of several projects aimed at transporting Russian energy resources and / or through the territory of Central Asia through Russian territory on the European market: Nord Stream, South Stream pipeline, the Caspian or Prikaspiisk). Georgia's real and expected potential in combination with energy and the state’s proAmerican Euro-Atlantic aspirations created sticking points in relations with Russia. During the Russian military actions on Georgian territory, Russian aviation and military ground forces had targeted not only military and economic objectives, but also infrastructure (including those working in the field of oil transportation).

6

BP, Statistical review of world energy, June 2009

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Figure no. 3: Military operations in the Russian-Georgian conflict

Source: http://www2.parl.gc.ca/Content/LOP/ResearchPublications/prb0836-e.htm

According to this logic, the “military aggression” carried out by Russia to impose peace and punish the Georgian authorities sought to downplay the role of the Georgian State as an agent, an energy carrier, exposing it to the international community as an uncertain, unstable and uncredited state from a political angle. However, interest in Georgia will not decrease as the oil price is increasing and in time the number of exporting states will decrease, which will create a serious shortage of energy resources and markets and will affect U.S. energy security, but particularly the EU. In the context of possible institutionalization of OPEC in gas-rich states, under the leadership and initiative of Russia, the stakes for Georgia (and its energy area potential) become imperative on the agenda of EU and U.S. foreign policy. 5. The NATO-Georgia Relationship The ex-Soviet space is perceived by Russia as its exclusive sphere of influence and the CIS states are treated as its “natural partners”, in spite of their political will and actual external vector. Thus, even though Georgia and other former Soviet states claim some connection to NATO, Russia refuses to accept such options. In fact, the Kremlin cannot accept any loss of its influence in the CIS states, in favor of USA and NATO. According to this approach, the opportunity to achieve the Action Plan for NATO membership (MAP - Membership Action Plan) by Georgia and Ukraine creates discomfort to Russia and endangers the process of restoring the status quo at both regional and worldwide level. If in Ukraine, whose leadership is pro-NATO, the idea of joining the North Atlantic Alliance has no popular support, in exchange in Georgia both citizens and the political class support Euro-Atlantic prospects. In the absence of appropriate levers of influence over political and civic will from Georgia, together with the ineffectiveness of "soft power" measures shrewdly applied by

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Russia, such as the economic embargo, natural gas supplies cessation, Georgian immigrants’ deporting, etc., the last solution was to rely on the separatist Georgian territory exploitation problems. Despite Russian pressure, Georgia has continued to deepen relationships with the U.S. and NATO, receiving, during the NATO Summit in Bucharest, clear Euro-Atlantic prospects. In order to reduce the chances of Georgia to get MAP in December 2008, but also to tense contradictions inside Ukrainian society against pro-NATO political leaders, Russia decided to defrost Abkhaz and South Ossetia conflicts. Yet, the issuing of military conflicts in this state territory that is a candidate to the MAP may decrease its eligibility. However, Georgia's example was used by Moscow to influence the presidential elections in Ukraine in support of political forces with a balanced foreign policy in favor of the Russian position. During the military conflict, Georgia together with the U.S. and its European allies has tried to determine Russia military action cessation. 6. EU's Position on the Military Conflict in Georgia But not all EU countries have taken the side of the Georgian authorities, by adopting a moderate stance against the military conflict towards both Georgia and Russia. Due to energy projects in Italy, to which Belgium and Germany are to participate (South Stream and Nord Stream) and mutual economic interests, their criticism was limited to demanding a ceasefire and the beginning of negotiations for a peaceful resolution of the conflict. Being in the EU presidency during the conflict, France has decided to engage actively in order to improve its image, compromised by the accusations made by Rwanda regarding the complicity of the French authorities in the commission of genocide in this African state. Moreover, N. Sarkozy, the French president, has expressed interest in this subject in order to increase France's share in world affairs, but also to enhance the EU's role in solving some keen European security problems. Even if France and other countries of Old Europe remain very reserved toward Russia, Germany changed its attitude in the last days of the conflict. Thus, during her visit to Sochi, the German Chancellor, Angela Merkel, criticized the disproportionate and unjustified military action by Russia on Georgian territory. Also, the German leader reiterated that resolving the separatist conflict in Georgia must be based on Georgian territorial integrity. This position was especially welcomed, with both Medvedev and Lavrov having said earlier that the independence of Abkhazian and South Ossetian regions could be recognized by Russia. Additionally, if at the Bucharest summit, Merkel played a central role in MAP postponement for Georgia and Ukraine, already in Sochi this provides guarantees regarding further deepening of NATO's relations with these two countries. Berlin’s change of mind was conditioned by the fact that not only Germany, but also other European countries have produced compelling evidence regarding the guilt of Russia vis à vis Georgia. However, such attitudes may be subject to hostile statements by Moscow with respect to the final agreement signed between Poland and the U.S. regarding missile shield installation in Poland.

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7. Conclusions The military conflict in Georgia is a dangerous precedent for the security of the EU's neighborhood, but especially for the European markets. The pretext used by Russia to aggress Georgia is contrary to international law and similar to the one raised by Milosevic in the Balkan wars of the twentieth century. Since the Russian Federation still grants Russian citizenship for Ukrainian and Moldovian people (including Transnistrian one), there is also a chance for the Georgian scenario to repeat itself some time in the future. In order to prevent this from happening, the EU aims to deepen relations with neighboring states in the East (through the European Neighbourhood Policy, the Black Sea Synergy, the Eastern Partnership), indirectly enhancing their Euro-Atlantic prospects. Georgia and Russia’s signing of the so-called “Sarkozy-Medvedev” plan, with the help of the U.S. and Germany, is a partial success of European diplomacy, as it was unable to prevent conflict in Georgia at an early stage. At the time of declaration and recognition of Kosovo's independence under Ahtisaari's plan, both Serbia and Russia warned the EU, the U.S., and the international community about the dangers to repeat the Kosovo precedent for other parts of the world. This was followed by Russia's unilateral action on the reconsideration of relations with the rebel regions in Georgia, which eventually evolved to events in Georgia from August 8 to 16, 2008. In the press conference held during the visit of Angela Merkel in Sochi (August 15, 2008), Russian President Dmitry Medvedev stressed that the status of those two Georgian regions, Abkhazia and South Ossetia, will depend on their population’s decision. As for Georgia, it has been proved that the EU did not want a stronger rapprochement, but was limited to strengthening the relationship with her, claiming the country's political and economic reconstruction after the conflict with Russia in August 2008, at a donors’ conference for reconstruction, deciding to grant aid of 500 million euro over the next three years and organizing a mission of 200 civilian observers to oversee the retreat of Russian troops to their pre-conflict positions. Major players in the world make great efforts today to face a multitude of asymmetric risks rapidly arising from diminishing natural resources, and increased population growth and to fight for holding strategic regions and markets supremacy. References: Allen L. Hammond, Energy and the future, American Association for the Advancement of Science, Washington, 1973. Hlihor Constantin, Security policy in contemporary international environment. Energy, European Institute of Science, Iassy 2008. Paul Roberts, The End of Oil. On the Edge of a Perilous New World, A Mariner Book Houghton Mifflin Company Boston, New York, 2008 Management of defense energy resources, Report of the Defense Energy Task Group, US Department of Defense, 15 November 1973. The Times, American fuel oil found insufficient for peak bombing of N. Vietnam, Times, 13 January 1973. Le Monde Diplomatique, Géorgie - Russie, les enjeux de la crise, 15 august 2008, http://www.mondediplomatique.fr/carnet/2008-08-15-Georgie.

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Sustainable Development Strategies in Domestic and International Tourism Sebastian George Ene „Constantin Brâncoveanu” University, Piteşti, [email protected]

Mădălina Bărăitaru Academy of Economic Studies, Bucharest, Romania, [email protected]

Abstract: In this work-paper we have analysed a separate chapter of tourism’s sustainable development, namely development strategies. Given the economic, social and political importance in tourism, and also the overall contribution to the development of a region, we considered that a distinct approach of the tourism development strategies was required in domestic and international terms. Analysing the local level, the development strategy of Romania considers that tourism can become one of the key factors in the process of reinvigorating the economy, given the fact that Romania has huge tourism potential, which is appropriate to the different types of tourism, at national and regional level. It is considered that one of the main issues which needs to be addressed is the use of the Romanian tourism potential and its use in inappropriate conditions.

Keywords: sustainable tourism, sustainable development strategy, domestic tourism, international tourism.

1. Introduction This paper aims to address strategies for sustainable development of tourism both domestically and internationally. The tourism industry has accepted the concept of sustainable development and has adopted the concept of sustainable tourism. The sustainable tourism develops the idea of meeting current requirements of the tourists and of the tourism industry, while protecting the environment and opportunities for the future. It has to meet all the economic, social, aesthetic requirements of the „actors” from tourism, while maintaining cultural and environmental integrity, the biological diversity and all systems that support life (Agenda 21 for Travel and Tourism Industry, 1992). In other words, all tourism activities in a country or region should be compatible with the maximum number of travelers and with the natural environment facilities, ensuring thus a sustainable economic and ecological functioning at all levels. One of the main reasons for which we choose this approach is that tourism’s issues are one of the most dynamic economic sectors, which recorded an upward trend with permanent changes. Between the end of World War II and until now, tourism has evolved from a relatively small scale activity, having limited importance, to the largest industry in the world. The idea of adopting the concept of sustainable development in tourism has emerged in the early '90s, taking rise the sustainable tourism - an industry that has rapidly gained importance both in academia area and research area, and also in practice / business / tourist industry. Sustainable development is now one of the most debated concepts, both at international (UN Conference - Stockholm, 1972, meeting EU) and national levels.

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2. Sustainable Tourism: The Basics 2.1. Definitions Sustainable tourism is defined as “... a positive approach intended to reduce tensions and frictions created by complex interactions between the tourism industry, tourists, the natural environment and local communities that host tourists” (Journal of Sustainable Tourism, 1993). Beyond Green Horizon Paper (Tourism Concern, 1992) defines sustainable tourism as “... tourism and infrastructure related to both present and future: operating between the limits of capacity for regeneration of natural resources; recognizes the contribution of local people and communities; customs and lifestyles in the tourist experience; accepts that people should have economic profits from tourism being based on their desire to be hosts to tourists”. Specialists in the field (Nistoreanu and Tigu, 2006) believe that sustainable development is not only a fashion but a necessity imposed on the one hand by the high level of development reached by some countries on the other hand by the “remaining behind” economy of many other states. Since its inception in 1987, the concept of sustainable development has permeated into all economic and social areas, from sustainable agriculture to sustainable transport and sustainable tourism. Through the joint work of IUCN (International Union for Conservation of Nature), WWF (World Federation for Protection of Nature), FNABE (European Federation of National Parks and Natural) since 1991, it has been defined the concept of sustainable tourism: “all forms of tourism development, management and marketing of tourism that respects the natural, social and economic integrity of the environment, ensuring the exploitation of natural and cultural resources for the future generations”. (Istrate, Bran and Red, 1996). From this definition it follows that any form of tourism should respect the sustainable development principles, starting form ecotourism, green tourism and rural tourism, to business tourism or automobile tourism. 2.2. Principles Tourism can bring both advantages and disadvantages of a region. Through careful planning, tourism can also create new jobs and increase revenue. Expansion of tourism activity even leads to the creation of new jobs and has beneficial effects on the qualification and training level of the workforce. The prosperity of a region as a result of tourism development occurs in several phases: ♣ immediately, following the direct consumption of tourism products; ♣ short term, by continuing to absorb labor to welcome and encourage trade; ♣ long term, by the capital concentration in investment in general infrastructure and the tourism, travel and accommodation structures in development of urban services. Given the importance of economic, social and political development of tourism, its overall contribution to the development of a region, the necessity for the development,

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implementation and promotion of the tourism development strategies seems obvious, not only nationally but also regionally. One aspect that should be taken into account in developing such strategies is the compliance principles of sustainable development, aiming at the development of tourism while respecting the requirements for protecting the natural environment, taking into account the specific objectives of each area or region. We could say that sustainable tourism is an alternative form of tourism but it is based on the following principles: 1. Minimizing the impacts of tourism on the natural environment to achieve environmental sustainability by contributing to the maintaining and improving the conservation status by returning a portion of revenues from the protected area. Practicing forms of tourism that do not affect the natural environment. 2. Minimizing negative impacts of tourism on the local community and its members to achieve social sustainability. The development of those forms of tourism which do not disturb and interrupt the daily life of the population from tourist destinations. Avoiding the occurrence of hostile relationships with the local community. 3. Minimizing negative impacts of tourism on culture / traditions / habits of local communities in order to achieve cultural sustainability. The development of a tourism able to determine the authenticity and individuality of local cultures and to avoid saturation of their “foreign” cultural influence. 4. Maximising the local economic benefits as a result of tourism development to achieve economic sustainability. This is one of the most important principles of sustainable tourism having it at the service of protection and economic development of local communities and protected areas. 5. Education, training, information for all those involved in tourism activity. Educating tourists through a higher understanding and appreciation of their impacts in order to improve personal attitude and reduce the environmental impacts. This includes an ecological educational component for visitors, locals, local government, rural and urban population, etc. 6. Local control - the basic principle of sustainable tourism. The local community is involved and consulted in all matters regarding the sustainable development tourism, being an active decision maker. The key element here is the local ownership over the tourism infrastructure elements (e.g. accommodation structure) and not only. The local community and local governments are involved and have especially financial control. The tourism will be maintained sustainable only if development is planned rationally based on rigorous economic and social criteria and the development criteria will respect the principle of sustainability. Development will be achieved through the commitment and cooperation of public and private sector institutions. Also, this development should include civil society and local communities. 3. Sustainable Development Strategies in Domestic Tourism Tourism activity is one of the few phenomena that have been imposed in the contemporary era, its spectacular development being a characteristic feature of the second half of last century and the beginning of our century.

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An economic branch of high major interest and availability, the Romanian tourism must become an important component of global economic system. As a subsystem of the national economy, the tourism bears influences from other subsystems and exercises, in turn, an increasing influence on their development. Although tourism in Romania currently has only a modest share of GDP, it is widely recognized for its ability to become a vital sector of national economy in a context that will meet national targets in this area. Developing tourism in regional profile is a comprehensive and lasting process, being unable to be achieved in a short period of time. At the basis of the tourism’s regional development are strategies that involve a coherent set of objectives, priorities and means for its achievement. To develop a regional tourism strategy is necessary to take into account the current situation of Romanian tourism, as well as anticipated future developments. The tourism offers should be designed and developed from the European Union accession perspective. This involves the integration of several strands, including: regional development, education, culture, cooperation. Also, it should be noted that achieving a sustainable tourism market has become an urgent necessity, because only such a market can generate investment in the most profitable sectors, investment that will offer development of the whole concerned region. For Romania, it is essential that development strategies of tourism meet the developing requirements of the country and its regions. Sustainable planning requires a regional approach of the tourism activity. This requires the community involvement in planning and development, and creates and develops forms of tourism that generate benefits for local people. If they benefit from tourism development, then they will be more interested in supporting the tourism development of the region, while pursuing the tourism resources conservation. According to the objectives of macroeconomic policy, decision elements in the territory can establish their own economic development planning and set their priorities. From this point of view, regional and local organizations, public or private organizations, may establish the stages of the tourism sector development. To achieve sustainable tourism development planning at local and regional levels, there will be considered the following aspects (Hanciuc, 2003):

Identifying and planning of the tourism resources, and attracting the private households to practice tourism;

Achieving some form of regional or local training level for practicing some specific trades tourism;

Providing financial assistance to obtain bank loans for the start-up of tourist activities;

Support individuals in obtaining approval certificates for the interest structures and professional licensing and patents in the field;

Preparing the local experts in matters of tourism.

A strategy made in order to develop and promote tourism activity within a region must be a distinct point in the framework of the regional development. The European reality and the Romanian one show that regional and local development is directly conditioned by

39


the implementation of projects of local interest that will be managed by local organizations, who know best the problems and possibilities. A regional strategy for sustainable development of tourism should: • contribute to sustainable tourism development in the region, generating income and jobs at local level; • pursue the conservation of natural and cultural environments; • create structures that would facilitate the investment, particularly in small and medium enterprises; • facilitate the cooperation between the public and private sector and provide facilities for those who want to do business in the tourism sector; • ensure an understanding of the role of tourism in the regional economy and the national government and regional organizations involved in tourism development; • ensure the regional tourism cohesion of the development effort. Beginning with all the general principles and specific regional development studies in the literature devoted to issues of regional development and planning, there are considered mandatory requirements that must answer any construction of a regional development strategy. Thus, it is believed that among the fixed points of prospective territorial development approaches, one cannot miss (Medium and long term strategies for regional development in Romania, the prospect of European Union, 2003): a. defining the natural environment, economic environment, social, cultural and regional policy. As a general rule, a geographical entity must submit to a specific physical unit, and the cultural, economic and sociopolitical units - a sufficient community of interests, so that territorial development strategies benefit from an appropriate framework, and action and nature converge in any human activity; b. defining a general targets system in temporal sequence (up to fixed time horizon) and in sectoral structure. In this framework should be established a hierarchy of priorities (emergency) and should be defined criteria for actions selection, determined by the multiplier effect drive. In a logical sequence are then analyzed the possibilities of integrating these activities into an integrated whole; c. defining the methods and means of achieving practical goals. In this context, the institutions and organizations that will ensure the coordination of various activities which contribute to achieving the objectives must be designed; d. defining active cooperation and permanent conditions of the population in developing regional strategies. Within the national strategy for Romania's economic development, tourism must be regarded as a priority sector, able to contribute in a significant extent on economic recovery. In addition to recognizing the positive effects in economic and social plan, it must be given importance to the cost and resources required for tourism development. This problem acquires special significance when it is treated in terms of sustainable development, whose key elements are precisely the distribution and equity in access to resources in time and space, environmental protection and economic development capable of ensuring the quality and quantity of natural resources. 40


It is known that the use of environmental resources for tourism development often leads to weakening and damaging them, which limits further development of tourism and affects the quality of tourism product. Therefore, the literature devoted to environmental protection in relation to tourism development addresses this issue primarily as a resource management problem. Given these considerations, it is obvious that a holistic view of regional strategies and policies is required. Such an approach reveals at least two key issues, namely (Constantine, 2000): - Multiplier effects generated by expenditure in tourism in the economy of regions and of the localities; - The relationship between tourism and the used resources, seen from the perspective of spatial planning, tourism zoning and the compatibilities of the environmental protection criteria within the context of sustainable development. Development Strategy 2004-2006 aims to progressively reduce the gap between Romania and EU Member States by achieving the following objectives simultaneously: 1) Ensuring long-term revenue growth; 2) Combating social and regional imbalances; 3) Progressive compliance with environmental standards that Romania will have to reach in 2017. Romania is among the least developed countries in Europe. Development strategy is to achieve steady economic growth, faster than the EU average, in the context of a balanced development of the territory, and in particular to reduce disparities between rural and urban areas. Therefore, national development strategy is formulated so as to support investment in sectors with potential growth, thus helping to create and maintain jobs. Development strategy of Romania considers that tourism can become one of the key factors in the economic recovery, taking into account the fact that Romania has huge tourism potential, right for various types of tourism, at national and regional level. It is considered that one of the main issues to be addressed is the use of Romanian tourism potential or its use in inappropriate conditions. The reform process in Romanian tourism will have to create the necessary framework for sustainable development in this area, aiming at the living standards growth of the local communities, the conservation of natural and human tourism resources, in order to obtain a continuous use in the future, good knowledge and awareness of local people and tourists of the idea of conservation. 4. Sustainable Development Strategies in International Tourism Dynamic concept par excellence, sustainable economic development requires a new attitude towards the environment, an attitude in which the perception of "man conquering nature" should be replaced by “man part of nature and protective of her” (Tobultuc, 2003). Feeling of belonging to nature must become an imperative for all inhabitants of the planet. It is very important internationally, for all actors involved in tourism activity to pursue a sustainable development of this sector. Tourism should contribute to the conservation of 41


resources, economic growth and prosperity of the communities of destination. Travel agents should have a shared commitment to sustainable development. On the other hand, local community education is extremely important for sustainable development of tourism worldwide. Understanding why it is important to protect an area, residents are given the chance to take decisions about their quality of life and to understand the reasons why tourists visit them. Investigation of the tourism phenomenon on a global scale reveals a constantly increasing tendency of international tourist traffic, tendency recorded by the revenue made by the industry, as well. The rise that we speak about, actually demonstrated by statistics, is due to:

Exceptional progress made by public transport in terms of capacity, speed and affordability;

Their special interest manifested by local communities concerning the phenomenon of tourism, because it has become an important source of income for those settlements and a way to provide jobs for local people;

The existence of different accommodation and enhanced comfort;

The emergence and development of a truly international tourism industry, i.e. a range of products and services perfectly tailored to the requirements of foreign tourists;

Improved infrastructure (modern highways, railways for high speed trains, airports that allow passenger inflows).

It is thus obvious that economic development, broadening exchanges of any kind between the countries of the world, globalization of world economy, reducing trade barriers, stimulating investment in tourism, to encourage its state policies, technological progress in transport are factors that favored tourist movement. On the other hand, the diversification of the ways of spending the holidays, relief to the tourists, raising quality of life and general level of education and culture have made tourism to become the most important form of leisure. In addition, modern man feels more acutely the requirement to leave the country within the borders of nationality and to have contact with other places, cultures and customs. Sustainable tourism development strategy should consider:

Conservation of natural and human tourism resources in order to continue in the future uses;

Increasing the population living standards in areas where tourism is developing;

Promoting both to the local population and especially to the tourists the idea of conservation.

To achieve a proper strategy to support sustainable tourism development at the international level, it is recommended (Gunn, 1994) to:

42

Establish goals and objectives related to the implementation planning for a region and / or community;

Formulate a set of indicators which reflect the objectives of development of tourism (the World Tourism Organization provides a set of indicators for those who develop and lead the planning of tourism, providing them with valuable


information. The 10 indicators proposed are pursuing different aspects: protection of the environment, stress, intensity of use, social impacts, development control, management, planning, critical ecosystems, customer satisfaction, locals’ satisfaction, the contribution of tourism to the local economy.)

Implement management strategies designed to direct tourism to achieve the stated objectives;

Monitor the performance of the business tourism sector by tracking the evolution of established indicators;

Assess the effectiveness of selected management strategies that influence tourism development, aiming at the development of the proposed indicators;

Develop policies governing the tourism sector to ensure monitoring and performance assessment.

At international level, strategies must respond to requirements of tourism development objectives, the rationale of achieving development plans has its roots in the operating mechanism and evolution imperfections of the market economy:

Lack of market information, which can be overcome with a plan, which is a regular information system and medium and long term forecasting.

Inability of market mechanisms in resource allocation and optimal adjustment of economic structures to the balanced development of tourism activity. Conscious nature of business, the production of actual travel, consumption often comes in conflict with how to adjust the various business processes.

The requirement to change travel agents’ behavior in appropriate economic and social requirements of sustainable economic development, which involves moving from business organization to obtain an immediate profit to the principle that the profit reason should be more compatible with environmental quality requirements.

The impure and imperfect nature of competition. The tendency of integration of holiday organizers, concentrating on different areas of business components, makes pure and perfect competition a mere wish in tourism, like in all modern sectors of the economy.

The requirement for economic and social planning is a must, just like internationalization, the globalization of economic and social life, the unprecedented expansion of international tourism.

5. Conclusions Given the importance of economic, social and political development of tourism, the overall contribution to the development of a region, the requirement for development, implementation and promotion of tourism development strategies seems obvious, not only nationally but also regionally. One aspect that should be taken into account in developing such strategies is that the principles of sustainable development, aiming at the development of tourism while respecting the requirements for protecting the natural environment, target the specific objectives of each area or region.

43


Nationally, it is essential that tourism should develop strategies and features that meet the requirements of the developing country and its regions. To develop a regional tourism strategy it is necessary to take into account the current situation of Romanian tourism, as well as anticipated future developments, to design and develop tourist offers for European Union prospects. This involves the integration of several strands, including: regional development, education, culture, cooperation. It should be noted also that achieving a sustainable tourist market has become an urgent necessity, because only such a market can generate investment in the sectors most profitable investment that will give them the development of the whole region concerned. Concerning sustainable development internationally, it is obvious that economic development, broadening exchanges of any kind between the countries of the world, globalization of world economy, reducing trade barriers, stimulating investment in tourism, state policies to encourage it, progress of transport technology are factors favoring tourist movement. On the other hand, diversification of spending the holidays, relief to the tourists, raising quality of life and general level of education and culture have made tourism to become the most important form of leisure. In addition, modern man feels more acutely the need to leave the country within the borders of nationality and to have contact with other places, cultures and customs. We believe that sustainable tourism development strategy must consider the conservation of natural and human tourism resources in order to continue their future use, raising the living standards in the areas where tourism development is achieved, promoting both the local population, as especially by tourists, the idea of conservation

References: Constantin, D.L., “Tourism and sustainable regional development strategy: effects and costs”, Romanian Journal of Statistics, no. 8 - 9 / 2000. Gunn, C.A., “Tourism Planning: Basics, Concepts, Cases”, Taylor & Francis, Washington DC, 1994. Hanciuc, N., “Considerations on the requirement for regional strategies to promote tourism in the context of sustainable spatial development of the new guidelines” in Regional Development and European Integration, Proceedings of the Second National Symposium of the Romanian Association of Regional Science, 4 to 5 April 2002. Istrate, I., Florica Rosu, Bran, Anca Gabriela, “Tourism Economy and Environment”, Economic Publishing House, 1996. Nistoreanu, P., Tigu, G., “Ecotourism and rural tourism”, ASE Publishing House, 2006. Tobultuc, V., “Environment - regional development - technological development”, in Regional Development and European Integration, Proceedings of the Second National Symposium of the Romanian Association of Regional Science, 4 to 5 April 2002, Oscar Print Publishing House, Bucharest, 2003. *** Agenda 21 for the Travel and Tourism Industry: Towards Environmentally Sustainable Development, WTO, WTTC, The Earth Council, Rio de Janeiro, 1992. *** Medium and long term strategies for regional development in Romania, the prospect of European Union, Romanian Academy, National Institute of Economic Research, Economic Issues Series.

44


The Organisational Structure of Telecommunications Companies Case study: The OTE Group Madelaine Pepenel ”Constantin Brâncoveanu University”of Piteşti, [email protected]

Ioana-Iulica Voicu ”Constantin Brâncoveanu University” of Piteşti, [email protected]

Abstract: Transnational corporations today are proving to be an important driver of the world economy. In turn, companies that offer mobile communications services have become important means to build bridges between people and between companies, regardless of their location. To maintain optimal functioning of these organizations, a strong and also flexible “backbone” is needed. A transnational company that is important to the Balkan region, operating in the telecommunications area, is the OTE SA company, based in Greece. The company formed together with its subsidiaries the OTE Group. The OTE Group carries out activities in Romania through the mobile subsidiary Cosmote Romania, which was imposed in our country as a major mobile operator.

Keywords: Transnational communications.

company,

telecommunications

services,

mobile

JEL classification: A10; E00; F23.

1. Introduction: Group structure and organization of OTE Telecommunications Company Hellenic Telecommunication Organization SA (OTE SA) is a traditional supplier of telecommunications services in Greece, which forms, together with its subsidiaries, one of the leading telecommunications companies in South East Europe - OTE Group. The group provides fixed telephony services, broadband Internet, data transmission, leased lines and mobile services in Greece, Romania, Albania and Bulgaria. OTE Company SA holds 54% of the shares of RomTelecom, the incumbent telecommunications operator in Romania, providing services through fixed line (voice, broadband Internet, leased lines) and Satellite TV Service, as shown by Figure no. 1 below. The OTEGlobe SA operates in the same fixed line telecommunications subsidiary, which specializes in the provision of wholesale international telecommunications carriers and large multi-site organizations in Southeastern Europe. OTEGlobe operates two highcapacity optical networks, stretching from Greece to Western Europe.

45


Figure no. 1. OTE Group Structure Landline Mobile

OTE SA Greece

Other

AMC Albania

Zapp Romania

100%

54%

Cosmote Greece

RomTelecom Romania

95%

100%

Globul Bulgaria

100%

70%

Cosmote Romania

100%

30%

100%

OTE Globe Greece

100%

OTEestate Greece

99%

Hellas Sat Greece

94%

OTESat-Maritel Greece

Other

Germanos SouthEastEurope

Source: OTE S.A., OTE Corporate Presentation, May 2010 2010, p. 5

Historically speaking, fixed telephony services formed the nucleus on which OTE Group was built. Fixed telephony services in Greece are conducted by the OTE SA company (founded in 1949), which is also the parent of OTE Group. Figure no. 2 presents the main brands of fixed-telephony telephony services belonging to OTE Group. Figure no. 2. OTE fixed fixed-line operators

Source: www.ote.gr

An important part of OTE Group's activities is to deliver mobile services. In Greece, these activities are undertaken by the company COSMOTE Mobile Telecommunications SA, wholly owned by OTE Group. COSMOTE Greece has expanded itself to provide mobile serv services ices through subsidiaries in Albania (AMC), Bulgaria (Globe) and Romania (and Telemobil SA COSMOTE Romania - Zapp). Cosmote Greece, together with its subsidiaries, stands for the Cosmote group, an OTE Group of companies which carries out mobile operations. The contribution of OTE Group revenue for 2009, according to the industry is shown in the Figure no. 3, below: 46


Figure no. 3. Contribution revenues in 2009, according to the industry Other; 6,20%

RomTelecom; 12,10%

Cosmote; 45,50% OTE; 36,20%

Source: OTE S.A., OTE Annual Report 2009, p. 13

In addition to products and services in fixed and mobile operations, OTE Group is involved in a number of additional areas through its subsidiaries in Greece, in order to provide integrated products and services, covering companies and individuals’ communications needs. The OTE SA company is among the five largest companies by market capitalization at the Athens Stock Exchange (ASE). It is also listed on stock exchanges in New York (NYSE) and London (LSE). Initially, the company OTE SA was wholly owned by the Greek state, but in 1996 the state has gradually reduced its stake in OTE's share capital. Following an agreement signed in 2008 on the participation of the German company Deutsche Telekom to the OTE social capital, Deutsche Telekom owns a 30% stake in OTE SA. Figure no. 4. OTE SA Company ownership structure Institutional shareholders in Greece; 10,20% Greek State; 20,00%

Other shareholders; 10,40%

Deutsche Telekom; 30,00%

International institutional shareholders; 29,40%

Source: OTE S.A., OTE Corporate Presentation, May 2010, p. 5

In a period characterized by rapid technological change and a liberalized market environment, the group's parent company OTE, the Hellenic Telecommunication Organization SA (OTE SA), seeks to maintain market leadership in Greece and strengthen its international presence. 47


To respond to this strategy, the company OTE SA has adopted an organizational structure that oversees both fixed line business activities in Greece and all other OTE Group international activities. This structure is based on four dedicated business units ("Business Unit") and a Group Corporate Center. The Board of Directors is the company's top administrative body. Its members are elected by the General Assembly of Shareholders, its purpose being to protect the general interests of society and ensure its operational efficiency. As part of its responsibilities, the Board approves the OTE company strategy and takes decisions in establishing subsidiaries or equity participation in other local or international companies.7 The Group’s Chief Executive is the highest executive authority of the company, coordinating all departments and divisions of the company and representing the company in all operational activities in Greece and abroad, and to all authorities. 2. COSMOTE Group – OTE's Mobile Communications Division The Company “COSMOTE Mobile Telecommunications SA” (COSMOTE), registered in Athens - Greece, started its commercial activities in April 1998 in order to provide mobile access to all of Greece. COSMOTE is wholly owned by the company Hellenic Telecommunications Organization SA (OTE SA), and it has expanded its activities in the Balkan region by successive acquisitions of mobile operators, where the Cosmote business brand and principles were implemented. This is the principle according to which Cosmote has succeeded to create a group of companies dedicated to mobile telephony - COSMOTE Group. Figure no. 5. COSMOTE Group Expansion Region

POLAND

UKRAINE

ROMANIA

BULGARIA FYROM

ALBANIA GREECE

CIPRU

Source: COSMOTE Mobile Telecommunications S.A., Financial statements - parent company, consolidated for the year ended 31 December 2009, p. 14

7

OTE S.A., OTE Corporate Governance Report 2009, p. 6

48


In August 2000, Cosmote acquired an 82.5% stake in "Albanian Mobile Communications (AMC), the leading mobile operator in Albania. In July 2005, COSMOTE has completed the acquisition of 70% of the shares of "COSMOTE Romania SA (formerly known as Cosmorom). Another milestone in the development of the group was the acquisition of 100% of global firms in Bulgaria. Since 2005, COSMOTE has developed activities in FYROM (Former Yugoslav Republic of Macedonia) by acquiring COSMOFON company, but that was abandoned in 2009. Another important step was the acquisition in 2006 of the Germanos chain stores, the largest marketing network of products and mobile communication services in the region. On December 31st 2009, COSMOTE Group consisted of parent COSMOTE company subsidiaries also presented in Table no.1. Despite the challenges caused by the financial crisis, COSMOTE Group continued to record positive results. The COSMOTE Group's customer base reached 22 million, by about 14% more than in 2008. In Q4 2009, COSMOTE Group maintained its leadership in the telecommunications market in Greece, increased its revenue market in Romania and made operational performance over the market in countries where it is today. Table no. 1. COSMOTE Group subsidiaries Several Fields

Country

Ownership 31/12/2009

COSMOBULGARIA MOBILE EAD (GLOBUL AD)

Mobile telecommunications services

Bulgaria

100%

S.C. COSMOTE ROMANIAN MOBILE TELECOMMUNICATIONS SA (COSMOTE ROMANIA SA)


Romania

70%

Investment

Romania

100%


Romania

100%

Investment

Greece

97%


Albania

COSMOHOLDING CYPRUS LTD

Investment

Cyprus

100%

GERMANOS SA

Retail sales

Greece Greece

100%


Greece

100%

GERMANOS TELECOM ROMANIA SA

Retail sales

Romania

100%

SUNLIGHT ROMANIA S.R.L. – FILIALA

Retail sales

Romania

100%

GERMANOS TELECOM BULGARIA AD

Retail sales

Bulgaria

100%

MOBILBEEP LTD

Retail sales

Greece

100%

Overdue accounts

Greece

100%

Company’s Denomination

COSMOHOLDING ROMANIA LTD TELEMOBIL SA COSMOHOLDING ALBANIA AE (CHA) ALBANIAN MOBILE COMMUNICATIONS Sh.a (AMC)

E-VALUE SA

E-VALUE ONE PERSON LTD

82.45%

Source: COSMOTE Mobile Telecommunications S.A., Financial statements - parent company and consolidated for the year ended 31 December 2009, p. 14.

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3. COSMOTE Romania – a Subsidiary of the COSMOTE Group COSMOTE Romania, member of COSMOTE Group, was launched on the Romanian market in December 2005. Today, COSMOTE Romania is 70% owned by "COSMOTE Mobile Telecommunications SA and 30% by Romtelecom, owned themselves by the OTE SA. Cosmote Romania was founded by a fresh Cosmorom mobile operator, mobile communications division of Romtelecom. Taken over by Cosmote Greece, Cosmorom company went through a restructuring and rebranding process. From the very beginning of its commercial activities, COSMOTE Romania undertook an ambitious plan of network expansion and an appropriate strategy to provide quality mobile services accessible to all. During the five years of working in the local market, COSMOTE Romania has invested over EUR 680 million. Today, COSMOTE Romania has a national distribution network, consisting of over 840 COSMOTE, Germanos, Internity, RomTelecom stores as well as several independent dealers2. Throughout 2009, COSMOTE Romania has continued to invest in its network, managed to achieve a population coverage of 99.1% and 89.1% geographical coverage. The company's main activity is providing a full range of mobile communications services: postpaid and prepaid services, international calls and roaming, a variety of services such as voicemail, text messaging, call forwarding, teleconferencing, and also mobile data, communications and COSMOTE agenda: i-mode wireless Internet and fax and data service. In April 2010, Cosmote Romania announced the launch of 3G services, providing Internet access and high speed mobile broadband national coverage. An important step was the acquisition business development company Telemobil SA (Zapp), completed in October 2009. This provides additional growth potential for COSMOTE Romania, as the company will be able to offer new mobile broadband services via its 3G and CDMA licenses. At the end of the first quarter of 2010, the total number of customers of COSMOTE Romania reached 7.2 million, of which 21% are subscribers. Widening the base of subscribers particularly for the business sector, it has generated a significant increase in revenue. The number of prepaid customers also increased, despite tough competition in this segment. Currently reaching a market share exceeding 23% and having an opportunity to offer 3G services as the result of Zapp’s takeover, Cosmote Romania is focusing on expanding its presence on mobile internet and corporate segments2. To support the rapid growth of the company, COSMOTE has become one of the most dynamic employers in the market. In the last two years, COSMOTE has created over 600 jobs currently with over 1,100 employees. COSMOTE Romania Company’s activity is coordinated by the parent company in Greece, in order for it to become a part of the group’s strategic plans. The work dedicated to the mobile communications field noted that "the media and telecommunications sector is made up of only a limited number of fully independent mobile operators, since, not only that most such companies have begun life as an alternative fixed line operator, but lately there has been a tendency even from the operators that were working in full (or almost) in mobile communications [..] to acquire certain assets of fixed lines.8 8

Curwen Peter, Whalley Jason, The Internationalisation of Mobile Telecommunications – Strategic Challenges in a Global Market, Ed. Edward Elgar Publishing Ltd, England, 2008, p. 2

50


The Romania COSMOTE company structure is based on divisions and departments. Each division from the organizational structure coordinates several specific departments. Currently, the subsidiary of COSMOTE Romania is concerned with the successful completion of the organizational integration of Zapp. In this approach, the Executive Director of COSMOTE Romania has taken over the duties of the President and CEO of Telemobil (Zapp) and those of the Romania SA Telecom Germanos General Manager. Figure no. 6. The Organizational Structure of COSMOTE SA Romania General Manager

Department

pt. audit

Legal Division

IT Division

Network implemen tation Division

Technical Division

Radio Systems Division

Customers Business Relationship Division

Operation and Maintenance Division

Marketing & Comm. Division

Switching and Services Division

Financial Division

Retail Division

Purchase & Logistics Division

A area

B area

C area

sales

sales

sales

department

department

department

Human Resources Division

PR & Private Institutions Division

Source: Authors’ research

4. Conclusions The transnational companies’ structure is based on several aspects: size of organization, type of products offered, size of geographical area covered, the level of coordination of the business needs. For a business that evolves from a national level to a transnational one, the organizational structure evolves with the size of the business, encountering changes which may reflect the international operations increase in complexity. The structure arises from the market approach strategy and from how the company decides to meet the market needs and requirements: through a local or global policy response. Along with adopting a particular organizational structure, a transnational company's management team will decide on a management strategy, covering the balance of power between parent company and subsidiaries, to harmonize the objectives of local interest with the global interest ones. An important factor often associated with globalization and rapid expansion of transnational corporations is the ICT (information technology and communications) sector’s strong progress of late. This technological development enables the rapid exchange of information between parent companies and subsidiaries of transnational

51


corporations and ensures the provision and processing of necessary decision-making. The rapid development of the telecommunications sector was driven by political decisions to eliminate monopoly states in this sector. The telecommunications sector liberalization paved the way for private investment in this field. A major target of investment is the mobile phone used by both people and companies. An important aspect in analyzing the organization and management of the COSMOTE Romania subsidiary is the presence in the ownership of OTE SA of Deutsche Telekom. This proved to be a fairly discreet shareholder. So far the Germans have not made any radical change in Romania: all top managers - appointed in Athens remained in office nor has the German manager assumed a position of visibility in public companies on the OTE local market.9 Moreover, OTE's chief executive said that "we must say very clearly that Romtelecom and Cosmote are direct subsidiaries of OTE and Deutsche Telekom. Deutsche Telekom's involvement is welcome, it is desirable to happen and it will happen, but it will take place only through the Greece parent company"10 However, the Germans’ entry into ownership began to be felt. They have created inside COSMOTE and RomTelecom joint working teams, and the financial reports on the market have not only Athens as their destination, but also Bonn. There is no doubt that a suitable structure facilitates the company’s costs minimization, the access to new markets and optimal communication of internal information. Wrong decisions in choosing an organizational structure may cause the company losses, which in a highly competitive economic environment can make the difference between survival and elimination from the market. References: Andersson Ulf, Holm Ulf, Managing the Contemporary Multinational - The Role of Headquarters, Edward Elgar Publishing Ltd, England, 2010. Cullen John B., Parboteeah K. Praveen, International Business - Strategy and the Multinational Company, Routledge - New York, 2010. Curwen Peter, Whalley Jason, The Internationalisation of Mobile Telecommunications – Strategic Challenges in a Global Market, Edward Elgar Publishing Ltd, England, 2008. Dunning John H., Lundan Sarianna M., Multinational Enterprises and the Global Economy, Second Edition, Edward Elgar Publishing Ltd, England, 2008. Voinea Liviu, Transnational corporations and global capitalism („Corporaţiile transnaţionale şi capitalismul global”), Polirom Publishing House, Jassy, 2007. OTE S.A., OTE Corporate Governance Report 2009. COSMOTE Mobile Telecommunications S.A., Financial statements - parent company and consolidated for the year ended 31 December 2009. Websites: COSMOTE, www.cosmote.ro OTE Group, www.ote.gr Ziarul Financiar, www.zf.ro UNCTAD, www.unctad.org

9

www.zf.ro, article The Germans say that they have established strong and solid bonds with Romania, through OTE”, 02.05.2010 10 www.zf.ro, article „Deutsche Telekom and OTE: It is too soon to expect drastic changes for Romania?”, 22.03.2009

52


Foreign Direct Investment Theories: An Overview of the Main FDI Theories Vintila Denisia Academy of Economic Studies, Bucharest, [email protected]

Abstract Foreign Direct Investment (FDI) acquired an important role in the international economy after the Second World War. Theoretical studies on FDI have led to a better understanding of the economic mechanism and the behavior of economic agents, both at micro and macro level allowing the opening of new areas of study in economic theory. To understand foreign direct investment must first understand the basic motivations that cause a firm to invest abroad rather than export or outsource production to national firms. The purpose of this study is to identify the main trends in FDI theory and highlight how these theories were developed, the motivations that led to the need for new approaches to enrich economic theory of FDI. Although several researchers have tried to explain the phenomenon of FDI, we cannot say there is a generally accepted theory, every new evidence adding some new elements and criticism to the previous ones.

Keywords: foreign direct investments, internalization theory, eclectic paradigm JEL Classification: E60, F21

Introduction Nowadays the issue of foreign direct investments is being paid more attention, both at national and international level. There are many theoretical papers that examine foreign direct investments (FDI)’s issues, and main research on the motivations underlying FDI were developed by J. Dunning, S. Hymer or R.Vernon. Economists believe that FDI is an important element of economic development in all countries, especially in the developing ones. The conclusion reached after several empirical studies on the relationship between FDI and economic development is that the effects of FDI are complex. From a macro perspective, they are often regarded as generators of employment, high productivity, competiveness, and technology spillovers. Especially for the least developed countries, FDI means higher exports, access to international markets and international currencies, being an important source of financing, substituting bank loans. There is some evidence to support the idea that FDI promote the competitiveness of local firms. Blomstrom (1994) finds positive evidence in Mexico and Indonesia, while Smarzynska (2002) found that local suppliers in Lithuania benefited spill over from supplying foreign customers. Caves (1996) considers that the efforts made by various countries in attracting foreign direct investments are due to the potential positive effects that this would have on economy. FDI would increase productivity, technology transfer, managerial skills, knowhow, international production networks, reducing unemployment, and access to external markets. Borensztein (1998) supports these ideas, considering FDI as ways of achieving technology spillovers, with greater contribution to the economic growth than would have

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national investments. The importance of technology transfer is highlighted also by Findlay who believes that FDI leads to a spillover of advanced technologies to local firms (Findlay, 1978). On the other hand, FDI may crowd out local enterprises and have a negative impact on economic development. Hanson (2001) considers that positive effects are very few, and Greenwood (2002) argues that most effects would be negative. Lipsey (2002) concludes that there are positive effects, but there is not a consistent relationship between FDI stock and economic growth. The potential positive or negative effects on the economy may also depend on the nature of the sector in which investment takes place, according to Hirschman (1958) that stated the positive effects of agriculture and mining are limited. When multinational corporations enter different foreign markets it is market failures that attract FDI and give them the advantage in those markets. Foreign investors consider that their superior technology and knowledge will give them the opportunity to obtain market share. Despite the fact that many researchers have tried to explain the phenomenon of FDI, we cannot say there is a general theory accepted. But, according to Kindleberger (1969) everyone agrees on one point, in a world characterized by perfect competition, foreign direct investment would no longer exist. Thus, if markets work effectively and there are no barriers in terms of trade or competition, international trade is the only way to participate to the international market. There must be a form of distortion that determines the realization of direct investment, and Hymer was the first who noticed this. He believes that always local firms will be better informed about local economic environment, and for foreign direct investments to take place, two conditions are necessary:

foreign firms must possess certain advantages that allow them that such an investment to be viable; the market of these benefits has to be imperfect (Kindleberger, 1969).

From a macroeconomic point of view, FDI is a particular form of capital flows across borders, from countries of origin to host countries, which are found in the balance of payments. The variable of interest is: capital flows and stocks, revenues obtained from investments. The microeconomic point of view, tries to explain the motivations for investment across national boundaries from the point of view of the investor. It also examines the consequences to investors, to the country of origin and to the host country, of the operations of the multinationals rather than investment flows and stock. (Lipsey, 2001) In the period immediately following the Second World War, international production was a small part of international affairs, while the attention was directed towards those components which had an important share (e.g. international trade). Since the 1960s, the phenomenon of transnational corporations and FDI has begun to gain importance. The first attempt to explain the FDI was considered Ricardo's theory of comparative advantage. However, FDI cannot be explained by this theory, which is based on two countries, two products and a perfect mobility of factors at local level. Such model could not even allow FDI. Thus, as Ricardo's comparative advantage theory fail to explain the rising share of FDI, other models were used, such as portfolio theory. This attempt was designed to fail, because the theory explains the achievement of foreign investments in a portfolio, but could not explain the direct investments. According to the theory, as long as

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there is no risk or barriers in the way of capital movement, the capital will go from countries with low interest rates to countries with high interest rates. But these allegations have no basis in reality, and the introduction of risk and barriers to capital movement erodes the veracity of the theory, and capital can move freely in any direction (Hosseini 2005). Although more realistic, the new theories of international trade still cannot capture the entire complexity of FDI and other forms of international production. The new theories of international trade, still cannot explain foreign direct and other forms of international investment (Hosseini 2005). Robert Mundell has tried to explain the FDI through a model of international trade, involving two countries, two goods, two production factors and two identical production functions in both countries, where production of a good requires a higher proportion of a factor than the other. Neither Mundell’s model could explain international production through FDI, because foreign investment incorporated were portfolio investment or shortterm investment (Mundell, 1957). Japanese researchers Kojima and Ozawa have tried to create a model to explain both international trade and foreign direct investment. They started from the model developed by Mundell and tried to develop it and improve it. Thus, in the model developed by the two Japanese FDI takes place if a country has comparative disadvantage in producing a product, while international trade is based on comparative advantage. (Kojima and Ozawa, 1984). Internalisation theory provides an explanation of the growth of the multinational enterprise (MNE) and gives insights into the reasons for foreign direct investment. Theories of FDI may be classified under the following headings: 1. Production Cycle Theory of Vernon Production cycle theory developed by Vernon in 1966 was used to explain certain types of foreign direct investment made by U.S. companies in Western Europe after the Second World War in the manufacturing industry. Vernon believes that there are four stages of production cycle: innovation, growth, maturity and decline. According to Vernon, in the first stage the U.S. transnational companies create new innovative products for local consumption and export the surplus in order to serve also the foreign markets. According to the theory of the production cycle, after the Second World War in Europe has increased demand for manufactured products like those produced in USA. Thus, American firms began to export, having the advantage of technology on international competitors. If in the first stage of the production cycle, manufacturers have an advantage by possessing new technologies, as the product develops also the technology becomes known. Manufacturers will standardize the product, but there will be companies that you will copy it. Thereby, European firms have started imitating American products that U.S. firms were exporting to these countries. US companies were forced to perform production facilities on the local markets to maintain their market shares in those areas. This theory managed to explain certain types of investments in Europe Western made by U.S. companies between 1950-1970. Although there are areas where Americans have not

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possessed the technological advantage and foreign direct investments were made during that period. 2. The Theory of Exchange Rates on Imperfect Capital Markets This is another theory which tried to explain FDI. Initially the foreign exchange risk has been analyzed from the perspective of international trade. Itagaki (1981) and Cushman (1985) analyzed the influence of uncertainty as a factor of FDI. In the only empirical analysis made so far, Cushman shows that real exchange rate increase stimulated FDI made by USD, while a foreign currency appreciation has reduced American FDI. Cushman concludes that the dollar appreciation has led to a reduction in U.S. FDI by 25%. However, currency risk rate theory cannot explain simultaneous foreign direct investment between countries with different currencies. The sustainers argue that such investments are made in different times, but there are enough cases that contradict these claims. 3. The Internalisation Theory This theory tries to explain the growth of transnational companies and their motivations for achieving foreign direct investment. The theory was developed by Buckley and Casson, in 1976 and then by Hennart, in 1982 and Casson, in 1983. Initially, the theory was launched by Coase in 1937 in a national context and Hymer in 1976 in an international context. In his Doctoral Dissertation, Hymer identified two major determinants of FDI. One was the removal of competition. The other was the advantages which some firms possess in a particular activity (Hymer, 1976). Buckley and Casson, who founded the theory demonstrates that transnational companies are organizing their internal activities so as to develop specific advantages, which then to be exploited. Internalisation theory is considered very important also by Dunning, who uses it in the eclectic theory, but also argues that this explains only part of FDI flows. Hennart (1982) develops the idea of internalization by developing models between the two types of integration: vertical and horizontal. Hymer is the author of the concept of firm-specific advantages and demonstrates that FDI take place only if the benefits of exploiting firm-specific advantages outweigh the relative costs of the operations abroad. According to Hymer (1976) the MNE appears due to the market imperfections that led to a divergence from perfect competition in the final product market. Hymer has discussed the problem of information costs for foreign firms respected to local firms, different treatment of governments, currency risk (Eden and Miller, 2004). The result meant the same conclusion: transnational companies face some adjustment costs when the investments are made abroad. Hymer recognized that FDI is a firm-level strategy decision rather than a capital-market financial decision. 4. The Eclectic Paradigm of Dunning The eclectic theory developed by professor Dunning is a mix of three different theories of direct foreign investments (O-L-I): 1) “O” from Ownership advantages:

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This refer to intangible assets, which are, at least for a while exclusive possesses of the company and may be transferred within transnational companies at low costs, leading either to higher incomes or reduced costs. But TNCs operations performed in different countries face some additional costs. Thereby to successfully enter a foreign market, a company must have certain characteristics that would triumph over operating costs on a foreign market. These advantages are the property competences or the specific benefits of the company. The firm has a monopoly over its own specific advantages and using them abroad leads to higher marginal profitability or lower marginal cost than other competitors. (Dunning, 1973, 1980, 1988). There are three types of specific advantages9: a) Monopoly advantages in the form of privileged access to markets through ownership of natural limited resources, patents, trademarks; b) Technology, knowledge broadly defined so as to contain all forms of innovation activities c) Economies of large size such as economies of learning, economies of scale and scope, greater access to financial capital; 2) “L” from Location: When the first condition is fulfilled, it must be more advantageous for the company that owns them to use them itself rather than sell them or rent them to foreign firms. Location advantages of different countries are de key factors to determining who will become host countries for the activities of the transnational corporations. The specific advantages of each country can be divided into three categories10: a) The economic benefits consist of quantitative and qualitative factors of production, costs of transport, telecommunications, market size etc. b) Political advantages: common and specific government policies that affect FDI flows c) Social advantages: includes distance between the home and home countries, cultural diversity, attitude towards strangers etc. 3) “I” from Internalisation: Supposing the first two conditions are met, it must be profitable for the company the use of these advantages, in collaboration with at least some factors outside the country of origin (Dunning, 1973, 1980, 1988). This third characteristic of the eclectic paradigm OLI offers a framework for assessing different ways in which the company will exploit its powers from the sale of goods and services to various agreements that might be signed between the companies. As cross-border market Internalisation benefits is higher the more the firm will want to engage in foreign production rather than offering this right under license, franchise. Eclectic paradigm OLI shows that OLI parameters are different from company to company and depend on context and reflect the economic, political, social characteristics of the host country. Therefore the objectives and strategies of the firms, the 9

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magnitude and pattern of production will depend on the challenges and opportunities offered by different types of countries.11 Conclusions All the empirical results reveal that for FDI there is not a unified theoretical explanation, and it seems at this point very unlikely that such a unified theory will emerge. Neoclassical trade theory failed to explain the existence of Multi National Corporations. Explanations in terms of differences in rates of return between countries could explain portfolio investments, but foreign direct investments (FDI). It was not until Hymer presented his work, in 1960, of foreign direct investments and multinational enterprises that a satisfying explanation was at hand. After all these different attempts to explain why FDI take place and the pioneering work by Hymer (1976), the conceptual framework used until very recently was the one proposed by Dunning (1977), the OLI paradigm. References [1]. Blomstrom, M., R. Lipsey and M. Zegan (1994): “What explains developing country growth?” NBER Working Paper No. 4132, National Bureau for Economic Research, Cambridge, Massachusetts. [2]. Borensztein, E., J. De Gregorio, and J.W. Lee (1998): “How Does Foreign Direct Investment Affect Economic Growth?” in Journal of International Economics 45, p.115–135. [3]. Buckley, P.J. and Casson, M.C. (1976): “The Future of the Multinational Enterprise”, Homes & Meier: London. [4]. Caves, R.E. (1996): “Multinational Enterprise and Economic Analysis”, 2nd ed. Cambridge: Cambridge University Press. [5]. Cushman, D.O. (1985): “Real Exchange Rate Risk, Expectations and the Level of Direct Investment” in Review of Economics and Statistics, 67 (2), 297-308. [6]. Dunning, J. H. (1973): “The determinants of international production”, Oxford Economic Papers 25. [7]. Dunning, J. H. (1980): “Toward an eclectic theory of international production: Some empirical tests” in Journal of International Business Studies issue 11. [8]. Dunning, J. H. (1988): “The Eclectic Paradigm of International Production: A restatement and some possible extensions”, in Journal of International Business Studies issue 19 (Spring). [9]. Gorg, H., Greenaway D. (2002): “Much Ado About Nothing? Do Domestic Firms Really Benefit from Foreign Direct Investment?”, Research Paper 2001/37 [10]. Hanson, G. (2001): “Should Countries Promote Foreign Direct Investment?”, G-24 Discussion Papers 9, United Nations Conference on Trade and Development [11]. Hennart J.F. (1982): “A theory of multinational enterprise”, University of Michigan Press. [12]. Hirschman, A. O. (1958): “The Strategy of Economic Development”, New Haven: Yale University Press. [13]. Hymer, S., 1976 (1960 dissertation): “The International Operations of Nation Firms: A Study of Foreign Direct Investment”, Cambridge, MLT Press. [14]. Hosseini H. (2005): “An economic theory of FDI: A behavioural economics and historical approach”, The Journal of Socio-Economics, 34,p 530-531. [15]. Kindleberger C.P. (1969): “American Business Abroad”, The International Executive 11, p.11–12. 11

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European Journal of Interdisciplinary Studies [16]. Kojima, K., Osawa, T. (1984): “Micro and macro-economic models of foreign direct investment”. Hitosubashi Journal of Economics. [17]. Lipsey R (2002), “Home and Host Country Effects of FDI”, Lidingö, Sweden. [18]. Mundell, R A. (1957): “International Trade and Factor Mobility,” American Economic Review, Vol. 47. [19]. Smarzynska, B (2002): “Spillovers from Foreign Direct Investment through Backward Linkages: Does Technology Gap Matter?”Mimeo, World Bank. [20]. Vernon R. (1966), “International investment and international trade in the product cycle”. Quarterly Journal of Economics 80, pp. 190-207. [21]. Website: http://www.investmentsandincome.com/investments/oli-paradigm.html

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