food security and nutrition impacts of smallholder ...

JIBE, Volume 16, Number 2, 2016

ISSN: 1544-8037

JOURNAL OF INTERNATIONAL BUSINESS AND ECONOMICS ®

EDITOR-IN-CHIEF Scheherazade S. Rehman, Ph.D. School of Business, The George Washington University, Washington D.C., U.S.A.

SPONSOR School of Business The George Washington University, Washington D.C., U.S.A.

A Publication of the

International Academy of Business and Economics®

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IWWW.IABE ORG

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EDITORIAL BOARD

Dr. Aharon Tziner, Dean, Netnaya University College, Netnaya, Israel Dr. Byron J. Hollowell, Black Hills State University, Spearfish, SD, USA. Dr. Cristiana Bernardi, Department of Business Studies, University of Rome Tre, Italy Dr. Paola Demartini, Department of Business Studies, University of Rome Tre, Italy Dr. Ernesto Noronha, Indian Institute of Management, Ahmedabad, India Dr. C. B. Claiborne, Texas Souther University, Houson, Texas, U.S.A. Dr. George Heilman, Winston-Salem State University, Winston-Salem, North Carolina, U.S.A. Dr. Stacy R. Barnes, Averett University, Danville, U.S.A. Dr. Ironildes Bueno Da Silva, Catholic University Of Brasilia, Brasilia, Brazil Dr. Lokman Mia, Griffith University, Brisbane, Queensland, Australia Dr. R. Raghavendra Kumar Sharma, Department of Industrial and Management, Engineering, IIT, Kanpur, India Dr. Scott K. Metlen, University of Idaho, Moscow, Idaho, U.S.A. Dr. Silvio Bianchi Martini, University Of Pisa, Pisa, Italy Dr. Wilson Almeida, Catholic University Of Brasilia, Brasilia, Brazil

LIBRARY OF CONGRESS, LC Control Number: 2003213074 , ISSN: 1544-8037,CALLNUMBER:HF1351.J6758 JIBE is sponsored by the School of Business, The George Washington University, Washington D.C., U.S.A. JIBE is the flagship publication of the International Academy of Business and Economics. JIBE is available in prestigious libraries such as US Library of Congress and British Library. JIBE is a Registered Trademark of the IABE.

All rights reserved. ©2016 IABE. Printed and Published in the USA.

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ISSN: 1544-8037

A Welcome Note from the Editors-In-Chief: Amid continued global economic turmoil, recent signs of optimism but also brewing controversies on what should be next in the face of weak economic growth and high joblessness. Thanks to the current political season in the United States, and many European, African, Latin American, Asian countries and particularly in Middle East countries, candidates for national, state, county, or local office have already started weighing in on the issue of how best to promote and experience economic growth again. Long before the current political vuvuzelas on this policy issue gained in decibels, JIBE’s scholars were at work. Indeed, the last issues of JIBE have abundantly explored the question of how we got into this global mess. So, now we thought appropriate to frame a singular challenge for your next contribution and pose to you the proverbial $64 million question: how do we get out of this mess? Do you trust that fiscal consolidation (i.e. spending cuts to reduce budget deficits) can boost economic growth under certain set of conditions? Or, do you rather agree with the IMF that the pursuit of consolidation is most likely to stunt economic growth and raise unemployment in the short term (never mind that the same IMF has recommended similar fiscal austerity policies to developing countries for years that they decry today)? Not matter your own inclination on these important matters, we hope that your country, state, or university/organization will make the right decision so their budgets allow you to continue your research agenda, attend our future conferences and submit your work for consideration for publication in future issues of this journal. Arguably, more than economics or finance got us into this global economic mess. Thus, it seems reasonable to assume that more than economics and finance will get us out of it. Indeed the word “greed” has been evoked so many times in describing the root causes of the current crisis that we want to hear more from all the psychologists, sociologists and other scholars out there. Your current and future contributions are greatly appreciated and valued. Write up your views; share your wisdom on the above and other global issues. As is now customary, all work submitted to JIBE has gone through a rigorous blind review process of experts in the functional areas of business, economics and public administration. We are infinitely grateful to all authors who submitted their work and anonymous reviewers and board members who contributed to shaping the JIBE, Volume 16, Number 2, 2016 presenting you with research papers for your reading. We expect you to personally contribute to our next issues!

Warm Regards,

Scheherazade S. Rehman, Ph.D.

Editors-In-Chief Disclaimer: IABE or its representatives are not responsible any error(s), validity of data/conclusion(s) or copyright infringements in any article published in the journal. Author(s) is/are solely responsible for the entire contents of the paper published in the journal.

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TABLE OF CONTENTS PAGE EXAMINING THE CAUSAL RELATIONSHIP BETWEEN CONSUMERS AND BRAND WITH CSR

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Kedwadee Sombultawee, Silpakorn University, Petchaburi, Thailand THE EUROSYSTEM’S MONETARY POLICY IN TIMES OF CRISIS – EMPIRICAL EVIDENCE FROM A VAR ANALYSIS

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Tobias Duemmler, Darmstadt University of Technology, Darmstadt, Germany FOOD SECURITY AND NUTRITION IMPACTS OF SMALLHOLDER FARMERS’ PARTICIPATION IN DAIRY VALUE CHAIN IN ETHIOPIA

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Elias Abiyou Geday, MOISA, Sup-Agro Montpellier, France Tolossa Degefa, CDS, Addis Ababa University, Ethiopia Padilla Martine, CIHEAM Montpellier, France Montaigne Etienne, MOISA, Sup-Agro Montpellier, France

THE SUCCESS FACTORS CAN AFFECTS THE EXPATRIATE IN MULTINATIONAL COMPANY (MNC) AT JAKARTA

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Mahiswaran Selvanathan, Segi University, Malaysia Ahmad Muzammir Bin Muhammad, Segi University, Malaysia Andrew Triliono Angir, Segi University, Malaysia Paul Anthony Maria Das, Segi University, Malaysia Tan Pei Jun, Segi University, Malaysia

INTERNET MARKETING AND ITS IMPACT ON ONLINE COMMUNITIES

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Mohammed T. Nuseir, Department of Management, Faculty of Business and Finances, The World Islamic Science & Education University, Jordan

THE PROCESSES OF GLOBALIZATION AND TRANSNATIONAL ORGANIZED CRIME

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Michele Sabatino, University KORE of Enna, Italy

CORPORATE DISCLOSURE AND COST OF EQUITY: CASE OF MALAYSIAN LISTED COMPANIES

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Mohd. Waliuddin Mohd. Razali, Universiti Malaysia Sarawak, Sarawak, Malaysia Rayenda Khresna Brahmana, Universiti Malaysia Sarawak, Sarawak, Malaysia Ganisen a/l Sinnasamy, Universiti Teknologi Mara, Malaysia

HOW SUSTAINABLE IS THE ECONOMIC DEVELOPMENT IN ROMANIA: AN EMPIRICAL EVIDENCE ON ECONOMIC, ENVIRONMENTAL AND SOCIAL DIMENSIONS Doru Ioan Ardelean, Vasile Goldiș Western University of Arad, Romania Olimpia Neagu, Vasile Goldiș Western University of Arad, Romania Vasile Lucian Lazăr, Vasile Goldiș Western University of Arad, Romania

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THE QUEST OF JAPAN’S ECONOMIC LEADERSHIP IN ASIA: AN OVERVIEW OF THE PAST, THE PRESENT, AND THE FUTURE

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Nizar Souiden, Laval University, Canada Heung-Ja Hong, Kansai University, Japan Jean Grégoire Djamo, Laval University, Canada

EMBEDDING SOCIAL MEDIA TO FOSTERING ENTREPRENEURSHIP EDUCATION: CASE STUDY FROM EGYPT

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Randa El Bedawy, Misr International University MIU, Egypt Mohamed Farag, American University in Cairo AUC, Egypt

MARITAL MATCHING AMONG US RESIDENTS: A COMPARISON BY REGION OF ORIGIN

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Sonia Dalmia, Grand Valley State University, U.S.A. Claudia Smith Kelly, Grand Valley State University, U.S.A.

ESTIMATING THE SHADOW PRICES FOR CHP PLANT PROJECT APPRAISAL IN A RURAL AND LAGGING BEHIND REGION Djula Borozan, J.J. Strossmayer University in Osijek, Osijek, Croatia Dubravka Pekanov Starcevic, J.J. Strossmayer University in Osijek, Osijek, Croatia

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EXAMINING THE CAUSAL RELATIONSHIP BETWEEN CONSUMERS AND BRAND WITH CSR Kedwadee Sombultawee, Silpakorn University, Petchaburi, Thailand dx.doi.org/10.18374/JIBE-16-2.1

ABSTRACT Some brands apply CSR activities to build the relationship between consumer and brand but the result lead to unsuccessful while some brands can generate a strong relationship between consumers and their brand via CSR activities. The aims of this research were 1) to study consumers’ opinion toward operating brand with CSR and 2) to examine the causal relationship between consumers and brand with CSR then measure the goodness of fit with the empirical date. The methodology of this research was applied the quantitative research methods and used the questionnaire as a tool for data collecting. The respondents were 400 customers of the brand which operating the CSR activities by using multi-stage sampling and the data was analyzed by descriptive statistic and inferential statistic which is structural equation modeling (SEM). The results show that consumers’ opinion toward operating brand with CSR was rated the score at very important in all items and the consumer’s opinion toward the relationship between consumers and brand with CSR was rated the score at moderate in all items excluding the quality of partner item was rated at important. Moreover, the structural equation modeling examines the relationship between consumers and brand with CSR were concurrence with the empirical data at the acceptable criteria which indicated a strong degree of fit (X 2 =34.59, df. =38, P=0.62) and confirmatory fit index (GFI=0.99, AGFI=0.97, CFI=1.00, RMSEA = 0.000). According to CSR activities, the obligation to society has affeting the relationship between consumer and brand whereas the nostalgic attachment factor show the most impact toward the relationship between consumer and brand. Keywords: Corporate Social Responsibility, brand and consumer

1. INTRODUCTION In the past, business owners invested in the market for their profit [18] and the time pass by some company consider that this notion was unsustainable. Thus, the new concept of corporate social responsibility (CSR) was suggested and become nearly generally certified and promoted by all institution in society from an organization to consumers and non-governmental organization [14]. Some big firms have mentioned the CSR cost in their annual report and organization goal. According to the shift of paradigm from product-centric marketing to the customer – oriented marketing and now move to holistic market which is focus on the stakeholders and corporate social responsibility. The change of this concept was increased importance and the businessmen’s belief that CSR can increase the brand awareness and the long term relationship between consumer and brand as a result of business sustainable. The concept of CSR means the company not only gains from the market and environmental but give and return the benefit to all stakeholders as well. As McKinsey showed that 76% of the management team supposes that CSR build completely to the enduring share holder value and 55% of management team consider that CSR can contribute a strong reputation and brand image [15]. In 2006, American traveler Blake Mycoskie, the owner of Toms shoes who launched the product with the simple idea and used the concept of corporate social responsibilities “one for one”. When Toms sells a pair of shoes a pair of shoes is given to an impoverished child, and when Toms sells a pair of eyewear, part of the profit is used to save or restore the eyesight for people in developing countries (Toms.com). This brand was considered as the brand to help improve the world. People around the world know this brand as a representative of CSR brand. While many brands try to promote CSR activities as one part of their business and not put themselves as a CSR brand concept and the result lead to unsuccessful to build the strong relationship between consumer and CSR brand as TOMS. Thus, this research would like to study the consumers’ opinion toward operating brand with CSR and examine the causal relationship between consumers and brand with CSR then measure the goodness of fit with the empirical date and we posit that the consumers have a positive relationship with the

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CSR brand. Moreover, the result can help the branding manager to manage the CSR strategy in their brand through the correct way.

2. THEORETICAL BACKGROUND A. Corporate Social Responsibilty (CSR) Corporate Social Responsibility (CSR) has been started since 1950s which was the modern era of CSR [4]. CSR is still an active and important issue in recent years. The concept of corporate social responsibility come to the business world, and most of the brand try to apply socially responsible activity in their strategy [26]. Several empirical evidences indicated that CSR can lead to the financial return in the long run [14] and can build the relation between strategy and market outcome [13] Today, there is a wide range of CSR definition both in businesses and in academic. The different companies have a different CSR defining. According to Bowen who was the father of CSR to define the meaning, “CSR is the obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society’’[3]. But presented definitions are companionable at a high level with many dimension of CSR such as corporate and social performance, public responsibility, stakeholder management, universal right and sustainable development [19]. Carroll has mentioned four kind of responsibility such as economical, legal, ethical and philanthropic responsibility [5]. However, this research focus on the research of Kambiz and Amanolla who measured that CSR was approached as a construct with five dimensions: obligation to employees, obligation to customers and markets, obligation to social programs and natural environment, obligation to laws and regulations and obligation to society and these dimensions correspond to the company liability to the different groups of stakeholders [12]. In this research, we would like to examine the consumers’ opinion toward operating brand with CSR by using the measurement scale from Kambiz and Amanolla [12].We posit that consumer will have a positive opinion toward the brand depending on the firm obligation dimension about the CSR. B. The relationship between consumer and their brand The American Marketing Association dictionary defined Brand as “a term; symbol or design intended to identify the goods or services of one seller and to differentiate them from those of competitors”. Ries and Trout considered the description and extended to critic that brand can be affected to create the distinct position in the customers’ psychological aspect, brand plays multiple roles in the consumer choice [22]. De Chermanatony and McDonald also defined the meaning of the successful brand as “identifiable product, service, person or place, augmented in such a way that the buyer or user perceives relevant, unique added values which match their needs most closely” [6]. In addition, the sustain value added also make the brand successful in the long run so all firms try to consider the creation and building the value of the brand from their available resource with the new concept and increase the positive relationship between customer and brand. Susan Fournier is the first person to demonstrate the developing relationship between the consumer and their brands and argued that the relationship between brand and consumer is available and the brand act as relationship partner by using the interpersonal relationship theory to explain this situation. The relationship meaning consists of three dimensions – the psychological, the sociocultural, and the relational [7]. Hinde argued that the relationship have to concerned reciprocal exchange between consumer and brand, the relationship have a purpose, the relationship have a wide range of dimension of benefit, and the relationship is flexible depend on the environmental context [10]. Thus, Fournier indicated the brand quality model that consists of seven dimensions Quality of the Partner, Love, intimacy, connection to the self concept, Nostalgic Attachment, Personal commitment and Passionate attachment [7]. In this research, we would like to study the consumers’ opinion toward the relationship between operating brand with CSR and consumer by using the measurement scale from Susan Fournier [7]. Nevin summarized that customer relationship has been used to reflect a range of concepts and perspectives [16]. Gronroos stats that “marketing is establish, maintain, and enhance relationships with customers and other partners, at a profit and mutual objectives” [8]. We posit that corporate social responsibility is one of the strategies to build the relationship between consumer and brand.

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C. Corporate Social Responsibilty and the relationship between the consumer and their brand Klein and Dawar stated that CSR plays an important role in brand and product evaluations and CSR has a ‘halo effect’ on consumer decision making [11]. Bhattacharya and Sen supposed that the strong relationship between consumer and company regularly derive from consumers’ identity with those companies, which support them satisfy one of their needs [2]. Nan and Heo noted that there is a positive relationship between consumer attitude and companies support cause related marketing activities [17][25]. Consumers have a tendency to consider that companies support cause related marketing is social responsibility [23]. Moreover, there is a positive relationship between consumers are willing to purchase the product from a company where supported cause related marketing [24]. Communities have increasingly the brand acceptance with a conditional as a result of environmental problem and social problem so societies have more expectation from brand and need more value added in brand. The value-added have a different level with a different person [27]. CSR is the one of value added in the brand that can build the relationship and response the consumer’s objective. However, there are many obligations of CSR that firm can operate such as obligation to employees, obligation to customers and markets, obligation to social programs and natural environment, obligation to laws and regulations and obligation to society. Thus, we would like to fill the gap by measuring the dimension of CSR that affecting the relationship between consumer and brand and the dimension of CSR that affecting the brand relationship. We posit that the corporate social responsibility and the consumer and be a positive relationship and fit as an fig.1 QUP

LOV OEM INT

OMC OEN

Corporate Social Responsibility (CSR)

Brand Relationships Quality

CSC

OLR NAT OSO PEC

PAT

Figure 1. Research Model.

3. RESEARCH METHODOLOGY A.

Methodological Considerations

In this research, we apply quantitative research and use the questionnaire as a tool for collecting the data. The respondents were consumer of brand with social responsibility. The statistic that we used in this research requires at least 20 samples per one latent so this research collects the data from 240 respondents but we would like to avoided any error so the final respondent was 400 by using the multi-stage sampling which is purposive sampling, snowball sampling, The data was analyzed by statistic descriptive with percentage, average and SD. (Malhotra 2010) and inferential statistic with the structural equation modeling [20] for examining the hypothesis. Moreover, the structural equation modeling examines the relationship between consumers and brand with CSR were concurrence with the empirical data

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Study Design

We used the secondary data as a major source for developing the questionnaire with 3 sections; the first section measured the consumer and brand relationship in that brand 5 Likert scale by using seven items that following by Fournier [7]. The third section assessed the perception of corporate social responsibility by adapting from previous research [9] and the last section contained demographic and other control variables. In order to evaluate the characteristic of the measures, we analyzed the reliability of the scales by means of Cronbach’s alpha with acceptable levels for reliability are 0.70 or above [1]. The result show alpha 0.735 so the reliability of the scales exceeds the recommended values. Then we measure validation via confirmatory-factor Analysis (CFA) and analyzed this model by using Lisrel model, which indicated a strong of fit. Therefore, it showed that the measurement have a good quality of reliability and validity then the descriptive statistics and inferential statistics, structural equation modeling was used.

4. FINDINGS As the 400 surveys were used in this study showed an effective response rate 100% then we have analyzed and interpreted the data into 4 sections as follows; First part, we used descriptive statistics to analyze the gender, age, status, education, occupation and income. The second part applied structural equation modeling The result revealed that there were 400 respondents and the majority of respondents were female 51.50%, aged range between 20-30 years at 63.50%, education bachelor degree at 60.50%, status single at 72.00%, occupation as officer at 68% and income more than 10,000 – 20,000 baht average per month. The study of consumers’ opinion toward operating brand with CSR demonstrated the most important in all dimensions. When study in each dimension, the result also showed the most important. The result show that the consumer’s opinion toward the brand with corporate social responsibility in all dimensions; obligation to employees, obligation to customers and markets, obligation to social programs and natural environment, obligation to laws and regulations and obligation to society with the average score (xˉ ) in each dimension 4.51, 4.75, 4.69, 4.45 and 4.35, respectively. Next, we examine the consumer’s opinion toward the relationship between them and brand found that the most respondent rated the score at moderate in all items except for the quality of partner item was rated at important. The result show that the consumer’s opinion toward the relationship between consumer and brand with corporate social responsibility in all dimensions; Quality of the Partner, Love, Intimacy, Connection to the self-concept, Personnel commitment, Nostalgic Attachment, and Passionate Attachment with the average score (xˉ ) in each dimension 3.49, 3.39, 3.08, 3.30, 3.01, 3.20 and 3.33,respectively. Moreover, the structural equation modeling examines the relationship between consumers and brand with CSR were concurrence with the empirical data at the acceptable criteria which indicated a strong degree of fit (X2 =34.59, df. =38, P=0.62) and confirmatory fit index (GFI=0.99, AGFI=0.97, CFI=1.00, RMSEA = 0.000). According to CSR activities, the obligation to employees has a relationship between consumer and brand (0.32). If we consider the obligation of CSR, the result found that the dimension affecting the CSR concept was obligation to society at very important (0.71), obligation to laws and regulations (0.49), obligation to customers and markets (0.47). If we consider the relationship between consumer and brand, the result show that nostalgic attachment has the effect toward the relationship (0.71), connection to the self-concept (0.48) and love (0.32), respectively.

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5. DISCUSSION AND CONCLUSION The aims of this research were to study consumers’ opinion toward operating brand with CSR and examine the causal relationship between consumers and brand with CSR then measure the goodness of fit with the empirical date. The methodology of this research was applied the quantitative research methods and used the questionnaire as a tool for data collecting by using multi-stage sampling and the data was analyzed by descriptive statistic and inferential statistic which is structural equation modeling (SEM). Fig. 2 the structural equation modeling examines the relationship between consumers and brand with CSR were concurrence with the empirical data at the acceptable criteria which indicated a strong degree of fit (X2 =34.59, df. =38, P=0.62) and confirmatory fit index (GFI=0.99, AGFI=0.97, CFI=1.00, RMSEA = 0.000) in the fig. 2.

Figure 2. The result of structural equation modeling examines the causal relationship between consumers and brand with corporate social responsibility (CSR). According to CSR activities, all dimensions have affecting toward the relationship between consumer and brand; the obligation to employees has a relationship between consumer and brand (0.32), the obligation to society has influence to the relationship between consumer and brand whereas the nostalgic attachment factor show the most impact toward the relationship between consumer and brand same as Klein and Dawar stated that CSR plays an important role in brand and product evaluations [29]. Consumers have a tendency to consider that companies support cause related marketing is social responsibility [30]. The result fit with the Toms shoe that has successful CSR activities as one part of their business and builds the relationship between consumer and brand. This research contributes the model of positive relationship between the dimension of CSR and the relationship of consumer and brand. It is beneficially for the corporate and brand manager to make a decision about CSR activities to build the relationship between their brand and consumer.

6. LIMITATION AND FUTURE RESEARCH This research measures the causal relationship between consumers and brand with corporate social responsibility (CSR) in quantitative method with 400 samples because of budget and time limited. It should be better to random the sample cover the whole country. In future research should be

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measured other related variable or used a different measurement scale about the corporate social responsibility and study more deeply about the level of relationship and type of relationship to help the brand manager to make a decision. Moreover, the future research should be used other methodology such as experiment method to confirm the result as the study 1, study 2 and study 3.

REFERENCES: [1] Bagozzi, R. and Y. Yi, “On the evaluation of structural equation models,” Journal of the Academy of Marketing Science 16 (1), 1998, pp.74-94J. U. Duncombe, “Infrared navigation—Part I: An assessment of feasibility,” IEEE Trans. Electron Devices, vol. ED-11, pp. 34-39, Jan. 1959. [2] Bhattacharya C.B. and Sankar Sen, “Consumer-Company Identification: A Framework for Understanding Consumers’ Relationships with Companies.” Journal of Marketing: April 2003,67(2), pp. 76-88. [3] Bowen, H. R.,Social Responsibilities of the Businessman, Harper & Row, New York, 1953, pp.6 [4] Carroll, A.B., Corporate social responsibility: Evolution of a definitional construct, Bus. Soc., 38(3): 268-295, 1999 [5] Carroll, B.A., The pyramid of corporate social responsibility: Toward the moral management of corporate stakeholders. Bus. Horiz., 34(4), pp. 39-48, 1991 [6] De Chernatony, L. & Mcdonald, M. Creating Powerful Brands: in Consumer, Service and Industrial Market, Oxford : Butterworth Heinemann, 1998:20 [7] Fournier, S., A Consumer-Brand Relationship Framework for Strategic Brand Management. Doctoral Dissertation, University of Florida, 1994 [8] Gronroos, C., “Relationship Approach to marketing in service contexts: The marketingaand organizational behavior interface, Journal of Business research, 20 (January), 1990a, pp.3-11 [9] Hanzaee, K. H., et al, “Corporate Social Responsibility (CSR): A Scale Development Study in Iran.” Research Journal of Applied Sciences, Engineering and Technology 6(9), 2013, pp. 1513-1522 [10] Hinde, Robert A, “ A suggested structure for a science of relationships,” Personal relationships, 2 March, 1995, pp. 1-15 [11] Jill Kleina and Niraj Dawar ,“Corporate social responsibility and consumers' attributions and brand evaluations in a product–harm crisis,” International Journal of Research in Marketing, 21( 3), September 2004, pp. 203–217 [12] Kambiz Heidarzadeh Hanzaee and Amanolla Rahpeima, “Corporate Social Responsibility (CSR): A Scale Development Study in Iran,” Journal of Applied Sciences, Engineering and Technology, 6(9), 2003, pp. 1513-1522 [13] Kotler, P. and Lee, N., Corporate social responsibility: Doing the most good for your cause, Hoboken, NJ:Wiley, 2005 [14] Lee Min-Dong Paul, “A review of the theories of corporate social responsibility: Its evolutionary path and the road ahead,” International Journal of Management Reviews, 10(1), 2008, pp. 5373, [15] McKinsey, “How Companies Manage Sustainability: Mckinsey Global Survey Results,” Accessed on March 31, 2010, available at https://www.mckinseyquarterly.com/. [16] Nevin, J. R.,“Relationship Marketing and Distribution Channels: Exploring Fundamental Issues”. Journal of the Academy Marketing Sciences, 23(Fall), 1995, pp.327-334.

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[17] Xiaoli Nan & Kwangjun Heo, “Consumer Responses to Corporate Social Responsibility (CSR) Initiatives: Examining the Role of Brand-Cause Fit in Cause-Related Marketing”, Journal of Advertising, 36(2), 2007, 63-74, DOI: 10.2753/ JOA0091-3367360204 [18] Smith Smith, An Inquiry into the Nature und Causes of’the Wealth of Nations, Edinburgh: Adam and Charles Black, 1863. [19] Elisabet Garriga and Domenec Mele, “Corporate social responsibility Theories: Mapping the Territory”, Journal of Business Ethic, 53, pp.51-71, 2004 [20] Hair, J.F., Black, W.C., Babin, B.J. & Anderson, R.E., Multivariate Data Analysis. 7th. N.J.: Pearson Prentice Hall, 2010 [21] Malhotra K. Naresh, Marketing Research and an applied orientation sixth edition, N.J.: Pearson Prentice Hall, 2010 [22] Ries, A. & Trout, J., Posicionamiento: la batalla por su mente, McGraw-Hill, 1981 [23] Ross, John K., Larry T. Patterson, and Mary Ann Stutts, “Consumer Perceptions of Organizations That Use Cause-Related Marketing,” Journal of the Academy of Marketing Science, 20(1), 1992, pp.93–97. [24] Smith, Scott M., and David S. Alcorn, “Cause Marketing: A New Direction in the Marketing of Social Responsibility,” Journal of Consumer Marketing, 8(3), 1991, pp. 19–34 [25] Webb, Deborah J., and Lois A. Mohr, “A Typology of Consumer Responses to Cause-Related Marketing: From Skeptics to Socially Concerned,” Journal of Public Policy and Marketing, 17 (2), 1998, pp.226–238. [26] Welford, R. and S. Frost, 2006. Corporate social responsibility in Asian supply chains.Corpor. Soc. Respons. Env. Manag., 13(3), pp. 166-176. [27] William B. Werther Jr. and David Chandler, “Strategic corporate social responsibility as global brand insurance,” Business Horizons, 48, 2005, pp.317—324

APPENDIX A ITEM SCALE Item Obligation to employee Obligation to market and customer Obligation to environmental Obligation to law and regulation Obligation to society Quality of the Partner LOVE Intimacy Connection to self-concept Nostalgic Attachment Personal Commitment Passionate Attachment

Label OEM OMC OEN OLR OSO QUP LOV INT CSC NAT PEC PAT

AUTHOR PROFILE: Kedwadee Sombultawee was born in July 9, 1982 in Thailand and from 2013 till now she is a Phd. Student in Business Administration at Thammasat University. She is holds a master degree in MSc.

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International management from the University of Exeter in United Kingdom (2004-2005) and graduated bachelor degree in major marketing, school of business faculty from Assumption University in Thailand 2000-2004). She has taught marketing subject at Silpakorn University of Thailand. Her current research focuses on the marketing strategy and brand strategy. She also interest in Advertising and corporate social responsibility.

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THE EUROSYSTEM’S MONETARY POLICY IN TIMES OF CRISIS – EMPIRICAL EVIDENCE FROM A VAR ANALYSIS Tobias Duemmler, Darmstadt University of Technology, Darmstadt, Germany dx.doi.org/10.18374/JIBE-16-2.2

ABSTRACT After the Lehman crisis in 2008 and to react to the sovereign debt crisis in the EU, the Eurosystem has implemented non-standard monetary policy measures. Before 2008, the price level was controlled with the interest rate. After 2008, the ESCB conducted asset purchase programmes to steer the inflation rate and the overall economic situation. We use Vector Autoregressive (VAR) models to illustrate that the interest rate lost its role as the primary instrument and that the non-standard measures gained importance after 2008. We also show that these new instruments are operating as intended with regard to the objectives of the ESCB. Keywords: Monetary transmission, Eurosystem, VAR

1. INTRODUCTION Before 2008, open market operations played the most important role in steering the inflation rate. But in times of the Zero Lower Bound and Forward Guidance the non-standard monetary policy measures gain more and more importance also for the monetary transmission process. This paper analyses the effect of this change in the application of policy instruments using an empirical approach. A sound knowledge of the interdependencies between monetary policy measures and their effects on the economy is crucial for monetary policy. The use of asset purchases programmes as a monetary policy instrument was an innovation born out of necessity in times of crisis (ECB 2011, 2012). It was not clear if these new instruments will work as intended. According to Article 127 of the Treaty on the functioning of the EU the primary objective of the European System of Central Banks (ESCB) is to maintain price stability. Without prejudice to the objective of price stability, the ESCB supports the general economic policies in the EU – or, in other words, supports the economic growth. To fulfil its mandate, the operational framework of the Eurosystem consists of a set of monetary policy instruments: open market operations, standing facilities and minimum reserve requirements for credit institutions. After the Lehman crisis in 2008 and to react to the sovereign debt crisis in the EU, the Eurosystem has implemented several non-standard monetary policy measures, i.e. asset purchase programmes, to complement the regular operations. These programmes consists of covered bond purchase programmes, an asset-backed securities purchase programme and a public sector purchase programme. Nowadays, monthly purchases in public and private sector securities will amount to €60 billion. A large literature based on empirical data and using econometric models exists today (for example Borstel et al 2015, Darracq Paries et al 2014, Hristov et al 2014). We use well-known Vector Autoregressive (VAR) models following for example Weber et al (2009) to illustrate that the interest rate lost its role as the primary instrument after 2008. We show that non-standard measures played an important role after 2008. We also show that these new instruments are operating as intended with regard to the objectives of the ESCB. Vector Autoregressive (VAR) Models, introduced by Sims (1980), are chosen because they make it – to a certain extent – possible to ignore the uncertainties of the monetary transmission channels and to concentrate on the main results of monetary policy actions.

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The structure of the paper is as follows. In the next chapter the VAR models are specified. Chapter 3 follows with an impulse-response analysis. We compare first the effects of a unique and not anticipated rise in short-term interest rates on the economy before and after 2008. Second, we do the same with a unique and not anticipated extension of non-standard monetary policy measures (e.g. an additional asset purchase programme). Third, we analyse the overall effects of the instruments within the monetary transmission process, especially the important time delay until the visibility of the intended action.

2. MODEL SPECIFICATIONS We write the underlying VAR(μ) as with Yt as the vector of endogenous and Xt as a vector of exogenous variables. A and B are coefficient matrices. The VAR models are estimated using monthly data. The sample period is either 01.1999 to 06.2008 or 07.2008 to 08.2015. The selection of variables included in the VAR models is done referring to Peersman and Smets (2003) and Mojon and Peersman (2003). In our model we include GDP, consumer prices, the monetary policy instrument and a real effective exchange rate as endogenous variables. GDP on a monthly basis is interpolated from quarterly data using industrial production as a proxy. As exogenous variables, we include US interest rates (to account for the influence of the US economy, see e.g. Eickmeier et al 2011). As proposed by, for example, Sims (1992), a commodity price index is included to avoid puzzles. The monetary policy instrument variable is for our first model a 3-month-money market interest rate. In the second model we additionally include a measure for the monetary policy instruments used after 2008. We therefore use total assets of the consolidated balance sheet of the central banks in the Euro area as a proxy for these instruments because the ESCB’s non-standard monetary policy measures have a direct impact on the size of the balance sheet. We follow the conventional way of choosing the lag order μ by fitting unrestricted VAR (μ) models in levels for the set of lag orders μ = 1 to 8. The estimator selected is of the order μ, which minimises standard information criteria HQ, following Hannan and Quinn (1979). The economies are modelled using 1 lag. We identify the monetary policy shock using a Cholesky decomposition, which follows from ordering of variables as listed above.

3. EMPIRICAL ANALYSES Using the estimated VAR models we show the effect of a single monetary policy shock hitting the economy. The effects of the key variables are expressed in impulse-responses. These impulseresponses deliver evidence about the monetary transmission in the Euro area. Our impulse-responses obtained for the Eurosystem show that before 2008 (see Figure 1) the responses of GDP, the inflation rate and the exchange rate to an interest rate shock are significant and fully in line with stylised facts specified by Christiano et al (1997). The model’s results show that the standard monetary policy measures had importance for the monetary transmission process and worked as intended. The impulse-responses estimated for the period 2008 to 2015 (see Figure 2) especially of the inflation rate (the core objective of the ESCB) are less or not significant. This empirical result shows clearly that the interest rate lost its role for steering the inflation rate after 2008.

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FIGURE 1: EFFECTS OF AN INTEREST RATE SHOCK BEFORE 2008 (MODEL 1) Response to Cholesky One S.D. Innov ations ± 2 S.E. Response of GDP to an interest rate shock

Response of the inflation rate to an interest rate shock

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FIGURE 2: EFFECTS OF AN INTEREST RATE SHOCK AFTER 2008 (MODEL 1) Response to Cholesky One S.D. Innov ations ± 2 S.E. Response of GDP to an interest rate shock

Response of the inflation rate to an interest rate shock

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Regarding the effects to a balance sheet shock (see Figure 3), i.e. an extension of non-standard monetary policy measures like a purchase programme, we do not obtain significant responses before 2008. This comes as no surprise because these instruments are not used before 2008. Our impulse-responses plotted in Figure 4 show that after 2008 the responses of the inflation rate, the interest rate, and the exchange rate to a balance sheet shock are significant and in line with theory and intuition. Quantitative easing leads to a decline in money market interest rates. Price reactions are consistent by exhibiting a significant increase. This is also true for the response of the exchange rate. Only the reaction of the GDP is not significant. We think that the general economic crisis with high negative GDP growth rates in the majority of European countries during that period leads to these insignificant results and should not be over interpreted in this context. This empirical result shows that the non-standard monetary policy measures have today importance for the monetary transmission process. The impulse response of the inflation rate show that the new nonstandard instruments are operating as intended: The Eurosystem is able to steer the inflation rate using the asset purchase programmes.

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FIGURE 3: EFFECTS OF A BALANCE SHEET SHOCK BEFORE 2008 (MODEL 2) Response to Cholesky One S.D. Innovations ± 2 S.E. Response of G DP to a balance sheet shock

Response of the inflation rate to a balance sheet shock

Response of the interest rate to a balance sheet shock

.0002 .00025 .0000

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FIGURE 4: EFFECTS OF A BALANCE SHEET SHOCK AFTER 2008 (MODEL 2) Response to Cholesky One S.D. Innovations ± 2 S.E. Response of GDP to a balance sheet shock

Response of the inflation rate to a balance sheet shock .003

Response of the interest rate to a balance sheet shock

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4. CONCLUSIONS Empirical data confirm that after 2008 the monetary policy instruments used by the ESCB changed. Before 2008, the price level was controlled via the interest rate. After 2008, the ESCB conducted asset purchase programmes to steer the inflation rate and the overall economic situation. Our analyses confirm that these new instruments work as intended. The impulse-responses obtained are consistent with theory and intuition. The time delays after an ESCB’s intervention of both instruments – interest rate and purchase programme – are comparable. The impact on the price level reaches its peak after 10 to 20 months. The exchange rate reacts as expected. Due to the insignificant response a clear statement with regard to GDP is not possible.

REFERENCES: Christiano, L., Eichenbaum, M. and Evans, C., “Sticky price and limited participation models: a comparison”, European Economic Review, Vol. 41, pp.1201–1249, 1997. Borstel, J., Eickmeier, S. and Krippner, L., “The interest rate pass-through in the euro area during the sovereign debt crisis”, Deutsche Bundesbank Discussion Paper No 10/2015. Darracq Paries, M, Moccero, D., Krylova, E. and Marchini, C., “The retail bank interest rate pass-through the case of the euro are during the financial and sovereign debt crisis”, ECB Occasional Paper series No 155, 2014. ECB, “The ECB’s non-standard measures – impact and phasing-out”, Monthly Bulletin, July, 2011. ECB, “Introductory statement”, 2 August 2012. Eickmeier, S., Lemke, W. and Marcellino, M., “The changing international transmission of financial shocks: evidence from a classical time-varying FAVAR”, Bundesbank Discussion Paper Series 1: Economic Studies No 05, 2011. Hannan, E.J. and Quinn, B.G., “The determination of the order of an autoregression”, Journal of the Royal Statistical Society, Vol. 41, pp.190–196, 1979. Hristiov, N., Huelsewig, O. and Wollmershaeuser, T., “The interest rate pass-through in the Euro area during the global financial crisis”, Journal of Banking and Finance, 48, pp. 104-119, 2014. Mojon, B. and Peersman, G., “A VAR description of the effects of monetary policy in the individual countries of the euro area”. Angeloni/Kashyap/Mojon: Monetary Policy Transmission in the Euro Area, Cambridge University Press, Cambridge, pp.56–74, 2003. Peersman, G. and Smets, F., “The monetary transmission mechanism in the euro area: more evidence from VAR analysis”. Angeloni/Kashyap/Mojon: Monetary Policy Transmission in the Euro Area, Cambridge University Press, Cambridge, pp.36–55, 2003. Sims, C.A., “Macroeconomics and reality”, Econometrica, Vol. 48, pp.1–48, 1980. Sims, C.A., “Interpreting the macroeconomic time series facts: the effects of monetary policy”, European Economic Review, Vol. 43, pp.813–823, 1992. Weber, A. A., Gerke, R. and Worms, A., “Has the monetary transmission process in the euro are changed? Evidence based on VAR estimates”, BIS Working Papers No 276, 2009.

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AUTHOR PROFILES: Tobias Duemmler studied Business Administration at the University of Applied Sciences of the Deutsche Bundesbank and Economics at the Goethe University, Frankfurt/Main. Currently, he is a doctoral student at the Darmstadt University of Technology, Germany. The views expressed in this paper are those of the authors alone. Any remaining shortcomings are entirely the responsibility of the authors.

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FOOD SECURITY AND NUTRITION IMPACTS OF SMALLHOLDER FARMERS’ PARTICIPATION IN DAIRY VALUE CHAIN IN ETHIOPIA Elias Abiyou Geday, MOISA, Sup-Agro Montpellier, France Tolossa Degefa, CDS, Addis Ababa University, Ethiopia Padilla Martine, CIHEAM Montpellier, France Montaigne Etienne, MOISA, Sup-Agro Montpellier, France dx.doi.org/10.18374/JIBE-16-2.3

ABSTRACT While linking smallholder farmer to dairy value chain industry has identified as a potential pathway to get out of poverty trap by raising incomes and by increasing the availability of nutrient-dense foods in Ethiopia, much less is known about the poverty implication of smallholder participation in dairy value chain. We assess nutrition impacts of smallholder farmers’ participation in the formal milk value chain with cross sectional survey data from Ethiopia. To assess smallholder farmer households’ food and nutrition security outcomes, we employed multiple food access measurements such as per capita dietary energy intake, food consumption score, and household income. We use propensity score matching model to analyze impact pathways. The results show that as compared to households without participation, households with participation have higher dietary energy intake, dietary diversity, and household income. However, there is a negative association between participation in the milk value chain and level of milk consumption. We find that smallholder farmer participation in milk value chain has a positive significant effect on food sufficiency, dietary diversity and income. This study, therefore, confirms the potential role of smallholder farmers’ participation in agri-food value chain to get out of poverty trap through improving rural household income, food security and nutrition. Keywords: food security, impacts, milk value chain, nutrition, smallholder farmer.

1. INTRODUCTION: Food insecurity and poverty remain significant problems for many sub Sahara African smallholder farmers (Issues 2014;Graef et al. 2014.). Due to subsistence production, still smallholder rural farmers are facing with the problems of food insecurity and malnutrition. Addressing the challenges of transforming smallholder farmer in to market oriented production system is therefore an important priority development agenda if the food insecurity issue is needed to be addressed in sub Saharan African countries (Silvia et al. 2015). Empirical studies and development programs shows that inclusive agri-food value chain (Here agri-food value chain defined as a process involves different functions and value additions that range from input supply and production to marketing of food products to the final consumer (Swinnen 2014; Nangole et al. 2011; UNIDI, 2009).) approach identifies as a promising pathway to address poverty and hunger in sub Sahara Africa (Wonder 2014;Mungandi et al. 2012; Kadigi et al. 2013;Issues 2014). Studies of the welfare effect of value chain for example shows that it has a significant positive effect in improving welfare status of smallholder household through increasing their income and employment opportunity (Asfaw et al. 2012; Tirkaso 2013). It has also positive effect on food and nutritional status of producers who have participated in the value chain market (Asfaw et. al., 2012 and 2004; Nangole et al., 2010). For instance, (Chege et al. 2015) used FCS to measure nutrition impacts of participation in value chain through supermarket in Kenya. The study found that participation in formal value market channel has a significant positive impact on calorie intake. The study by (Miyata et al. 2009) on the other hand, used income as an

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outcome variable to evaluate the impact of smallholder integration in to agricultural value chain through contract farming. The study shows that contract farming increases the income of participating farmers. It therefore understanding of how to link smallholder farmers to the formal value chain sustainably and how to promote their competency in the value chain are still a development and research agenda in developing countries. Similarly, studies show inclusive dairy value chain development in country like Ethiopia is likely to contribute to multiple welfare gains for rural community such as: source of income and employment; improving household food security and nutrition; enhancing production and marketing of agricultural food products. (Makoni et al. 2013 ; Ahmed et al. 2003 ; Ahmed et al. 2004). While linking smallholder farmer to formal dairy value chain identifies as a potential pathway to get out of poverty trap by raising incomes and by increasing food availability in Ethiopia, much less is known about the poverty implication of smallholder participation in dairy value chain. Moreover, there is a dearth of empirical studies that have analyzed food security and nutritional impacts of dairy value chain participation using multiple household food access measurements. Here, we address this research gap using detailed farm households’ survey data. In exploring on the linkage between dairy value chain and food security and nutrition, we focused on smallholder mixed croplivestock farming system of Ethiopian highlands. Ethiopia, particularly the highland mixed crop-livestock production system area is an interesting example because the area is known by its cattle friendly agro climatic condition as well as it is the largest (68%) milk source of the country comes from this area. We focus on smallholder because the largest (95%) share of the country’s milk supply comes from the smallholder farmers. The highland mixed crop-livestock area, therefore have huge untapped potentials for inclusive dairy value chain development in Ethiopia (Ahmed et al. 2004). To enhance the role of dairy subsector for rural development and food security in Ethiopia, there is a need to understand how to integrate in to formal dairy value chain and the integration impact on poverty reduction and food security. We therefore analyze nutrition impacts of smallholder farmers’ participation in the formal milk value chain in Ethiopia. Based on food consumption survey data, we compare nutritional status between rural smallholder farm households with and without participation in the formal milk value chain. Using propensity score matching (PSM) model, we also analyze impact pathways using food access outcomes measurements that comprises: incomes, per capita calorie intake, and dietary diversity score at household level. In addition, level of milk consumption used as nutrition outcome variable. We hypothesize that smallholder farmer participation in formal milk value chain has a significant positive impact on nutritional status improvement of farm households directly through increasing milk consumption due to surplus production. Moreover, participation in the formal milk value chain is high likely to improve nutritional status of smallholder producer households indirectly through higher calorie intake and consumption of better diversified food due to income effect from milk sales. In the next section, we present the research methods with the study area. Follow with a descriptive analysis of covariates and outcome variables of participated households as compare to non-participated households. In a separate section, we present conceptual framework and empirical model specification of the study. Then, we present the result and discussion of propensity score matching analysis on the impact pathways of milk value chain participation. Finally, we present conclusion with policy implications of the study.

2. METHODS: 2.1 The study area This participatory research focused on two districts Bahidar zuriya and Kimbit from a mixed crop-livestock farming system of Ahmara and Oromiya regional states of Ethiopia respectively. These two learning sites

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encompass a wide diversity of crops (cereals, and legumes) and livestock holdings (cattle and small ruminants). Crop farming is a dominant agricultural activity in a mixed crop-farming agro ecological zones of the study areas. There are large variations in existing levels of livestock and crop diversification and intensification, as well as level of crop-livestock integration underpinned by factors driving intensification such as agricultural potential, access to available technologies, farmer typologies, demand for livestock products, and integration with markets across the two study areas. Livestock represent the most important livelihood resources in the study area in a number of ways; as a source of draught power, as a means to accumulate capital, as sources of food, as sources of income (through rental), as a buffer in times of stress and as a sign of social status. Kimibit district is found in the northwest part of oromia regional state of Ethiopia and is located geographically about 80 KMs northwest of Addis Ababa, the capital city of Ethiopia. Agro-ecologically, the district is generally classified as a highly most (highland). On the other hand, Bahirdar zuria district is found in west Gojam Zone of the Amhara national regional state in northwestern Ethiopia. The district characterized agro-ecologically as moist and semi-humid. (CSA, 2013). Therefore, the two districts that situated in different agro ecological zones were viable areas for this empirical study. 2.2 Farm Household Survey: A farm household level survey was carried out in the major milk producer areas of Kimbibit and BahirDarZuira districts of Ethiopia during September to January, 2013/2014. We chose the two districts (woredas) because of its considerable potential area for dairy value chain development and they are in highland mixed crop-livestock production system area. Our sample consists of 333 farm households which were selected by a two-stage random sampling techniques. First, with the help of the districts agricultural offices, 8 milk shades study sites also called rural kebelles were selected purposefully from the two districts. Then a list of farm households with at least one milking cow was prepared with the help of development agent from each of selected rural kebelles. Finally 333 farm sample households were randomly drawn from a complete list of respective selected kebelles in conformity to proportionate to size random sampling procedure. Accordingly 163 farm households were drawn from Kimbibit woreda and the rest, 170 farm households were drawn from Bahirdar-zuira districts. The survey questionnaire data from the sample households was collected through a face to face interview with the wife and the head of selected households. Of the 333 total sampled households, the largest number, 235 or 71 % were not participated in the formal milk value chain; whereas, 98 or 29 % of farmers were participated in formal milk value chain. The data collected include general household demographic and socio-economic characteristics, dairy production and marketing activities, incomes and income sources and food consumption status (see below for details). It is therefore, we used the participated households (n=98) as treatment group and non-participated households (n=235) as control group to analyze the impact pathways of participation in the formal milk value chain. 2.3 Outcome variables measurement approach: Food access, is one dimension of food security measurement, define as the household economic and physical access to nutritious food for active life (Roberto et al. 2014; Capone et al. 2014)). To analyze the food and nutrition impacts of smallholder participation in the formal milk value chain, we used household annual income, daily per capita caloric intake and household dietary diversity score as outcome variables to measure food access at household level. These outcomes are the most common food access measurement approaches at household level, and which have also been used for impact assessment in a few studies (Abadi et al., 2013; Abebaw et al. 2013; Adewumi et al., 2013; Babatunde et al., 2010; Gómez et al., 2013; Sharma et al., 2013; Årethun 2012). We also used level of milk consumed in the sampled household as additional outcome variable to analyze the nutritional impact of participation in the milk value chain. Below we discuss the measurement approaches used in this study in detail.

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I. Annual household income: Annual household income data collected from the sampled farm households through asking to recall the incomes earned within one year before the survey. The household income here defined as is the sum of farm, non-farm and off-farm incomes as well as remittance income. The farm income here refer to the households own agricultural production outputs consumed and sold out that comprises crop, fruit and vegetables, cash crop and livestock and livestock products. We would expect incomes from milk sales lead to increase the total household income and then increase the households’ food access capacity. Limitation of data quality is always an issue in a recall survey with longest period like here in our case one year recall income survey. In order to minimize such data quality problem, we asked respondents to recall the farm income and off farm incomes based on the different harvesting seasons of the farm business transaction within one production year and then calculate the total annual farm income. With regard to non-farm and remittance incomes, we asked respondents to recall incomes in a quarterly base of the year prior to the survey. Various studies (Ahmed et al. 2003; Rich et al. 2011; Chege et al. 2015; Barrett et al., 2012; Marani 2012; Miyata et al. 2009) used income as an outcome variable to evaluate the impact pathway of agriculture. II. Daily per-capita calorie or dietary energy intake Calorie intakes is one of a commonly use food security indicators that measure food access in terms of quantity of food energy consumed at household level (Abadi et al. 2013; Adewumi et al., 2013; Ahmed et al. 2003). Household Food Balance Model (HFBM) was utilized to quantify the available food for the households and determine per capita kcal consumed per annum in the household. Conversion factor was utilized in order to convert grains available into kilocalorie. The HFBM is a modified form of the Regional Food Balance Model (Degefa, 1996; 2002). We use cereals based calorie intake because cereal is the major staple food and largest sources of food energy (accounts 60% of calories) for the rural people in the most Ethiopian highlands (Hirvonen et al. 2015; Francesconi et al., 2007; Gebrehiwot et al., 2015). We therefore used cereals consumed within one year in the sampled households to measure the food security status or calorie intake status at household level. To this end, details in kilograms of the staples cereals food that study households produced, used for seeding, wasted and sold out as well as cereals the households consumed from own production, purchased, transferred, and granted inform of gifts were collected within one year period (2013/2014) before the survey. And then, net cereals food consumed at the household level calculated through subtracting the total amount of cereals comes out from the total amount of cereals comes in the household during one year prior to the survey. Here taking one year food consumption recall survey has both advantage and limitation on the data quality. It is an advantage because it solved the data quality problems due to seasonal consumption differences through collecting the all season’s food consumed in the recall survey. On the other hand, it has also limitation on the data quality when respondents asked to recall the amount of food consumed in the household with longest period, one year. Hence our food consumption recall survey was solely based on the main cereals based staples food as well as it was based on the cereals harvesting seasons farm transactions, it was not that much significant problem to recall respondents on the cereals food consumed in the household. Moreover, the respondents were the wife or female adult, who is responsible in preparing food to the household, with the head of the family. To calculate per capita calorie consumption levels, first converted the total cereals consumed at household to calorie levels using standard food composition tables for Ethiopia foods (Degefa, 1996; 2002). The total amount of these cereal based calorie intake for each household was then divided by the household adult per unit size (AE) to obtain daily per capita caloric intake from the cereals. In these calculations, it is assumed that food within the household is distributed according to individual active adult calorie requirement (Degefa, 1996; 2002). To determine calorie intake or food security status, we compared calorie amounts consumed with the standard levels of requirements. That is, a daily intake of 2200 calories (kcal) is recommended for Ethiopian a moderately active male adult (Degefa, 1996; 2002); Beyene 2014). We defined therefore a food secure household as one whose calorie supply per AE was greater than or equal the minimum daily calorie requirement for adult male of 2200 kcal (Degefa, 1996; 2002). Households whose daily calorie intakes were lower than

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2200 kca therefore defined food insecure or undernourished households. Based on the local standard food composition table (Degefa, 1996; 2002); Beyene 2014); we also used a thresholds category to compare food security status between households with and without participation in the formal milk value chain. Accordingly, the food secured households were those households whose per-capita calorie intakes is greater than or equal 2200kcal; moderately food insecure households comprises households whose per-capita calorie intakes was between 2200 and 1650 kcal and; households with below 1650 per-capita calorie intakes categorized as extremely food insecure households( Beyene 2014). III. The Food Consumption Score (FCS): The Food Consumption Score (FCS) is a food frequency measure developed by the World Food Programme (WFP) to measure nutrition or dietary diversity consumed at household level (WFP, 2009; FANTA 2006, FAO, 2010; Note & Edition 2015). Based on FANTA FCS guideline, we included a seven day food consumption recall in the survey for measuring FCS of the household. To this end, first we collected the number of food variety (out of 8 possible food groups) that any household member has consumed over the previous 7 days with its frequency. Then, we multiplied by the number of days that the food group was consumed, weighted by the nutritional importance of the food group, for a total possible score ranging from 0 to 112 FFS. Only foods consumed in the home were counted in this indicator. Broad food groups and associated FCS weights were: main staples -weighted at 2, pulses - weighted at 3, vegetables - weighted at 1, fruit - weighted at 1, meat and fish - weighted at 4, milk - weighted at 4, sugar - weighted at 0.5, and oil - weighted at 0.5. (Condiments can also be captured but are weighted at 0). The FCS score was constructed so that a higher diet diversity score implies that the household consumed a better nutrition in terms of better diet diversity. Based on the consideration that the sampled households consumed oil and sugar regularly, thresholds were imposed on the continuous score to differentiate the households into one of three categories: acceptable diet diversity status (> 42), borderline diet diversity status (28–42), and poor diet diversity status (< 28) (WFP, 2008; IFPRI 2006, Coates et al. 2013; IFPRI 2006). Various studies (Abebaw et al. 2010; Maxwell et al. 2013; Adewumi et.al., 2013;Tiwari et al. 2013; Nkhata et al. 2014; Cintron et al. 2013 ; Sharma et al., 2013; Kabunga et al. 2014) use FCS as nutrition outcome variables. IV. Level of milk consumption Milk is a source of a highly nutrition-dense food for people of all age groups and particularly for infants and lactating mothers thus reducing the problem of malnutrition among rural households in Ethiopia (Ahmed et al. 2003; Hoddinott et al. 2015). However, because of subsistence production system both milk production and consumption is very low in rural areas (Ahmed et al. 2003). Moreover, milk consumption status in Ethiopia is the lowest (17 litter per capita per year) in the world, even low in sub Saharan Africa (Francesconi et al., 2007; Steen et al., 2014; Yilma et al. 2011). A transition to market oriented production due to integrating in to formal value chain is a pathway to improve milk productivity and then milk consumption at producer household level (Tegegne et al. 2013; Gebremedhin et al., 2008). To analyze the nutritional impact of smallholders’ participation in the formal value chain, therefore we used the weekly level of milk consumed from own production of the sampled households (participated households as treatment group and non-participated as control group). We hypothesis that households with participation are high likely to be better off in milk consumption than without participation in the formal value chain.

3. DESCRIPTIVE ANALYSIS A T-test analysis on both covariates and nutritional outcomes variables was performed between participants and non-participants of the formal milk value chain. Our result shows except age of the household head, there was a significance difference in the all covariates mean values between households with and without participation in the formal milk value chain (see table 2). Participated

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households in the sample were significantly higher in education, using cross breed cows in their dairying, investing more on concentrate feeds and milk yield quantity than non-participated households as shown in table 2. Moreover, with regard to distance to milk market or milk collection center, there was a significance difference between households with and without participation. The participated households had significantly better by nearly 85 minutes than non-participated households to access milk outlet market. Table 1 shows important nutritional outcome variables, differentiating between households with and without participation in the formal milk value chain. The result shows there were a significance differences in the mean values of the outcome variables of milk consumption, farm income, food consumption score and per-capita calorie intake between the sampled households with and without participation in the forma milk value chain. The average weekly milk consumption of the participated households (0.7 liter) was significantly lower than the households without participation (4.5 liter). On the other hand, the average household annual incomes and food consumption score of the participated households are 48217 birr and 69 respectively and, significantly higher than non-participated households(22239 birr and 35 respectively). Likewise, the average per-capita calorie intake was significantly higher among households with participation than without. Another way of looking at the latter two outcomes is shown in appendix Table A, where households are categorized into thresholds using per-capita calorie intake with food-secure, moderately food insecure and extremely food-insecure households. Similarly, using FFS-dietary quality thresholds we categorized households with acceptable, boarder line and poor dietary quality households. The result in appendix Table A, shows number of foodsecure households was higher among participated households (90), while the number of moderately and extremely food-insecure households was higher among non-participated (99 and 79 respectively). Similarly, with regard to diet diversity score, the number of households with acceptable status was higher in the participated households (55). Whereas, the number of household with poor and borderline diet diversity scores were larger with non-participated households. However, based on these comparisons alone we cannot conclude that participation in the formal milk value chain causally improves food security and nutrition. This are discussed in the next section where we used these variables of income and nutrition indices as dependent outcome variables in matching model to analyze the impact pathways. TABLE 1: T-TEST RESULT ON OUTCOME VARIABLES OF THE STUDY Outcome Variables Mean Participants Mean Non-Participants Differences Weekly Milk consumption .6571429 4.479787 -3.822644*** Annal HH income (Birr) 48216.55 22239.2 25977.35*** Food consumption score 67.91837 34.68511 33.23326*** Per-capita calorie intake per day 2921.626 1948.148 973.4781*** Source: Survey2013/2014; *** significance at 1% level.

4. ANALYSIS OF THE IMPACTS PATHWAYS 4.1. A Conceptual framework There is strong linkage between agriculture and nutrition whereby agriculture plays a significant role in improving nutrition and livelihood of the rural community in developing countries (Kumar et al., 2011). Empirical studies shows agri-food value chain can facilitate moving along the agriculture to nutrition impact pathways up to the point to which households have diverse foods on individual plates, through increased production and income, improved storage and improved joint household decision making. In general, the following two impact pathways that dairy value chain can affect nutrition at the farm household level (Ahmed et al. 2003; Lie et al. 2012; Esenaliev et al., 2013; Asfaw et al. 2012). The first pathway is a positive impact of food production that it can affect directly in improving food consumption through increasing food availability from own production at household level. The second is an indirect income impact that it can affect access to nutritious food at household level. To analyze the impacts of smallholder participation in formal milk vale chain on farm household nutrition, we used the two

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conceptual pathways (food production and income) between dairy value chain and nutrition linkage. Based on empirical literatures, we hypothesize that nutrition impacts of milk value chain participation may mainly occur through two closely related pathways, as shown in Figure 1. The first direct pathway may be through affecting production orientation or farming system choices at the farm level and thus changes in the availability of home-produced nutrient dense food, milk. Previous studies shows that smallholder choice on market oriented production is often associated with on-farm specialization and then surplus production (Kumar et al. 2011; Kaganzi et al. 2009; Ahmed et al. 2003; Asfaw et al. 2012;Tirkaso 2013). However, such market oriented transition choices influence household nutrition either in positive or negative directions will depend on the types of commodities that farmers produce. If farmers specialize on cash crops with no or low nutritional value (such as tea, coffee ant etc) dietary quality may not improve directly from cash crop production. Yet, in our case farmer who were participated as a seller in the formal milk value chain specialized in milk production due to the transition of farming system. This may lead to surplus milk production and then lead to more milk consumption at the household level and thus improved dietary quality. The second pathway is indirectly through increased household income due to more milk sales. As several studies shows that participation in formal milk market channels can cause significant income gains at dairy farm household level (Gómez et al., 2013;Chege et al. 2015; Anderson et al., 2015; Ahmed et al. 2003). Higher incomes therefore may improve the economic access to food, which may result in higher food expenditure and this in turn led to higher calorie consumption and better coping capacity with food shortage or hunger (Manson et al., 2014; Steen et al., 2014). Moreover, rising economic capacity of the farm household due to more milk sales may contribute to access better diversified diet at the household level (Ahmed et al. 2003).

Figure 1: The Impact Pathways Diagram Of Milk Value Chain Participation

Source: Authors own diagram

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4.2. Empirical strategies The PSM analysis was aimed at assessing nutrition impacts of formal milk value chain participation using average treatment effect on the treated (ATT) at dairy producer household level. The outcome variables we used to measure nutrition comprises were milk consumption as an direct impact as well as income, calorie intake and a seven day diet diversity score as indirect impact. ATT computes the average difference in outcomes of farm households with and without participation in the formal milk value chain: 𝐴𝑇𝑇 = 𝐸 (Y1𝑖 − Y0𝑖 |𝐷𝑖 = 1) = 𝐸 (Y1𝑖 |D𝑖 = 1) − 𝐸 (Y0𝑖 |D𝑖 = 1)…………………………………… (1) Where 𝐸 (∙) denotes an expectation operator, Y1𝑖 Y1𝑖i Y1𝑖ii Y1𝑖v were the outcome variables of milk consumption, annual household income, per-capita calorie intake and the seven day diet diversity score for a household with participation in the formal value chain (Participated) respectively. Y0𝑖 Y0𝑖i Y0𝑖ii Y0𝑖v were the outcome variables of milk consumption, annual household income, per-capita calorie intake and the seven day diet diversity score of the same household without participation in the formal milk value chain (non-participated), and D𝑖 is a treatment indicator equal to 1 (participated) if the household participated in the formal milk value chain and 0 (non-participated) otherwise. Since this study is a nonexperimental impact assessment research, presence of selection bias may affect the impact analysis results with bias result if such biases are minimized through following the proper impact analysis model. The selection bias could arise mainly from nonrandom location of the sampled households and nonrandom selection of participant households. There were two potential source of bias in our impact estimation analysis. The first one would be participant households may significantly differ from nonparticipants due to observable characteristics (such as education, age, distance to market, and technology adoption) that may have a direct effect on outcome of interest. The second source of bias would be the difference between the two household groups arises due to unobservable characteristics such as motivation, managerial skills, and risk preference, which may play an important role in decisions related to market participation and market channel choices ( Asfaw et al., 2012; Babatunde et al.,2010; Chege et al., 2015; Bahta et al., 2007) We therefore used the PSM analysis and then minimized the biases of households’ relevant observable characteristics by comparing the outcomes between treatment group (participant household) and control group (non-participant households). Empirically, this follows two stages: First, we generated propensity scores P (0.29) from a probit model, which essentially indicate the probability of a household participated in the formal milk value chain given observed characteristics, 𝑥𝑖 : Pr (𝐷𝑖 = 1|X𝑖) ≡ P(X𝑖) ……………………………………………………………………………… (2) It is upon this propensity score that a control group was constructed by matching. Participant without an appropriate match from the non-participant category were dropped from further analysis. In the second stage, we calculated the ATT of participation in the formal milk value chain on outcome variables, Y𝑖-iv, using matched observations of participants and non-participants as follows: 𝐴𝑇𝑇𝑝𝑠𝑚 = [Y1𝑖 |𝐷𝑖 = 1, P(X𝑖 )] − 𝐸[Y0𝑖 |𝐷𝑖 = 0, P(𝑥𝑖 )] ……………………………………………….(3) Among several matching methods commonly use in PSM model (Chege et al., 2015; Lee, 2008; Rosenbaum. et al., 1983), the nearest neighbor matching (NNM) and kernel-based matching (KBM) and Radius Matching (RM) methods were the matching methods that we used to estimate ATT impact pathways.

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We also controlled the estimated bias through checked in covariate balancing by comparing the pseudo-R2s before and after matching (Lee, 2008; Rosenbaum. et al., 1983). Since no systematic differences should appear in the distribution of covariates between both groups (Rosenbaum et al., 1983). 4.3. Empirical Impact estimation Result: In the previous section, we presented general overview of the nutritional status difference between households with and without participation in the formal milk value chain. An analysis of impact evaluation would not be complete without performing further econometric analyses to quantify the impact of value chain participation on nutrition. We next move on to discuss the results from the PSM model analysis. The propensity-score matching estimates analysis involves two steps. First, we employed the probit model to obtain the propensity score. The purpose was to maximize the predictive power of the model through reducing sample selection bias. Probit estimate was done on 8 covariates, which were found to generate best balance between the treated and control group (households with and without participation in milk value chain). The probit estimate of determinants of milk value chain participation was presented in the table 2 below. The results of binary probit model shows among covariates included in the model, technology adoption inform of using cross breed cow, investment cost inform of costs for concentrate feeds, amount of milk yield and distance to milk market or collection center were found significant factors determining smallholder participation in the formal milk value chain. Then, participated (treated group) and non-participated (control group) households were matched using Nearest Neighbor Matching (NNM), Kernel Based Matching (KBM) and Radius Based Matching (RBM) methods. To ensure maximum comparability of the two groups, the sample were restricted to the common support region, defined as the values of propensity scores where both treated and control cases can be found. As depicted in Appendix table B, before matching we found that significance covariance mean value difference between treatment group (participated) and control group (non-participated). While after matching the covariates mean difference were fairly reduced. Similarly, the imbalances between the treatment and control samples in terms of the propensity score had been more than 80% before matching as shown in Appendix table B and C. This bias was significantly reduced to a level of 43% after matching. These results clearly show that the matching procedure was able to balance the characteristics in the treated (participated households) and the matched comparison groups (non-participated households). We therefore used these results to estimate the impact of participation in the formal milk value chain among groups of households having similar observed characteristics. As a result we can compare food security and nutrition outcomes for treated (participant households) with those a comparison group (nonparticipant households) showing a common support. Among the three ATT matching methods we used to analyze the impact pathways, we found significant effect on all outcome variables that we used in this study was with radius matching methods.

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TABLE 2: PROBIT REGRESSION RESULT ON THE DETERMINANTS OF FORMAL MILK VALUE CHAIN PARTICIPATION WITH MEAN DIFFERNCE RESULT OF THE TWO SAMPLE GROUP

The Average Treatment Effect (ATT): 1. Direct impact pathway of participation in the formal milk value chain We hypothesized that smallholder farmer participation in the formal milk value chain has a significant direct impact pathway on nutritional status at producer household level. This can happen through transition in production orientation, from subsistence to market-oriented due to the integration in to the formal milk value chain. In market-oriented production whereby smallholder farmers are basically produced for market, farmer produces larger volume of milk than subsistence farmer. We found that the volume of milk produced in participated households were significantly higher than non-participated households. Our hypothesis was therefore due to more surplus milk production in participated households, milk consumption is significantly higher than non-participated household. As studies shows access to agricultural value chain study in Ethiopia has positive welfare and nutritional impacts on its own through the link between agricultural production and marketing (Ahmed et al. 2003; Asfaw et al. 2012). The direct positive nutritional impact of accessing value chain can happens through improving market access and reducing transaction costs on various agri-food outputs to both rural and urban community (FAO, 2013). Agri-food market access study in Ethiopia for example shows that improving market access to the remote rural community has a significant positive effect on nutrition through providing access to various nutritional outcomes foods in the local market (David et al., 2015). We however found a miss much result with our hypothesis that participation in formal milk value chain significantly affected milk consumption of the dairy producer households in negative way. The ATT results from table 3 below indicated that weekly milk consumption of participated households was lower but not significantly lower than non-participated households, which is (lowered by 0.07 litters ) and (lowered by 0.30 liters ) for nearest neighbor and kernel matching respectively. But, radius matching ATT result shows

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households with access to formal milk value chain consumed significantly lower milk ( lowered by 3.8 liters per week ) on average than their non-participants counterparts. This suggests that households without access to the formal milk value chain were better off in consuming more this (milk) nutrition rich food than households with access to formal milk value chain. There is one study that shows similar result on the negative relationship between market access and milk consumption (Hoddinolt et al., 2015). The study was aimed at the analysis of the nutritional impact of cow ownership on children in the rural community of four major regions of Ethiopia. The study found out that cow ownership has a significantly positive effect on reducing stunting levels through milk consumption among children aged 6 to 24 months. The study also found that milk consumption among children is lower in the village with market access than non-market access. This later result is similar with our result. The possible reasons for this result of our study may be related to production decision of the farm household. In the case of cereals or other staple foods, production and consumption decision are not separated in imperfect market environment of the rural community. Farmers produced first to satisfy the household food demand and then the surplus is marketed. According to our focus group discussion result, unlike cereals or staple food, animal sources of food like milk are consider cash crop in the study areas and use incomes from this source to solve their cash constraints for food and non food expenditures of the household. Most of the rural community depends on agriculture as their main source of income (Ahmed et al. 2003). It is therefore if they get access to dairy market particularly formal market, the likelihood of transition in to market-oriented production is high and then they marketed most of their milk output to solve their cash constraints (Barrett 2008; Stifel et al., 2015). The more surplus milk produced due to transition in to market-oriented production is the more incentive to sell than to consume milk in the study area. It is therefore there is a negative relationship between milk consumption and access to milk value chain. However, this result has limitation that intra household milk consumption impact analysis is not included in this study. Table 3: ATT estimated impact of participation in the milk value chain. Impact Indicators

Milk consumption

Annal HH income (Birr)

Food consumption score Per-capita calorie intake per day

ATT Matching Method KBM

ATT Participants

ATT Nonparticipants

Difference

tstatistics

.657692309

.712019343

-0.07

NNM

.657142858

.948979592

RBM

.657142858

4.48183761

KBM NNM RBM KBM NNM RBM KBM NNM RBM

41851.2692 48216.551 48216.551 69.3076923 67.9183673 67.9183673 2647.67757 2921.62621 2921.62621

36433.9279 35309.6939 22266.6838 61.0860553 56.0816327 34.6880342 2477.65616 2475.79035 1953.89608

.054327034 .291836734 3.82469475 5417.34138 12906.8571 25949.8673 8.22163697 11.8367347 33.2303332 170.021412 445.835853 967.730124

*,* and *** are significance at 1%, 5%, and 10% levels respectively. ATT-Average Treatment on Treated NNM -Nearest Neighbor Matching

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-0.40 -14.00** 0.56 2.64* 7.86* 0.55 0.79 21.80** 0.63 1.15* 3.58*

Source: Survey 2013/2014 MBM- Kernel Based Matching RBM-Radius- Based Matching


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2. Indirect impact pathway of milk value chain participation: We hypothesized that through its income effect, participation in the formal milk value chain can improve nutritional status of dairy producer households indirectly in terms of better off in calorie intake and dietary quality due to income effect from milk sales. Based on our estimated result, we therefore accepted the hypothesized indirect impact pathways. The upper part of Table 3 shows that smallholder participation in the formal milk value chain had a positive and significant effect on income, calorie intake and diet diversity consumption on participated households. When we examined the income impact of participation in the formal milk value chain between participated and non-participated households, we indeed found that the ATTs estimate was significantly higher for households with participation as compared to households without participation. The ATT results from table 3 above indicated that the total annual income of participated households was significantly higher by 12906, 5417 and 25949 birr than non-participated household with nearest neighbor, kernel and radius matching results respectively. This implies that participated households are better off in economic access to both quantity in terms of calorie and quality in terms of diet diversity than non-participated households. As explained above, if market is accessible to the rural community, milk is considered as cash crop that farmer produced mainly for sales. The higher the income level due to market oriented milk production, the higher the expenditure on food and non-food items (Ahmed et al. 2003; Asfaw et al. 2012) We therefore in this study confirmed this implication and hypothesis that households with participation in the milk value chain were significantly better off in calorie intake and diet diversity consumption as compare to the sampled households without participation (see table 3). The ATT estimate result indicated in the table 3 above that the differences on the mean values of calorie intakes and diet diversity scores between households with and without participation in the formal milk value chain were substantial. Accordingly, the differences on calorie intake and diet diversity consumption were 445, 170,967 kacl and 11, 8 and 33 FFS with nearest neighbor, kernel and radius matching methods respectively. In other words, we can say that households with participation are better off in terms of consumption of diversified diet and higher calorie as compared to households with no participation in the formal milk value chain. In short, participation in milk value chain had a significant positive impact on improving the nutritional status of smallholder dairy producers. However, this result has limitation that intra household nutrition impact analysis was not included in this study. Particularly, intra-household impact pathway is more important in country like Ethiopia where women’s play a leading role on both dairy production and marketing as well as on household food consumption behavior. Moreover, the study has limitation on using comprehensive nutrition outcome variables that in this study we used only two major nutrition outcome variables (dietary diversity and calorie intake). It is therefore there is a need further research on inter and intra household nutrition impacts of milk value chain participation using multiple nutrition measurement approach.

5. CONCLUSION Smallholder farmers’ integration into dairy value chains is considered as an important pathway to reduce poverty and address the recurrent food insecurity problems in Ethiopia. Nonetheless, there is generally a dearth of strong empirical evidence on the relationship between dairy value chain and nutrition in Ethiopia. Using household survey data from the two selected districts in the highlands of Ethiopia, this article analyses nutrition and food security impact of smallholder participation in the formal milk value

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chain. We use income, milk consumption, calorie intake and diet diversity consumption score to measure food security and nutrition impacts of participation in the milk value chain. The result shows that among the total 333 smallholder farm households, only 98 or 29% farm households participate in the formal milk value chain. The study finds that participation in the milk value chain has a significant positive impact via income on nutrition improvement through better calorie intake and diet diversity consumption. It is found that there is a significant positive relationship between access to the formal milk value chain and nutrition among the rural community in the study area. On the other hand, the study finds that access to milk value chain has a significant negative impact on the household milk consumption. Therefore, improving productivity and market access is not a sufficient condition in rural poor community to improve the consumption of nutrient-dense animal sources of food. Rather; in addition to improving access to the formal value chain, a comprehensive approach that can address the cash constraints as well as awareness issue to promote animal sources of food and other nutrition rich food consumption behavior has to be considered in the promotion of inclusive dairy value chain development. These results in general call for public and public-private partnership interventions that can improve the enabling environment for inclusive or pro-smallholder dairy value chain development so that to reduce poverty and food insecurity.

APPENDIX Table A: FOOD SECURITY AND FOOD CONSUMPTION SCORE CATEGORY OF THE SAMPLED HOUSEHOLDS WITH AND WITH PARTICIPATION IN MILK VALUE CHAIN Outcome variables Food security

Threshold category Food secure Moderately insecure Extremely Insecure Total

Participated HH 90 6 2 98

Non-participated HH 57 99 79 235

Total

18 40 55 98

80 136 4 235

98 176 59 333

Poor Borderline Acceptable Total Source: survey data 2013/2014 Food consumption

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147 105 81 333


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APPENDIX TABLE B. COVARIATE BALANCING INDICATORS BEFORE AND AFTER MATCHING Mean Variables HH Age Concentrate feed cost Daily milk yield Milk market dist

Before matched After matched Before matched After matched Before matched After matched Before matched After matched

Treated

Control

Mean %bias

45.99 2233.8 2862.4 1.4e+07 11.704 189.3 1190.2 1.8e+06

40.939 1699.7 3325.7 1.2e+07 6.1224 37.837 1249 1.6e+06

44.7 46.8 -24.9 10.1 107.2 88.2 -3.4 1.1

t-test t 4.17 4.52 -1.68 0.72 7.58 6.18 -0.90 1.05

V(T)/ V(C) p>t V(C) 0.000 0.000 0.094 0.475 0.000 0.000 0.369 0.294

5.01* 5.67* 4.80* 29.88* 148.46* 888.64* 14.30* 15.72*

APPENDIX TABLE C. PS BALANCING INDICATORS BEFORE AND AFTER MATCHING Before matching After Matching Mean standardized difference 43.3% (bias) Pseudo R2 0.83 0.60 X2P-value of LR 222.31*** 271.71 *** Significance at 1% level source: survey 2013/2014

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AUTHORS PROFILES: Geday A. Elias, Currently he is a final year PhD student in economies at Montpellier Sup-Agro, France Prof. Montaigne Etienne, Currently he is a professor of in economies innovation at Montpellier Sup-Agro, France Dr.Padilla Martine, Currently she is a associate professor of in political economies of food security at CIHEAM Montpellier, France Dr.Tolossa Degefa, Currently he is a associate professor of in food security and livelihoods at Addis Ababa University, Ethiopia

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THE SUCCESS FACTORS CAN AFFECTS THE EXPATRIATE IN MULTINATIONAL COMPANY (MNC) AT JAKARTA Mahiswaran Selvanathan, Segi University, Malaysia Ahmad Muzammir Bin Muhammad, Segi University, Malaysia Andrew Triliono Angir, Segi University, Malaysia Paul Anthony Maria Das, Segi University, Malaysia Tan Pei Jun, Segi University, Malaysia dx.doi.org/10.18374/JIBE-16-2.4

ABSTRACT Expatriate in the organisation is really important to expand the organisation business. Nowadays, many organisations use expatriate because expatriate can give a lot of benefits for the organisation. However, expatriate failure rate is quite high because it is caused by several factors. This paper will evaluate and identify the factors that influence the expatriate success. It will be focusing on training and selection process as the factor which is can affect the expatriate success. The result presented in this research has proposed two important independent variables (IV) which is training and selection process. The data has been presented in the form of frequency tables and the histogram chart. The data has been analysed to see whether it meets the objectives or not. The findings show that all objectives set has fully achieved. Last but not least, there are factors can affect the expatriate in MNC two of them are training and selection process. Keywords: expatriates, training, selection process, organisation, successful

1. INTRODUCTION Expatriate is someone who has chosen to work in a foreign country by their organisation. The successful of expatriate on their assignments can be affected with a lot of factors. Historically, the “expatriate failure rates are quite high” (Tung, 1981). During the posting phase, expatriates will take some time to adjust and it makes the expatriates either withdraw or return home early, exhibit poor behaviours, completing their assignment in a low state of efficiency (Forster, 2000). Those expatriates who fail to adjust, may reject local culture, resist localization efforts and have personal goals poorly aligned with organisational goals. Because of this, it will affect the expatriate successful on the assignments and also effect on the productivity in the overseas operation, problems with operational and client relations it may be inefficient (Mendenhall & Oddou, 1985). Expatriates also have an important role in the organisation. Since expatriate can give some benefits for the organisation and also the costs is expensive, the organisation should taking care their expatriate to make sure they can success on their overseas assignments because the expatriates failure is quite high so the organisation should support them to make sure they will not failed on the overseas assignment (Tung, 1987 and Dunbar, 1992). There are many failure cases of the expatriate on their overseas assignments. By using training organisation can minimize the failure of expatriate on their assignment. Other than that, selection process is also important thing before they choose their expatriate to go overseas. First of all, training is really important for the expatriate success on their overseas assignments. Since expatriates are considering investment for the organisation. There are a lot of costs for the expatriate such as preparatory cost (training and coursework), travel expenses, other compensation expenses. Most of the studies for examples from Brewster (1991) find that, while companies are frequently unsure about the value of training for expatriate assignments, the expatriates themselves tend

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to be more positive. This is not surprising since the expatriate being put into a new and not easy position, in an environment that they do not know, and with huge prospects of performance weighing on them. Failed or unsuccessful expatriate assignments may be avoided by using effective training for prepare their expatriate before their go for international assignments. Home country should prepare training for them before their go (Tung, 1987). Cross-cultural training something that need by this expatriates in adjusting their life (Brislin, Landis, and Brandt, 1983; Mendenhall, Dundar and Oddou, 1986; Tung, 1987). The successful of expatriate on global assignments is really influenced by an expatriate’s cross-cultural adjustment to the host country (Caligiuri, Phillips, Lazarova, Tarique, and Burgi, 2001; Kealey and Protheroe, 1996). Cross-cultural training has been effective at increasing job performance and cross-cultural skill development. According to Brewster and Pickard (1994); Kealey and Protheroe (1996) “cross-cultural training can be defined as any intervention designed to improve the skills and knowledge of expatriates and also to assist them work effectively in the unfamiliar host culture”. Based on Mendenhall and Oddou (1985) when the expatriates have the knowledge and understanding about the host countries norms and behaviour, cross-cultural will be able to facilitate. According to Tung (1981), language training involves teaching the expatriate to learn the business language of the host country. To become fluently it will take time about several months or years to attain but using this training method can be benefits for the expatriate. Lack of language skills has been identified as a main barrier to effective cross-cultural communication. This can help the expatriate for the abroad assignments it also can increase the chance of successful of expatriate. This research intends to achieve several objectives. The first objective is to identify training and selection process can affect expatriate successful while the second objective is to analyse the correlation between training and selection process on expatriate successful. Many of researches show that training and selection process can affect the expatriate successful on their overseas assignments. On the other hand, the outcome of this research will provide the insight of the training and selection process would affect the expatriate successful. The contribution of the research findings are help to reveal whether training and selection process are really affect the expatriate successful and to see whether training and selection process have a more impact on the expatriate performance. Besides that, the finding also will help to prove whether training and selection process have more affect on the expatriate performance. This is a quantitative research adopting a scene of social phenomenon in the workplace. There will be three independent variables such as training and selection process which will be put into focus in determining expatriate successful. The method of getting information will be from secondary data, such as online journals, online articles, previous research paper; to reveal whether the factors will affect the expatriates successful. The scope of this research is limited to some organisation at Jakarta perhaps the expatriate in the multinational company will face these all factors which is can affect their expatriate successful in the organisation. In this research, 100 sets of questionnaires and it will distribute to the organisation. These questionnaires will be distributed randomly to their expatriate employees in the organisation. However, there are some limitations of this research. The main limitation is based on the credibility of the feedbacks obtained through questionnaires because of the respondents may not answer the questions sincerely. Besides that, the limitation of this research is based on an area covered which is only in multinational company at Jakarta.

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2. LITERATURE REVIEW Training Anyone who will be working as an expatriate in a foreign country will definitely need to undergo training in order to able to understand and adapt to the host country’s norms and culture. Indonesia has such a diverse culture. Any expat would need some preparation in order to survive there. Cross cultural training targets to increase awareness between people where a one outline does not exist to encourage clear communication and improve relationships (Kwintessential.co.uk, 2014). It helps the expatriates understand the culture of the host country thus making them feel comfortable living there. Intercultural communication competence very important criteria in developing people mind set. People need to be trained in a more capable ways to make sure, they can deal with the complexity of new and diverse environmental. Cross-cultural training can be consider as the major issue in developing intercultural communication competence. Expatriates need to develop the competencies to be successful. Selection Process Technical or functional expertise are the primary criterion for selecting expatriate managers from overseas (Mendenhall et al., 1987; Tung, 1981, 1982).Various models are used for the selection of managers like nationality of the organization, the core concepts have centred on useful capabilities and personal characteristics of potential candidates. Early studies identified a number of exact issues might be impact on the success or failure of expatriate managers, but only few survey was done to expand more systemic approach to the expatriate selection process. Based on the research over the last 20 years, indicated many organisations have failed to pay sufficient attention to the screening, training and also selection of their possible expatriate employees as well the non-technical skills that they have to possess (Tung, 1981, 1982). Selecting the right employees for the expatriate assignments is not an easy job. Shell (1993) not that changing work dual and ethos career couples have reduced the employees’ willingness to consider accepting a global assignment. A high failure rate would most likely discourage potential candidates even more and also lower failure would mean reducing the number of candidates needed. As a result, the literature on selecting expatriates plentiful and many scales have been designed in order to assist the Human resource in the organisation to select the best employees for their expatriate.

3. RESEARCH METHOD Theoretical Framework This research contain about the factors can influence the expatriate succesful on their international. The figure 1 above illustrate the research theoritical framework to give a clear picture on the variables to be examined. There are two independent variables under the influence factors which are training and selection process. On the other hand, the dependant variable will be expatriate success.

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Figure 1: Research Theoritical Framework Influence Factors

Table 1 - Research Hypotheses Ho- Null Hypothesis (no relationship) Ha- Alternative Hypothesis (has relationship) H1 H2

Ho1

Training is not the factor affects the expatriate success

Ha1

Training is the factor that affects the expatriate successful

Ho2

Selection process is not the factor affects the expatriate successful

Ha2

Selection process is the factor affects the expatriate successful

Sample Size There are 49,036 expatriates in Indonesia (Expat.or.id, 2014). According to Raosoft calculator of sample size, the minimum amount of feedback that I need to collect should be 96. 100 questionnaires will be hand out and expected feedback from respondent would be 100. Primary Research Primary research is the original data have been collected to achieve specific goals in the study. This information is really helps the researcher to get the new idea for the research even though, this information cannot be overstated. This study can be made in the forms of quantitative and qualitative methods or both. The secondary research is based on the previous researcher. It is also involve the collection data from reports, books and internet. Quantitative method like questionnaire will be conducted to collect the relevant information to the topic. For the quantitative method will be explained in the section below. Questionnaire In this research, data will be collected from the expatriate in Jakarta by giving them the questionnaires (presented in the appendix section). A questionnaire will be distributed directly to the respondents and the question will be standardised by using English language only. There will be 100 questionnaires will be given to the expatriate, according to the average expatriate in the Jakarta. Questionnaires are adopted in order to test the hypothesis in this research. The target respondent in this research are any expatriates in Jakarta with the assumption that they have an understanding about the factors that influence the success of an expatriate

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4. RESULT AND DISCUSSION Based on Chapter 1, this research focused more on the problem arise which is to evaluate the success factor affect the expatriate success in MNC at Jakarta. Since expatriate is really important in the organisation, which is influent the market share of the organisation. Other than that, cost for expatriate also not cheap because the employees should have a good preparation before doing assignment abroad. Through the problem statement also, training and selection process for the expatriate is important for the expatriate in their success on the abroad assignment. Since these two factors are important for the expatriate success, so these two factors can affect the expatriate success in the assignment abroad. The aim of this project is to study the success factors can affects the expatriates in MNC at Jakarta. This study focused on two main independent variables such as training and selection process. Based on the chapter 4 results, the answer from the respondents’ majority is agreed training and selection process can be affecting the expatriate successful on the assignment abroad. It is related to the objective and the problem statement of this research which is training and selection process is important part for the expatriate successful in the organisation. On the other hand, the results revealed that training affect the expatriate success. It is also supported by Tung (1981) who is said for the expatriate success, the expatriate should have training in order to success on the international assignments. Not only training can affect the expatriates’ success, selection process can be the one factor can affect the expatriate successful. Based on Yeaton & Hall, (2008) the most common factor can causes the failure of expatriate is selection process. Table 2 - Correlation training and selection process on expatriate successful Independent Variable Training

Selection Process

Dependent Variable Factor Can Affect Success Factor of The Expatriate Factor Can Affect Success Factor of The Expatriate

Pearson Correlation 0.468

Sing (2-tailed)

Significant Level

Result

0.000

0.01 (2-tailed)

Ha: Accepted

0.468

0.000

0.01 (2-tailed)

Ha: Accepted

Based on the Table 1, it can be explained as follows the correlation between training and selection process can affect the success of the expatriate in MNC in Jakarta is positive with a value of 0.468 and the 0.01 for the significant level. Thus, hypothesis 1 accepted. Training has a positive relationship for the expatriate success on their assignment abroad with the value of 0.468 and at the 0.01 significant levels, which is training can be affecting the expatriate success of their assignments. Hypothesis 2 also accepted. Selection process has a positive relationship for the expatriate success on their assignment abroad with the value of 0.468 and at the 0.01 significant levels, which is selection process, can be affecting the expatriate success of their assignments. 0.468 showed the moderate relationship between DV and IV. For more detail about hypothesis result can refer to Appendix G. Hypothesis Testing and Discussion As explained in the first objectives, there are two factors have been identified. The first is training. Training is the factor that can affect the expatriate success. From the results on the Table 26, it can be seen when the majority of respondents agree with the statement above. The Pearson Correlation in the table 26 shown the alternative hypothesis (Ha) is accepted. So there is an affect of training towards expatriate success. Based on the Forster (2000) training can be really help the expatriate on their

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overseas assignments and also can help them to overcome the challenge in the host country. So it means training can affect the expatriate success. The selection process is the second factor can be affecting the expatriate success on their overseas assignments. From the results in the Table 26, it can be seen when the majority of respondents agree with the statement above. The Pearson Correlation on the table 26 shown the alternative hypothesis (Ha) is accepted. So there is an effect from selection process towards expatriate success. The selection process can affect the expatriate success because if the organisation did not choose their expatriate properly, it will affect the expatriate success on their assignments (Yeaton & Hall, 2008). Conclusion This research has contributed to the success factors can affect the expatriate in Multinational Company (MNC) at Jakarta. Expatriate in the MNC is really important to enhance the organisation profit. On the other hand, expatriate can give a lot of benefits for the organisation. However, expatriate failure rate is quite high because it is caused by several factors. Some factors can affect the expatriate success in MNC. In this research, the factors are focused on training and selection process which is can affect the expatriate success in Jakarta. The result presented in this research has proposed two important independent variables (IV) which is training and selection process. The data has been presented in the form of frequency tables and the histogram chart. The data has been analysed to see whether it meets the objectives or not. The findings show that all objectives set has fully achieved. There are factors can affect the expatriate in MNC two of them are training and selection process. Limitation This research had several limitations. This study was primarily limited by its small sample size, which focused only in Jakarta. The participant of this research also random expatriate in Jakarta it is too wide. The process of getting feedback from the respondents took more than a month due to some problems and it takes time to find the expatriate in Jakarta. These questionnaires are distributed online so the answer probably not reliable. There are some different types of training and selection process program in every organisation; it might be affect the answer. Further Research Further research should consider carrying out the research to wider sample size and a different location. The future researcher should more narrow the sample size or makes wider than this research and makes more depth of the research. The future research should find another new reference to support the research. On the other hand, to get a reliable feedback from the respondents, the researchers should distribute the questionnaire face to face.

REFERENCES: Brewster, C. and Pickard, J. (1994). Evaluating expatriate training. International Studies of Management & Organization, pp.18--35. Brislin, Richard; Landis, Daniel & Brandt, Michael. (1983). Conceptualizations of intercultural behavior and training. In Daniel Landis & Richard W. Brislin (Eds.), Handbook of Intercultural Training: Vol. 1. Issues in theory and design (pp. 1-35). New York: Pergamon Press. Caligiuri, P., Phillips, J., Lazarova, M., Tarique, I. and Burgi, P. (2001). The theory of met expectations applied to expatriate adjustment: the role of crosscultural training. International Journal of Human Resource Management, 12(3), pp.357--372.

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(2014). How Many Expats Live in Indonesia?. http://www.expat.or.id/info/howmanyexpatsinindonesia.html

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Expats-moving-and-relocation-guide.com (2014). How to Use Effectively Nonverbal Communication When Relocating Overseas - Expats Moving and Relocation Guide. [online] Expats-moving-andrelocation-guide.com. Available at: http://www.expats-moving-and-relocationguide.com/nonverbal-mmunication.html/#nonverbalcommunica tioninchina. Forster, N. (2000). Expatriates and the impact of cross-cultural training. Human Resource Management Journal, 10(3), pp.63--78. Johnsson, A. and Lennbro, J. (2008). Selection of expatriates: the influence of HR managers' gender and personal traits. Josien, L. (2012). Enhancing Expatriate Selection: Measuring The Strength Of Acculturation. Journal of International Business Research p.83. Justlanded.com, (2014). Just Landed Expatriates: Expatriate benefits Expatriate salaries and [online] Available at: http://www.justlanded.com/english/Common/Footer/ Expatriates/Expatriate-salaries- and-benefits.

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Kaczynska, M. and Turpeinen, M. (2007). Expatriate success or failure: A study on expatriate assumptions.Handelsh\"ogskolan vid Ume\aa universitet. Kealey, Daniel & Prothroe, David. (1996). The effectiveness of cross-cultural training for expatriates: An assessment of the literature on the issues. International Journal of International Relations, 20(2), 141-165. Ko, H. and Yang, M. (2011). The effects of cross-cultural training on expatriate assignments. Intercultural Communication Studies, 20(1), p.158. Kwintessential.co.uk, (2014). Expatriate Cross Cultural Training | articles | cultural services. [online] Available at: http://www.kwintessential.co.uk/cultural-services/ articles/expat-cultural-training.html. Littrell, Lisa & Salas, Eduardo. (2005). A review of cross-cultural training: Best practices, guidelines, and research needs. Human Resources Development Review, 4(3), 305-334. Mendenhall, Mark; Dunbar, Edward & Oddou, Gary R. (1987). Expatriate selection, training and careering-pathing: A review and critique. Human Resources Management, 26(3), pp. 331-345. Mendenhall, M. and Oddou, G. (1985). The Dimensions of Expatriate Acculturation: A Review. Academy of Management Review, 10(1), pp.39-47. McCaughey, D. and Bruning, N. (2005). Enhancing Opportunities for Expatriate Job Satisfaction: HR Strategies for Foreign Assignment Succes. Human Resource Planning, 28(4), p.21. Referenceforbusiness.com, (2014). Expatriates - definition, school, model, type, company, business. [online] Available at: http://www.referenceforbusiness.com/management/Em Exp/Expatriates.html. Romero, E. (2003). The effect of expatriate training on expatriate effectiveness. Journal research, 2(2), pp.73--78.

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Selmer, J. (2005). Cross-cultural training and expatriate adjustment in China: Western joint venture managers.Personnel Review, 34(1), pp.68--84. Tahir, A. and Ismail, M. (2007). Cross-Cultural Challenges and Adjustments of Expatriates: A Case Study in Malaysia. Turkish Journal of International Relations, 6(3&4). Tran, B. (2008). EXPATRIATE SELECTION AND RETENTION A Dissertation. ProQuest LLC. [online] Available at: http://media.proquest.com.ezproxy.library.uq.edu.au/media/ pq/classic/doc/1592350951/fmt/ai/rep/ [Accessed 27 Oct. 2014]. Tung, Rosalie. (1981). Selection and training of personnel for overseas assignments. Columbia Journal of World Business, 16(1), 68-78. Tung, Rosalie. (1982). Selection and training procedures of U.S., European, and Japanese multinationals. Columbia Management Review, 25(1), 57-71.

Yeaton, K. and Hall, N. (2008). Expatriates: Reducing failure rates. Journal of Corporate Accounting \& Finance, 19(3), pp.75--78.

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INTERNET MARKETING AND ITS IMPACT ON ONLINE COMMUNITIES Mohammed T. Nuseir, Department of Management, Faculty of Business and Finances, The World Islamic Science & Education University, Jordan dx.doi.org/10.18374/JIBE-16-2.5

ABSTRACT Purpose: The paper explores the role of internet marketing and its potential impact on online community groups especially on women and children. Internet as independent variable affects online users in different ways that are dependant variables. However, recent academic investigations have highlighted various negative impacts of internet on children and women. The research helps to understand the concept of online marketing and how it has transformed social life structure. Methodology: Secondary research sources have been used to support analysis concerning with online marketing and its potential negative or positive impact on online community groups. However, two questionnaires have been used to collect primary information. A larger portion of primary data has been extracted from hypotheses results that have been tested and checked against hypotheses models. Findings: The overall result confirms three hypotheses and identifies that there is strong relationship between independent and dependant variables and internet as independent variable significantly contributes to business growth. However, internet as independent variable leaves negative impact on online communities especially children and women. Originality/Value: The research in this paper relays on questionnaires that have been designed to contact online users to get their view point. The concept of this paper is original and explores the impact of independent variable on dependent variables in analytical and critical styles. Keywords: Internet marketing, online marketing, online communities, Social media, Community groups, Gender differences

1. INTRODUCTION New trends of doing business online to attract customers to surf online to evaluate the services or products of an organisation has lead organisations to use online marketing tools to deliver their messages to customers. The trend to market products online with a blend of online and off line strategies has produced success to companies that are using online marketing strategies to execute their business in virtual business environment that has no boundaries. However, the concept of internet marketing merely does not full of advantages but some negatives appear alongside the advantages of internet marketing. A careful debate on the topic of internet marketing indicates as defined by Burrett (2008, p. 44) that virtual marketing is a strategic process that enable organisations to “carefully targeting users and getting them to interact with you while they are engaged with the most personal, intimate medium ever invented.” Internet has given more power to control and decide on the basis of information available online (Belch and Belch, 2009). The concept of ease and convenience as highlighted by Haver (2008, p. 2) “today’s younger, more ‘green’ shoppers aren’t going to waste precious money and gas going from store to store looking for just the right item. They shop online whenever they can, narrowing their choices to one or two items then go to the store to touch, feel, bounce and check out the actual product to see if it looks the way it was

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represented online.” These concepts of ease in shopping have lead organisations to launch their own websites to attract customers to explore their products in details and to evaluate the reliability and quality of their products. Burnett (2008) argues that the purpose behind launching a website does not merely to provide information about organisational products to customers but to attract and convince customers to buy products by knowing product specification, characteristics and benefits. It is a paramount aspect of internet marketing to increase customers’ strength. Internet marketing enables organisations to do business in a market that has no geographical boundaries. Despite having countless benefits and advantages of online marketing, organisation cannot ignore its disadvantages. One of the major disadvantages is lack of measureable metrics and it worries to marketers. However, some other negative aspects such as application of convincing management strategies and online security threats refrain companies to invest in online marketing and these companies rather prefer to perform their business with full physical presence in the supermarket (McMains, 2007). Time factor is another element that creates annoyance among customers. Downloading certain files and access of information concerning with product quality sometimes annoy a customer who abhor navigation difficulties. Carroll (2002) denotes that human nature is slow to accept change and with the involvement of technology it rather takes time to accept technological changes. 1.1 Research Problems A thorough review of the literate concerned with internet marketing and its impact on communities reveals that there is strong relationship between different types of variables that include online marketing as independent variable while online communities emerge as dependent variables. The literature sheds light on the need of empirical investigation to explore positive and negative impact of internet marketing on different online communities that involve women and children and children’s use of internet in isolation. This research paper explores and answers the following questions to produce a better platform to a reader to understand the impact of internet marketing and its relationship with online communities.  Is there a relationship between online marketing and online community?  Does internet marketing shares any role in business growth?  The negative impact of internet marketing downside practices on online communities.  Is there positive end result because of efficient internet marketing practices? 1.2 Research objectives  To identify the impact of independent variables on online users  To investigate the relationship between internet marketing and internet communities  To address the negative and positive outcomes of dependent and independent variables

2 LITERATURE REVIEW 2.1 Internet marketing its relationship with communities and its overall impact on users The detailed study of literature concerning with internet marketing reveals strong relationship between online communities and an organisation. Internet marketing strategies have strong influence and impact on online communities who can be divided into different groups such as men, women and children. Internet marketing, no doubt is a sheer source of connection between individuals and the organisation providing consumers convenience of accessibility and ease to explore products using online forums. A rapid growth has been experienced in different types of online communities such as business-to-business (B-to-B), business-to-customer (B-to-C) and consumer to consumer (C-to-C) (Pitta and Fowler, 2005). Internet being a useful and popular source of information provides opportunities to online communities to share their knowledge and access information on the product of their choice. Knowledge sharing

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influences marketers as well because of the availability of online information as it helps marketers to know customers’ choice and market trends (Wind, 1976). 2.2 The use of internet by various online communities The availability of internet at schools, homes and in offices has increased the ratio of its users. The internet usage by girls and boys is relatively equal at middle school level. However, the case with men and women usage varies because of the nature of users’ interests (Bessiere, et al. 2008). A detailed research conducted by Bessiere et al. (2008) highlights the impact of internet use by different communities as change in social behaviour and depression. Results of this study highlights that entertainment and information are primary reasons behind internet use. However, 20% respondents of this research see internet a source to build new contacts based on mutual interests. This use of online forums helps to reduce users’ depression and change their overall behaviour. A similar study carried by Rajani and Chandio (2004) shows differences & effects of information technology use on different types of online communities. It appears that internet has taken the place of other technologies as it is a faster medium of communication and source of accessing information. Kraut et al. (1998) argues that various empirical studies conducted on the issues of effects of internet use indicate that most of the use of internet is associated with isolation as a user intends to establish new contacts using internet. However, internet does not isolate people from other community members but it leads people to form new contacts and friends who have online presence. Internet marketing has significantly positive effects on online users; providing online users ease of access of information, opportunities to compare the price of products and convenience of searching from home. The growth in internet marketing reveals that it is the result of users’ trust as they largely depend on internet marketing in present times. Internet has produced more freedom to explore different aspects of products and opportunities to compare and to contrast the attributes of a product. The concept of price is not similar to olden times as internet facilitates customers to check price of the product using online facility. 2.3 Online advertising Online marketing is also known as online advertising & internet advertising. Organisations contact customers to deliver promotional messages by using internet marketing. The use of various online forms such as advertising banners, pop-ups, online newspapers, magazines and social networks enable organisations to introduce their products to online users across the globe. Atkins (2003) believes that online surfers require more satisfaction before they decide to make purchase. It is because they have more opportunities to evaluate online business performance. The use of e-commerce technology tools enable organisations to satisfy their customers by knowing their liking and disliking and if they are convinced with online marketing initiatives? Many organisations as highlighted by Voight (2007) try to launch certain interactive platforms that can not only serve customers’ needs, introduce them with company initiatives but also facilitate customers to stay in contact with organisation by communicating online. One of the primary aspects of using interactive online marketing techniques is to create loyalty among customers towards certain brands of the company and such interaction “can lead to new products and inspire new positioning and inform marketing programs (Voight, 2007, p. 15).” However, marketers can better exploit market opportunities by innovating online marketing initiatives and by making interactive social forums more feasible and reliable for customers to trust on company initiatives. 2.4 Impact on purchasing decisions The impact of online marketing is two ways process that not only affects customers but customers’ response affects the organisation as well. This process is known as pre-purchase and post-purchase response of customers. Riegner (2007) notes that the online marketing of products has received back strong impact in the form of customers’ response. There is good deal of change in social behaviour because of internet marketing and because of the availability of social networks. Heinrichs et al. (2011) writes that internet marketing plays a role of communication platform between customers and business organisation and effective online marketing changes customer behaviour. According to Kempe, Kleinberg

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and Tardos (2003), the key role of internet marketing is to convey a meaningful message to customers that effectively attracts customers to buy company products. 2.5 Online marketing and customer behaviour change Understanding consumer's intentions and choice is vital to be successful in business filed. Customer behaviour as defined by Solomon, et al. (2010, p.6) is “the study of processes involved when individuals or groups select, purchase, use or dispose of products, services, ideas or experiences to satisfy needs and desires.” Market segmentation appears as one of the primary characteristics of customer behaviour (Lantos, 2011), as this involves, age, gender and various community groups (Solomon, et al. 2010). The successful online marketing helps customers to decide and to change their behaviour towards company products (Hawkins and Mothersbaugh, 2010). The decision process involves different critical steps as a consumer evaluates the information and advertising content if it convinces him/her. Kardes, Cronley and Cline (2011) highlight five preliminary steps that help a consumer to make purchasing decision.

(Kardes, Cronley and Cline, 2011) 2.5.1 Online marketing and problem recognition The first element behind successful online marketing is problem recognition. The desire to buy a unique product with maximum characteristics is sought by a customer and this sense of a customer needs to be satisfied by strong and powerful marketing initiatives. However, sometimes certain problems such as poor marketing initiatives and paying less consideration to cultural, environmental and social factors become the reason of not attracting a customer (Hawkins and Mothersbaugh, 2010). 2.5.2 Online information search and evaluation Successful online marketing provides all types of product related information to customers. A customer after sorting problem search for detailed information and uses different online forums such as social networks, organisation website and reads reviews online. This helps the customers to evaluate the information (Kardes, Cronley and Cline, 2011). The evaluation of information and product as Blythe (2008) argues provides chances to customers to get better and cheapest product that is available online. 2.5.3 Online marketing and consumer purchasing decision Customer judgement is based on four evaluation processes that lead him/her to purchase a product. This includes problem solving Information, evaluation of information & product and availability of alternative. By all means internet marketing is an effective medium to attract customers (Hawkins and Mothersbaugh, 2010). 2.5.4 Privacy issue and online financial transaction threats Privacy of information is a major concern for online users. Individuals as well as groups show concerns about their personal information if it shared with third parties. Several surveys indicate that a good number of internet users are concerned about the sharing and displaying of their personal information to other people. 2.6 Types of online communities and online marketing strategy The presence of online users on online forums indicate two types active communities namely communities of interest and communities of practice. Communities of interest include all online groups who have similar interests to each other and share common values. This type of communities share their

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knowledge, information and interests to other online participants. These interests also include political, specific cultural, religious or geographical interests. These communities keep their presence on social network forums, internet blogs and hence are a good target for business organisations to introduce them with products or business services. Communities of interest, by internet marketing view point are useful to get views on products, brands and to know the perception of potential future customers. The collected information using communities of interest forums supports strategic decisions of the organisation and assists to improve online marketing strategies (Pitta and Fowler, 2005). Online communities of practice work in groups; the community members share their ideas and take collective decision related to certain topic or issue. This approach of practice communities is different from communities of interest. Online blogs, social networks are popular place for communities of practice to exchange their ideas and information (Wenger, 1998). Joy (2006) notes that organisations focus on three diverse aspects of marketing that include, visual, verbal and touch. However, visual aspect of online marketing is one of the dominant aspects as customers are attracted by video messages. Verbal marketing takes place in response to online queries or by engaging with customers using particular online forum. Radio and telephone calls are useful medium of verbal marketing. In contrast to visual and verbal marketing ‘touch and feel’ type of marketing is another aspect of traditional marketing that requires the physical presence of customers. 2.7 Online marketing and gender differences within online communities Communities of interest and communities of practice involve three types of groups that are men, women and children. According to Heermann (2010), organisations adopt different marketing initiatives for men and women as the gender difference plays significant role to alter disliking and liking of a product. “According to a study conducted at the University of Wisconsin, women notice and recall 70% more details in their environments than do men.” This shows as highlighted by Kraft and Weber (2012) that women are more brand conscious than men hence online marketing initiatives adopted by organisations focus the gender differences as well. The purchasing decision of men and women is different from each other due to gender differences. Kraft and Weber (2012) believes that men are short sighted and want immediate satisfaction while in comparison to this attitude women make purchasing decisions for long term benefits. Due to any such reasons organisations should focus on inventing new tricks to get online customers’ attention. Cause marketing as noted by Shayon (2011), is an effective tool to merge into online marketing to attract female attention. Yoplait’s tops have been evaluated effective enough to relieve breast cancer and the sense of satisfaction increases brand loyalty among female buyers. Moore (2008) believes that marketers need to change online marketing strategies according to changing social trends. Recent research supports this notion of change and further highlights that social changes affect the thinking and behaviour of customers. This largely has altered traditional or typical family dynamics of purchasing. The concept of women attitude and behaviour is no longer traditional but has changed a lot. Woking women have increased in numbers and the concept of staying at home has declined at greater scale. Any certain marketing initiatives that focus house wives or mothers only will bring limited number of customers to the organisation. According to Heermann (2012), a case study of McDonald’s suggests that the organisation changed its online marketing strategy after facing sheer decline in its customers’ strength. The dominant factor was that they focused children only and ignored mothers. The new strategy “find the woman inside the mom” helped them to get their customers’ strength. Roggio (2012) believes that online marketers pay less attention to male buyers rather they focus on women and children with great interest. It is believed that it is complex and difficult for organisations to engage with male buyers using social networks while the case with female internet surfers is different.

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Moore (2008) notes that “men seek enlightenment, they seek experience, they seek success on their own terms, men happily define themselves as principle-driven and men identify themselves as family-centric.” However, recent years witness that male attitude of doing shopping is changing. Smith (2010) notes that in health care filed men are attracted towards plastic surgeries and it’s the result of successful marketing practice that also includes online marketing. 2.9 Online marketing impact on children community Children as large consumer community promises good revenue for business organisations and recent trends of using online social networks to communicate with friends appear to be a major element of change in social behaviours. Online marketers see social networks as opportunity to attract youth customers and market their products using banner add. Teenagers are greatly attracted to use Facebook, my space, twitter and the availability of internet on phones has made it convenient for teenagers to stay connected with friends at all times. Recent study indicates that race and class have no significant impact among children and they share their liking and disliking to other fellows equally and influence others opinion as well (Buckingham, 2008). Online fashion blogs, according to Stokberger-Sauer and Hoyer (2009) generate strong impact on teenage boys and girls. Marketing through online blogs appears as influential and trend setter that also helps to change purchasing decisions. Buckingham (2008) notes that marketing on cartoons or animated films’ websites bring countless number of youth customers for costume industry. Dunlop (2010) believes that fashion blogs attracts not only children but female gender at a larger scale and for online marketers this is useful platform to influence customers and to create interest about particular brand. The power of blogs as medium of online marketing according to Schaer (2011) is not possible to ignore especially when organisations earn good revenue. This situation according to Owen and Humphery (2009) appears as trend setter for new business entrants who are not familiar with the power of online marketing and potential men, women and children markets. 2.10 Negative impact of online marketing on online communities Certain types of negative impacts of independent (internet marketing) variables appear along with positive impacts on dependent (online communities) variables. Internet is blamed to isolate from one another. However, there is mixed opinion on this issue. Rajani and Chandio (2004) denote that internet generates few negative impacts on online communities but cannot be blamed for user isolation. According to Kent (2008), the notion of trend setting among online bloggers and online service providers especially concerning with fashion industry creates craze among children and female buyers to shop massively. This generates negative impact on family life especially on children as they cannot understand weakening financial condition of the family. Sullivan et al. (2008) note that despite the immense scale of positivity, internet has its negative consequences that appear as unethical use of internet by some users. The negative impact is always great on users who use internet in isolation and prefer to be isolated from other community members. Such users ignore online safety rules and sometimes become victim of online criminals who introduce them with sexual industry and latter attracts users to join this industry. This situation is extremely harmful for children who cannot distinguish between the positive or negative use of internet. Sexually explicit advertisement on website distracts children attention that disturbs them mentally. According to Hughes (2000), internet shares a significant role in sexual exploitation of children and women and plays a significant role to introduce children to sexually explicit material. Organized crime on internet relating to sex industry has created vast amount of concerns related to internet marketing. However, the negative impact of internet does not merely associated with sex industry or using internet in isolation but e-risks of e-payments emerge as significant threat as well. Sullivan et al. (2008) note that online fraud in online transactions, fake telemarketing and security issues concerning with personal information are certain threats that internet marketing brings with it and these needs to be focused on to eliminate.

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3 THE RESEARCH MODEL AND HYPOTHESIS The research model has been designed to investigate the impact of internet marketing on online communities that appears as ‘impact of independent (internet) variables on dependent (online communities) variables.’ However, the research examines the use of internet in context of business growth and how internet plays significant role to create relationship between the seller and the buyer. The first category explores the impact of independent variables on dependent variables and determines effects of using computer in isolation, reliability and authenticity of information that is extracted from online forums, convenience factor and trust issues. The second aspect of the research is to determine the positive and negative impact of internet on online communities such as men, women and children. The third group of the dimensions of independent variables explores the role of internet marketing behind business success.

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HO1: There is relationship between independent variables of Internet marketing, such as reliability of internet info, online interactions, convenience and accessibility, online security and trust, online usage and individual internet users’ isolation from their community. HO2: There is relationship between the Independent variables of Internet marketing dimensional risk factors of children's heavy access to the Internet, parental control, children’s exposure to pornographic websites, and the use of women and children in the online sex industry, and Women &children’s safety. HO3: There is relationship between the Independent variables of Internet marketing dimensions of effectiveness of online advertisement, internet efficiency in getting info on customers’ behaviour, importance of internet marketing in context of business success, efficiency of internet marketing in expanding geographical access to other markets and business communities. 3.1 The research methodology The research investigates the role of internet and internet marketing and its potential impact on online communities that include men, women and children. To generate a balanced argument a sample questionnaire has been used to conduct the research. The participants of this survey belong to different community groups that include professionals of business filed, parents and individual internet users. The total population of the survey has been divided into two samples. The first group is of internet marketers while the second group is of internet users. Participants of survey include men, women and children. The strength of survey participants is 100 in number. 3.2 Data collection Primary and secondary data sources have been used to carry the research. Primary information has been extracted from two questionnaires distributed to 100 participants using online system. The questionnaire designing include multiple choice answering and ticking on yes or no options. Three hypotheses have been used to prove research and results of calculated response provided to confirm if hypothesis statement is confirmed or rejected. 3.3 Descriptive statistics of the first sample Following statistics have been used for the first sample. A standard mean and deviation have been applied on questions ranging from 1 to 18. The response to these questions indicates positive attitudes against the asked questions because their means are above mean of the scale 3.

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Descriptive Statistics q1 q2 q3 q4 q5 q6 q7 q8 q9 q10 q11 q12 q13 q14 q15 q16 q17 q18 Valid N (list wise)

N

Minimum

Maximum

Mean

Std. Deviation

42 42 42 42 42 42 42 42 42 42 42 42 42 42 42 42 42 42 42

3.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 3.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00

5.00 4.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 4.00

4.4048 3.5476 3.8333 3.6429 3.5476 3.7857 4.0476 3.7857 3.4286 3.4524 4.0238 3.8333 3.9286 3.9286 3.6429 3.3095 3.7381 3.2619

.66478 .73923 1.41278 1.44529 1.54923 1.27902 1.36064 1.40618 .66783 1.06387 1.27811 1.41278 1.35057 1.35057 1.22617 1.07040 1.46603 .88509

Under given statistics have been gathered from second survey questionnaire and standard deviation shows attitudes of participants who responded to question 1 to 8. The overall positive outcome has been indicated in the table. Descriptive Statistics a1 a2 a3 a4 a5 a6 a7 a8 Valid N (list wise)

N

Minimum

Maximum

Mean

Std. Deviation

13 13 13 13 13 13 13 13 13

3.00 1.00 1.00 1.00 1.00 4.00 1.00 1.00

5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00

4.2308 4.3846 4.4615 4.0769 3.3077 4.6154 3.9231 3.8462

.72501 1.50214 1.12660 1.11516 1.31559 .50637 1.38212 1.46322

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Reliability A Cron bach Alpha has been applied to test the reliability of the scale. The results indicate 𝛂 = .957 for both the first sample which is positive as it is above than the accepted percentage of .60. It is to note that the first sample was sent to test the first two hypotheses.

Cronbach's Alpha

N of Items

.957

18

A Cron bach Alpha method has been applied to test the reliability of the scale and the result for the second sample appears as 𝛂 = .823. It is great as it is above the acceptable percentage of .60. It is to note that the second sample was used to test the third hypothesis. Cronbach's Alpha

N of Items

.823

8

3.4 Analysis and Findings To test the regression model and hypothesis several multiple regression analyses models have been used to inspect the impact of independent variables on dependent variables. H1: There is a relationship between the independent variables of the reliability of internet info, online interactions, convenience and accessibility, online trust) and the individual internet users’ isolation. The results of sample test to test hypothesis indicate a calculated t= 5.801 that is greater than the tabulated t of 2.0195. According to our decision rule we accept H0 if the calculated value is less than the tabulated value and reject H0 if calculated value is greater than the tabulated value. In our case, we reject H01. This means that there is a relationship between the internet marketing independent variables and the individual internet users’ isolation from their community.

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H2: There is a relationship between the Independent variables of the internet marketing risk factors of children’s heavy access to the Internet, parental control, children’s exposure to pornographic websites, the use of women and children in the online sex industry and Women & children’s safety. The results of tested hypothesis using a sample test indicate that calculated t= 3.995 are greater than the tabulated t of 2.0195. According to our decision rule we accept H0 if the calculated value is less than the tabulated value and reject H0 if calculated value is greater than the tabulated value. In present research H02 is rejected. This indicates that there is a relationship between the internet marketing independent variables and women & children’s safety.

H3: There is a relationship between the Independent variables of effectiveness of online advertisement, internet efficiency to get info on customers’ behaviour, importance of internet marketing for business

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success, efficiency of internet marketing in expanding geographical access to markets and the business community. A sample test has been used to test hypothesis and results indicate that calculated t= 5.013 is greater than the tabulated t =2.1788. According to these results H0 is acceptable if the calculated value is less than the tabulated value; however, H0 is rejected if calculated value is greater than the tabulated value. In our case, we reject H03. This means that there is a relationship between the internet marketing independent variables and the business community’s success.

4. CONCLUSION The rapid change in business environment has led marketers to adopt certain online marketing strategies that help them to attract good number of customers. However, the use of internet has generated different positive and negative impacts side by side. Marketers market their products relying on visual and verbal marketing initiatives to attract and to engage online surfers. This has brought convenience to customers to surf online to evaluate the services or products of their choice. Shopping from home and evaluation of prices and quality of products with other online marketers though appear as advantages of online marketing but at the same time using internet in isolation has highlighted various negative impacts of internet. Children’s’ acquaintance with explicit sexual material that appear on commercial websites has flamed the insecurity among parents. Lack of regulations has led criminals to use internet as platform to earn money from pornography. Privacy breach is one of the predominant aspects of internet marketing that people are concerned about. However, it is evident that internet marketing as independent variable has strong positive as well negative impacts on dependant variables that are online community groups and it has reshaped the social life structure and modernised social life style.

REFERENCES: Atkins, D. (2003). Use the Net to network, focus sales. Selling, 22(6), 12-13. Belch, G.E., & Belch, M.A. (2009). Advertising and Promotion: An Integrated Marketing Communications Perspective. (8th ed.). Boston: McGraw Hill. Bessiere, Katherine, Kiesler, Sara, Kraut, Robert, & Boneva, Bonka S. (2008). Effects of internet use and social resources on changes in depression. Information, Communication & Society, 11(1), 47–70.

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Blythe J. (2008) Consumer Behaviour. THOMSON. Buckingham, D. (ed) (2008) Youth, Identity, and Digital Media. Cambridge, MA; Te MIT Press. Burrett, T. (2008). Market online. B & T Magazine, 58(2682), 44-45. Carroll, L. (2002). The People vs the Interent. Profit, 21(3), 12-13. Dunlop,

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Haver, K. (2008). Why be on the Internet? Furniture today, 33(17), 2-3. Hawkins, Del, I., Mothersbaugh, D, L. (2010) Consumer Behavior: building marketing strategy,11th edition. New York: McGraw-Hill Irwin. Heermann, T. (2010). 4 Gender Differences in Marketing Approach. Retrieved September 9, 2012, from Market it Write: http://marketitwrite.com/blog/2010/02/4-gender-differences-in-marketingapproach/ Heinrichs J.H, Jeen-SU Lim and Kee S. L. (2011) Influence of social networking site and user access method on social media evaluation. Journal of Consumer Behaviour, Vol. 10 P 347-355. http://ezinearticles.com/?3-Customer-Communication-Styles&id=239888 http://www.evancarmichael.com/Branding/69/The-Difference-Between-Men-and-Women.html Hughes, M. D. (2000) The Internet and Sex Industries: Partners in Global Sexual Exploitation. Technology and Society Magazine, Spring 2000. Joy, J. (2006) Customer Communication Styles. Retrieved September 3, 2012, from Ezine Articles: Kardes F.R, Cronley M.L, and Cline T.W, (2011). Consumer Behaviour. South-Western. Kempe, D., Kleinberg, J., & Tardos, É. (2003). Maximizing the spread of influence through a social network. Paper presented at the Proceedings of the ninth ACM SIGKDD international conference on Knowledge discovery and data mining. Retrieved 2012-05-09 from http://dl.acm.org.bibl.proxy.hj.se/citation.cfm?id=956769 Kent, M. L. (2008). Critical analysis of blogging in public relations. Public Relations Review, 34(?), 32-40. Kraft, H., and Weber, M. J. (2012) “A Look at Gender Differences and Marketing Implications”, International Journal of Business and Social Science. Vol. 3, No. 21. Pp. 247-253 Kraut, R., Patterosn, M., Lundmark, V., Keisler, S., Mukophadhyay, T., and Scherlis, W. (1998) Internet Paradox: a Social Technology that Reduces Social Involvement and Psychological Well-being? American Psychologist, 53(9). Lantos, G.P. (2011). Consumer Behaviour: in action real-life application for marketing managers. M.E. Sharp, Inc.

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McMains, A. (2007). Why clients withhold AD spending online. Adweek 48(33), 6-7. Moore, R. J. (2008). He Said, She Said: Marketing to the Sexes. Retrieved September 3, 2012, from Dynamic Graphics & Create Magazine: http://dynamicgraphics.com/dgm/Article/28851/index.html Owen, R. & Humphery, P. (2009). The structure of online marketing communication channels. Journal of Management and Marketing Research, 3, 54-62. Pitta, A. D, and Fowler, D. (2005) Internet community forums: and untapped resource for consumer marketers. Rajani, K. M., and Chandio, S. M. (2004) Use of Internet and Its effects on our Society. National Conference on Emerging Technologies 2004. Institute of Mathematics and Computer Science, University of Sindh, Jamshoro, Pakistan Riegner C, (2007). Word of mouth on the web: The impact of web 2.0 on consumer purchase decisions, Journal of advertising research. VOL 47(4). 436-447. Roggio, A. (2012). Obervations on Marketing to Men. Retrieved September 29, 2012, from Practical Ecommerce : http://www.practicalecommerce.com/articles/3687-Observations-on-Marketing-toMen Schaer,

C. (2011). The write stuff. Retrieved http://www.nzherald.co.nz/lifestyle/news/article.cfm?c_id=6&objectid=10714340

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Shayon, S. (2011). Cause Marketing Does Affect Brand Purchase.Retrived from on: 28-02-2015 http://brandchannel.com/home/post/Cause-Marketing-Does-Affect-Brand-Purchase.aspx Smith, S. (2012). What Men Really Want. Retrieved September 9, 2012, from Engage: Men: http://www.mediapost.com/publications/article/177735/what-men-really-want.html Solomon, M., Bamossy, G., Askegaard, S., and Hogg, M. (2010). Consumer Behavior:Buying: A European Perspective. 4rd ed., Financial Times Press. Stockburger-Sauer, N. E. and Hoyer, W. D. (2009). Consumer advisors revisited: What drives those with market mavenism and opinion leadership tendencies and why? Journal of Consumer Behaviour, 8(2-3), 100-115. Sullivan, R. Roberds, W. McAndrews, J, and Braun, M. (2008) Understanding Risk Management in Emerging Retail Payments. Voight, J. (2007). Social Marketing Do’s and Don’ts. Adweek, 48(36), 14-30. Wenger, E. (1998) “Communities of practice: learning as a social system”, The Systems Thinker. Vol. 9 No. 5. Wind, J. (1976) “Preference of relevant users others in individual choice models”, Journal of Consumer Research. Vol. 3, June, pp. 50-7.

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THE PROCESSES OF GLOBALIZATION AND TRANSNATIONAL ORGANIZED CRIME Michele Sabatino, University KORE of Enna, Italy dx.doi.org/10.18374/JIBE-16-2.6

ABSTRACT The purpose of this paper is to analyse and update the relationship between the globalization process in the global economy, which is affecting our modern society, and the transnational organized crime. Transnational organized crime represents a serious threat to financial and economic system of all countries and organisations for international cooperation and it must be efficiently opposed both at European and international level, in order to allow the globalization process to benefit from the instruments of governance capable to exploit the advantages and reduce the negative and inauspicious consequences. Therefore, the aim is to provide some indications on how to combat the phenomenon of transnational criminality trying to reply to some questions connected with each other such as the reason why transnational criminality has increasingly obtained importance and, above all what we can do to prevent and contrast this dangerous phenomenon. In the first part, some attempts to define the transnational organized crime phenomenon will be examined, trying to specify the complexity and the dangerousness of its peculiarities. Subsequently some statistic will be provided in order to comprehend the impact of transnational criminality. In following part we will be focusing on the relations between transnational criminality and the phenomena that has arisen as a consequence of the globalization process of the economy typical of our society in last few years. Finally some conclusive considerations related to the international and European cooperation in the field of crime and criminal justice will be dealt with. International cooperation is the prerequisite for a global governance of “crime”. If instruments and mechanisms for international cooperation could be established, it would be easier to sort this problem out. Keywords: Transnational Crime, Mafia, Globalization, Financial System

1. INTRODUCTION The purpose of this paper is to analyse and update an issue that is having an increasingly significant impact on the international community, in other words, the relationship between the globalization process in the global economy, which is affecting our modern society, and the transnational organized crime. Transnational organized crime is taking advantages from the globalization of markets, financialization of the economy and new communication technologies and information management. The international nature of money laundering, for instance, confirms that criminal activity takes advantage from the advancement of computer technology and information, as well as the new and more complex financial instruments, which reinforce the opaqueness of the finance tracking system and it facilitates illegal and speculative practices. Transnational organized crime represents a serious threat to financial and economic system of all countries and organisations for international cooperation and it must be efficiently opposed both at European and international level, in order to allow the globalization process to benefit from the instruments of governance capable to exploit the advantages and reduce the negative and inauspicious

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consequences. Criminal groups, operating on transnational markets, in fact, present some peculiarities such as flexibility and a high level of organisation, which contribute to complicate investigations promoted by authorities, agencies and institutions that try to combat criminal activities. Criminals are inclined to maximize opportunities offered by national and international markets and to minimize the risk of being identified, arrested and condemned and to have the illegal proceeds gained by criminal activity, confiscated. Indeed, everyone agrees that future settings of clashes between international and national control agencies and organized crime will be increasingly connected with the media and financial world. Therefore, those technologies whose purpose is to confront, on an equal footing, with criminal organisations operating in transnational contexts, are also important. Whereas, organized crime has branched out into a transnational dimension, we can see how it is necessary, nowadays, more than ever, to struggle with this phenomenon in a likely manner; this requires, first of all, the sharing of information, the comprehension of new financial instruments, transparency of banking and financial procedures and practices and a closer cooperation between the investigative authorities of each country. It is necessary to delineate the correct definition of the terms organized crime and transnational crime in order to understand this phenomenon and propose possible and shared solutions. The first definition of transnational crime has been proposed by some authors as a series of “criminal activities increasing in several countries and which violate the regulations of different countries”.(Adler, Mueller, e Laufer, 1994, p.567). The requisite that contributes to differentiate transnational crime from national is that the first one transgresses criminal laws of different jurisdictions while the latter violates the criminal laws of an individual country. Crimes such as money laundering, illegal weapons and narcotic trafficking, piracy and environmental crimes are only some examples of unlawful activities carried out by transnational criminal groups, while theft and rubbery are two examples of crimes carried out by criminal groups operating on a national market. A further difference that should be underlined is the one between international and transnational crime. While the peculiarity of the first is to transgress international laws and regulations, transnational crime, instead, violates criminal laws and regulations of different national jurisdictions. It is indispensable to analyse the two issues related to the development and the counter-action of transnational organized crime: on one side the globalization of markets and the finacialization of the economy that facilitate mobility, migration and communication and on the other, the international cooperation in the field of crime and in criminal justice. The definition of transnational crime, therefore, can be examined, focusing on some points that overstep the national boundaries and violate criminal laws at least of two or more jurisdictions. It is precisely for this reason the terms” transnational” and “organized” are interchangeably used to specify the vagueness of the word “crime”. The third peculiarity, maybe the most important, is the fact that transnational crime is organized. In order to carry out operations outside of national boundaries and to reduce the risk to be intercepted by judicial and investigating authorities, transnational criminal groups must be strictly disciplined, flexibly organized, and be aware of advanced technologies. In that respect, the United Nations (UN) ever since the World Conference on Transnational Organized Crime in 1994, decided to use the term “transnational organized crime” to underline the sophistication of this kind of organisation, typical of criminal group activities operating in several countries. Transnational organized crime is a threat to peace and security. The United Nations office on Drugs and Crime (UNODC), in addition of its own specific reports, published in 2010 a large and modern “evaluation analysis”: “The Globalization of Crime – A transnational organized crime threat assessment” that points out how organized crime is one of the most threatening to international security. Transnational crime, therefore, represents a huge issue that cannot in any way be underestimated. Moreover, a series of events, have strengthened and increased the expansion of transnational criminal organisations and their activities: the end of the Cold War and globalization have reinforced and

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contributed to the emergence of local and international authorities that have become increasingly more independent and self-referenced. The fall of the Berlin Wall allowed criminal organisations from the Communist bloc to expand their activities into the capitalistic west. Moreover the end of the bipolar confrontation (between USSR and the United States) has facilitated migration flows (including criminals) from different parts of the globe to Europe. Also criminal activities, not only terroristic or mafia affiliated, have been expanding in international networks to gain profits and power undermining our democracy and preventing it from increasing. Organisations such as ’Calabrian Ndrangheta, Mexican cartel Sinaloa, Chinese Triads and so many other criminal groups, differently organized, have become important geo-politic protagonists. Furthermore, the counter action against the Islamic extremism is strictly connected with the one against crimes which financed it and the independent criminal groups who do business with terrorists and fighters, allowing them to buy weapons, carry out money laundering and corrupt authorities. In the end the financialization of the economy and the lack of transparency in the adoption of financial procedures and dubious management of cash flows, have allowed to proceed along lines of expansion of the criminal phenomenon on the borderline between illegal activities and lawful investments. Therefore, the aim is to provide some indications on how to combat the phenomenon of transnational criminality trying to reply to some questions connected with each other such as the reason why transnational criminality has increasingly obtained importance and, above all what we can do to prevent and contrast this dangerous phenomenon. In the first part, some attempts to define the transnational organized crime phenomenon will be examined, trying to specify the complexity and the dangerousness of its peculiarities. Subsequently some statistic will be provided in order to comprehend the impact of transnational criminality. In following part we will be focusing on the relations between transnational criminality and the phenomena that has arisen as a consequence of the globalization process of the economy typical of our society in last few years. Finally some conclusive considerations related to the international and European cooperation in the field of crime and criminal justice will be dealt with. International cooperation is the prerequisite for a global governance of “crime”. If instruments and mechanisms for international cooperation could be established, it would be easier to sort this problem out.

2. DEFINITION OF TRANSNATIONAL ORGANIZED CRIME PHENOMENON Crime in the world, as a result of quantitative and qualitative changes over the last few decades, has been deeply transformed from an individual to an increasingly complex and organized dimension. The criminal phenomena seems to follow the economic and social development of modern societies, reproducing their mechanisms. When the society and its ramifications become more complex, more complicated becomes the crime reproducing its pathologies. The aims of unjust enrichment and means used to pursue them are not individual and occasional or simply organized, but instead, they are developing into a complex organisation. Nowadays, organized crime has been completely transformed compared with the past, because of the changes of the social, political, economic, and cultural system. The consequence of this complexity of Crime is the diffusion of a network that connect, on the one hand, criminal organisations among themselves and small scale racketeering on the other, with institutions and professional advisers of the legal economy. The more well-structured networks are those that provide more information and synergies which will be useful for seizing criminal opportunities, and greater will be the economies of scale in collateral activities such as money laundering. This is a rationalization process of Crime that involves a complicated reorganisation, in circuits connected to different forms of crime and providing a continuum between criminal and legal activities.

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An emblematic case is that relating to the field of drugs: traffickers sometimes bribe, threaten and kill law enforcement officers and judges that try to combat them, they tend to eliminate members of competitor criminal organizations and indirectly they drive consumers to commit theft, robbery and other crimes to obtain the money needed to buy drugs. Eventually, they launder their unjust takings reinvesting them in legal economy. In this case different offences, related to ordinary crimes, economic and organized, are connected to the same criminal organisation and they are part of a system where they are functional with each other. Therefore, it is not the kind of offence that makes the difference between organized and unorganised crime, but rather some specific organisational characteristics. There is a substantial difference between a group of people who organise to commit a single robbery and a well structured organisation that commits illegal business activities continuously. In the first case we are faced with an occasional organisation, in the second it is about a stable and long term organisation. Duration is, therefore, a distinguishing characteristic, together with that of reputation. This last peculiarity is achieved by criminal organisations over time and from the dissemination of information based on the knowledge acquired by mass media, police and justice. This reputation, leads to associate certain criminal behaviours to a specific organisation, ensuring that this organisation will be defined as being related to the category of “organized crime”. An attack or homicide classified as “mafia style” is different from an anonymous attack or homicide for individual reasons. The symbolic significance depends on the reputation as well as the consequent effects, internal or external to criminal world. It is possible to summarize the characteristics that represent the lowest common denominator of organisìzed crime: it must be a well structured organisation (hierarchical or flexible) of people who collaborate for indefinite or a long term period, in order to pursue the enrichment, both individual and of the organisation, through corruption, violence and crimes. The more the complexity of the phenomenon of organized crime increases, the more difficult it will be to find a common definition accepted by crime control agencies, scholars, mass media and by the so called “pentiti”, that is informers, who have helped to understand this phenomenon, even if often from a particular point of view and with partial knowledges. In the preliminary document of the UN world conference that took place in Naples in 1994, a more precise and updated definition of transnational organized crime was proposed. According to this definition, organized crime is the result of the affiliation of more people in order to undertake a reasonably durable criminal activity. Criminal organisations, in general, operate in business crime initiatives, namely supply of illicit goods and services, or the provision of legal goods obtained through illegal means, such as theft and fraud. The document was referred to the indication of the American criminologist Gary Potter, who said that organized crime «represents most of the time an extension of legal market possibilities in normally forbidden fields. The strength of the different groups comes from the same basic motivations of entrepreneurship in lawful markets, namely the need to preserve and expand their market share». In order to provide illicit goods and services through their activities organised criminal groups must increase the level of cooperation and organisation. Criminal activity, like any other economic activity requires entrepreneurial skills, considerable specialization and coordination skills, and also the capability to resort to violence and corruption in order to facilitate the carrying out of the activities. Regarding the size and the structure of criminal organisations the document also included the different points of view of experts: some conceive organized crime as a combination of large hierarchical organisations, structured like legal companies, and others, instead, refer to weak structures, flexible and elastic, conceiving criminality more like a reciprocal network of exchanging within the community rather than like a rigid formal structure.

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Criminal groups, as reported in the same document, are in general small sized, unstable and characterized by opportunism. Rather then divide them in small or big organisations and in formal or informal structures, it is preferable, therefore, to consider them as a continuum in which those organisations can change their size and structure. Some criminal groups can, in fact, combine hierarchical formal structure elements with an unstable system of relations at lowers levels. The solidity and the formal level of the structure are parameters which allow public authorities and law enforcement authorities to identify and compare groups in order to determinate their power and their weaknesses in order to adopt the right countermeasures. A third variable refers to the field where criminal activities operate: some groups are highly specialised operating in a single activity, such as prostitution or drugs. Others carry out different activities. The debate on organized crime, to date has referred mainly to those decisive and traditional aspects. Nowadays, things have completely changed because what was considered as an issue at local or national level has now become a global problem concerning the entire international community. In this respect the preliminary document of the United Nations Conference considered and specified transnational criminal organisations. The term "transnational", in general, indicates the movement of information, money, goods and people through national boundaries, when at least one of the participants is non- governmental. Criminal organisations, in fact, are increasingly involved in overseas activities. Open trade and consumer demands for luxury goods have allowed criminal organisations to pass from national activity to transnational operations. Not all criminal organisations operate at this level, even if there are complicated relations between the local context and global one, the transnational dimension of criminality has gained an unprecedented importance. National borders have never completely stopped the supply of illegal goods and services but today it is no longer the old smuggling to avoid paying taxes as well as avoiding the customs for legal products; transnational traffic concerns, mainly, illegal products and aims to conquer other markets and to bypass repression. Criminal organisations have been setting up in regions where the risk is lower and they supply illicit goods and services on markets where profits are higher. Moreover those organisations put the funds derived from illegal activities into the global financial system, through tax havens and banking centres poorly regulated. Transnational criminal organisations have become the main protagonists of global economic activity and the key agencies of illicit industries such as the production and trafficking of drugs at a global level with profits higher than that of the gross national product of some developed countries and other developing countries. These organisations have some points in common with transnational companies and remarkable differences regarding the structure, size, extension, and diversifications of operations. They can be considered like multinationals and transnational companies. As well as multinationals aim to profit trying in order to increase their freedom of action and reduce the controls, criminal organisations also pursue to maximise profit and freedom of movement and action. Transnational companies can resort to economic incentives and behave incorrectly, but generally they respect national regulations and international law, while for criminal organisations the rule is to break the law. Even if criminal organisations invest in legal companies or deal with legal trade, legal business will always be a secondary activity to the illicit one. For criminal organisations it is normal to use violence and corruption, while transnational companies may resort to these illegal measures but they cannot be considered as the rule.

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Regarding the explanations relating to the escalation of transnational crime, the United Nations document reiterated how all of this is a reflection of our modern society, having been subjected to significant transformations. The evolution and transformations caused by the so called "global village" have changed the context in which both legal companies and illicit ones operate: the increasing economic and energetic interdependence among Nations, the aptitude and rapidity in trade and communications, the ability to cross frontiers and territorial boundaries, the globalization of financial networks and financialization of the economy. The end of Cold War and the triumph of the capitalism and liberal democracy have also facilitated the introduction of the entrepreneurial capitalism in Eastern Europe and the former Soviet Union without recourse to rudimentary mechanisms for controlling enterprise system and markets. The disorder, the decline of authority structures and governing laws, the ethnic conflicts that have arisen again, have offered new chances to criminal activities usually related to the financing weapon purchasing. Furthermore the increase in immigration, has encouraged criminal activities. The extension of the global financial system has allowed criminal organisations to transfer profits gained from illicit activities rapidly, easily and without being punished. Money laundering is only one aspect of a larger problem: the system works according to market rules rapidly developed and those established rules that are already outdated. Recent globalization processes, because of the gradual weakening of boundaries and the increase in the moving of goods and people, have remarkably affected the development and interconnections between economies and criminals of different countries, emphasizing the systemic nature of relations between companies and States (Bartone, 2003). This phenomenon has been the consequence of the overcoming, in criminal activities, of the “individual” dimension and the emergence of that “complex organisation”, that, moreover, little by little is becoming increasingly structured, in relation to operational dynamics, on international and transnational patterns. In relation to the concept of “transnational” crime it is necessary to distinguish it from the peculiarity of internationality. This second term, in fact, refers to those circumstances where a criminal group does not operate only on its own territory, where it originated, but rather carries out its activity abroad as well, with its own affiliated members and using its own material and financial resources. With the term “transnational”, instead, it is meant to allude to the cooperation that criminal groups from different countries established between themselves in order to efficiently manage specific criminal markets. This phenomenon comes from the nature of these markets that often deal with goods and chattels (drugs, weapons, human beings, money of illicit origin, radioactive or hazardous waste) which are to be transferred from the country of production to the consumption one (or refuge), by crossing the territories of other countries; hence, these synergies among the several criminal groups that control the market, types of synergies that not only supply and support the trafficking, but reinforce single groups that through relations with other organisations became stronger (Roberti, 2001). The expansion of economic markets has also reinforced the phenomenon of transnational and international crime, facilitating money laundering and the reinvestment of illegal money. Therefore, transnational crimes can be distinguished: first of all some crimes must be considered as transnational in re ipsa (the thing speaks for itself), such as for the so called cross-border crimes (illicit trafficking in weapons, drugs, human beings), the commission of which retains necessary the crossing of one or more borders between States (Di Martino, 2006). A further typology of transnational crimes is related to the so-called cybercrimes, in other words those offences (such as computer fraud or child pornography) carried out through internet; this latter means, for its nature, is an efficient instrument used to commit crimes that can -virtually- overstep boundaries between States. With regard to other types of offences, the transnational requisite is connected to the place where the offence against the legal interest to be protected, has been committed; we only have to

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think of the increasing amount of environmental crimes caused through the transfer of toxic waste from one country to another. Even in this last case we can see the physical overcoming of the boundaries, due to the fact that the crime has been committed in a different country from the one where the harmful substances have been produced, in this case we can talk about transnational crimes. Eventually, transnational crimes may occur in different countries: consequently, regardless of the existence of an organized criminal group, a crime can be planned in a country different from the one where the offence took place (Rosi, 2007). At the same time, a crime attributable, this time, to a criminal group can be carried out in a different country from the one where the organisation permanently operates. Ultimately transnational organized crimes is an enterprise that mimics the legal one, differing from the latter because it normally resorts to violence and illicit practices. The reasons for its success can be found in certain distortions of the global system in this phase, very marked in some areas that only recently adopted capitalism as a part of the financial system.

3. THE IMPACT OF THE TRANSNATIONAL CRIMINAL PHENOMENON Even today statistics related to transnational crime are not clear and reliable. Despite numerous attempts to gain statistical data of this phenomena and information as accurate as possible, in other words to know exactly how much transnational crime exists in the world and how many individuals are involved in this kind of criminal activity, an estimate that is close to reality has not been made yet, also because of the huge difficulty to analyse activities that are essentially secret. Moreover, the tendency, to measure the economic dimension of criminal organisations has generated a considerable number of evaluations and estimations. In particular, the attention has been mainly focused on how much the criminal and mafia affiliated organisations are able to earn through criminal activities (drugs, prostitution, usury, extortion, trafficking in weapons and human beings) and illegal economic activities (forgery, the so called agro-mafia that means the control of Mafia on food market, tobacco, waste, unauthorised development, gambling) rather than on the quantification of direct and indirect costs that have a huge impact on families and enterprises. At the same time, no studies or reports have been carried out in order to quantify that part of the legal GDP obtained through entrepreneurs, managers and professionals without a criminal record but that are directly or indirectly connected to criminal organisations which manage enterprises or provide consultations to companies that are facing serious economic and financial difficulties. Recent estimates show that the total market value of the crime amounted to 1.81 trillion dollars according to an estimate of the total value of smuggled products and of fifty illegal activities (trafficking of arms, drugs, prostitution, cybercrime, etc.) with the value of criminal markets in 91 countries. The values obtained from Havoc scope-Global Black Market Information, an important and well-known data-base, are generally obtained from governmental agencies, non governmental organisations, academic text or media reports. Each figure is a component of the data- base and provided with documentary evidence with the original source. In some cases, the total value of illicit trade is a total aggregated on the basis of different sources. The existence of the so called "dark figure" can be referred also for transnational crime phenomena, nevertheless some indications related to the extension of the problem can be obtained from the data published by UNODC - United Nations Office on Drugs and Crime examination based in Vienna: It has been estimated that the global drug industry (cocaine, heroin) has an annual income of about 105 billion dollars;

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It has been estimated that trafficking in human beings and the violation of their rights concerns about 70.000 victims with a business value of 3 billion dollars to which 6,8 billion of dollars related to contraband and illegal migrant flows have to be added (about 55.000 migrants from Africa to Europe per year); It has been estimated that trafficking in weapons from the United States and from Europe to the rest of the world amounts to approximately 53 billion dollars; It has been estimated, also, that Cyber crime counts about 1,5 millions victims with a market value of more then one billion dollars; the estimated number of counterfeit products amounts to around 2 billion of items with an estimated cost of 82 billion dollars. Italian investigation authorities have estimated that four criminal organised groups operating in Italy can count more then 64.000 affiliated members, including 50.000 members in the Sicilian Mafia, 7.000 in the Neapolitan Camorra and 5.000 in the Calabrian N’drangheta (Organizational Intelligence Unit, 2010); The Ministry of the interior of the Russian Federation have pointed out that more then 160.000 members belong to the main criminal groups operating in Russia. The Ministry, has also calculated that about 30 of the existing Eurasian criminal organisations operate on the international market (Organizational Intelligence Unit, 2010); It has been calculated that around 45 -50 Chinese Triads (criminal organisations with their origins in secret societies in China in the XVII century) have their organisational basis in Hong Kong and Taiwan, and are expanding worldwide (Organizational Intelligence Unit, 2010); The National Police Agency of Japan revealed that criminal groups called Japanese Yakuza or Japanese Boryokudan consist of more than 3,000 groups and subgroups for a total amounting to some 90,000 affiliates (Organizational Intelligence Unit, 2010).

4. REPORTS AND DEVELOPMENT GLOBALIZATION PROCESSES

OF

TRANSNATIONAL

ORGANIZED

CRIME

AND

The end of the Cold War and the processes of globalization have revealed contradictory trends and developments, that strengthens both local and international local authorities increasingly autonomous from traditional models of governance hinged on the State authority. The globalization incentives are not only high finance or big corporations, and non governmental financial players such as media groups, non governmental organisation, philanthropic Foundations and global religious community. The fall of the Berlin Wall has allowed criminal organisations from the Communist bloc to expand their activities into the capitalistic west. And the end of bipolar confrontation has facilitated flows of human beings (including criminals) from Africa, Asia, in particular from China, and from Latin America into Europe. Criminal activities, not only terroristic or those connected with Mafia have expanded into international networks to quest for profit and power. Colombian cartels have been dismembered, but other organisations have replaced them in the production and distribution of cocaine. Calabrian ’Ndrangheta, Mexican Sinaloa cartel, Chinese Triads and so many others criminal groups, differently organised, are by now important geopolitical players. They generally are in temporary alliance or collaboration, even for crimes apparently low hazard such as forgery and illicit trafficking in cultural goods. Moreover, the contrast to violent jihadism cannot be distinguished from those against the offences that finance it or autonomous criminal groups with which combatants and terrorists do business to buy weapons, money laundering, corrupt authorities. Unfortunately, the global political governance, is still connected to state sovereign prerogatives and it is not capable to limit as much as possible the transnational phenomenon that is affecting society, economy and the environment; but it is even affecting the independence of several countries and their chances to develop.

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Moreover, a country under the control of organized crime can compromise decisional process and the action of international bodies. It also causes problems to the community of indulgent countries towards the production or consumption of drugs, or that deregulates financial investments and foreign property (because it encourages international money laundering), or in labor exploitation (because it encourages trafficking of human beings from other States). FIG. 1 THE MAIN FLOWS OF TRANSNATIONAL CRIMINAL ORGANISATIONS

Source: Report 2010 - United Nations Office on Drugs and Crime – Vienna Therefore, transnational organized crime is also a threat to peace and international cooperation. In this regard even UN Security Council is taking into consideration possible Resolutions. The United Nations Office on Drugs and Crime (UNODC), in addition to its reports on specific fields and geographic areas and the annual World Drug Report, in 2010 published a large and modern «evaluation»: The Globalization of Crime. A Transnational Organized Crime Threat Assessment. In the same year, the European Union approved its Internal Security Strategy (ISS). Among the main threats to peace and security are also included international criminal networks. In the 2013 the ISS report, prepared with the contribution of Europol, Eurojust and Frontex, organized crime is still considered one of the greatest threats to the internal security of the EU. Money laundering, corruption, trafficking, criminal gangs and cybercrime are serious issues to worry about. Old and new criminal groups, took advantage (by diversifying and specializing in offences) of the capital accumulated through easy money laundering in financial markets and global properties poorly regulated; but also for the opportunities offered by innovative information technologies and communications (in particular, mobiles and internet) also to encrypt messages, hiding traffic and access to mass and global markets, even to carry out online frauds. Further «enablers» of transnational crime have been global modes of transport, by sea, land and air, in particular taking advantage of containers and the emergence of innumerable free zones both legal, to

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facilitate investments reducing tax and bureaucratic burdens (in other words the controls), and illegal (such as breakaway territories or border areas). In general, the expansion of trade flows makes it easier to hide offences. And the falsification of documents facilitates trafficking apparently legal, even of food products. Cybercrime is increasing, due to the internet deregulation; as well as corruption that is weakening the contrast and prevention. Criminal business takes advantage from its ability to attract cheap labor and talented professionals (lawyers, financiers, accountants, chemists, art dealers, surgeons…). The same «global supply chains» offer and distribute dangerous medications, food, clothes, cosmetics, pots and pans, forged power tools. The ideology of a «completely free market» facilitates the horrific principle that everything can be legitimated, privatised, offered and sold (also «human flesh», not only by professional killers). In this way individual enrichment in itself becomes more desirable, in particular for «white collar professionals», that sometimes exchange their expertise with drugs and prostitutes services. This “deviant globalisation” is an essential part of the globalization phenomenon and it facilitates to accentuate it, because criminal networks connect with each other (and not only interfering) on legal activities, moreover creating a network of global «black markets» that increase the «shadow» banking system(SBS), off shore banks and tax havens. At this point, the actions of members of supporters of transnational crime must be analysed in its global and systemic nature considering two flows: the «real» flow (offer of goods and services or «theft») and «financial» flow (money laundering and reinvestment of illicit proceeds). Therefore the counter action must be global and systemic, and without postponements, considering the creativity and flexibility of criminal entrepreneurship. The twenty-first century could be marked by the erosion of state prerogatives and as a period of lawlessness, violence and disorder for a number of "negative synergies". There is not only the economic globalization and the abolishment of many customs barriers which makes illicit trade fast, easy and inexpensive; even the trade boom makes accurate controls of goods impossible to carry out; moreover criminal groups connected in a network get helped by local organisations, that generally corrupt, threaten or put infiltrators in control of authorities. Furthermore global trends or mega-trends facilitate the increasing of insecurity and illegality. The current population trends, in other words the growing world population (9,1 billions people in 2050, and maybe 10 in 2100) and the building frenzy increasing in suburbs without public services (generally not controlled by police), may facilitate the development of organized crime resulting in violence. This will make migration and offences, such as the offer of illegal transportation of immigrants and the opportunity to enslave people and sell them, even more attractive. Also the demand for illegal or forced labor will increase in prosperous countries, where ageing will be stronger and therefore the national decline in national employment. From these countries, there will be an increase as well the need for organs for transplantation, and then the foreign offer of "replacement organs " taken from people by using violence or sold by the «donor» due to hunger and poverty. Another alarming global trend is the competition of rising prices for natural resources. Criminal organisations will find it increasingly convenient to get into these markets, as in Nigeria with 100,000 barrels of oil daily stolen, or reserves of flora and fauna in the Central African Republic, or with mining in other countries in Africa or Latin America. The future scarcity of food and fresh water, partly due to climate change, will facilitate the entry of criminal groups, in such areas as the purchase of agricultural or pasture lands and wells. And the food will be redirected on foreign markets that offer better prices. Moreover, violent crime will offer a « public service» to control and repress the social rage for the scarcity of water and food (o incentives) in order to facilitate the logic of profit and power. A further trend that strengthens crime, is the decline of the state institution or its non consolidation in states at war and those countries coming out from war. Several countries, for instance, because of government budget

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issues, are unable to satisfy (and maybe never will, mainly in Africa) economic needs and citizen expectations. In this way States cannot count on the loyalty of a large part of the population, in addition to that immigrant population that didn't get citizenship. Therefore, it emerges even more the loyalty towards primordial references such as family, clan, tribe, ethnic group, religious group, geographical origin and criminal organisations able to guarantee a minimum of security and welfare. The increasing inequalities of the world affect the legitimacy of the nation-states, public bodies, political leadership, regulated markets, supranational organisations (including the European Union). The crisis is increasing even due to new illegal flows of immigrants and refugees, as well as weapons trafficking. In this way the richest countries will be inclined to defend themselves from the crisis by adopting an authoritarian leadership. Consequently, as proclaimed by the G8 and G20, the struggle against evasion, tax avoidance, capital flight and public corruption combats crime, because the recovered funds finance development, welfare and «Rule of law». Transnational mafia (Mexican, Russian, Nigerian, Chinese, Italian, Turkish, Iranian, Pakistani, Albanian, Central American Maras etc.) act as a State authority, with their affiliated members and in the territory controlled by them, providing defence services and armed security, judicial procedures of arbitrage, assets protection, social work activities, «diplomatic» activity with other criminal and terroristic networks (including logistics and financial services). These criminal organisations influence political, economic, cultural and media authorities (including self propaganda), through infiltration of their affiliated, threats, corruption and collusion. These kinds of relations make the criminal hybrid threat difficult to understand and its expansion as well as the dangerousness of the organisation structure. Moreover criminal groups with economic purposes are not always organised as a mafia type organisation with strong bonds of belonging (family or ethnical), that resort to intimidation, the code of silence, to be subjected to a rigid hierarchical system inside and among clans, also in foreign countries where their family or compatriots operate. There may not be collaboration between local clans, but only the division of the territory or specialisations, that is more convenient than mob bosses wars and criminal anarchy. In order to make criminal investigations more complicated and less effective the destruction of a criminal organisation by arresting the bosses (as well as cost-effectiveness), are emerging and increasing little coordination. The aim of these collaborations is to carry out a single crime (criminal venture), even in collaboration with stable criminal organisations such as mafia types; or in order to make a collaboration of independent entities a networks system organised in small cells of few subjects (criminal networks). In their turn those networks may have or not a core of coordination or being configured as a «network of networks». At the same time, professional brokers, become significant in the distribution of profits because they put several criminal groups and coordinate criminal networks connections in contact. The national police have improved their investigative techniques and they have been equipped with new legal instruments and transnational cooperation. However, it is difficult to know if a single activity, including non criminal, belongs or can be functional for a criminal network, especially if the said activity is not in partnership with mafia (cf. article 416 bis of Italian criminal law, while article. 416 defines criminal conspiracy). A single individual can cultivate marijuana illegally, for personal use or for direct sale to others, without any collaboration or being in partnership with any criminal organisations. Or a banker that can be more or less aware, who carries out money laundering or grants loans to mafia affiliated, but his activity can be confused with other legal activity for other clients. The investigation and repression activity seems to be unequal comparing to market forces, due to the increasing offer of illegal goods and services as a consequence of a huge demand, and even because of the strong purchasing power of developing countries and the new middle class of the emerging country that mimics the vices of the west. If you create mass addictions to drugs, game, sex, luxury goods, then the demand (also demand of criminals) is directed to other suppliers, if previous ones have been arrested, or in case some products are seized, other illicit substitution products will replace them.

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The financial and economic crisis post-Lehman Brothers — including the consequent anthropological and ethical crisis — have facilitated transnational crime. When the credit is running low, money lenders have a boom (and even banks at a loss have interest to take «dirty» money). When there is an urgent need to contain costs, the illegal disposal of toxic waste (and the production of false documents) becomes more attractive; as well as the use of counterfeit components or illegal raw materials (such as timber and minerals); or to sell products obtained with illegal labour depriving people of basic rights. Furthermore, in order to defend criminal activity and increasing criminal assets a great amount of weapons illegally acquired is necessary; and the demand of complicity in real estate and in the financial field increase in order to launder more illicit proceeds. Often many, unintentionally and / or unknowingly collaborate in economic activities owned by transnational criminal organisations, such as catering, leisure, distribution, construction and so on. But when the economic management uses a very competitive and winning means (not bankruptcy despite constant losses with continuous recapitalization, «induced» closure of competitors, obtaining credit at derisive rates, or obtaining bureaucratic authorizations extremely quickly, to win public contracts easily, supplies of stolen or counterfeit products at super discounted prices), it is not difficult to understand that it cooperates with companies that are polluting markets and destroying free and lawful competition.

5. THE INTERPRETATIVE MODELS OF TRANSNATIONAL CRIME PHENOMENON Many studies on criminal and mafia phenomena have revealed several interpretations referring to different approaches. Some argue that a first approach focuses on how organized crime as well as any other activity, must be analysed in the light of the many changes induced by globalization in its entirety. To support this view we can find both those who argue that we are facing a new phenomenon, and those on the contrary who deny the existence of any significant changes in the characteristics and strategies used by criminal groups in the past. Both focus on the globalization as a key concept, considering both the increasing of interdependences between countries and the construction process of a single global village. The organized crime phenomenon, according to this approach, has largely spread, therefore we are facing a problem of global dimensions. Globalization has been a positive factor not only for legal economic players, but also for those illegal who were able to take advantage from the opportunities offered by a borderless world. Among these scholars who argue the strong connection between globalization and new criminal forms we find even those who believe that the spread of criminal phenomenon is due to the social, political, economic and cultural disparities caused by the globalization. The increase of disparity and the unequal distribution of wealth among individuals and geographical areas of the planet have unleashed the criminal potential generated by these imbalances. Criminal groups have taken advantage from these situations in order to expand opportunities and reinforce its power. Eventually, we can refer to this approach even those who argue that nothing has effectively changed between new and old criminal forms and that no relevant discontinuities have been found. Transnational organized crime is nothing more than a new global label to the old criminal phenomena of local organisations. Even in the past there were criminal forms along state borders (contraband of illegal goods) connected to illicit markets, that for their nature, were related to long distance trade (Lupsha, 1996). A second approach tends, instead, to focus on some specific dimensions of the globalization process that has contributed to give visibility and increase the level of danger of criminal phenomenon. The supporters of this approach argue, for instance, that the increasing immigration phenomena and the crisis of the State-nation, have revealed a new legal order defined “supranational” that goes beyond national authorities borders. We are witnesses to a progressive ethnicisation of western societies because of the migrant flows from countries in the southern hemisphere. The dimension of threat and

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danger together with “immigration emergency” has become “criminal emergency” (Dal Lago, 1998). In Italy, for instance, the annual reports from the Ministry of the Internal, since the 90s, have been dealing with criminal activities carried out in the central North by groups of Albanians, Kosovars, Nigerians, Chinese, Turkish or other nationalities. The evaluation of their impact and their national interests is accompanied by networks of relationships and connections at international level. These groups operate beyond the borders of individual countries and overstep the state-nation principle. The main obstacle to fight against organized crime efficiently is the fact that judicial authorities and police are forced to operate within the national borders contrary to criminal groups that operate beyond national borders. The strong ethnic characterization of transnational organized crime and the fact that they operate beyond national borders through an intricate network of international relations end up to represent and identify in the others (foreigners) the main source of danger (Mcllwain, 2000), in our case, this is identified in the increasing alarm represented by Albanian, Kosovars, Turkish, Russians, Colombians, Chinese, Nigerians and many others criminal groups. Nevertheless we analyse data referring to criminal actions committed by foreigners in Italy, we can see that, despite for certain crimes the percentage of immigrants on the total of people reported is increasing, the phenomenon of individual criminality must be distinguished by the modes and activities of organized crime. Predatory crimes (such as robbery and theft) and those related to the drug trade are in the first places among those committed by foreigners. These crimes are the consequence of being an illegal resident, the social marginalisation, and the economic needs. Furthermore, we should specify that not all nationalities are equally involved in criminal activities and that some entire categories of offences were committed by Italians and have increased significantly. The increasing visibility of some crimes committed by foreigners tends to transform the immigration problem from a social issue to a criminal one (Palidda, 2001). The last approach, finally, shifts the focuses within the criminal universe analysing the underlying trends and discontinuities to those in the past. This point of view argues the importance of incentives and opportunities for illicit earnings offered by a market increasingly globalised. The emergence of new criminal “opportunities” has been facilitated by several factors, such as economic conditions, regulatory government means, law enforcement, the creation of demand for a specific product or service and social and technological changes (Albanese, 1999). The adoption of prohibitionist policies on drugs and immigration have had the perverse effect of making "illegal" these activities by making them profitable for criminal organisations. In other cases, the increasing deregulation in the financial and capital mobility has offered further opportunities for enrichment by encouraging investment and money laundering as well as profits from illegal activities. Organized crime has come to exploit new sectors of income by adding them to traditional sectors of criminal enrichment. The acquired competences in some sectors have been used even in other areas, in fact, criminal groups can count on a network of contacts ably used to entering in new markets, both criminal and legal. We are referring to the route usually used to transport heroine from south west Asia to European markets (the so called Balkan route) that runs through Afghanistan, Iran, Turkey e Greece to Albania and, from here, to Europe. The same route used to transport drugs has immediately been used even for illegal immigration from this part of the world. In this regard the results of numerous empirical studies seem to suggest that the nationality is the main element which characterises criminal groups, this does not allow us to understand why different groups composed by different ethnic groups continuously interact with each other to manage certain activities or particular sectors of the unlawful economy. Ultimately, according to this approach, the territorial nature of these criminal partnerships – Albanian, Chinese, Nigerian, Turkish, Russian, etc. – is connected to the “extraterritorial” nature of the main illicit trade. Local and Global end up being two complementary and opposed sides of the same phenomenon. The transnational nature of organized crime becomes a necessity, due to changes in the global context, rather than an intrinsic characteristic. The global dimension of illicit markets needs parallel organisational structures for these criminal groups that take into account the extra territorial relations, solidarity and reciprocal cooperation, trust. “Ethnic” groups, where necessary, as well as cooperating with each other, generally research the support and the collaboration of local criminals. The migratory flows towards Puglia by Albanians boats, travel along another route other than the one used for

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the contraband of cigarettes of Brindisi, Bari and Naples. This is an example of mutual cooperation among foreign groups and local criminal groups. Ultimately, even if in the past the explanations for organized crime causation were based on the etiological paradigm of relative deprivation, therefore the crime came about from the lack (deficit) of opportunities to pursue purposes generally accepted, such as enrichment and success, nowadays the approaches have become more complex and articulated. In order to explain the current expansion of organised crime, an overturning of the categories based on the etiological paradigm has been proposed, in other words the crime is not yet considered as “the result of a deficit, but rather as an expansion of opportunities” (Ruggiero, 1992). The United Nations analyses carried out on a global scale and which was based on the same paradigm, identified as a main cause the deficit of the State and the market in marginal and newcomers States. The dilemma deficit-expansion can be solved by completely denying the vision of crime as a pathology, in this way deprivation and expansion are not more in contraposition, but they both operate as matrices of crime, both at individual level- social and territorial- global. “The opportunities for organized criminals came about both in the peripheral economies in crisis and destined to a further underdevelopment and in the central areas fully developed” (Santino, 1995).

6. POLICIES, LAWS AND COUNTER ACTIONS Since the 1960s and early70s, the phenomenon of transnational crime caught the increasing attention of the international community. Since then it was clear that criminal groups belonging to different geographical, economic and political contexts tended to operate beyond the local and territorial boundaries expanding their activities and interests. The work of reconstruction and classification of the United Nations documentation referring, even only partially, to the institute, is remarkable, thanks to available documents, exclusively digital, in the archives of international Institutions (Bassiouni, Vetere, 1998). It is about a reconstruction that referrers to the main points in order to clarify that the issue has been treated with attention from United Nations and Member States. The first data regarding interest on the subject at a level of international organisation, dated back to the 50s, and made official in 1975 during the V° Convention on Crime Prevention in Ginevra. Over the years the various conventions have helped to take a stand on the subject, up to the crucial turning point in 1988, the year when the United Nation Convention against illicit trafficking on narcotic drugs and psychotropic substances was approved in Vienna, followed by the creation of the United Nations Drug Control Programme, in 1991. The geographic and economic expansion of the drugs market became increasingly global being facilitated by several factors. First of all the increase in consumers that, by the end of 60s, had caused a significant impact on the decisions of production and trade by traffickers. Secondly, by the increased availability of drugs on the streets of many cities, which had ended up producing favourable market conditions not only in the West but also in the South and East of the world. Finally, the growth of the functions of economic regulation, protection and welfare undertaken by modern States, which sanctioned the characteristics of illegal activity, prohibiting the consumption and distribution. With regard to the international trafficking of illegal drugs, during the second half of the eighties, the international community faced in a systematic way the issue of transnational organized crime. The United Nations Convention of 1988 is, in fact, the most articulated historical antecedent of the lawmaking and analysis of the phenomenon of organized crime. The United Nations Economic and Social Council created, in 1992, a prevention Crime Commission and criminal justice that, from the beginning, examined the possibility to coordinate the efforts against money laundering and to find the funds to provide technical assistance to Member States in order to adopt an appropriate legislation, train investigators and develop international cooperation.

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The first Action Plan dated back to the summit meeting which took place in Naples, in 1994, that aimed specifically to combat transnational organized crime and having as its focal points: the development of international cooperation, adopting measures to contrast money laundering and limit international secrecy, in brief all measures to “verify political willingness, even before developing an international convention against organized crime” (Massaro, 2003). The Naples summit meeting ended up with a Declaration, aimed at least to set a first definition of transnational organized crime, by being able to conciliate the differences between the various legal systems and to be accepted by the international legal community. It emerged from the Convention's text the common need of cooperation, in particular for balancing the legislative texts regarding organized crime, and to proceed for a complete collaboration regarding investigations, penalties, and trials. Moreover, the creation of models and principles for international collaboration were hoped for at national and global level, the achievement of an agreement on transnational organized crime and the provisions for measures and strategies to prevent and combat money laundering in order to control the usage of seized property. In Naples, finally, the reactions of those countries were recorded – tax havens that opposed the approval of restrictive measures. In the following years other important events have characterised, the work done by the United Nations, right up to the request by the Polish government (during the fifty-first session of the General Assembly) to elaborate a new Convention, despite the initial disagreement of Australia and Canada. The contribution from the "informal" convention, held in Palermo in April 1997, with the support of the Commission and of the Foundation Giovanni and Francesca Falcone was remarkable. At the meeting in Palermo delegates defined some criteria for an adequate definition of organised crime. The definition was supposed to consist of two parts: the first would have to indicate the characteristics that make organized crime particularly dangerous and distinguish it from other forms of criminal activities; the second part, the various types of criminal activity, with the warning that such activities, if carried out by organized criminal groups, are much more dangerous. Eight types of crimes were listed: fraud, money laundering, extortion and usury, kidnapping, crimes involving the use of computers, the illegal trafficking of children, murder and illegal emigration. In Palermo and in other summit meetings, two ways to deal with the problem during an international convention were established: make a list of the crimes (a restrictive way that could exclude emerging types of offences) or considering the seriousness of the crimes on the basis of the penalization provided. It had been agreed on the need for the Convention to include measures relating to police and judicial cooperation, extradition, witness protection and technical assistance. The efforts, on that occasion, were directed to search for a definition (from the discussion on its usefulness) and the contribution of that meeting was decisive on many occasions during the preparatory works of the Convention. The long work carried out over the decades, although in a non continuos manner, have brought the interested Member States to draft the Convention of United Nations against transnational organized crime, whose Conference was held in Palermo in December 2000. Since the opening article of the Convention, the Parties have wanted to make the purpose of their work, understandable, namely "to promote cooperation to prevent and combat transnational crime more effectively". In practise, the signatory States undertake to punish the offences provided with interventions on domestic legislation aimed at giving effect, in terms of substance and procedure, as in the abstract established by the Text. Another focal point is the achievement of a full and concrete international cooperation for the prevention and suppression of crimes at a supranational scale, through the ad hoc international Agencies in charge, but also thanks to the efforts of individual States to their proper functioning. The United Nations Convention of 2000 was the first international legal instrument against transnational organized crime. The text, that indicates the most demonstrated experiences on the subject, is the result

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of work carried out by the United Nations, as well as the decisive contribution provided by the European Union in the previous and following phase, proposing mechanisms to reach the efficient functioning of prevention, investigation and repression structures. In the Convention held in Palermo the definition of organized crime repeatedly formulated has been resumed (structured groups of three or more people in order to commit one or more crime for material purposes) and it has been indicated how participant countries must legislate regarding the following criminal activities: participation of an organized criminal group, money laundering, corruption, obstruction to the implementation of justice. In brief it has been proposed in the introduction of several legislations, of the offence of criminal association on the basis of Italian and United States regulations (that provides the crime of conspiracy) and the substantial formal notice for bank secrecy. The Convention clarifies, moreover, that the transnational requisite of an organized criminal group occurs when the crime has been committed: in more than one country; in one country but a consistent part of the preparation, planning, direction or control took place in another country; in a single State but involving an organized criminal group operating in more than one country; in a single country, but its substantial effects have repercussions in another country. The term “substantial effects” refers to those cases in which a crime has had negative consequences in another member State: for example, where the value of a member State has been counterfeited in the territory of another member State and the criminal group put into circulation large amounts (quantity)of that currency in the international financial circuit (art. 3, paragraph 2). Some common procedures regarding extradition, transfer of sentenced persons, transfer of criminal proceedings and judicial assistance have been established, together with the possibility to carry out joint investigations, controlled deliveries, application of electronic surveillance and undercover operations (Bartone, 2003). The adopted pragmatism in the drafting of the Convention allows to accept a definition of organized crime for all countries that have participated to its elaboration. In the past, the definition of the phenomenon represented the main obstacle for the international criminal cooperation and, for a long time, there was some doubt regarding the possibility to reach a general agreement between all main legal systems and what was coherent to principles of international law (Nunzi, 2005). Apart from offering a series of instructions on counter action and investigation of the criminal phenomenon, the Convention also focuses on prevention aspects. In accordance, in fact, with the preamble, which promotes cooperation in order to effectively prevent and combat transnational organised crime, an article of the Convention specifically request to signatory countries to undertake projects and activities for the prevention and to contrast those factors that make organized crime less vulnerable. This can be referred, in particular, to the marginalization of certain social groups that contribute of the spreading of the criminal phenomenon. Even regarding the analysis and knowledge of the phenomenon, the Convention promotes initiatives and activities able to understand criminal phenomena and the economic and social contexts where the criminal phenomenon develops. The Convention, finally, concludes with a series of operational mechanisms aimed to make the text a concrete instrument for international action. A States Conference was established in order to promote, the actualization of the Convention and its implementation in national law systems. Two further instruments, attached as Protocols, complete the regulatory framework related to the Convention of United Nations, providing a specific framework to the two transnational criminal activities that are increasing their rates: trafficking of human beings, in particular trafficking of women and children, migrants trafficking as a consequence of the increasing migrant flows of refugees, asylum-seekers and people who are seeking better work and living conditions. In both Protocols, as well as the importance to combat and prevent the phenomenon it is necessary to protect the rights and the dignity of people, introducing a clear distinction between victims and traffickers. The two Protocols complete, therefore, the Convention of Palermo, indicating how the exploitation of new slavery forms is the new and most dangerous way of operating by transnational organized crime. A new form of slavery too far away from our rich and developed societies. In a developed society based on consumption, but with increasing levels of inequalities, numerous groups of individuals “not guaranteed” have been formed: women,

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children, men which have become the object of buying and selling from one criminal group to another, underneath the illegal immigration and exploitation, ready to be used where the request of their “services” is increased. In this capitalistic society many forms of work organisations and different markets where a large form of exploiting and slavery coexist. The protocols identify in poverty, underdeveloped and lack of opportunities those factors which cause this slavery phenomena that must be contrasted. The initial enthusiasm during the Convention elaboration has been followed by a slow and complex ratification work, spaced out by a decisive stance of European Union. The Convention was approved by The European Union Council on 29 April 2004, by a decision 2004/579/CE (30), while it has been ratified in Italy by the regulation n. 146 of 16 March 2006. In Europe the Treaty of Lisbon, approved on 13 December 2007, confirmed the attention by the European Union to subjects such as justice and security, ratifying art. 61 of Chapter I that “The European Union constitutes an area of freedom, security and justice in accordance with fundamental rights as well as with the different legal systems and different juridical traditions of the member States”. The main source of law in the European Union is the Directive that, in the previous Treaties on the Union was only a secondary legislation. With regard of judicial cooperation in criminal law, for example, the Treaty provides that “where necessary in order to facilitate the mutual recognition of judgments and judicial decisions and police and judicial cooperation in transnational criminal matters, the European Parliament and the Council may establish minimum standards, approving directives in accordance with the ordinary legislative procedure” (Chapter IV, art. 69 A). Today the art. 29 of the Treaty of Amsterdam has been substituted by the mentioned art. 61, Chapter I of the Treaty of Lisbon, while articles 31,32 and 34 have been modified by the articles 69A and 69 B that state as follows: Art 69 A “The judicial cooperation in criminal matters in the Union is founded on the principle of the mutual recognition of judgments and judicial decisions and includes the approximation of the laws and regulations of the Member States in the areas referred to paragraph 2 and Article 69 B”. After the phase of the Joint Action of the Treaty of Maastricht and the one related to the decisions of legislative framework of the Treaty of Amsterdam, a “third phase” within the EU judicial cooperation has been opened (that) involves the harmonization of substantive criminal law (including the fields of terrorism, organized crime, and racism and xenophobia), mutual recognition (…), the work of EU criminal justice bodies such as Europol and Eurojust, and the development of standards to regulate the proliferation of third pillar mechanism to collect, analyse and exchange personal data (Mitsilegas, 2009). The Joint Action 98/733/GAI of 21December 1998, relating to punishable offence of participation in a criminal organisation, has been substituted by the Decision framework 2008/841/GAI, approved by the Council on 24 October 2008, aimed to reinforce the struggle against the organized crime in the European Union. The aim is the approximation of the substantive criminal law, according to mutual recognition of judicial decisions. With respect to contents, it makes reference to the United Nations Convention against transnational organized crime of 2000, which the European Union has become part with the Council decision 2004/579/CE. The tension caused by the transfer of some competences related to criminal law from a cooperation at intergovernmental level (the so called Third Pillar) to Communitarisation of this matter (First Pillar) has certainly been perceived: to the quarrel between the placement of EU criminal law within the three Pillars of the Treaty, a controversy between the member states and the European Union which has arisen, in order to determine the “boundaries” of different areas of sovereignty in criminal matters. While on the one hand there is the awareness, regarding criminal matters, to join forces in order to combat phenomena that generally go beyond national borders, on the other there is the “fear” towards “Costitutionalisation” of the European Union and the Verticalisation of the Institutions. This kind of consideration makes thinking that, both in terms of political and legislative, an unavoidable process of harmonization of national criminal systems has been started, in order to reach a European

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juridical area in criminal matters. The European Union caused the emergence of supranational legal assets, that need to be protected from criminal activities, moreover, the increase in organized crime has been helped by the opening of the borders. The necessity to guarantee security and justice came about in the area demarcated by the Schengen agreement and improved by the Treaty of Maastricht, Treaty of Amsterdam and in the end by the Treaty of Lisbon. The opening of the borders has ensured the freedom of movement and action to all European citizens and, therefore, also to criminals both organised and not, without granting the same freedom to Magistrates and judicial decisions. The purpose of the European Union– institutionalized by the Treaty of Amsterdam – is, therefore, that the EU territory becomes a free area, but also an area of justice, in order to provide to citizens a high level of security (Caggiano, 2007).

7. CONCLUSIONS The struggle against the organized crime and the adoption of efficient prevention policies and counter actions, are, nowadays, some priorities of the entire international and European community on which it has to provide coherent and consistent strategies. The safeguarding of human rights and the respect of national sovereigns are definitely the most important issues. Several definitions of the transnational criminal phenomenon, among which the so called minimalist of the Convention of Palermo, that identify a criminal organisation in at least three people committing crimes, and deal with the issue of national sovereignty. Nowadays, the national sovereignty principle carries out a contradictory role. While it is a guarantee of state prerogatives that can put a stop to foreign intervention that reduce the individual rights of freedom. On the other, it is the main obstacle to the construction of a supranational government, legitimate in democratic terms, able to intervene on issues of organized crime. Another issue is the political willingness from the States against transnational crime and the new forms of slavery. The struggle against crime has become the central issue of the political agenda of the main international organisations but the fact that it has become a priority for Europe does not mean that we are near to solving the problem. The ratification of the Convention of United Nations or the tensions in the European Union in order to reach a Communitarisation of policies and instruments for law enforcement as well as the great number of developing countries often accomplice with transnational criminal organisations or only ambiguous in their choices and internal and cooperation policies, suggest that we are still far from a real strong and unified political willingness. In some cases it is about developing countries, where issues such as poverty and marginalisation are present and where the migration flows are used as an outlet to reduce tension and social conflicts. Often, the turnover of illegal immigration, trafficking of human beings, sexual exploitation drugs and weapons trafficking represent a significant “net revenue” able to induce some States to adopt weak policies to contrast these illicit activities, and in some cases, tacitly or openly, encouraging their development. Often these criminal organisations have a network of relationships and social and territorial collusion, even with the state and bureaucratic systems, which make them difficult to contrast, assuming that national authorities interested in their contrast and elimination exist. The obstacles to an efficient struggle to transnational organized crime starting from the new forms of slavery cannot only be related to juridical and political nature but even to social and economic nature, in the light of economic interests and goods directed to the international market. In conclusion, even if the intention is not to diminish the outstanding achievements through the Palermo Convention and other international meetings, it remains firm the conviction that transnational crime issue must be addressed not only from a criminal and juridical point of view but rather through a strategy able to consider the complexity of the phenomenon which aims to combat, and the causes of the diffusion and the dynamics of the rooting of crime. The struggle to the criminal phenomenon must be considered also in a social and economic perspective and then contrast social, political and economic contradictions that

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allow criminality and illicit markets to emerge reinforced and to strengthen and feed on an international scale. The phenomenon after having being acknowledged and legally defined, the work to be done is to incorporate in the national and EU legal order the declarations of principles of the documents approved at international level, to proceed to a coordination and exchange of information and, as Europeans, to reinforce the community integration process of criminal law and the coordination of law enforcement taking into consideration that the contrast to organized crime must be addressed both at political and juridical level and by struggling against poverty, underdevelopment, marginalization of weaker people.

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AUTHOR PROFILE Michele Sabatino, Ph.D at the University of Catania, Italy in 1987, currency is Assistant Professor of Economic Policy at “Kore” University of Enna. He’s an expert in European projects and internationalization and he is involved in development cooperation projects and local development. He has collaborated with important companies and with the Sicilian Region - Programming Department. He’s Europe Direct Office scientific coordinator of the KORE University of Enna and he has worked in numerous journals and national and international projects.

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CORPORATE DISCLOSURE AND COST OF EQUITY: CASE OF MALAYSIAN LISTED COMPANIES Mohd. Waliuddin Mohd. Razali, Universiti Malaysia Sarawak, Sarawak, Malaysia Rayenda Khresna Brahmana, Universiti Malaysia Sarawak, Sarawak, Malaysia Ganisen a/l Sinnasamy, Universiti Teknologi Mara, Malaysia dx.doi.org/10.18374/JIBE-16-2.7

ABSTRACT Prior studies argue that company’s cost of capital significantly associated to the information asymmetry, and most of those research papers investigated develop countries. Malaysia, as an emerging market, offers its unique characteristic in terms of financial reporting regulation and is hugely influence by exportoriented companies. Therefore, this study purposely aims to examine whether information disclosure may affect the cost of equity capital of companies. We investigate this hypothesis by using all Malaysian listed companies excluding the finance, services, and utilities companies over 3 years period of 2010-2012. We use robust panel regression where the values are based on White robust standard errors that control for heterocedasticity errors. Overall, our findings support prior research that higher level of disclosure might discount the company’s cost of equity capital, suggesting that companies should disclose more information for better cost of capital. Keywords: corporate disclosure, equity, Malaysia

1. INTRODUCTION With the sophistication in the business environment, information in corporate disclosure is becoming more important to business communities. The users of financial reports are more demanding and requesting better information of the company’s performance. These users concentrate on the quality and timeliness of the relevant information in corporate disclosure for better decision making. The purpose is plain and simple: to attract cheaper external financing. In order to avoid competitive disadvantages companies may favor bilateral to multilateral financing agreements (Yosha 1995). When the cost distinction is the matter between these forms of financing, companies with higher quality (those with more to have competitive disadvantages from disclosure) favor bilateral financing. Francis (2005) concluded that companies with higher voluntary disclosure gain greater external financing and an expanded disclosure policy for these companies enjoy a lower cost of capital.Additionally; Hope et al (2011) found that companies with greater financial reporting credibility experience significantly lesser perceived difficulties in acquiring to external fund. Further, the greater financial quality reduces the financial constraints with the higher ownership control in countries with lower creditor rights. In Malaysia context, large companies ponder the impacts of the disclosure to contingency liabilities and information asymmetry issue (Hashim and Salleh, 2007; Abdullah and Ismail, 2008), especially after the Asian financial crisis in 1997 (Ghazali and Weetman, 2006). Ho and Wong (2001, 2004) surmised that the extent of disclosure and transparency information has been highlighted to aid in turning the quality of investment and external financing decision, where corporate disclosures might reduce information asymmetries among companies and external investors. This would lead companies to have cheaper financing. This study is purposely to examine the effect of disclosure and cost of equity. Cost equity capital is one of valuable part of total cost of capital and often being take consideration decision making process (Cotner and Fletcher, 2000) particularly in making investment decision. Beneda (2003) point out that cost of equity is valuable because it forms a foundation in judging investment opportunities. Therefore, it essential that companies care for the cost equity at acceptable degree because if it too high, the

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companies have to loss its prospective investment. Meanwhile, in the notes to financial statements explain information items disclosure of the companies (Shaw, 2003). Corporate disclosure more focuses on numerical financial data within the blueprint of accounting standards. The association between corporate disclosure and cost of equity is related to the information asymmetry. Botosan (1997) and Botosan and Plumlee (2002) found a negative relationship between corporate disclosure and cost of equity because that the greater disclosure decrease information asymmetry brings to a decrease in transaction costs and reduce estimation cost. This implies that corporate disclosure is important to decrease the cost of capital of companies. This study goal is to provide to the field of knowledge about the factors of the disclosure level on the cost of equity capital. The information disclosure in the annual reports may persuade the outside investors in reaction on the stock price. This study investigates the way of information disclosure is capitalised and thus influence the cost of equity capital. The second contribution of this study is to examine the influence of the company’s characteristics towards the cost of equity capital. The different characteristics of the companies may have a different influence on the cost of equity capital. The information accumulated in the study may help the manager to formulate suitable company strategies for the company’s future capital project, planning and external equity financing.

2. LITERATURE REVIEW Corporate disclosure is one of essential factors of an efficient capital market. It has been widely used by managers to communicate companies’ information to the external investors. Companies supply disclosure through regulated annual reports, consisting of corporate background, summary of historical performance, key non-financial analysis, projection, financial reports, footnotes, management discussion, and other statutory filings. In addition, several companies provide extra information, such as management forecasts, analysts’ presentations, press releases, CSR reports, union workers activities, internet sites, and other corporate reports. The purpose is simple and straightforward: to show the real condition of the corporate. Most of the theories relating to disclosure predict a negative relationship between the disclosure and the cost of capital (i.e., Healy and Palepu, 2001; Easley and O’Hara, 2004; Barth et al., 2013). Some of the empirical findings, such as Diamond and Verrecchia (1991), Botosan (1997), Easley and O’hara (2004), and Riedl and Serafeim (2011) suggest that greater disclosure decrease company’s cost of capital by decreasing the information asymmetry. It appears that two streams of researches that support the negative relationship between the disclosure level and the cost of capital. The first stream is represented by Amihud and Mendelson (1986) and Diamond and Verrecchia (1991), who stated that the company’s securities have a greater cost of equity capital with the bid-ask spreading more on asset pricing because investors demand compensation for the added transaction cost. The adverse selection component and cost of equity can be reduced by disclosing more of the company’s information. When the investors have more precise information, they are willing to place a large order in a particular company’s stock than they otherwise would. This will result in a high demand for the company’s securities which will up the company’s stock price with a reduced cost of capital. The second stream of theoretical research conveys that the increased disclosure can reduce estimation of risk relating to the parameter of the payoff distribution for a company (Barry and Brown, 1985; Clarkson et al., 1996). Klein and Bawa (1976) were the first researchers who used the estimation risk in their study and this was then followed by Barry and Brown (1985), Handa and Lin (1993), Clarkson et al. (1996), and others.

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There are relatively limited empirical studies towards the effects of the disclosure of information on the cost of equity capital. Botosan (1997) examined a direct relationship between the disclosure level and the cost of equity capital for 122 companies in the manufacturing industry. She constructed her own disclosure index to be used as a measurement for the disclosure level. She found little evidence of relationship between the level of information disclosure and the cost of cost of equity capital. However, she documented that the companies that had a low analyst’s following had a strong negative relationship between the level of information disclosed and the cost of equity capital. Hail (2002) conducted a similar study by using 27 items of disclosure by the Swiss Banking Institute as a measurement for disclosure level of information. He found a negative relationship between the disclosure level and the cost of equity capital for 73 non-financial companies listed on the Swiss Exchange. Botosan and Plumlee (2002) used the Association for Investment Management and Research (AIMR) disclosure rankings which were annual report disclosures, other publication disclosures (timely in nature) and investor relations activities to find evidence in the association towards cost of equity capital. They found that the greater the annual report disclosures the cost equity of capital decreased, but the more timely disclosure of information increased the equity capital. Their research does not show any evidence of relationship between the investor relations activities and the cost of equity capital. Relating to the role of quality information, Easley and O’Hara (2004) demonstrated that the quality of information could bring the asset’s price and the cost of equity capital. The more precise the public (private) information, the cost of equity capital decreased (increased) (Batosan et al., 2004). We trust that financial reporting and disclosure could bring in a well-supplied field of empirical enquiry. This research takes the context of Malaysia in examining the relationship between corporate disclosure and cost of equity. The disclosure policy could be use by manager depend on the size of the companies to benefit in reducing the cost of equity. Instead of taking cost of capital into our research account, we specifically examine the cost of equity; a contribution of this research to body of knowledge.

3. METHODOLOGY 3.1 Sample Our sample is listed companies in Bursa Malaysia, and it is limited only to industrial based companies. We exclude financial, services, and utilities companies because their sales are irregularly disclosed. Moreover, companies in the finance sector are governed by the Banking and Financial Institution Act and have different regulations compared to others sectors. This study only covers the companies that ended their accounting reports as of 31st December annually. We differentiate between consumer based industry and other industrial companies. We also exclude any companies had unavailable data throughout the three-year period. At the end, our final sample consists 248 companies with the total pooled observations of 744 pooled observations over the period of 3 years with complete data. The share prices and interest rates, which are used to determine the cost of equity capital, are retrieved from Worldscope and Bank Negara Malaysia website. The disclosure level data are obtained from annual reports of the companies. While the other remaining three control variables such as leverage, size and liquidity are collected from World scope and DataStream. 3.2 Methodology The cost of equity Following Botosan (2000), the cost of equity ( K e ) used in this research is measured based on the Capital Assets Pricing Model (CAPM). The traditional CAPM defines expected returns as the sum of the expected risk free rate, the product of a company’s estimated risk free rate, the product of a company’s estimated market beta and the expected market risk premium.

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K e,i  R f   Ri  R f  The risk free rate is equivalent to the one year of conventional interbank interest rate announced by Bank Negara Malaysia. The market returns is calculated based on lognormal of company’s prices of today divided by company’s prices of yesterday. The market beta is taken by regressing the Bursa Malaysia index with Malaysian T-Bills and its market premia under Jensen Alpha model. Baseline Model Prior research in estimating the cost of information showed there are three factors that could affect the company’s cost of equity, namely, leverage, size, and liquidity. The basic function is given as below.

K e  f leverage, size, liquidity 

In measuring the company’s size, this research used the log of Market Capitalization. Meanwhile, other control variables was developed by following previous research in cost of capital (Botosan, 1997; Botosan, 2002), where leverage was measured by interest bearing debt divided by total equity. Meanwhile, liquidity is measured by (Quick ratio): cash and equivalents plus receivables over total current liabilities. Hence, the empirical regression model is as follow.

K e   0  1 Leveragei ,t   2 Sizei ,t   3 Liquidityi ,t   i ,t

Estimation Models This research aims to examine the role of corporate disclosure on cost of equity. This research follows Botosan (1997) in measuring the corporate disclosure ( DISCLOSEi ,t ). It consists of 35 items (see Appendix), where a score of “1” is given for every item disclosed and a “0” is given for every item that is not disclosed. The choice of the use of the dichotomous procedure is based on the fact that it is currently the most suitable calculation tool available and widely used in the financial reporting literature. The score for each item will be added and equally unweighted with the possible score for each company to derive a final score for each company. The weighted score measure has some arbitrariness issues (Cooke, 1989; Healy and Palepu, 2011). Assigning weight to a disclosure item is deemed to be subjective and furthermore, this method has also been criticized due to the fact that it is not easy to identify users’ preference for items of disclosure. There are several reasons for using a dichotomous (unweighted) disclosure score in preference to a weighted disclosure score. The dichotomous method of scoring has been used in empirical studies such as Cooke (1989) and Collett and Hrasky (2005). Interestingly, some studies found almost identical results, when weighted or unweighted methods were used to capture the disclosed information that appeared in annual reports (Choi, 1974; Chow and Wong-Boren, 1987). In the end, the disclosure score index is calculated as follows:

DISCLOSEi ,t 

 SCORE 35

Therefore, we introduce the corporate disclosure index on our baseline model. The final model is as follow.

K e,i ,t   0  1 Leveragei ,t   2 Sizei ,t   3 Liquidity i ,t   3 Disclosei ,t   i ,t 4. RESULTS AND DISCUSSIONS Descriptive Results Table 1 shows the summary of statistic for our sample of 248 companies across the three-year period. For each variable the mean values were calculated to facilitate comparison among company’s average.

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These mean values are provided including its median and standard deviation values. We supply also the statistical test for difference in the mean value for each variable. The mean value of the cost of equity for companies was about 6%, and its median was 4.23%. This implies that the values were most likely normally distributed. Similar conclusions were found on disclosure, leverage, size, and liquidity. The means were 23.8, 20.8, 2.263, and 1.883, respectively. Meanwhile, the median values were also almost similar to its means, where there were 21.905, 19.565, 2.175, and 1.01 for disclosure, leverage, size, and liquidity, respectively. This normal distribution is supported by the value of its standard deviation were it shows the values of those variables were not much deviated from its means.

Meanwhile, our t-test shows the variables are significantly different in mean from each other. For instance, there is significant distinction between cost of equity and all the variables except the leverage. Even though, there is no significant distinction between leverage and cost, we still can ignore the results because cost and leverage are actually relationship between dependent variable and its regressors. Size and Disclosure Table 2 shows the descriptive of company’s size and its disclosure. It shows the percentage of disclosure and companies’ size has interesting association result. When the company is a small size company, it has tendency not to disclose all the information. This can be seen at our Table 2, where most of small companies disclosed only up to 20 items. Meanwhile, the bigger size of small companies (Rm101mil – Rm 200mil), disclose around 11 to 30 items. Only 3 companies from that cluster disclose more than 30 items. Medium size companies (Rm 201mil – Rm 300mil) normally distributed from less than 10 items, 11-20 items, 21-30 items, and 31-35 items. There is no tendency of these medium size companies to disclose or not to disclose the company’s information. Lastly, big size companies have tendency to disclose all the information. Perhaps, these big size companies, which relatively have more leverage compared to others, have obligation to report to many stakeholders in many countries for the financing reporting purpose.

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Estimations Table 3 shows the results of our estimation. Referring to the R2 and adjusted R2, the regression model indicated that cost of equity was well explained by the regressors such as leverage, size, liquidity and disclosure. The R2 and adjusted R2 were 0.223 and 0.178, respectively. This means that only 22.3 percent of the variation of the cost of equity capital in the analyzed companies was explained by the variation of disclosure level information, leverage, company’s size, and liquidity. The F-Test concludes that the model is robust enough.

Table 3 shows also that all of control variables contribute negatively. However, it is only liquidity that has significant influence on cost of equity, but not leverage and size. The value of liquidity coefficient is also

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relatively big, -0.981. This means high liquidity may lower the cost of equity of a company. This is in line with previous studies such as Diamond and Verrecchia (1991). Corporate disclosure contributes negatively and statistically significant on the cost of equity. The coefficient value is -0.102, and its standard error is 0.209. This implies that the more a company discloses information regarding company’s activities, the lower the cost of equity of companies. This result is consistent with prior research such as Botosan (1997), Botosan (2002), or in Malaysia context, it is in line with Embong et al (2012). Robustness Test We further examine the role of corporate disclosure on company’s cost of equity by separating fast moving consumer goods companies (hereafter FMCG) with non FMCG-based industrial companies. According to Cooke (1992) and Lang and Sul (2014) FMCG companies have a tendency to have higher cost of equity compared to non-FMCG. Therefore, we have two subsets of samples. Table 4 shows that the R2 squares of the models, FMCG and non-FMCG, are relatively good. The R2 for FMCG model is 0.267, meanwhile non-FMCG is 0.121. The F-values of both models are also significant at 1% and 5% level. Similar with the above results, the control variables do not affect cost of equity significantly except the liquidity. Liquidity contributes negatively and statistically significant to cost of equity with the coefficient value of -0.857 at 5% significance level. Corporate disclosure shows a negative and significant influence on cost of equity at 5% significance level. This implies that for FMCG companies, higher level of disclosure may bring to lower level of cost of equity.

The same conclusion is found in non-FMCG results. The control variables are negatively related to cost of equity with the values of -0.07, -4.363, and -1.095 for leverage, size, and liquidity, respectively. Yet, it is only liquidity has significant effect on cost of equity at significant level of 10%. Corporate disclosure level of non-FMCG companies has a negative and significant influence to cost of equity. The value is -0.041 meaning that for each item increases by 1 unit, it will reduce the cost of equity to 0.041. This is tally with

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our previous findings on table 3. In short, even though we separate the companies of FMCG and nonFMCG, the conclusion remains the same. The level of disclosure may lead to lower level of cost of equity. Discussion The results of regression show that the disclosure level of information in the annual report of consumer products industry had a significant negative relationship with cost of equity capital. After we differentiate between FMCG-based industry and non FMCG-based industry, the conclusion remains the same: the corporate disclosure may lower companies cost of equity. There are two arguments to explain our finding, which are (1) information cost, and (2) agency cost perspective. The information cost appears from information dissimilarities and self-interest incentives between principal (investor) and agent (management). Empirical papers, such Akerlof (1970), Botosan (1997), and Healy and Palepu (2001) explained that investors hold risks in estimating the future return from their investment in the existence imperfect disclosure. If this risk is systematic risk, investors with holding the information risk expect more market return. As a result, companies with greater degree of disclosure have low information risk and are probably enjoy lower cost of capital compare to companies with lesser degree of disclosure have high information risk. This explains our findings that corporate disclosure has negative and significant relationship with cost of equity capital. In agency cost perspective, there is a consequence arises because the management being delegated in decision making is not actively intercepted by the investors who invest in a business. The cost arises because if investors acquire an equity stake in a companies, the management can use those resources to make investment or business decision that are detrimental to the interest of investors. Alternatively, if the investor acquires a creditor claim in a company, the management can exploit the value of investment by issuing more senior claims, by issuing cash dividend, or by taking harmful capital projects (see Smithand Warner, 1979). To avoid this issue, investors need to reduce this agency cost by having all information from the management. Investors will add the cost of capital as the trade-off of feeling insecure of no fullinformation available. This also explains our findings that a company with low disclosure would be punished with greater cost of equity. Note this research is persistence with Botosan (1997), Riedl and Serafaim (2011), and Embong et al (2012).

5. CONCLUSION The purpose of this study is to examine the relationship between the extent of disclosure level of information in the annual reports and cost of equity capital for companies listed under the consumer products industry and industrial products industry is the main objective of this study. The results of this research show that the disclosure level of information in the annual reports had a negative relationship with the cost of equity capital for companies listed under consumer products industry, which supported Hypothesis 1. The results showed that the disclosure level variable had a significant effect at 5% level with the cost of equity capital of companies. This means that companies could enjoy lower cost equity by providing more disclosure in the annual reports. This is persistence with previous researches such as Botosan (1997), Riedl and Serafaim (2011), and Embong et al (2012). Meanwhile, most of the control variables had no significant relationship with the cost of equity capital except for liquidity which had a significant negative relationship with the cost of equity capital. The results of this study confirmed that the disclosure level in the annual reports is significantly negatively related to the cost of equity capital. The negative relationship is consistent with the theories and ideas that the information disclosures reduced the information asymmetry to the outside investors and managers. The companies that disclosed more also reduced uncertainty of the outside investors regarding the true parameters of the payoff distribution for the companies. This would help managements

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in determining management decision concerning the companies’ future capital project, planning and issuing share.

ACKNOWLEDGEMENT This research gratefully acknowledge the assistance of Universiti Malaysia Sarawak by giving Research Acculturation Grant Scheme [RAGS/SS01 (2)/1309/2015(3)] APPENDIX SUMMARY OF THE MAJOR ELEMENT OF DISCORE I. Background Information 1. Statement of corporate goals or objectives 2. Barriers to entry are discussed 3. Competitive environment 4. General description of the business 5. Principle products 6. Principle markets II. Ten or Five Year Summary of Historical Results:1. Return on assets or sufficient information to compute return on assets 2. Net profit margin or sufficient information to compute net profit margin 3. Assets turnover or sufficient information to compute assets turnover 4. Return on equity or sufficient information to compute return on equity 5. Summary of sales and net income for most recent eight quarters III. Key Non-Financial Statistics: 1. Number of employees 2. Average compensation per employee 3. Order backlog 4. Percentage of sales in products is designed in the last five years 5. Market share 6. Unit sold 7. Unit selling price 8. Growth in unit sold IV. Project Information 1. Forecasted market share 2. Cash flow forecast 3. Capital expenditures and /or R&D expenditure forecast 4. Profit forecast 5. Sales forecast

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V. Management Discussion and Analysis: 1. Change in sales 2. Change in operating income 3. Change in cost of goods sold 4. Change in gross profit 5. Change in selling and administrative expenses 6. Change in interest expense or interest income 7. Change in net income* 8. Change in Inventory 9. change in the account receivedable 10. change in the capital expenditures or R&D 11. change in the market share

REFERENCES: Abdullah, A., & Ismail, K. N. I. K. (2008). Disclosure of Voluntary Accounting Ratios by Malaysian Listed Companies. Journal of Financial Reporting and Accounting, 6(1), 1-20. Amihud, Y., & Mendelson, H. (1986). Asset Pricing and the Bid-Ask Spread. Journal of Financial Economics, 17(2), 223-249. Barry, C. B., & Brown, S. J. (1985). Differential Information and Security Market Equilibrium. The Journal of Financial and Quantitative Analysis, 20(4), 407-422 Barth, M. E., Konchitchki, Y., & Landsman, W. R. (2013). Cost of capital and earnings transparency. Journal of Accounting and Economics, 55(2), 206-224. Beneda, N. L. (2003). Estimating free cash flows and valuing a growth company. Journal of Asset Management, 4(4), 247-257. Botosan, C. A. (1997). Disclosure Level and the Cost of Equity Capital. The Accounting Review, 72(3), 323-349 Botosan, C. A., & Plumlee, M. A. (2002). A Re-examination of Disclosure Level and the Expected Cost of Equity Capital. Journal of Accounting Research, 40(1), 21-40 Botosan, C. A., Plumlee, M. A., & Xie, Y. (2004). The Role of Information Precision in Determining the Cost of Equity Capital. Review of Accounting Studies, 9, 233–259. Choi, F. D. S. (1974). European Disclosure: The Competitive Disclosure Hypothesis. Journal of International Business Studies, 5(2), 15-23. Chow, C. W., & Wong-Boren, A. (1987). Voluntary Financial Disclosure by Mexican Corporations. The Accounting Review, 62(3), 533-541. Clarkson, P., Guedes, J., & Thompson, R. (1996). On the Diversification, Observability, and Measurement of Estimation Risk. The Journal of Financial and Quantitative Analysis, 31(1), 69-84.

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Collett, P., & Hrasky, S. (2005). Voluntary Disclosure of Corporate Governance Practices by Listed Australian Companies. Corporate Governance, 13(2), 188-196. Cooke, T. E. (1989). Disclosure in the Corporate Annual Reports of Swedish Companies. Accounting and Business Research, 19(74), 113-124. Cooke, T. E. (1992). The impact of size, stock market listing and industry type on disclosure in the annual reports of Japanese listed corporations. Accounting and Business Research, 22(87), 229-237. Cotner, J. S., & Fletcher, H. D. (2000). Computing the cost of capital for privately held firms. American Business Review, 18(2), 27-33. Diamond, D. W., & Verrecchia, R. E. (1991). Disclosure, Liquidity, and the Cost of Capital. The Journal of Finance, 46, 1325-1359. Easley, D., & O'hara, M. (2004). Information and the cost of capital. The Journal of Finance, 59(4), 15531583. Embong, Z., Mohd-Saleh, N., & Hassan, M. S. (2012). Firm size, disclosure and cost of equity capital. Asian Review of Accounting, 20(2), 119-139. Francis, J. R., Khurana, I. K., & Pereira, R. (2005). Disclosure incentives and effects on cost of capital around the world. The Accounting Review, 80(4), 1125-1162. Ghazali, N. A. M., & Weetman, P. (2006). Perpetuating Traditional Influences: Voluntary Disclosure in Malaysia following the Economic Crisis. Journal of International Accounting, Auditing and Taxation, 15, 226–248. Hail, L. (2002). The Impact of Voluntary Corporate Disclosures on the Ex-ante Cost of Capital for Swiss Firms. The European Accounting Review, 11(4), 741-773. Handa, P., & Linn, S. C. (1993). Arbitrage Pricing with Estimation Risk. The Journal of Financial and Quantitative Analysis, 28(1), 81-100. Hashim, F., & Saleh, N. M. (2007). Voluntary Annual Report Disclosures by Malaysian Multinational Corporations. Malaysian Accounting Review, 6(1), 129-156. Healy, P. M., & Palepu, K. G. (2001). Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature. Journal of accounting and economics, 31(1), 405-440. Ho, S. S. M., & Wong, K. S. (2001). A Study of the Relationship Between Corporate Governance Structures and the Extent of Voluntary Disclosure. Journal of International Accounting, Auditing and Taxation, 10, 139–156. Hope, O. K., Thomas, W., & Vyas, D. (2011). Financial credibility, ownership, and financing constraints in private firms. Journal of International Business Studies, 42(7), 935-957. Klein, R. W., & Bawa, V. S. (1976). On the Diversification, Observability, and Measurement of Estimation Risk. The Journal of Financial and Quantitative Analysis, 31(1), 69-84.

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Lang, M., & Sul, E. (2014). Linking industry concentration to proprietary costs and disclosure: Challenges and opportunities. Journal of Accounting and Economics, 58(2), 265-274. Mohd Ghazali, N. A., & Weetman, P. (2006). Perpetuating traditional influences: voluntary disclosure in Malaysia following the economic crisis. Journal of International Accounting, Auditing and Taxation, 15(2), 226-248. Riedl, E. J., & Serafeim, G. (2011). Information risk and fair values: an examination of equity betas. Journal of Accounting Research, 49(4), 1083-1122. Yosha, O. (1995). Information disclosure costs and the choice of financing source. Journal of Financial Intermediation, 4(1), 3-20.

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HOW SUSTAINABLE IS THE ECONOMIC DEVELOPMENT IN ROMANIA: AN EMPIRICAL EVIDENCE ON ECONOMIC, ENVIRONMENTAL AND SOCIAL DIMENSIONS Doru Ioan Ardelean, Vasile Goldiș Western University of Arad, Romania Olimpia Neagu, Vasile Goldiș Western University of Arad, Romania Vasile Lucian Lazăr, Vasile Goldiș Western University of Arad, Romania dx.doi.org/10.18374/JIBE-16-2.8

ABSTRACT The paper documents through empirical data the dependency of economic growth to environmental issues (environment degradation, natural resources depletion, durable production and consumption) and social development (life expectancy) in Romania. We used World Bank data for the last 26 years and EUROSTAT data the last 15 years. We have constructed an environmental degradation index to document the depreciation of natural capital and an econometrical model was used to explore the link between economic performance and natural capital depletion and life expectancy. We have three main findings related to the economic growth in Romania in the last 26 years: (1) it is associated with an increase of the natural resources depletion and life expectancy (2) it is depending on the resource efficiency and social dimensions of sustainable development (life expectancy) (3) the decoupling of economic growth from resource use in the last 5 years. Keywords: sustainable development, environment degradation, natural resources depletion

1. INTRODUCTION Romania experienced in last 20 years improvements in its economic performance associated with environmental and social changes. As a member in the European Union, Romania has included in its own sustainable development strategy goals and targets in accordance with the European requirements and also, with global requirements. The aim of the paper is to highlight the link between economic performance (expressed by GDP per capita) and environmental and social development in Romania. In this view, we have explored the relation between economic growth and resource efficiency and domestic material consumption as signs of sustainable production and consumption, the link between environmental degradation and economic growth in Romania as well as the link between economic growth on one side and environmental dimension and social dimension of sustainable development, on the other. The paper is organised as follows: after a literature review section, data and methodology are presented then the main findings are exposed. The conclusions are included in the final section.

2. LITERATURE REVIEW 2.1. SUSTAINABLE DEVELOPMENT In a narrow sense, the term of ”sustainability” reffers to a fixed state or an ongoing dynamic system that can continue to evolve without self-destructing according to Hardi et al. (1997).

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The report Our Common Future (1987), defined sustainable development as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (WCED 1987, p. 15). Acording to the World Bank, sustainable development has three pillars: economic, environmental, and social sustainability (World Bank, 2012, p.xi). Sustainable development is a multidimensional concept (Mignaqui, 2045) meaning the integration between environment, society and economies, three entities appereantly separate, but connected in a variety of ways (Giddings, 2002). The concept of sustainable development can be explained by sustainable economic activity, environmental preservation or protection and improvements of life quality. Sustainable economic activity prevents total exhaustion of natural resources and environmental degradation, and it means an use of resources in an optimal way for a more efficient economic growth associated with improvements in the life quality of individuals. 2.2. NATURAL RESOURCES AND ECONOMIC GROWTH The effect of natural resources on economic growth was explored in several studies. There is evidence of a negative impact of natural resources on economic performance (for example: Sachs and Warner, 1999, 2001; Gylfason, 2001; Leite and Weidmann, 2002). This negative impact was termed as ”curse” of abundence of natural resources (Konte, 2013) and different channels of transmission were explored to explain this curse, for example, the Dutch Disease (Corden, 1984). Possibile explanations of this curse were found, for example: increased tarrifs and corruption which reduce the economic growth (Bardhan 1997; Leite and Weidmann, 2002), or natural resources crowd out-education (Gylfason, 2001) and highquality institutions (Sachs and Wamer, 1999). More recent studies (Manzano and Rigobon, 2007) find no evidence of such curse and Alexeev and Conrand (2009) support a robust positive impact of natural resources on the Gross Domestic Product (GDP). Furthermore, the latest approach in several studies is to interact natural resources with variables such education or institutions, to determine if an increase of the level of education will generate a decrease of the magnitude of the curse (Gregorio,2007; Andersen and Aslaksen, 2008; Collier and Hoeffler, 2009). 2.3. MEASUREMENT OF SUSTAINABLE DEVELOPMENT In the development literature there is no agreement on how to measure sustainable development. Harding et al (1997) have proposed a set of indicators appropriate for Canada to measure the progress on sustainable development (Ecological Foot Print, Barometer of Sustainability, Genuine Progress Indicator, Human Development Index) by developing conceptual frameworks and measurements tools. Later, Neumayer (2012) or Crabtree (2012) have proposed Human Development Index (HDI) and Ecological Footprint (EF) in order to evaluate the behaviour of different countries toward the goal of sustainable development. Another example is offered by the bodies associated to UNO (UNU-IHDP and UNEP 2012) which assess the natural, human and produce capital of countries. Through the United Nations Environment Programme, the 2030 Agenda for Sustainable Development (UNEP 2015), states 17 goals and targets and means of implementation and a set of global statistical indicators In last ten years, there were many attemps to conceive frameworks to measure sustainability (Norton and Toman, 1997; Fiala 2008, Ferng 2014). Some examples of sustainability indicators: carbon footprint, ecological footprint, environmental sustainability index, environmental performance index. An extended analysis of sustainability indicators and indices is provided by Morse(2015).

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3. METHODOLOGY AND DATA 3.1. Data In our paper we use the following proxies: -for economic performance: GDP per capita (constant LCU, World Bank Data); -for the environmental dimension of sustainable development:(1) resource efficiency (Eur/kg, EUROSTAT data, (2) domestic material consumption (thousand tones, EUROSTAT data) and (3) natural resources depletion (% of GNI, World Bank Data); -for environmental degradation we construct an index exposed in the section 3.2; -for social dimension of sustainable development: life expectancy at birth (years, World Bank Data) From EUROSTAT data base we have found available data for the period of 2000-2014, and from World Bank data base time series were available for 1989-2013.

3.2. Environmental degradation index Based on Babu & Datta (2015) considerations, we have constructed an Environmental Degradation Index (EDI), as follows:

1 EDI  1  ( SQI  AQI  FRI  FEI ) (1) 4 s  min s The soil quality index (SQI): SQI  1  , where s is the fertilizer consumption in % of max s  min s fertilizer production. The air quality index (AQI):

AQI  1 

a  min a , where a is the air pollution expressed in CO2 max a  min a

emissions in metric tones per capita. The forestation index:

FRI  1 

f  min f , where f is the forestation rate in % of land. max f  min f

The fossil fuel energy consumption index:

FEI  1 

e  min e , where e is the fossil fuel energy max e  min e

consumption as % of total.

3.3. Economic, environment and social dimension of sustainable development In order to investigate this link, we consider the following regression equation:

GDPpc    1  NRD   2  LE   (2) where:

 is a constant (the intercept), GDPpc is Gross Domestic Production per capita (constant LCU), NRD is Natural Resources Depletion (% of GNI), LE is Life expectancy at birth (years). Data series include the period of 1989 to 2014 from the World Bank data source, 1 ,  2 are regressor parameters and  is the error. In the World Bank data, the statistical indicator of natural resources depletion is defined as the sum of forest depletion, energy depletion and mineral depletion. 97


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4. MAIN FINDINGS 4.1. SUSTAINABLE PRODUCTION AND CONSUMPTION Resource Productivity (RP) (Eur/kg) and Domestic Material Consumption (DMC) (thousand tones) are statistical indicators used in EUROSTAT data base to monitor the progress of EU Member States in achieving the goals of the EU Sustainable Development Strategy (SDS) adopted in 2001 and renewed in 2006. Progress toward the EU SDS objectives is evaluated using a set of sustainable development indicators grouped in ten thematic areas. One of these ten areas is named "Sustainable production and consumption".

0,4

600.000

0,35 500.000

0,3 400.000

0,25 0,2

300.000

0,15 200.000

0,1 100.000

0,05 0

0

20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Figure 1 Resource productivity in Romania (2000-2014) Source: authors' own computation based on EUROSTAT data

Figure 2 Domestic material consumption in Romania (2000-2014) Source: authors' own computation based on EUROSTAT data

8.000 7.000 6.000 5.000 4.000 3.000 2.000 1.000 0 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Figure 3 GDP per capita in Romania (2000-2014) Source: authors' own computation based on EUROSTAT data Resource productivity (Figure 1) in Romania has improved in both, the long term since 2000 and in the short term, since 2008. For example, in 2014 Romania generated an economic value of 0.3524 Eur per kilogram consumed since in 2000 the level 0.2366 Eur per kg. The level of resource productivity in

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Romania is very low comparatively to the EU's average in 2013 of 1.93 per kilogram of material consumed. Domestic material consumption (Figure 2) has increased continously since 2000, with a maximum in 2008, when GDP per capita has had its maximum as well. In the years after, 2010 registered the lowest value, followed by an increase and then a decreasing trend in the last years. A shift towards more sustainable consumption and production patterns has occured starting with 2010. Since 2010 DMC and GDP per capita (Figure 3) are evolving divergently (DMC is falling and GDP per capita is growing) sugesting that economic growth has been decoupling from resource use. This trend was alread identified at the EU's level in the 2015 monitoring report of the EU sustainable development strategy. The improvements in resource productivity are not likely to represent a major turnaround in resource use patterns, but reflect the impact of economic crisis on resource-intensive industries in Romania.

4.2. ECONOMIC GROWTH AND ENVIRONMENTAL DEGRADATION The evolution of Environmental Degradation Index (EDI), in the case of Romania, calculated according to the formula 1, for the time of 1995 to 2013 is exposed in the Figure 4.

0,8

20000

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10000 8000

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19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13

Figure 4 Evolution of Environment Degradation Index (EDI) Source: authors' own computation based on World Bank data

19 99

0 19 95

2000

0

19 97

4000

0,1

Figure 5 Evolution of GDP per capita Source: authors' own computation based on World Bank data

As we can noticed in the Figure 4, the general trend of EDI is increasing with decreasing sections between 1995-2000 and 2009-2010 followed by a sharp increase in the last years. This evolution is explained by the reduction of industrial activity in the first section and the impact of economic recession in the second section. In the years of economic recovery, the environmental degradation has increased. The general trend of GDP per capita (Figure 5) is also ascending, but in the last years (2010-2013), the environmental degradation is faster as the growth of GDP per capita. The two variables, GDP per capita and EDI, are positively correlated (the coefficient of correlation is 0.58). The ANOVA test indicates a valid statistical link for a significance threshold of 0.05.

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4.3. THE LINK BETWEEN ECONOMIC DEVELOPMENT AND ENVIRONMENTAL AND SOCIAL DIMENSION OF SUSTAINABLE DEVELOPMENT Equation 2 was estimated by Ordinary Least Squares (OLS) method. We verified also, the hypotheses regarding the multicollinearity of explanatory variables and the heteroscedasticity, autocorrelation and normality of errors. The proposed statistical model is validated due to the fact that Prob (F-statistic) = 0.000000 is lower than 0.05 (the significance threshold) and the value of F-statistic (250.8482)  F0 , 05;1, 26 (4.22) (Table 1). We notice also that all independent variables (NRD and LE) are jointly statistically validated because the values of Prob. is lower than 0.05. In the same situation is C, the intercept.

The regression equation is:

GDPpc  383066,3  1394,198  NRD  5581,210  LE

The value of 1 is -1394.198 meaning that, when the natural resources depletion (as % of GNI) increases with one unit, the level of GDP per capita will decrease with 1394,198 monetary units for a standard error of 622.0273. The P-value corresponding to variable NRD is 0.0349 lower than 0.05, meaning that this parameter is statistically significant. An increase with one year of the life expectancy (LE) will raise the value of GDP per capita with 5581.210 monetary units. This parameter is also statistically significant due to the fact that the P-value is 0.0000