; Heather_Stefanova
Learning Center
Plans & pricing Sign in
Sign Out
Your Federal Quarterly Tax Payments are due April 15th Get Help Now >>



  • pg 1
                                  Несебър 2009

                       Ken Heather and Simka Stefanova
 University of Portsmouth Business School, International University College, Sofia
The world recession has undoubtedly been severe. At the present time it is still
unclear just how deep and how long-lasting it will prove. Governments have been
responding in two main ways. First, there has been an attempt to deal with the
banking crisis. The crisis has led to a sharp reduction in credit, reducing demand and
output and increasing unemployment. Therefore much effort is focused on getting
banks to lend more. Second, there has been the attempt to stimulate demand via
government deficit spending. Table 1 shows that this spending has been considerable
in Europe, although modest compared with the potential fall in output and income
that has already been experienced.
Table 1: Estimating the size of the stimulus package for 2009
               Tax cuts and fiscal expenditures                    Extra credit &
                                                                 similar measures
                               € bn         % of GDP         € bn        % of GDP
 Belgium                         1.2          0.3%            2.1          0.6%
 Denmark                         0.0          0.0%            0.0          0.0%
 Germany                        35.8          1.4%            70.3         2.7%
 Ireland                         0.0          0.0%            0.0          0.0%
 Greece                          0.0          0.0%            23.0         0.9%
 Spain                          12.3          1.1%            54.3         4.9%
 France                         16.9          0.8%            41.5         2.1%
 Italy                          -0.3          0.0%            0.0          0.0%
 Netherlands                     3.2          0.5%            0.0          0.0%
 Austria                         3.9          1.3%            2.5          0.9%
 Poland                          1.5          0.5%            4.9          1.6%
 Sweden                          1.1          0.4%            9.0          3.0%
 United Kingdom                 16.5          1.0%            22.1         1.4%
 13 Largest EU countries       92.3           0.8%           229.7         2.0%
 Imputed EU‐27 total           106.0          0.8%           263.8         2.0%
 European Commission            9.3          0.07%           15.5          0.1%
 Imputed Grand Total           115.3         0.87%           279.3         2.1%
Source: David Saha and Jakob von Weizsäcker, Estimating the size of the European
stimulus packages for 2009: An Update, 20th February 2009, Breugel.
                                        Nessebar 2009

 But as table two shows, it has also been modest compared with other parts of the
 world, notably China. Chinese public sector borrowing has been relatively small up
 to now and so increased deficit spending is less problematic there.
 Table 2: Comparison of EU, US and China stimulus packages for 2009
                           € bn                    % of GDP
   EU                    115.3                    0.9
   USA                    219.8                   2.0
   China                  233.                   1 7.1
 Source: ibid
 One form of deficit spending has been via subsidies to industries thought vital
 enough to deserve assistance. For example, Barack Obama has talked of his concern
 about the “hardship” facing the car industry. He has claimed that “the auto industry
 is the backbone of American manufacturing”. The US government has made a $17.4
 billion loan to the three American automobile producers GM, Chrysler and Ford. It
 is unlikely that much, or indeed any of it, will ever be repaid.But the same kind of
 policy is being used by European governments. Sales of new cars are down 40% this
 year in Europe, This is in an industry where the profit margin is typically less than 5%
 so manufacturers are struggling to survive. So the Swedish government is offering
 financial support for Saab (which is owned by GM) and Volvo (which is owned by
 Ford). The German government has rescued Opel (which is owned by GM). The
 French government is finding ways to help Peugeot, Citroen and Renault. In the UK
 there is a scheme to help by offering subsidies to consumers of new cars if they
 scrap their vehicles of ten years old or more.Whilst Bulgaria has no indigenous car
 manufacturing capacity its government has for many years targeted help towards
 what it regards as strategic industries, especially assisting multinationals who locate
 there.Sometimes there is an attempt to reinforce such efforts to back industries with
 public money by calling on people to buy goods and services from their own country
 rather than to import. Recently there have been attempts to make this compulsory
 in the USA in certain areas. Legislation has been proposed to have “Buy American”
 policies, for example, banning the use of non-American steel in construction projects.
 This is despite the fact that it against the rules of the World Trade Organization.The
 purpose of this paper is not to raise issues about the banking crisis but to ask whether
 government subsidies in general can be part of the solution to the recession and
 whether they benefit the countries undertaking protectionist policies of this kind.
 More particularly we focus on subsidies to the automobile industry since so many
 governments around the world are targeting help here.

 The Prevailing Consensus
 It seems that most politicians, their electorate and business leaders have an instinctive
 belief in this kind of protectionism. We outline below eight of the commonest
                                   Несебър 2009

reasons for supporting subsidies to key industries.
A) Market System Failure
The depth of the current recession has led many to question whether the market
system that has dominated Western economies for so long is itself in terminal decline.
Naomi Klein(1), among others, is reminding us that she did warn us in advance of
the collapse of the market system. An increase in state control and directives now
appears to be the inevitable outcome of such market failure. Part of this state control
can take the form of directing expenditures to where it s regarded as being socially
B) Keynesian deficit spending
Even among those who remain confident in the market system, many believe that
governments must deal with substantial variations of aggregate demand that occur
over time, restraining it when it threatens inflation and stimulating it when its fall
threatens to increase unemployment. Such Keynesian policies require government
deficits during a recession with spending running well ahead of tax receipts. One such
form of spending is subsidies to industry. Targeted well, the argument goes, they can
stimulate home production at the expense of imports, producing a multiplier effect
with positive outcomes for home employment.
C) Looking after ourselves first
It is generally recognised that policies designed to protect an economy will impose
costs on other countries. However, politicians and business leaders often believe
that during a recession the harmful effects on other economies that result from a
switch to more home produced goods and services is a price that has to be paid.
Each country must look after its own citizens first. If subsidising General Motors
means that a Toyota worker in the UK loses his job at the expense of an American
worker, this is a necessary outcome of preserving jobs at home.
D) Unfair Competition from cheap labour
Business leaders in many countries with high incomes believe that competition
is good if it is fair but that unfair competition is unacceptable. One form of unfair
competition comes from economies where the wage rate is much lower. A way of
making competition fair is the offering of subsidies by governments to overcome this
unreasonable disadvantage.
E) The level playing field
A particularly common form of complaint against unfair competition is that other
countries’ governments are subsidising their industries. Thus there is no level playing
field. Leveling the playing field is achieved by matching subsidies.
F) Protecting key Industries
Some industries are more crucial for an economy than others. Whilst it may be
acceptable for some industries to be reduced in size or even disappear, key industries
                                        Nessebar 2009

 that are, in the words of Barack Obama, “ the backbone of the economy” such as the
 car industry for the USA, must be protected. One of every 10 US jobs relies directly
 or indirectly on the car industry. These industries must be preserved and subsidies
 are said to be an effective way to achieve this.
 G) A Balanced Economy
 In some economies manufacturing has, over a long period, suffered relative to
 services. The proportion of GDP accounted for by manufacturing has been falling and
 in some economies the actual level of manufacturing jobs has been in decline. There
 is a widespread feeling that this cannot continue. The economy must be rebalanced
 and for many countries manufacturing subsidies are an appropriate way of doing it.
 H) Protecting the innocent sufferers
 Finally, it is often argued that the victims of output decline, the workforce are innocent
 sufferers of a severe recession and they should be protected. Again, subsidies are a
 way of doing so. If bankers, who created the crisis, deserve to be bailed out, don’t
 key industries, the innocent victims of the banking crisis, deserve support too?
 An Economic Response
 Despite the apparent attractiveness of these arguments none of them is sustainable.
 We examine each one in turn.
 A) Market System Failure
 It is true that some predicted the current crisis, although few, if any, predicted its
 severity. But anyone could have predicted that there would be a recession at some
 point. It is in the nature of the market system. These are, in the words of Joseph
 Schumpeter, “the winds of creative destruction” that reallocate resources from the
 inefficient to the efficient. Of course, the market system has its costs. But they are
 small compared to other systems as the history of the Soviet Union and Eastern
 Europe has vividly demonstrated.
 What makes this current recession different is the banking crisis. This was the result of
 an inadequate legal framework for the banking industry. Most of us who are market
 economists believe that such a framework is essential. This is a wholly different
 matter from a proposition that governments can help by rejecting the power of the
 market and replacing it with its own powers to allocate resources.

                                    Несебър 2009

B) Keynesian deficit spending
There are fashions in economic theories and the current recession has brought a
revival in the fashion for Keynesianism. Deficit spending boosts aggregate demand in
a recession whilst a surplus on the government account will be the aim in a boom. But
the value of Keynesian policies in the current circumstances is limited. The need is for
a reform of the legal framework that controls the banking system. In the meantime
boosting government expenditure threatens inflation or lower growth, or both, in
the coming years. Many governments have run deficits during the boom years so
that the scale of the deficits relative to GDP now proposed is unprecedented.
For example, the US debt/GDP ratio is expected to increase by 30 percent between
2008 and11. This will have an effect on interest rates. Most evidence suggests that
for every 1% increase in this ratio interest rates rise by 0.03 percent.(3) Hence
interest rates would, ceteris paribus, rise by around 1 per cent as a result of this debt
increase. The sudden worsening of the debt may mean that this is an underestimate.
The extent of the effect on the growth of output continues to be debated. But it is
certainly real.
Inefficient government spending on subsidies is far less likely to be beneficial than
freeing up international trade and freeing labour markets so that unemployment is
dealt with efficiently by the private sector.
C) Looking after ourselves first
It is not true that a country subsidising its industry gains at the expense of its trading
partners. Everybody loses. The effect of subsidies on employment will vary according
to the economy, the type of industry subsidized and the size of the subsidy. However,
except in implausible circumstances a policy of subsidising manufacturing industry
will increase unemployment in the country where it is introduced.
When governments subsidise products they switch consumer demand by changing
relative prices. This leads to a well-known “deadweight loss” to society. Consumers
value the increased output from the subsidised industry less than the value of the
output they must give up as taxes are raised to pay for the subsidy.
But there is a further problem. The justification for the subsidy is that it will save
jobs. In fact it will almost certainly cost jobs and increase unemployment. The
subsidised industries tend to be capital intensive. The car industry is an obvious
example. Switching demand via relative price changes switches demand away from
relatively labour intensive products to these capital intensive products. The result is
a fall in the demand for labour and increased unemployment. In the case of cars, the
industry uses about half as much labour to produce a euro’s worth of sales as the
average manufactured good. So a subsidy on cars will lead to less of an increase in
car industry employment than the decline in labour from displaced sectors.

                                        Nessebar 2009

 Even if the subsidy results in a temporary increase in employment, it will be a small
 benefit compared with the longer run costs of misallocating resources and the
 resulting loss of economic welfare. There are many examples of this. In the 1970s the
 British government “protected” the car industry with large handouts. At great cost to
 other efficient sectors this kept employment in the car industry artificially high. But
 within a few years employment fell sharply. Consumers were still unwilling to buy
 poorly made, over-priced cars. Eventually these resources had to be transferred to
 where they were more productive.
 D) Unfair Competition from cheap labour
 Business leaders in many industries believe that they should be protected from
 `unfair competition’. This usually means that it is unfair that firms in other
 countries can pay lower wages. The problem with such an argument is that the
 benefit of international trade is to be found in cost differences. It is precisely because
 good are cheaper in some countries than others that trade is beneficial. It is to our
 advantage to import relatively cheaper goods and services — goods and services
 that are cheaper because foreign costs are lower. We can pay for such products
 by exporting those things that we can produce relatively cheaply but which are
 relatively dear to foreigners. If all governments are able to “correct” for such cost
 differences, international trade ceases. Government interference in this area simply
 makes people in all countries worse off by denying them the benefits of lower-
 priced goods.
 E) The level playing field
 An apparently more credible form of the level playing field argument comes when
 foreign governments are themselves interfering with free trade by offering subsidies
 to their own producers. Producers have often argued that they are able to compete
 in a genuinely free market, but the market is not in fact free. One commonly
 cited example is where the government of another country offers subsidies to its
 producers. We take a British example. There are subsidies offered by some European
 governments to their coal producers enabling them to undercut British coal, notably
 Germany, whose production costs without subsidy are over twice the average of
 British coal’s costs. To understand why retaliatory subsidies are so unproductive we
 need to remember, despite the protestations of many business leaders, that imports
 are good. We get to consume what others have produced. Exports are unfortunate.
                                   Несебър 2009

We work to produce something and do not get to enjoy the benefit which goes to
foreigners. The benefit of exports is that it enables us to fund the imports we need.
Now lets consider the subsidies. Let us consider the effects first from the German
perspective. The market price of an unsubsidised tonne of German coal might be
around £120. Thus £120 of resources are used to produce one tonne of coal, resources
that have an opportunity cost. When the exported coal sells for, say, £50 because
the German government has subsidised it, Germany obtains the right to import £50
worth of goods from Britain. This makes no sense for Germany. The remaining £70 is a
grant from German consumers through its government to British consumers. But now
consider this from a UK perspective. It is not at all clear that the appropriate response
of Britain should be to deny itself such largesse or indeed to return the compliment
by subsidising their consumers. The British response should simply be to enjoy the
resulting higher incomes of its people.
Logically, the only objection to the above reasoning is that coal miners in Britain will
produce nothing if we take German coal. This leads us to an import-ant conclusion.
The objection to subsidised imports has no validity except in so far as resources are
immobile. The ‘level playing field’ argument cannot stand on its own. It is the resource
immobility argument that is really being used. But the problem with this argument is
that it proves too much. This would be a justification for keeping any resource in its
current use regardless of its usefulness to society. Ossifying the industrial structure
is a certain way to lowering living standards.
F) Protecting key Industries
What constitutes a key industry? One that is important to consumers? Then they
will buy the products of this industry without government subsidy. Is it one that
employs many people? Then consumer demand will see to it that this continues. A
key industry can only be one whose products consumers in the past have thought
worthwhile. The car industry is a classic example. The industry is not in difficulty
because of the recession. The industry was in trouble through overproduction before
the current crisis began. Resources need to shift to more productive uses. The history
of government attempts to keep certain industries gong via subsidies always tells
the same story. It is that such subsidies slow the process of shifting resources that
is at the heart of every successful economy. We can illustrate with reference to
another government interference with the market: labour laws to protect workers.
They are much stronger in Europe than in the USA. The result is that employers are
                                       Nessebar 2009

 reluctant to take on labour in Europe. So on average, in normal times an unemployed
 US worker takes 4 weeks to find another job. In the UK it is six months.
 G) A Balanced Economy
 There is a popular idea that an economy should be balanced with a mix of agriculture,
 manufacturing and services and that government intervention in the market is a good
 way to achieve it. Generally it is thought that manufacturing ought to have a larger
 share of total output than is the case. In fact policies such as subsidies designed to
 fulfill this purpose simply lower economic welfare. Economies need to specialize in
 what they are good at producing and import what they are not.
 One of the most important reasons why the British economy flourished from 1995
 to 2008 was that services rose sharply in value relative to manufacturing. As a result
 incomes rose. Had governments been more successful in “balancing” the economy
 British incomes would have been significantly damaged.
 H) Protecting the innocent sufferers
 It is hard not to feel sympathy with those caught up in the crisis. Some are unemployed
 who are in no way responsible for the current economic difficulties. But does that
 mean that they should be assisted to remain where they are? What of the people
 who are also innocent and who out of a job because governments have raised taxes
 to pay for the subsidies? There will also be a generation who will fund huge current
 government borrowing requirements by higher interest payments and higher taxes.
 They also are innocent. It seems a strange policy to protect some innocent victims by
 making even more innocent victims suffer. In relation to the car industry, a subsidy
 cannot be seen in isolation. So for example the German rescue of the inefficient
 Opel firm makes the market more competitive and makes the efficient producers
 less likely to survive. If innocent workers there lose their jobs, is that fair?
 Dangers of Retaliation
 There is one further substantial concern over the use of subsidies. Any attempt to
 protect a country’s industry invites retaliation. The classic example occurred during
 the Great Depression. Early in that recession the Smoot-Hawley Tariff Act was passed.
 It substantially increased the US tariff on over 20,000 imported goods. Three years
 later, a buy American law required federal government to be biased towards US
 products in its purchasing decisions. Inevitably, many countries retaliated, distorting
 and damaging trade, almost certainly worsening the situation. Tariffs are even more
110 to provoke retaliation than subsidies but the dangers of retaliation remain. This
                                    Несебър 2009

is always true where governments are unwilling to allow resource allocation to be
determined by free markets.
Investing for the Environment
One further argument that motor manufacturers use to justify a subsidy is the
benefit to the environment. Newer cars produce less CO2 emissions than older ones.
Manufacturers claim that the reduction in CO2 is considerable. They quote the savings
of CO2 emissions from using a new vehicle and set them against the emissions costs
of the manufacture of that vehicle. They then argue that the cost of manufacture of
a new vehicle is less than the savings made in lower fuel consumption. The argument
is, at best, much overstated. At worst it is false. The correct way to calculate the
effect of the automobile industry’s effect on CO2 emissions is to take all the energy
costs of producing a new vehicle, not just the costs at the manufacturing stage. This
includes mining, steel manufacture, the delivery of materials to the factory etc. In
other words we need to consider the amount of energy that is represented by value
added add all stages of car manufacture. This is substantial.
Let’s assume that the proportion of the car that is energy is 30 per cent a figure that can
be argued to be too high. Then for an average car this gives a total energy component
of 400 megawatt hours (MWHRs). Each MWHR produces 0.201 tonnes of CO2 so the
total CO2 released in producing the average car is 83.9 tonnes. This is the equivalent
of about 400, 000 kilometres of motoring for the average vehicle. Assuming that the
proportion of the car that is energy is 20 per cent gives around 268,000, still more than
a plausible distance travelled for the lifetime of the vehicle of, say, 240,000 kilometres.
At a probably unrealistically low ten per cent there is a small saving. But since people
will tend to travel further in newer vehicles, and since the lower price of the car will
tend to further encourage private travel at the expense of more energy efficient public
transport, the overall saving of CO2 emissions is at best negligible.

Alternatively expressed, whilst the subsidy on cars creates a substitution effect
in favour of newer vehicles with a possible marginal reduction in CO2 usage, the
income effect will cause added CO2 emissions from increased vehicle consumption.
But a further tax on vehicles or a further tax on fuel creates a substitution effect and
an income effect in favour of reduced CO2 consumption.

We offer four conclusions.
1. The Market system has not failed. During this recession it is making a brutal and
necessary correction. Risk taking was the basis of astonishing growth in western
                                          Nessebar 2009

 economies for the last 60 years. The banking sector got its risk taking calculations
 badly wrong. But government intervention in markets in ways which distort incentives
 to risk taking, such as subsidising “key” industries, will lead to more pain than gain.

 2. Markets in general make better decisions than governments. Private consumers
 and producers do not always get things right. Mistakes are inevitable. But they are
 as nothing compared with the frequency and scale of mistakes by governments.
 Transferring income from the private sector to give governments more opportunity
 to interfere in the market is almost always a way of reducing economic welfare.
 3. Protectionism is disastrous even in recession. It harms international trade to the
 detriment of all countries, even those who initiate the procedure. It is a responsibility of
 the private sector to urge this upon governments. Government leaders are inclined to
 think more of their ability to improve economic welfare than the evidence suggests.

 4. Subsidies for the car industry are particularly inappropriate. It leads to an increase
 in unemployment and probably adds to further environmental degradation.

 Klein, N (2008) The Shock Doctrine: The Rise of Disaster Capitalism, Kindle books

 Schumpeter, J (1942) Capitalism, Socialism and Democracy, Allen and Unwin

 Engen, E.M. and Hubbard, R.G (2004) “Federal Government Debt and Interest Rates,” National
 Bureau of Economic Research Working Paper No. 10681, August 2004;

                                     Несебър 2009


                                    Yuri Aniskin
               Moscow State Institute of Electronic Technology, Russia

          The final point of corporate changes is in providing of economical growth and
development of a company.
          Transition processes during corporate changes brake economy equilibrium
of a company, so the problem of great importance for management in condition of
development is in keeping of stability of the company within acceptable limits.
          Corporate stability includes in addition to the stability of technology, innovation
processes the stability of finance, marketing, economy activities, social-psychological
firmness of staff and steadiness of organization structure. In this article finance stability
is considered.
          Destabilization of a company during corporate changes is stipulated by breach
of fixed economy proportions.
          To provide efficient realization of innovations, the company should develop
the properties of adaptation to changes and should have an adequate mechanism of
adaptation, which takes into account the specifications of business-processes. Special
attention during the development process is payed to management of organization-
economical processes, which are related to resource and structure changes.
          During implementation of the process of corporate changes it is necessary to
manage the rates of alteration of economic factors and to keep fixed proportions among
these factors. For example the «golden» rule of economy means that the rate of growth
of profit (dP) must pass ahead of the rate of growth of revenue (dR) and the rate of
growth of actives (dW), in other words: dP > dR > dW
          The observation of such a proportion will be provided by reduction of costs of
production and circulation as well as efficient use of resources.
          The main factor of finance stability includes positive value of cash-flow. To
provide solvency of the company the proportion between the rate of proceeds and the
rate of payment must be secured.
          During implementation of the process of corporate changes the following
investments are made: proper, loaned, attracted. This should supply the growth of value
added in proportion to achieved rate of capitalization of the company.
          It is a well-known fact that the level of economic value added (EVA) is defined
by three main elements:
          - profitability of investments (rinv);
          - interest rate of attraction of capital (payment for investments r%);
          - value of investments (Kinv) i.e.
                                           EVA = (rinv – r%)* Kinv
          The worked out economic model of planning of corporate changes allows taking
into account the economic proportions and growth of the price of the company. This
supplies finance stability during implementation of the process of corporate changes.

                                      Nessebar 2009

                         Leonid Kozhushko and Olha Mandziuk
      National University of Water Management and Nature Recourses Use, Rivne,

     Water economy is one of the main link of economic activity of country, water
 resources are basis of socio-economic growth of the state and its economic
 safety, and also an important factor in the development of Agrarian and Industrial
 Complex (AIC). An agrarian sphere in Ukraine always occupied a leading role. Stable
 functioning of the given sector is impossible without land-reclamation which
 influences its functioning and functioning of products processing. Land-reclamation
 enables to decrease weather influence, provide stability of harvests, include new
 lands which are unpromising at ordinary technologies in the process of cultivation.
 As the lands of Ukraine are in different natural zones, some of them need irrigation
 others need drainage. The general area of reclaimed lands is 5,5 million hectares
 (13% of agricultural lands).
     Economic reforms in Ukraine, which began in 1991 were directed on
 transformation of ownership relations in all branches of economy and its transition
 to the market economy. The most contradictory were the reforms in agricultural and
 water economy.
     In Ukraine reform of agriculture was done by formal privatization, the role of
 state enterprises was reduced to the minimum in 2007 they made 0,6% of the
 common amount of operating enterprises in agriculture and use 1,7 thousand hа of
 agricultural lands (State Statistic Committee of Ukraine, 2008).
     Distribution of lands between users is presented in the table. Basic part of the
 land area, are the earths of agricultural enterprises and citizens which on 2007 year
 made up 63% of the general land area are made, near 53% of agricultural lands
 belong to earths of unstate enterprises.
         Changes of ownership form in an agrarian sector were carried out without
 taking into account peculiarities of the existing land improvement systems which
 were used for large collective farms on large land areas. Present land users having
 large land areas are not able to provide the effective functioning and maintenance
 of meliorative networks and this may threaten the environment. The amount of
 water-users have increased considerably but responsibility for proper operation of
 meliorative systems decreased, the structure of the intrafarm meliorative system
 have changed, actually, these systems were left without manager. It was decided to
 transfer the intrafarm part of the meliorative network to the balances of enterprises
 which were legal successors of collective and state farms. The part of the network
 not transferred was given as municipal property to local authorities. The reforms
 carried out left unsettled a question: who exactly must be responsible for the proper
                                    Несебър 2009

state of networks and their maintenance? Who must finance repairing of these
networks? It is the difficult for agricultural producers to exploit these networks
independently because of the lack of the proper qualification; it is also difficult to be
engaged in farmiring effectively in scopes which are not in accord with the scopes
of meliorative network. Negative consequences of such processes are not only that
the meliorative systems are unable to functions properly, but they also create an
ecological and technological danger. Replacement of these systems by new ones
is far more expensive, than expenditures connected with their maintenance and
exploitation (depending on the region expenses on introduction of new irrigated
lands into operation exceed expenses on their reconstruction by 30-60%, the same
for drainage systems.) (Cherevko R. Yatskiv M. 1995, 139-140 pp).
     There is a serious problem in the financing of the effective functioning of these
networks: the organs of local self-government do not have sufficient funds for this
purpose, and they are not foreseen in local budgets (and even if they are provided
the amount is not sufficient). The Committee of Water Management cooperates
with the regional bodies of local authorities to allocate funds from the local budgets
to maintain the intrafarm meliorative systems. Small growth is marked in this sphere,
so in 2006 repair works on these systems were made to the amount of 3,5 million
UAH, and in 2007 - to the amount of 4,6 million UAH (that is on 1,1 million UAH
more as compared with a previous year) (State Committee of Water Management
of Ukraine, 2008). Besides attraction of financial resources for the development and
introduction of innovative development of industry is a sharp question, as those
technologies, that are used on today are out-of-date and uneffective (for example,
irrigation by the water sprinklers machines «Frigate», «Kuban», «Dnepr» leads to
30-40% lost of water) (Cherevko R. Yatskiv M. 1995, 139-140 pp).
      Distribution of agricultural lands between land owners and land-users (by the
      end of 2007, thousand of ha) (State Statistic Committee of Ukraine, 2008)

                             Amount               General               Agricultural
                             of land-users     landed area           lands
                             (thousand)        (thousand ha)            (thousand ha)
     1                       2                    3                     4
      The lands in
 total                       25410,6               60354,8              41650
      Lands of
                             25162,                38170,7              36754,7
 enterprises and
      Lands of
 unstate agricultural        67,3                  20625,6              19939,7

                                      Nessebar 2009

      Lands of
  state agricultural        2,233                1295,4              1105,6
      Lands of
                            0,13                 11,1                1,7
      Lands of citizens     25092,3              16238,6             15707,7
      Lands of users
                            248,609              22184,1             4895,3
  of other categories

     The programs of rational water use and protection of nature resources foresee:
     - introduction of scientifically substantiated system of water use and water
 consumption, which, on the one hand would provide all industries of national
 economy with water, and on the other hand do not admit such changes in water
 ecosystems which in the future could result in their degradation and exhaustion;
     - development and introduction of methods of flow regulation from the surface
 of water reservoirs pools, artificial addition to underground waters and water
 conditions of soils;
     - development and introduction of the most perfect methods of defence of water
 resources of country from eutrofication;
     - creation of water protection complexes in the places of surplus concentration
 of water polluted objects and introduction of the automated control systems by
 water protection complexes;
     - development and introduction of wasteless and waterless technologies,
 transition of industrial enterprises on circulating water use, conduction treatment
 plants, application of new methods of mine waters demineralization;
     - development and introduction of modern high efficient meliorative systems
 and also irrigation and watering norms, which would provide agricultural crops with
 moisture and prevent surplus filtration of water, swamping, submerging and salting
 of soils (Cherevko R. Yatskiv M. 1995, 141-142).
     All these measures need assistance and increase of innovative activity financing
 in the water economy.
     The aim of the article is to consider the organizational-economic mechanism of
 ownership relations transformation on meliorative lands, as the way to the increase
 of financing of innovative development in the sphere of meliorative agriculture.
     The dynamics of innovative activity in Ukraine for the period of 2000 - 2008 is
 presented in fig. 1 and 2
     As one can see the amount of enterprises which are engaged in the innovation
 activities dicreases, although the amount of funds put in the development and
 introduction of innovations - increases, grated part of innovations is in industry.
     Innovative activity on 60-80% is financed by the personal funds of enterprises
 and only 2-3% due to the funds of the state budget (State Statistic Committee of
                                   Несебър 2009

Ukraine, 2008). Because of low profitability of agricultural producers (fig. 3), and
lack of the capital assets (fig. 4) developments and introduction of innovations in
the sphere of land-reclamations is low and low is the state financing of fundamental
researches and developments in this sphere (fig. 5).
    To attract means for realization of investments and innovations in the sphere of
land-reclamation it is necessary first of all to transform the ownership relations so as

producers functioning within the limits of one meliorative system had the personal
interest and possibility to exploit this system effectively. Transformation of ownership
relations in agricultural land-reclamation can be carried out by setting up:
                                       Nessebar 2009

     - associations of water-users, which are prevalent in Europe, increase of volume
 of investments on building and exploitation of networks, personal interest in
 development and introduction of innovations, increase of productivity of agricultural
 cultures as a result of effective exploitation of networks and their reliable work,
 decline negative environmental impact are their advantages; the shortcomings:
 are these associations will not be able to represent the interest and co-ordinate a
 question effectively enough if the amount of users within the limits of one network
 is very large; the interests of simple users - physical persons could not be protected;
 these associations will not be able to function effectively within the limits of the
 dried lands because of the low personal interest of agricultural workers in the use
 of drained lands and their low motivation in the increase of water management
 financings measures;
     - corporative-contractual associations, advantages of which are: attraction of
 bank, scientific and project-research institutions for the development of innovative
 activity in industries and investments in building, reconstruction and exploitation
 of the meliorative systems; the uneffectiveness in the case of grate number of
 producers within the limits of one network, incapability to protect the interests of
 small producers and physical persons are their shortcomings;
     -agricultural cooperatives, advantages of which are the increase of volume
 of investments in building and exploitation of networks, personal interest in
 introduction and development of innovations, effective exploitation of networks (due
 to attraction of water managment organizations to participation in cooperatives),
 reduction of negative environmental impact (due to the improvement of efficiency
 of the networks us), relative protection of physical persons; the shortcomings are the
 absence of motivation and mechanisms for setting up agricultural cooperatives
     - the joint-stock companies advantages of which are in the increase of volume
 of investments in building and exploitation of networks, development of innovative
 activity, reduction of negative environmental impact; problems with coordination of
 interests, low motivation of producers, operating within the limits of the dried earths
 are their shortcomings.
     The mechanism of transformation of ownership relations is represented on fig. 6.
 It consists of successive stages of transformation changes; organizational-economic
 regulation mechanisms of the created associations activity and organizing of legal
 forms (privatization, concession, lease, influence with the help of legislatively-legal
 acts, price policy, payments for maintenance of the meliorative system and prices for
 water, favourable crediting, taxes, subsidies and subvention, fines for worsening of
 lands and buildings conditions); state organizationally-economic mechanisms which
 facilitate a special purpose funds creation within the frames of the created forms
 (benefit taxation, treatment, a special purpose crediting, subsidies and subvention).
     Consequently, ownership relation transformation in agricultural land-reclamation
 is one of the ways of investments increase and development of innovations in
 industry. Offered mechanism of transformation is directed on creation of different
 legal forms the participants of which will be interested in investment to land-
                                          Несебър 2009

              Fig. 6. Mechanism of ownership transformation relations in
                     the field of in land-reclamation agricultural.
reclamation and effective exploitation of networks with the state support. Only
under these conditions it will be possible to maintaine agricultural meliorative lands
and get a maximum return from them.

    Reference list.
    Cherevko R. Yatskiv M. (1995) Economy of water use. Svit: Lviv. 203 pp. (in Ukraine language).
    State Statistic Committee of Ukraine (2008) Statistical annual of Ukraine for 2007 year edited by
Osaylenko O. Consultant: Kiev. 572 pp.
    State Committee of Water Management of Ukraine. (2008). About the results of activity of water and
meliorative complex in 2007 and task in relation to providing of the permanent functioning of industry in
2008: Order of the State Committee of Water Management of Ukraine from 15.02.2008. № 38.
    Verhovna Rada of Ukraine (2005). Law on Budget of Ukraine in 2005. Law No 2285-IV, dated by 23
December 2004. Kiev, Ukraine.
    Verhovna Rada of Ukraine (2006). Law on Budget of Ukraine in 2006 Law No 3235-IV, dated by 20
December 2005. Kiev, Ukraine
    Verhovna Rada of Ukraine (2007). Law on Budget of Ukraine in 2007 No 489-V, dated by
19.12.2006. Kiev, Ukraine
    Verhovna Rada of Ukraine (2008). Law on Budget of Ukraine in 2008 No 107-VI, dated by
28 December 2007. Kiev, Ukraine
    Zhovtonog O., Polischuk V. and other (2008). The role of associations of water users in the
sustainable use of the irrigated lands. Water managment of Ukraine 1, 12-25 (in Ukraine language).

                                          Nessebar 2009


                                    Gancho Ganchev
                          International University College, Sofia

          1.   REER and The Tourist Industry in Bulgaria

            The tourist industry is certainly one of the most dynamic sectors of the Bulgarian
 economy. The recent strategy of the Ministry of Economy and Energy of Bulgaria includes
 the tourism, together with the manufacturing industry and the Small and Medium Size
 sector, in the group of the most competitive sectors of the Bulgarian economy. The
 tourism will become even more important after the accession of Bulgaria to EU after the
 first of January 2007.
 The previous (2000-2006) and the present (2007-2013) National Development Plan also
 rely on tourism as one of the engines of economic growth.
            The current global economic crisis seriously affects the Bulgarian tourist industry
 and requires new strategic decisions.
            The tourist sector is important also from macroeconomic point of view. It’s
 one of the few sectors, generating foreign trade surpluses and hence contributing to the
 external equilibrium of the Bulgarian economy.
            The worsening of the current account deficit is one of the biggest flaws of the
 Bulgarian economy (IMF:2004). So the role of the tourist sector is crucial as source of
 scarce foreign currency. In the same time, the fixed exchange rate (Currency Board)
 regime of the Bulgarian lev, makes the position of the tourist sector quite vulnerable,
 given the well known price-sensitive nature of the demand for tourist services (Durbarry
            Even so, there are relatively few analytical papers trying to explain the factors
 behind the strong expansion of the tourist industry and recent overcapacity problems.
 As a consequence, it is not known to what extent the present macroeconomic instability
 is compatible with tourist sector strong growth and what external factors may affect the
 industry performance.
            The aim of the present paper is to suggest a simple explanation of the tourist
 industry growth, based on the partial equilibrium analysis. Keeping the analysis as simple
 as possible, we can still explain what are the main driving forces and the possible threats
 to the tourist sector.

          2.   A Simple Partial Equilibrium Model

           The main objective of the paper is to evaluate the demand and supply curves
 for the Bulgarian foreign tourist services market.
           For this purpose, we assume that the demand side consists of n identical
 consumers enjoying identical linear utility functions and identical income levels.
 Furthermore, we conjecture that these consumers buy the same constant basket of
 goods and services. In brief, we have identical consumers buying the same composite
           To simplify additionally our task, we presume that foreign tourists’ basket
 coincides with the basket, used by the authorities to compute the Real Effective Exchange
                                               Несебър 2009

Rate (REER). In this paper we used the variant of REER with the consumer price index as

deflator in contrast to the unit labor cost alternative. Thus the REER becomes the “price”
of one unit of compound tourist’ services product, bought and sold on a perfect market.
          The REER is calculated by BNB, according to the following formulae:

                DEFLATORB                          
REER = ∏                   G
       i               R
          DEFLATORi * E BGN / currency _ o
                                         f    _i   
            Where DEFLATORB is the deflator for Bulgaria (CPI for Bulgaria), DEFLATORi is
the deflator (SPI) for the respective foreign trade partner country, ERBGN/currency_of_i – the
exchange rate of the BGN against unit currency of partner country i, i=1,..,n, and wi
– weight of partner country i in the basket;
            Both the supply and demand of tourist services are supposed to depend on the
price, i.e. on the REER. The quantities of tourist services supplied and demanded coincide
in our case with the real foreign tourist spending and are taken from the respective item
of the balance of payments statistics of Bulgaria.
            Consequently we can write two equations:
      (1)      ST = ST(REER, CT)
      (2)      DT = DT(REER, YF)
            Where ST stands for the supply of tourist services; DT represents the foreign
demand; CT is the capacity of domestic tourist industry and YF reflects the foreign
            As a result of this formulation, the supply and demand for tourist services
are supposed to depend additionally on domestic tourist industry capacity and foreign
income level respectively. The latter two variables can be interpreted as shift parameters,
displacing supply and demand curves.
            Since in equilibrium the supply equals demand, we have two equations, one
dependent and three exogenous variables.
            From the point of view of econometric estimation, the two simultaneous
structural equations system with three instrumental variables is clearly over identified,
so the Ordinary Least Squares (OLS) method is not applicable (Piganiol B.:1978: 94). In
this case we can apply the two-stage LS method (TSLS).
            Another problem is the seasonality. This is particularly noticeable in the case of
foreign tourism earnings, represented at Figure N1. On can easily observe the summer
picks of foreign tourist spending in Bulgaria. The seasonal factors seriously worsen the
results of econometric estimation of the relations between dependent and independent
            To resolve this problem, we applied two variants of seasonal adjustment. The
first is based on the multiplicative moving average method. The calculation involves the

         	 	The	nominal	effective	exchange	rate	is	defined	as	a	geometric	weighted	average	of	the	bilateral	
exchange	rates	of	the	currency	of	a	given	country	against	the	currencies	of	the	partner	countries	of	this	
country.	 The	 real	 effective	 exchange	 rate	 is	 defined	 as	 a	 geometric	 weighted	 average	 of	 relative	 prices	
(costs)	between	a	given	country	and	its	trading	partners,	expressed	in	a	common	currency.	It	is	calculated	
by	deflating	the	nominal	effective	exchange	rate	using	appropriate	price	and	cost	indexes.	The	basic	feature	
of	the	methodology,	applied	by	the	BNB	and	ECB,	is	the	usage	of	a	geometric	average	in	the	calculations	
of	the	effective	exchange	rates	and	of	weights,	based	on	manufacturing	trade	accounting	for	third	countries	

                                          Nessebar 2009

 geometric mean centered moving average technique, used by the econometric package
 Eviews. The results of the seasonal smoothing are presented in the Appendix I.
           The second approach exploits the Hodrick-Prescott filter (Hodrick, R.J. and E.C.
 Prescott: 1997: 1–16). The latter is a two-sided linear filter that computes smoothed
 sequences by minimizing the series’ variance, subject to penalty constraints. In our case
 the penalty parameter λ equals 14400, level appropriate for monthly data. The results
 are presented in graphical form in the Appendix II.
           The difference between the two methods is in the degree of smoothing. The
 Hodrick-Prescott filter allows for much smoother series, suitable for analyzing long term
 relations, but implies additional loss of information.
           Another problem is the cointegration of data series. For this purpose we applied
 Augmented Dickey-Fuller Unit-Root test for all series drawn in the analysis. All the
 seasonally adjusted data correspond to an I(1) process (the unit-root hypothesis cannot
 be rejected for the first differences), so the series are integrated of the same order and
 can be estimated in principle as a system without additional transformations.

                                          Figure N1

 Sources: The Bulgarian National Bank and The National Statistical Institute, different

          3.   Proxies and Estimation Results.

           Some of the variables from the equations (1) and (2) are relatively easy to
 evaluate. This applies especially to the REER. The data about the real effective exchange
 rate is regularly published by the National bank of Bulgaria (BNB). The Real Effective
 Exchange Rate calculated by BNB is based on the CPI index as of the end of period (BNB1:
 2005). The same applies to the data about the real foreign tourist expenses, respectively
 the variables ST and DT.
           In the same time, it is difficult to obtain data about the domestic tourist industry
 capacity and foreign income, especially on monthly basis. The natural solution is to look
 for proxies.
           In the case of domestic tourist industry capacity we used the data about the
                                     Несебър 2009

real credit to the private sector as a proxy. The real credit equals the commercial banking
sector lending to the private sector, divided by the CPI. The real credit to the private
sector (the variable rcps) turns out to be highly correlated with the tourist industry
          The latter variable is used for the econometric estimation in two variants. First,
as rcpssa, reflecting the seasonally adjusted data for the real credit and secondly, as
rcpshp, staying for the real credit time series smoothed by a Hodrick-Prescott filter.
          The same approach is applied to the proxy, dealing with the foreign income. The
variable, used in this case is the M3 money supply in the euro area. The latter variable is
generally correlated with the income growth, on the one hand, and reflects the demand
dynamics in the most important for the Bulgarian foreign tourist earnings economic
region (EC), on the other. The variable is employed in both seasonably adjusted and filter
smoothed variant.
          The results of the seasonably adjusted econometric estimation are as follows:

         (3) RTESA = 0,005*RCPSSA(-8) + 0,993*REERSA(-1)
         (4) RTESA = 0,040*EUROM3SA(-8) – 0,557*REERSA(-7)

          The numbers in brackets display the time lags. All the coefficients are significant
with the exception of coefficient before REERSA in the equation (4). The absolute ratio
between the coefficients, reflecting the impact of price (REER) on the quantities supplied
and demanded respectively (0,993/0,557=1,783) is obviously higher then one, implying
equilibrium non-convergence property of the system, according to the elementary rules
of the partial equilibrium stability dynamics (Ory J-N and Raimbourg Ph.: 1995: 57).
          This means, that the system is not supposed to return to equilibrium if disturbed.
However, since the second coefficient is not significant, we may conjuncture that the
disequilibrium dynamics is not highly probable.
          The filter smoothed variant of the estimation takes the following parameters:

         (5) RTEHP = 0,011*RCPSHP(-6) + 0,995*REERHP(-3)
         (6) RTEHP = 0,090*EUROM3HP(-6) – 2,444*REERHP(-2)

           In this system all the coefficients are significant. The equilibrium dynamics
properties are also different. The absolute level of the price (REER) related coefficients
ratio is less than one (0,995/2,444=0,407) thus allowing for equilibrium convergence.
           The equilibrium convergence should not be overestimated, because it does
not preclude overcapacity. In fact an exogenous decline in demand (provoked by income
decline for example) will simply enforce short run market equilibrium without affecting
the overcapacity and the eventual overindebtness of the tourist industry.
           However, if we drop the simplifying assumption about REER (if the REER does
not equal the real tourist services price) then an enhanced price sensitivity of the tourist
sector to the market excess demand could insure short-run equilibrium. To illustrate this,
we can visualize the supply and demand interplay.
           The Figure N2 plots the supply and demand schedules based on the HP filter
smoothing estimation (equations 5 and 6). The SS1 and SS2 lines stand for the supply in
1999 and 2005, while the DD1 and DD2 lines replicate demand.
           As we can see from the figure, the real equilibrium level of tourist services, in
terms of REER, declines. The main reason for this is the fast increase in supply. Therefore,
we can expect that either the effective prices had declined or that the tourist industry
                                         Nessebar 2009

 had accepted capacity underutilization.
                                        Figure N2

                                                                      Yet we have serious
                                                              reasons to speculate that the
                                                              industry could have reached
                                                              higher efficiency rank with
                                                              less investment.

                                                              4.     Some       Conclusions
                                                              about Bulgaria as Foreign
                                                              Tourist Destination.

                                                                     The         econometric
                                                              estimation of the partial
                                                              equilibrium model allows for
 some additional conclusions about the Bulgarian foreign tourist industry.
            The first conclusion is obvious and it means that the price (REER) affects the
 industry dynamics. Since however (as one can easily see from the smoothed series) the
 REER has a stable upward trend (this trend is generally not affected by the tourist industry
 itself), the growth of the sector cannot be explained by the low (compared to the EU and
 Russia) price level in Bulgaria.
            The main driving forces are the tourist industry capacity building, including the
 increasing leverage, on the supply side, and the regular income growth in the countries,
 consuming Bulgaria’s tourist services, on the demand. The model suggests that in 2005
 the tourist sector suffers probably from excess supply and would need to lower prices.
            Given the fact that the external demand in 2009 is declining, we can conjecture
 that in addition the overcapacity, a second factor (demand shift) will exercise additional
 pressure for price cuts.
            While the factors, affecting the slope of the demand and supply schedules are
 in principle of a short-run nature, the time lags are relatively long- up to six months.
 This signifies that price shocks need fairly long periods to be absorbed. The long delay
 of demand response can be explained by the contracting practices at the international
 tourist market.
            The long term (shift) factors (money supply/income and industry capacity/
 leverage) have more extended impact periods- up to eight months.
            The model does not allow for long term (reflecting interrelations between
 demand and tourist industry capacity and labor supply) equilibrium dynamics
 investigation. Nevertheless we can conjecture that these relations probably do not
 overrule the possibility of overcapacity.
            The model is based on the idea that the consumers of the tourist industry
 product are identical and the product is not diversified. The removal of this constraint
 would certainty improve the ability of the tourist industry to adjust to the exogenous
            The advertising, product diversification and the diminishing of the tourist
 industry dependence on the summer picks, will certainly improve the foreign tourism
 prospects if combined with higher price sensitivity.
            On the other hand, taking into account the important macroeconomic role the
 tourist industry is playing under the Currency Board Rule, the government is strongly
                                  Несебър 2009

interested in supporting the tourist industry.
         So, as final remark, the tourist sector needs complex strategy, including
appropriate pricing, product strategy, strategic financing and constructive government
                                        APPENDIX I
                                  Seasonal Adjustment

System: SYS01
Estimation Method: Two-Stage Least Squares
Date: 02/09/06 Time: 23:23
Sample: 2000:06 2005:10
Included observations: 65
Total system (balanced) observations 130
                          Coefficient    Std. Error  t-Statistic           Prob.
           C(1)             0.005118     0.000813    6.294759             0.0000
           C(2)             0.942925     0.035525    26.54282             0.0000
           C(3)             0.039820     0.008209    4.850923             0.0000
           C(4)            -0.557217     0.355911   -1.565609             0.1199
Determinant residual covariance          1802.381
Equation: RTESA = C(1)*RCPSSA(-8) + C(2)*REERSA(-1)
Observations: 65
R-squared                   0.625280 Mean dependent var                 151.0253
Adjusted R-squared          0.619332 S.D. dependent var                 23.43377
S.E. of regression          14.45824 Sum squared resid                  13169.56
Durbin-Watson stat          0.776471
Equation: RTESA = C(3)*EUROM3SA(-8) + C(4)*REERSA(-7)
Observations: 65
R-squared                   0.554181 Mean dependent var                 151.0253
Adjusted R-squared          0.547104 S.D. dependent var                 23.43377
S.E. of regression          15.77035 Sum squared resid                  15668.35
Durbin-Watson stat          0.662205

                                             Nessebar 2009

                                          APPENDIX II
                                      Hodrick‐Prescott Filter

 System: SYS02
 Estimation Method: Two-Stage Least Squares
 Date: 02/09/06 Time: 23:35
 Sample: 2000:04 2005:10
 Included observations: 67
 Total system (balanced) observations 134
                           Coefficient    Std. Error  t-Statistic                          Prob.
            C(1)             0.011026     0.000216    50.96058                            0.0000
            C(2)             0.995344     0.009978    99.75842                            0.0000
            C(3)             0.090415     0.003213    28.13732                            0.0000
            C(4)            -2.443921     0.138907   -17.59388                            0.0000
 Determinant residual covariance          101.5096
 Equation: RTEHP = C(1)*RCPSHP(-6) + C(2)*REERHP(-3)
 Observations: 67
 R-squared                   0.986728 Mean dependent var                               190.0609
 Adjusted R-squared          0.986524 S.D. dependent var                               35.80847
 S.E. of regression          4.156864 Sum squared resid                                1123.169
 Durbin-Watson stat          0.014883
 Equation: RTEHP = C(3)*EUROM3HP(-6) + C(4)*REERHP(-2)
 Observations: 67
 R-squared                   0.958411 Mean dependent var                               190.0609
 Adjusted R-squared          0.957771 S.D. dependent var                               35.80847
 S.E. of regression          7.358535 Sum squared resid                                3519.622
 Durbin-Watson stat          0.010610
      BNB1, http://www.bnb.bg/bnb/home
            EXCHANGE RATES OF BULGARIA, http://www.bnb.bg/bnb/home
      Durbarry R., “Long Run Structural Tourist Demand Modeling: An Application to France”, TTRI
            Discussion Paper 2002/1, 23 p.
      IMF Country Report No. 04/177, June 2004
      Ministry of Economy and Energy of Bulgaria, Strategy for Improvement of the Productive Sector
      Hodrick R.J. and Prescott E.C., (1997) “Postwar U.S. Business Cycles: An Empirical Investigation,”
            Journal of Money, Credit, and Banking, 29, pp. 1–16.
      Piganiol B., (1978) “Statistique et Econometrie”, Dalloz, Paris, 180 p.
      Ory J-N and Raimbourg Ph., “Microeconomie”, BREAL, 1995, 204 p.
                                  Несебър 2009


                                   Nikolay Pavlov
                 St. Petersburg State Polytechnic University, Russia

In the time of crisis the range of marketing tasks changes. The survey of expert
opinions concerning this problem (Vesnovskaya, 2008, June), (Perspectives of
Development of Marketing under Conditions of Crisis, 2008, December), shows that
new ideas are necessary. They can help to use limited resources more effectively.
Important thing is proper choice of marketing method out of their large variety.
Product management is one of the most important parts of marketing mix. Very
often it determines the success of a company on the market (Kotler & Keller, 2006).
Thus, practically in every approach to marketing, product plays the most important
role. Product management is a complicated multiaspect activity, for which a great
number of different methods, sometimes very sophisticated ones, are developed.
In this paper marketing problems and tasks of product management are revealed
and typified. From this starting point their specifics and difficulties are shown
and discussed. The task specifics of method choice for a given marketing task are
considered. The approach of such a choice is suggested.
The variant of sequence of marketing activity stages in management of products
of different nature (commodities, services, intellectual products) was suggested
by the author in (Pavlov, 2009). It is based on different sources: Kotler’s Marketing
Management, Russian Federation State Standard of Lifecycle of Goods, Unified System
of Program Documentation and Unified System of Engineering Documentation.
Finally the following large stages were defined.
          1. Defining of the possibility of developing of new product.
          2. Developing the ides of new product.
          3. Research.
          4. Developing the concept of new product.
          5. Design and development work.
          6. Pilot production and test marketing.
          7. Commercialization.
          8. Sales of products.
          9. Product modification.
          10. Product elimination.
In this sequence one may not find some important tasks. This is because they are
only in a small degree linked with marketing. The example is preproduction.
Typical tasks for all stages are shown at Fig.1.

                                       Nessebar 2009

        Fig.1. Marketing tasks of product management and their typification

 On the left side of this figure product management tasks are shown, on the right side
 – marketing research tasks that give information for problem solving. In the middle
 one can see problem areas of product management. These areas have some specific
           1. Special mathematical methods of marketing research and data analysis.
 They are collected, for example, in (Barsegyan, Kupriyanov & Stepanenko, 2007),
 (Scorobogatykh, Danko, Kosokukov & Samylovsky, 2006). They can be divided into
 three large groups.
           1.1. “Classical” methods: cross-tabulation, factor analysis, discriminant
 analysis etc. In these methods the researcher first puts forward a hypothesis about
 variable interrelation and then collects data for checking this hypothesis. As a result
 of analysis of collected data the confidence in the hypothesis correctness may either
 increase or decrease, and the hypothesis itself can be either accepted or rejected.
           1.2. Methods, in which variables interrelationships are defined in the process
 of analysis: online analytical data processing, described, for instance, in (Barsegyan,
 Kupriyanov & Stepanenko, 2007), some variants of cluster analysis, to some extent
 – multidimensional regression analysis. In these methods a researcher, setting
 different ways of processing of already collected data, can find interrelationships
                                    Несебър 2009

between variables or discover groups of similar elements of research.
          1.3. Methods of Data Mining, described in details in (Baranov, Bryantsev,
Jelvakov, 2006), (Barsegyan, Kupriyanov & Stepanenko, 2007). These methods can
sometimes automatically define unobvious, non-trivial interrelationships between
variables, using the computational capability of modern computers. One of the most
popular examples of Data mining usage is defining sets of goods that are sold together
within hypermarket assortment of several thousand items. But using these methods
needs deep special knowledge. Firstly, one must be aware of principles and specifics
of data mining methods, such as classification trees, genetic algorithms etc. Secondly,
researcher must know rather large number of adjacent questions, such as storage-and-
retrieval of data from databases.
The main problem of all subtypes is diversity and complicity of used methods and lack of
publications devoted to the basics of this or that method and usage of these methods in
product management.
          2. Mental object of research. Though some of methods of this group can be
called marketing methods, such type of research is closely related with psychology
and sociology. Mental processes are not fully investigated. Methods used are: testing
consumer psychological attributes, depth interview, structural equation modeling etc.
These methods have their own specifics, which makes mastering all variety of marketing
methods still more complex.
          3. Multicriterion problems. The multicriterion task of decision making is known
for rather a long time. But all the time there are problems of defining criteria, their
importance, evaluating of every criterion. It is large and complex work. Rather often
in considered marketing tasks subjective approach can be found. Numerous books,
for example (Dubrovsky, 2007), are devoted to providing consistency of estimators in
multidimensional tasks, principles of multicriterion choice in decision making. One
example is using of utility function.
          4. High dimensionality of object of research. This problem has much in common
with multiple criteria. In case of high dimensionality there are problems of defining
important parameters for analysis and revealing hidden interrelationships between
them. Examples are: multicollinearity and defining the set of independent variables
in multidimensional regression analysis, choosing the set of important independent
variables in classification tree method.
          5. Tendency to hide information from possible competitors. Many markets,
especially B2B in modern Russian economical situation are informatively closed. Work
is done under conditions of lack of information and inadequacy of information. Thus,
indirect estimations and expert opinions are used. Large group of methods are related
with these manipulations.
          6. Semistructured problems. Many marketing tasks cannot be solved with the
usual sequence of steps: defining source data—task formulation—method choice—
obtaining the result. Very often it is necessary to use trial-and-error method, refine the
task formulation in the process of obtaining decision.
          7. Creativity methods. There are a number of methods that help in solving
creative problems: theory of inventive task solving of G. Altshuller, W. Disneys method
etc. Their main specific is that they organize mental creative processes.

To top