INNOVATIVE MANAGEMENT:

THEORETICAL, METHODICAL,
AND APPLIED GROUNDS

Illiashenko S.M., Strielkowski W. (eds.)

Pražský Institut zvyšování kvalifikace

Prague Institute for Qualification Enhancement
Illiashenko S.M., Strielkowski W. (eds.). Innovative management: theoretical,
methodical, and applied grounds. 1st edition, Prague Institute for Qualification
Enhancement: Prague, ISBN 978-80-906210-1-5, 296 pages

Editors:
Illiashenko S.M., Doctor of Economics, Professor, Head of the Department of Marketing
and Management of Innovative Activity, Sumy State University; Professor of Economic and
Humanistic Higher School;
Strielkowski W., Ph.D., Doctor of Economics, Professor at Prague Business School, Visiting
Professor, Department of Agricutlural and Resource Economics, University of California,
Berkeley.
Reviewers:
Balatsky E.O., Doctor of Economics, Professor, Sumy State University (Sumy, Ukraine);
Chukhray N.I., Doctor of Economics, Professor, Lviv Polytechnic National University (Lviv,
Ukraine);
Fedorchenko A.V., Doctor of Economics, Professor, Kyiv National Economic University
named after Vadym Hetman (Kyiv, Ukraine);
Frolov S.M. Doctor of Economics, Professor, University of Customs and Finance (Dnipro,
Ukraine);
Karpenko N.I., Doctor of Economics, Professor, Poltava University of Economics and Trade
(Poltava, Ukraine);
Khlobistov Ye.V., Doctor of Economics, Professor, University of Economics and Humanities
(Bielsko-Biala, Poland);
Klisinski J., Doctor of Economics, Associate Professor, University of Bielsko-Biala (Bielsko-
Biala, Poland);
Kocziszky G., Doctor of Economics, Professor, University of Miskolc (Miskolc, Hungary);
Melnyk L.G., Doctor of Economics, Professor, Sumy State University (Sumy, Ukraine);
Mirchev A., Doctor of Economics, Professor, Asen Zlatorov University of Burgas (Burgas,
Bulgaria);
Mykhailova L.I., Doctor of Economics, Professor, Sumy National Agrarian University
(Sumy, Ukraine);
Neykova R.N., Doctor of Economics, Professor, Higher School of Insurance and Finance
(Sofia, Bulgaria);
Petrunya Yu.E., Doctor of Economics, Professor, University of Customs and Finance
(Dnipro, Ukraine);
Reshetnikova I.L., Doctor of Economics, Professor, Kyiv National Economic University
named after Vadym Hetman (Kyiv, Ukraine);
Sadchenko O.V., Doctor of Economics, Professor, Odessa National University named after
І.І. Mechnikov (Odessa, Ukraine);
Sahaidak M.P., Doctor of Economics, Professor, Kyiv National Economic University named
after Vadym Hetman (Kyiv, Ukraine);
Yakovlev A.I., Doctor of Economics, Professor, National Technical University «Kharkiv
Polytechnic Institute» (Kharkiv, Ukraine);
Zharova L.V., Doctor of Economic, Professor, University of Economics and Humanities (Bielsko-
Biala, Poland);
Karpishchenko O.O., PhD, Associate Professor, Sumy State University (Sumy, Ukraine);
Shkola V. Yu., PhD, Associate Professor, Sumy State University (Sumy, Ukraine)

© Cover design: Pražský Institut zvyšování kvalifikace & Sumy State University, 2018
© Publisher: Pražský Institut zvyšování kvalifikace, 2018

ISBN 978-80-906210-1-5

296 pages
Prague 2018
 TABLE OF CONTENTS

Introduction 6
Illiashenko S.M., Strielkowski W.

Acknowledgements 8

1. The role of innovations in ensuring competitiveness

of enterprises 12
Letunovska N.Ye., Provozin N.V., Vashchenko T.V., Strielkowski W.
Introduction of breakthrough innovations as a significant factor
of forming a highly competitive company’s position 12

Nagornyi Ye.I., Olefirenko O.M., Shevliuga O.G., Jankurová A.

Specific features of competitive relations at innovation active
enterprises 22

Prokopenko O.V., Omelyanenko V.A.

Innovation communications within the high-tech sectors
development (case of space industry) 34

2. Strategic management of innovation active enterprises 44

Bozhkova V.V., Goreta L.V., Kiseleva L.
Research of methods of strategic analysis of industrial
enterprises 44

Garmider L.D., Gonchar L.A.

The basic strategy of potential development of the commercial
enterprises 52

Golysheva I.O., Gryshchenko O.F., Illiashenko N.S., Masár D.

The relationship between scientific and educational projects
and innovative activities of industrial enterprises on the way
of the outstripping development 60

Zaruba V.Ia.
Optimization of the duration of collection of orders on the
enterprise’s products 76
3. Features of innovative development of Ukrainian
enterprises in the globalized economy 83
Sager L.Yu., Syhyda L.О., Gryshova I.
Current state and prospects for the development of innovative
activity of industrial enterprises in Ukraine and the world 83

Porev S.M.
Some European challenges for the Ukrainian innovation system 96

Gerasymchuk V.H.
Risks and threats on the development of foreign economic activity
in globalization conditions 105

Bublyk M.I., Karpiak A.O., Rybytska O.M.

The perspectives of IT-industry development in Ukraine
on the basis of data analysis of the world economic forum 115

4. Features of innovative development of separate regions

in Ukraine 128
Komarnytskyy I.M., Komarnitska G.А.
Formation of the innovative development potential in mountainous
area of Lviv region 128

Nikishyna O.V., Bondarenko S.A., Liganenko I.V.

The development of grape growing and gardening in Odessa region
(logistic approach) 140

Kharichkov S.K., Volosiuk M.V., Lukianova Yu.O.

Innovative trends in management of the development of Ukrainian
port infrastructure 151

5. Innovative marketing as a tool for economic growth 160

Kniazevych A.O.
Factor model for assessing the effectiveness of innovation market 160

Melnyk Yu.M., Sager L.Yu., Niño-Amézquita J.

The problems of development of an effective management system
of internal communications and ways to overcome them 176

4
Samoylenko I.О., Gnatenko M.K.
Activity of electric power engineering enterprises on the basis
of socially responsible marketing 190

Illiashenko S.M., Shipulina Y.S., Rot-Sierov Ye.V., Strielkowski W.

Methodological principles for defining market prospects knowledge
of machine-building enterprises 200

Boychuk I.V.
Management of marketing activities of enterprises on the internet:
planning and organization of processes 213

6. Logistic support of enterprises innovative development 222

Bilovodska O.A., Niño-Amézquita J., Zielińska A.
Transport, transit and personnel potentials in logistic support
of innovative distribution system: essence and evaluation 222

Syhyda L.О., Jankurová A., Masár D.

Criterion basis of marketing channels suitability for innovative
products distribution 245

Gaidabrus N.V., Ruban D.A., Zielińska A.

An analysis of logistic service particularities and outsourcer’s
impact on its quality on industrial market 259

7. Innovations in the regulation of economic and legal

relations 276
Teletov A.S., Teletov D.A.
International sanctions in the modern conditions 276

Pererva P.G., Kosenko A.V., Tkachev M.М, Kobieliev V.M.

Innovative compliance of technology to combat corruption 285

Postface 295
Illiashenko S.M., Strielkowski W.

5
 INTRODUCTION

As the experience from around the world shows, countries that

embarked on the path of innovation development often become leaders
in economic growth. They provide high standards of life quality of their
population. Reliance on innovation and innovative activity is one of the
most effective ways to secure and strengthen relative competitive
advantages, to strengthen market positions to move towards innovative
advancement. This is fair for both individual organizations (enterprises
and institutions) and for national economies as a whole.
From these standpoints, this monograph presents the results of a
complex scientific research that deepens and develops the methodologi-
cal, theoretical, methodical and applied principles of management of
innovation development at various levels: state, regional (branch), level
of individual organizations, etc.
The authors investigate the role of innovation in ensuring the com-
petitiveness of industrial enterprises, which traditionally determines
the pace of development of virtually all branches of the national
economy. They reveal the role of innovations in ensuring the competitive
positions of industrial enterprises. The specifics of the competitive rela-
tionship between enterprises and innovators are revealed. Applied
aspects of creation and introduction of innovations in communication
activities of organizations of high-tech sector of economy are highlighted.
Considerable attention is paid to the tools and methods of strategic
management of the activity of innovation-active enterprises. In particu-
lar: a comparative analysis of strategic methods in the sphere of indus-
trial enterprises activities is made; the approach to formation of strategy
development of their potential is revealed; the existence of the intercon-
nection between scientific and educational projects of universities and
research organizations and innovative activity of industrial enterprises
in line with the concept of innovation advancement is substantiated; an
approach to optimizing their portfolio is proposed.
The peculiarities of innovative development of Ukrainian enterprises
in the globalized economy are researched. On this basis, an assessment
of the current state and prospects for the development of their innova-
tion activities, a comparative analysis of trends in innovation develop-
ment in Ukraine and other countries is made. The challenges of the
Ukrainian innovation system from the EU countries are outlined. The
analysis of market threats and their risk in the foreign economic activity
of Ukrainian enterprises and institutions is carried out.

6
 Features of innovative development of separate regions in Ukraine
are revealed: Lviv, Odesa, etc. New trends in the management of the
development of Ukrainian port infrastructure are shown.
The authors’ approaches to the development of market-oriented in-
strumental management of the economic growth management system of
industrial enterprises are described. The approach to constructing a
multi-factor model for assessing the efficiency of the innovation market
is proposed. The basic problems of construction of an effective system of
management of internal communications at the enterprise are revealed.
Recommendations for overcoming them are presented. The specifics of
socially responsible development of electric power companies are high-
lighted.
Furthermore, special focus is made on the latest trends in the man-
agement of industrial enterprises, in particular: management of
knowledge at the enterprise, activation of activities in the Internet envi-
ronment, etc.
Particular attention is paid to the author’s developments concerning
the logistic support of innovation activity of industrial enterprises, in
particular the formation of marketing channels and the logistic service
of innovative products. The authors also reveal some aspects of the new
approaches to regulating economic and legal relations on the innovation
market.

Prague, 20 March 2018

Illiashenko S.M., Strielkowski W.

7
 ACKNOWLEDGEMENTS

The monograph includes scientific contributions of the participants of

the XI International scientific and practical conference «Marketing of in-
novations and innovations in marketing», as well as outcomes of the fol-
lowing research projects of the Department of Marketing and Manage-
ment of innovation activities of the Sumy State University:
− «Fundamentals of management of the innovation culture develop-
ment at industrial enterprises», № SR 0115U000687;
− «Mechanism of knowledge control in the system of economic enti-
ties innovative development», № SR 0117U002255;
− «The mechanism of management of the formation of strategies of
outstripping innovative development of industrial enterprises»,
№ SR 0117U003928;
− «Research of problems and perspectives of innovative growth of
the national economy», № SR 0116U006360;
− «Application of marketing and innovations in different spheres of
activity», № SR 0116U006359;
− «Development of fundamental principles of marketing policy of
enterprises in a market economy», № SR 0115U001004.
The monograph also included the initiative developments of the
authors. The authors of separate sections of the monograph are:

Illiashenko S.M., Doctor of Economics, Professor, Head of the Depart-

ment of Marketing and Management of Innovative Activity, Sumy
State University (Sumy, Ukraine); Professor of Economic and Hu-
manistic Higher School (Bielsko-Biala, Poland) (section 5.4, intro-
duction, postface);
Strielkowski W., PhD, Professor at Prague Business School (Prague,
Czech Republic) and Visiting Professor at the University of Cali-
fornia, Berkeley (Berkeley, United States) (sections 1.1, 5.4, intro-
duction, postface);
Bozhkova V.V., Doctor of Economics, Professor, Professor of the Depart-
ment of Marketing and Management of Innovative Activity, Sumy
State University (Sumy, Ukraine) (section 2.1);
Bublyk M.I., Doctor of Economic Sciences, Associate Professor, Profes-
sor of Management and International Business Department, Lviv
Polytechnic National University, (Lviv, Ukraine) (section 3.4);
Garmider L.D., Doctor of Economics, Associate Professor, Head of the
Department of Industrial Economics and Organization of Produc-
tion, SHEI «Ukrainian State University of Chemical Engineering»
(Dnipro, Ukraine) (section 2.2);

8
Gerasymchuk V.H., Doctor of Economics, Professor, Professor of the
Department of International Economy, NTUU «Igor Sikorsky Kyiv
Polytechnic Institute» (Kyiv, Ukraine) (section 3.3);
Kharichkov S.K., Doctor of Economic Sciences, Professor, Odessa Na-
tional Polytechnic University, (Odessa, Ukraine) (section 4.3);
Kniazevych A.Ol., Doctor of Economics, Associate Professor, Professor
of the Department of Management, Rivne State University of the
Humanities (Rivne, Ukraine) (section 5.1);
Komarnytskyy I.M., Doctor of Economics, Professor, Head of the De-
partment of Management, Khmelnytsky University of Cooperative
Trade and Economic (Khmelnytsky, Ukraine) (section 4.1);
Nikishyna O.V., Doctor of Economics, Senior Researcher Institute of
Market Problems and Economic & Ecological Research of the
NASU (Kyiv, Ukraine) (section 4.2);
Pererva P.G., Doсtor of Economic Sciences, Professor, Dean of the Eco-
nomics Faculty, NTU «KhPI» (Kyiv, Ukraine) (section 7.2);
Prokopenko O.V., Doctor of Economic Sciences, Professor, Kyiv
National University of Technology and Design (Kyiv, Ukraine),
Professor of Marketing and Entrepreneurship Department,
University of Bielsko-Biala (Poland) (section 1.3);
Teletov A.S., Doctor of Economics, Professor, Professor of the Depart-
ment of Marketing and Management of Innovative Activity, Sumy
State University (Sumy, Ukraine) (section 7.1);
Zaruba V.Ia., Doctor of Economics, Professor, Dean of the Faculty of
Economic Informatics and Management, National Technical Uni-
versity «Kharkiv Polytechnic Institute» (section 2.4);
Zielińska A., PhD, Full Professor, Economic University of Wroclaw
Faculty of Management, Information Systems and Finance
(Wroclaw, Poland) (sections 5.5, 6.1);
Bilovodska O.A., PhD, Associate Professor, Associate Professor of the
Department of Marketing and Management of Innovative
Activity, Sumy State University (Sumy, Ukraine) (section 6.1);
Bondarenko S.A., PhD, Associate Professor, Institute of Market Prob-
lems and Economic & Ecological Research of the NASU (Kyiv,
Ukraine) (section 4.2);
Boychuk I.V., PhD, Associate Professor, Associate Professor of Marketing
Department, Lviv Trade and Economic University (Lviv, Ukraine)
(section 5.5);
Gaidabrus N.V., PhD, Assistant Professor of the Department of Mar-
keting and Management of Innovative Activity, Sumy State Uni-
versity (Sumy, Ukraine) (section 6.3);

9
Golysheva Ie.O., Candidate of Economical Sciences, Associate Professor
of the Department of Marketing and Management of Innovative
Activity, Sumy State University (Sumy, Ukraine) (section 2.3);
Gonchar L.A., PhD, Associate Professor, Associate Professor of the De-
partment of Industrial Economics and Organization of Production,
SHEI «Ukrainian State University of Chemical Engineering»
(Dnipro, Ukraine) (section 2.2);
Gryshchenko O.F., Candidate of Economical Sciences, Associate Profes-
sor of the Department of Marketing and Management of Innova-
tive Activity, Sumy State University (Sumy, Ukraine) (sec-
tion 2.3);
Gryshova I., PhD, Professor at Prague Business School (Prague, Czech
Republic) (section 3.1);
Illiashenko N.S., Candidate of Economical Sciences,, Associate Profes-
sor, Associate Professor of the Department of Marketing and Man-
agement of Innovative Activity, Sumy State University (Sumy,
Ukraine) (section 2.3);
Jankurová A., PhD., Assistant Professor, Faculty of Social Sciences,
University of Ss. Cyril and Methodius in Trnava (Trnava, Slo-
vakia) (section 1.2, 6.2);
Kiseleva L. S., PhD, Associate Professor, Prague Business School (Pra-
gue, Czech Republic) (section 2.1);
Kobieliev V.M., Candidate of Economic Sciences, Associate Professor of
the Department of Economics and Marketing, NTU «KhPI» (Kyiv,
Ukraine) (section 7.2);
Komarnitska G.А., PhD, Head of the Department of Economics and
Management, Ivan Franko National University of Lviv (Lviv,
Ukraine) (section 4.1);
Kosenko A.V., Candidate of Economic Sciences, Professor of the Depart-
ment of Production Organization, NTU «KhPI» (Kyiv, Ukraine)
(section 7.2);
Letunovska N.Ye., PhD, Assistant Professor of the Department of Mar-
keting and Management of Innovative Activity, Sumy State Uni-
versity (Sumy, Ukraine) (section 1.1);
Liganenko I.V., PhD, Associate Professor, Pridunai branch of IAPM (Ish-
mael, Ukraine) (section 4.2);
Masár D., PhD., Assistant Professor, Faculty of Public Policy and Public
Administration, Danubius University (Sládkovičovo, Slovakia) (sec-
tions 2.3, 6.2);
Melnyk Yu.M., Candidate of Economical Sciences, Associate Professor,
Associate Professor of the Department of Marketing and

10
 Management of Innovative Activity, Sumy State University
(Sumy, Ukraine) (section 5.2);
Nagornyi Ie.I., Candidate of Economical Sciences, Associate Professor
of the Department of Marketing and Management of Innovative
Activity, Sumy State University (Sumy, Ukraine) (section 1.2);
Niño-Amézquita. J., PhD, Full Professor at the Franciscan University
of San Buenaventura (Bogota, Colombia) and a Research Associ-
ate at the Regional Research Centre for Competitiveness and In-
novation of Boyaca (Tunja, Columbia) (section 6.1);
Olefirenko O.M., Candidate of Economical Sciences, Associate Professor,
Associate Professor of the Department of Marketing and Innovative
Activity, Sumy State University (Sumy, Ukraine) (section 1.2);
Omelyanenko V.A., PhD, Senior Researcher, Sumy State Pedagogical
University named after A.S. Makarenko (Sumy, Ukraine) (sec-
tion 1.3);
Porev S.M. PhD, Head of Laboratory of Science Organization Problems
at Universities, Institute of Magnetism NASU and MESU (Kyiv,
Ukraine) (section 3.2);
Rybytska O.M., Candidate of Physics and Mathematics Sciences,
Associate Professor, Associate Professor of the Department of
Mathematics, Lviv Polytechnic National University, (Lviv,
Ukraine) (section 3.4);
Saher L.Yu., PhD, Senior Lecturer of the Department of Marketing and
Management of Innovative Activity, Sumy State University (Sumy,
Ukraine) (sections 3.1, 5.2);
Samoylenko I.О., PhD, Associate Professor, Associate Professor of the
Department of Management and Administration, O.M. Beketov
National University of Urban Economy (Kharkiv, Ukraine) (sec-
tion 5.3);
Shevliuga O.G., PhD, Assistant Professor of the Department of Mar-
keting and Management of Innovative Activity, Sumy State Uni-
versity (Sumy, Ukraine) (section 1.2);
Shipulina Yu.S., Candidate of Economic Sciences, Associate Professor,
Associate Professor of the Department of Marketing and Manage-
ment of Innovative Activity, Sumy State University (Sumy,
Ukraine) (section 5.4);
Syhyda L.O., PhD, Senior Lecture of the Department of Marketing and
Management of Innovative Activity, Sumy State University
(Sumy, Ukraine) (sections 3.1, 6.2);
Tkachev M.М., Candidate of Economic Sciences, Associate Professor of
the Law Department, NTU «KhPI» (Kyiv, Ukraine) (section 7.2);

11
Vashchenko T.V., PhD, Assistant Professor of the Department of Mar-
keting and Management of Innovative Activity, Sumy State Uni-
versity (Sumy, Ukraine) (section 1.1);
Volosiuk M.V., PhD, Associate Professor, Admiral Makarov National
University of Shipbuilding (Mykolaiv, Ukraine) (section 4.3);
Gnatenko M.K., Associate Professor of the Department of Management
and Administration, O.M. Beketov National University of Urban
Economy (Kharkiv, Ukraine) (section 5.3);
Goreta L.V., PhD Student of the Department of Marketing and Man-
agement of Innovative Activity, Sumy State University (Sumy,
Ukraine) (section 6.3);
Karpyak A.O., Postgraduate Student, Lviv Polytechnic National Uni-
versity, (Lviv, Ukraine) (section 3.4);
Lukianova Yu.O., PhD Student, Odessa National Polytechnic Univer-
sity (Odessa, Ukraine) (section 6.3);
Provozin N.V., Control inspector, LLC «NETCRACKER», (Sumy,
Ukraine) (section 1.1);
Rot-Sierov Ye.V., PhD Student of the Department of Marketing and
Management of Innovative Activity, Sumy State University
(Sumy, Ukraine) (section 5.4);
Ruban D.A., Doctoral Candidate of the Department of Marketing and
Management of Innovative Activity, Sumy State University
(Sumy, Ukraine) (section 6.3);
Teletov D.A., School Student, Alexander Gymnasium of Sumy City
Council (section 7.1);

12
 Section 1

The role of innovations

in ensuring competitiveness of enterprises
1.1. Introduction of breakthrough innovations as a significant factor
of forming a highly competitive company’s position

Letunovska N.Ye., Provozin N.V., Vashchenko T.V., Strielkowski W.

Special attention at the present stage of economic development is at-

tributed to the technical progress, innovations, and know-how. Coun-
tries compete with each other at the level of development of new innova-
tive and breakthrough technologies.
Breakthrough innovations are, in essence, the creation of new types
of products (services) or business models that can significantly affect the
market and generate considerable value for their consumers. If accord-
ing to the traditional strategy of development enterprise focuses its ac-
tivity on step-by-step innovations, the subject of economic activity is en-
gaged in search of ideas of radically new products and their realization
in the strategy of implementation of breakthrough innovations. The idea
of breakthrough (subversive) innovation was first formulated by
K. Christensen in the book «Dilemma of Innovator», which, by the way,
was a favorite book by Steve Jobs, founder of «Apple Inc.» [1]. Subversive
innovation cardinally changes the power scales on the market: even yes-
terday, successful products are becoming irrelevant for their consumers.
It is worth pointing out that this type of innovation can often be realized
as subversion through the output of products in the lower price segment,
when a company launches cheaper, but worse-than-analogue, consumer-
oriented product that does not satisfy the excessive complexity and high
price of existing on the supply market. A more marketing-oriented ap-
proach to the implementation of subversive innovations is through the for-
mation of a new market. The offer of the product of business innovation is
so cheap and easy to use that a significant number of consumers, who be-
fore its release on the market did not buy the product of this category, will
become its users [2].
Subversive innovation is the most attractive among other types of in-
novations for investing. A typical example of innovation in the «subver-
sion» category is a desktop 3D printer that embodies fundamental tech-
nological changes that enable consumers who have never used this type

13
of printer to receive much cheaper, more affordable, but imperfect
printed images [3]. In the field of service provision, for example, a new
service can be used for agricultural enterprises that direct seed of oil
crops to elevators: by mobile communications, customers have the oppor-
tunity to receive not only information about the time of arrival of the car
for unloading, but also data of the express analysis of the composition of
the seed (variety name, seed moisture content, oleicity, acidity, oleic acid
content that are the most important indicators characterizing the qual-
ity of the seeds and its suitability for further storage and processing) [4].
The first industrial revolution used the power of water and steam to
mechanize production. The second industrial revolution used electricity
for conveyor production. The third used automated production with the
help of electronics and information technologies. The fourth industrial
revolution relies on the third – since the middle of the last century, a
digital revolution is continuing in all spheres of life. Technologies merge,
and the boundaries of material, digital and biological worlds are erased.
«Soon the foundation of economic growth will not be capital or natural
resources, but innovation and human ingenuity», said Klaus Schwab, the
founder of the World Economic Forum, in one of his articles. His approach
turned attention to innovation and the fourth industrial revolution.
Weighting in the direction of rational use of resources has a completely
understandable reason. Innovations enable higher quality products,
stimulate the creation and expansion of economic sectors, market devel-
opment and education, provide cost savings, economy and the use of alter-
native raw materials instead of limited natural resources.
Heads of companies express the same idea: innovations that appear
with incredible speed violate any forecasts and business plans. Technol-
ogies generated by the fourth industrial revolution are increasingly af-
fecting the business world. More and more young, smart companies are
emerging, which, thanks to access to the global network, are ahead of
business veterans in research, development, marketing, sales and pro-
duction. Young competitors suddenly become faster, provide better ser-
vices at a lower price than their predecessors. Consequently, four main
effects of the fourth industrial revolution affecting the business can be
distinguished: the growth of consumer expectations, the improvement of
the quality of goods, breakthrough innovations and the emergence of
new forms of organization.
A global survey of company executives in 2017 showed that half of
companies believe that innovation efforts have a significant impact on
their income increase through sales growth. Every fifth innovation
leader company expects a 15% increase in profits in the next five
years [6]. Innovation of the company is also a significant factor in the

14
influx or outflow of talent. Company «Deloitte» (audit, consulting ser-
vices) found that two thirds of young people in the world are going to
change their place of work in the next three years [7]. Companies «Dell»
and «Intel» came to the conclusion that two out of five employees will go
through low tech in companies [8].
A study of PwC Innovation Benchmark (consulting services) shows
that companies that invest more in innovation will focus on break-
through technologies rather than on a gradual improvement. Of those who
reinvest more than 15% of revenues, most are engaged in breakthrough
innovations, with more than 40% of them focus only on this [6].
It should be noted that in spite of the significant economic attractive-
ness of subversive innovations, supporting innovations dominate at the
market. P. Doyle also points out the following: if all innovations are ac-
cepted for 100%, then fundamentally new ones are only 10% [9]. In ad-
dition, he notes, that the most successful are not essentially new prod-
ucts, but new ways of marketing activities. Numerous studies of success
in the market for innovative products indicate that about 80% of prod-
ucts originated from ideas generated by the market. Representatives of
Hewlett-Packard emphasize that understanding market needs is a key
factor in product success [10]. The strategy of supporting innovation is
more suitable for market-leading companies, which can consolidate their
benefits by gradually improving their own products. It is difficult to com-
pete with a leader supporting innovations even for large companies. For
example, we may mention the attempts by «Kodak» to push «Xerox» into
a photocopier market. The withdrawal into the market of subversive in-
novations is more suitable for young ambitious companies that are called
«early stage». For example, «Xerox» company was defeated by «Canon»,
precisely because of subversive innovation of portable copiers.
If managers of the company will be forced to try to adapt the subver-
sive technology to the needs of existing consumers (examples – hard
drives, electric cars), they are actually doomed to failure. The experience
of successful business representatives in the commodity market shows
that an approach is effective when an entity finds a new market that will
appreciate the existing parameters of subversive technology. Thus,
blasting technology can be seen as marketing rather than technological
challenge. An innovation strategy based on analyzing the market needs
with the subsequent transition to a lab is more effective than a strategy
with a reverse trajectory. D. Moore proposed the technology of marketing
innovative high-tech products – marketing of high-tech products. In his
opinion, high-tech product is not only a high technology, which itself is
the first market innovative product and the beginning of the market of
innovations, as well as its application in the form of radical innovative
15
products and corresponding services, which form the basis of innovations
market. In general terms, this is a radical innovation product that re-
quires radical innovation marketing (high-tech marketing) [11]. The suc-
cess of innovation is determined by a carefully designed strategy. About
80% of leading innovation companies have a well-formulated strategy,
while among business entities that have an outdated production and
sales policy, such strategy is available in less than half of enterprises.
In the case when the sale of subversive innovations reduces overall
production (the new segment of resource utilization is much smaller
than the segment that has become irrelevant), it is about closing tech-
nologies. For example, the phone replaced the telegraph, digital cameras
replaced the film, e-mail reduced the value of ordinary mail. Wal-Mart
Corporation, using information technology to manage the supply chain
logistics and studying consumer demand, received significant profits and
was able to offer consumers lower prices.
As far as future innovations are concerned, numerous studies are be-
ing conducted on the development of alternative fuels. The construction
and functioning of e-democracy (the form of social relations in which cit-
izens and organizations are involved in state-building and public admin-
istration, as well as local self-government through the widespread use of
information and communication technologies), if this concept succeeds,
can also serve as a good example of the possibility of implementing sub-
versive innovations.
In 2015, Ukraine ranked 45th in the rating of the most creative coun-
tries in the possible 139 positions. The index of creativity estimates the
country in three indices: technology, talent and tolerance [12]. In the
ranking, particular attention is paid to investing in research and devel-
opment, the number of researchers and patents per capita. In 2017,
Ukraine entered the TOP-50 countries in the Global Indicator of Inno-
vation (Figure 1.1). Despite the sufficient positions in the rating, indi-
vidual positions of Ukrainian business are very low (innovative relation-
ships, technological assimilation, creative products and services, influ-
ence of knowledge).
The risk factor for the impossibility of innovations implementation in
a company is the professional limitations of corporate specialists when
innovations are considered only in the focus of IT equipment. The leader
of such way in Ukraine is «Privatbank». Its decision to automate the
business process «Corezoid» became the first East European startup,
presented in the Amazon web store services [14].

16
 Figure 1.1. TOP-50 most innovative countries in the world according
to the rating of Bloomberg in 20171 [13]
1Note: gray (from dark to light) highlighted countries located in the first 50th rating

In recent years, technological parks and innovative business associa-

tions have begun to appear in Ukraine. Their goal is to integrate tech-
nology into the work of companies from various fields. Among such pro-
jects is the opening of the first Ukrainian innovation park «Unit City»
with the total area of approximately 27 hectares on the territory of the
old Kiev motor-plant, which can accommodate more than a hundred
technological companies [15]. This is an important step for the Ukrain-
ian economy, because according to the Nobel Prize winner in the field of
economics Robert Lucas, the factors which influence the innovations im-
plementation that cannot always be measured are the following: pas-
sionarity (internal aspiration of responsible persons for renewal and de-
velopment), entrepreneurial activity, spontaneous «Clustering of
talents» in one place and at one time. The emergence of a critical mass
of people with unique abilities and skills generates an impulse that
«feeds economic progress» and stimulates technological development in
particular. The McKinsey consulting company refers to the following
components of the innovation process: tune in to a large, choose a direc-
tion, study trends, understand how to evolve, organizationally be able to
innovate, correctly scale the changed aspect of business, maximize col-
laboration, and mobilize company employees to innovate [16].

17
 By the nature of the interaction among themselves, innovative prod-
ucts in the field of subversive technologies can be divided into twin goods
(satisfying the same need, but they differ by name, marketing promo-
tion); derivative products (similar products to their predecessors, but
satisfy the existing consumer needs more efficiently or more fully); goods
that fit into existing products on the market (mostly for the service sec-
tor, when the proposed innovative product in its real reflection satisfies
the aggregate needs of its predecessor goods); goods that completely
eliminate their predecessors from the market (as a rule, such products
arise in the market as a necessity caused by state programs, damage
caused by previous products to the environment, etc.); goods comple-
menting the product line of the manufacturer (in this way the product
differentiation of the enterprise manifests itself – the already existing
and presented on the market products from the range of the company is
supplemented by a new one). If the first two points from the listed clas-
sification are sufficiently studied, then the emergence of other compo-
nents of the classification is caused by the current conditions in which
there is a market. Thus, an example of products that fit into existing
production is the entry into the market of fundamentally new integrated
service companies for servicing cars – TIR parks, which are not so much
in Ukraine. They accommodate customary services for car wash, tire ser-
vice, parking lots, etc. An example of products that lead to almost com-
plete withdrawal from the market of their predecessors is LED lamp.
This, in particular, is facilitated by state programs for the transition to
energy efficient lighting, aimed at the complete phasing out of incandes-
cent lamps. In this perspective, it is also worth considering whether truly
innovative on-line approaches to learning (for example, mass open online
courses) make favorable changes to the higher education system of
Ukraine, as they pose a threat to existing models of studying in the sys-
tem education, actually destroy the traditional educational system.
Global reaches today are crowd-borne platforms (such as Kickstarter,
ICO, etc.) to attract start-up investments, electronic platforms for trade
in innovative technologies and services, and open innovation platforms
that enable companies to deploy a software environment for their own
innovative communities involved in development. All this is combined
with global innovation communities with consulting companies. In
Ukraine, this approach is represented by the platform Reactor.ua
(search for technological innovations and scouting of innovations).
In 2016, Forbes published the first rating of innovative companies in
Ukraine [17]. Leaders of the rating became already mentioned «Privat-
bank»; SC «PA «Southern Machine-Building Plant named after.
O.M. Makarov» and the DB «Pivdenne» named after M.K. Yangel

18
(«Pivdenmash»), which created four generations of strategic missile com-
plexes, more than 400 spacecrafts of various modifications, rocket carri-
ers of the Zenit, Kosmos, and Cyclone family. Design Bureau «Pivdenne»
has created unique intercontinental ballistic missile R-36M «Satan» (to-
day it is the only possessor of technology for modernization and exten-
sion of its resource). In addition, the DB «Pivdenne» participates in the
development of the anti-astringent protection system of the Earth (the
creation of modules for the interception of asteroids at a distance of up
to 100 million km); «New Post» company, which introduced a number of
innovations in the field of logistics, such as: subscribers of this postal
operator can transfer funds through their mobile account, transferring
them to cash in the company’s offices, customers have the opportunity to
track the way of their order on-line, the company uses a push-message
based on a mobile application (which today has 1,5 million users) to re-
port delivery arrival. «New Post» increases the scope of business expan-
sion: currently offers delivery to more than 200 countries, while also fo-
cusing on the «depth» of domestic supply, developing mini post offices.
The purpose of the company’s owners is to turn it into a brand of «love
mark» type. In particular, with this purpose, «New Post» is involved in a
number of charity partnerships (for example, in 2017 the company sup-
ports the Darina Zholdak Foundation with the «100 000 New Children’s
Books» campaign).
Currently, the activities of Ukrainian companies in the field of inno-
vation implementation are inherent to newly created companies with
foreign capital in particular. The number of innovations introduced by
domestic enterprises is shown in Table 1.1.

Table 1.1. Dynamics of innovations implementation by industrial

enterprises of Ukraine (formed according to data [18])

Introduced new technological Implemented production of new

Year
processes, units types of products, names
2010 2043 2408
2011 2510 3238
2012 2188 3403
2013 1576 3138
2014 1743 3661
2015 1217 3136
2016 3489 4139

Total costs for innovation activities are shown in Figure 1.2.

19
 Internal External Other
research research expenses;
work; 8,9% work; 1,7% 3,8%
Acquisition of
existing
knowledge
from other
enterprises
and
organizations;
0,3%
The purchase
of machinery,
equipment
and software;
85,3%

Figure 1.2. Distribution of total expenditures of domestic enterprises

in the directions of innovation activity in 2016
(constructed according to data [18])

Ukraine has the potential to develop new technologies and produce

innovative products based on them. For example, the country has always
been one of the first to apply new technologies in the metallurgy indus-
try. In particular, the first installation of pulverized fuel injection on an
industrial scale was introduced in the 70’s of the twentieth century. Also,
the first continuous casting machine was built in Ukraine [19]. Modern
enterprises need teams of «breakthrough business». They must include
company employees, as well as business entities that are involved in
outsourcing. At the same time, in the tasks of marketing departments,
innovation is dominated by support and cooperation with companies-pro-
viders that allows to prepare «explosive» marketing decisions – «shocks
of offers». For breakthrough innovations comes the turn of supporting
innovations.
Thus, the study concluded that companies seeking to be successful in
the market and to be the market leader, should focus not only on deriv-
ative innovations (supporting) in their activity, but to aim at the devel-
opment and output on the market of fundamentally new technological
solutions – «breakthrough innovations». The experience of domestic and
foreign companies shows that the formation in the enterprises of the lat-
est marketing innovative thinking provides opportunities for significant
expansion of business.

20
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Stiva Dzhobsa «Dylema innovatora» [Size matters: 7 tips from your favorite book
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knygy-stiva-dzhobsa.
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dont-get-about-innovation.
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workforce-study-provides-key-insights.
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ment and strategies]. Izd-vo «Piter».
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iemstva [Justification of the feasibility of using the principles of TQM in the
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Uzhhorodskoho universytetu. Seriia: Ekonomika – Scientific Bulletin of the
Uzhhorod University. Economics Series, 1(49), 136-142.
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novatsiiami [Innovations management]. Moscow: Izdatelstvo Yurait.
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svitu-74163.html.

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 13. Jamrisko, Michelle, & Wei, Lu (n.d.). These are the world’s most innova-
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19. Ukraina odniieiu z pershykh zastosuvala innovatsii u metalurhii – holova
«Metinvestu» [Ukraine was one of the first to apply innovations in metallurgy –
«Metinvest» head]. (2017). www.5.ua. Retrieved from https://www.5.ua/ novyny-
kompaniy/ukraina-odniieiu-z-pershykh-zastosovuvala-innovatsii-u-metalurhii-
holova-metinvestu-156348.html.

1.2. Specific features of competitive relations

at innovation active enterprises

Nagornyi Ye.I., Olefirenko O.M., Shevliuga O.G., Jankurová A.

In modern conditions, a competition favors better usage of potential

of enterprises and country. It provides the basis for developing a strategy
and tactics in the market through efficient use of all resources, the pro-
duction and implementation of competitive products and profit making.
The competition that exists both in local markets and external ones
is characterized by its dynamism and the ability to ensure a rational re-
distribution of income not only between business entities, but also be-
tween economic sectors, the regulation of the proportions of industrial
products production, etc. Rapid changes in the conditions of business

22
entities operation cause an increasing role of product quality, after-sales
service and reliability of the industrial enterprise as a whole.
However, the main role belongs to innovations as a means of obtain-
ing competitive advantages and, consequently, increasing the competi-
tiveness of an industrial enterprise. It should be noted that today there
is a rapid acceleration of scientific and technological progress, character-
ized by reduction in the life cycle of not only goods, but also innovations.
So, if in 1985 a fundamentally new product appeared on average every
18 months in every branch of the national economy, in 1990 this term
decreased exactly twice, that is, new goods began to appear every nine
months [1, 2].
The basis for finding competitive advantages is analytical work on
the study of the state and trends of market development in general and
the activity of competitors in particular. In this regard, special attention
should be paid to the diagnostics of the main characteristics of the com-
petitive environment as well as factors that determine its activity. The
technology of studying the competitors’ activities as the main element of
the competitive environment of the enterprise is equally
important. An analysis of the competitors’ activity, as a rule, is carried
out by analogy with the analysis of the production and economic activity
of its own enterprise, which does not answer the key issues.
Consequently, the assessment of competitive advantages occurs
solely by comparing them between different subjects of economic rela-
tions operating within the same business direction. As a rule, the pres-
ence of a competitive advantage of an industrial company is determined
relatively to the competitor, which has the best position in the market.
The competitive advantage can be as internal (it is based on the excellent
quality of goods that are valuable to the consumer and can be formed as
a result of reducing the production cost of goods or increasing the effi-
ciency of doing business), and external (provides strengthening of the
market power of the industrial enterprise, that is, the power of influence
on the adoption of the market established by the enterprise prices of
goods) [3].
Knowledge about competitors, their real planned actions is the basis
for the strategic orientation of the industrial enterprise in a competitive
environment. The technology of forming a competition strategy, focused
on the use of the strengths of the enterprise in the light of the activity of
competitors and the peculiarities of market development, is an im-
portant tool for the formation of strategic competitive advantages, espe-
cially in the sales policy of the industrial enterprise. The purpose of the
strategy is to determine the principles and rules for gaining

23
advantages over competitors in the target market segments and in the
elements of marketing [4].
The fact of individual stages influence of the product life cycle on the
efficiency of the industrial enterprise is obvious. An obligatory condition
is the establishment of effective interaction between the divisions of the
industrial enterprise for ensuring high performance indicators, in par-
ticular in the direction of reducing the duration of scientific and technical
preparation of innovative products sample, the use of standardized and
uniform procedures for production, reduction of variable costs due to au-
tomation of production, the appropriate technical support of the produc-
tion process at the enterprise, the use of tools of functional-cost analysis
during planning of expenses, etc. [5]. Therefore, the main factor that con-
ditioned the activation of the above processes is competition.
Competition in innovations is a combination of economic processes of
interaction, interconnection and struggle between different economic en-
tities, which is aimed at ensuring the best use of the opportunities for
the sale of products and maximum satisfaction of consumers’ needs [6].
The entrance of industrial enterprises to the markets for innovative
products is due, firstly, to the improvement of its own scientific and tech-
nical base and experimental one of research and development. Secondly,
the conclusion of contracts with leading research and development la-
boratories is carried out. Thirdly, licenses, patents for the production of
innovative products are acquired. Fourth, financial resources are in-
vested in innovation entrepreneurship [7].
It should be noted that modern entrepreneurship in the aspect of the
innovations implementation is characterized by the release of individual
and small-scale products. This is confirmed by the fact that the mass
production of innovative products in developed countries accounts for
less than ¼ of total production [8].
A significant place in the formation of an innovative economy and the
maintenance of healthy competition belongs to the state, which policy
should be clearly directed at determining the priorities of introducing
innovations in production. In particular, the stimulation of the imple-
mentation process of research developments is possible through tax and
credit policies [9]. World experience confirms the effectiveness of apply-
ing environmental and technological standards (norms) along with eco-
nomic incentives or sanctions. Thus, obtaining by the industrial enter-
prise of tax or credit privileges, as well as guaranteeing by the state of
the reliability of intellectual property protection of economic entities cre-
ates favorable conditions for conducting research and development

24
works, and also the implementation of their results in the economic
activities of industrial enterprises.
From the standpoint of a separate industrial enterprise, the introduc-
tion of innovations in production should ensure rapid efficiency gains, in
particular by reducing production costs, reducing the payback period of
the product, etc. [10]. Thus, the capacity of industrial enterprises to im-
plement innovations in production is limited, on the one hand, by the
presence of skilled workers with the appropriate knowledge and skills
for carrying out research and development works. On the other hand, an
increase in the number of innovative products in the market involves an
appropriate inflow of capital to the sectorial market and, consequently,
the emergence of new competitors, which negatively affects the perfor-
mance of the innovative products implementation due to increased re-
search costs in order to avoid disputes over the duplication of product
properties for already published patents [11].
There are three commonly accepted models for the introduction of
innovation activity, based on existing opportunities and motives of the
subjects that are directly determined in the scientific literature on man-
agement of innovations and ensuring the competitiveness of business en-
tities (Table 1.2).

Table 1.2. Models of innovative activity implementation of industrial

enterprises (based on [13])

Model Essence
In the domestic market business entities operate in a competitive environ-
ment, having the appropriate motives for implementing innovations in
I
their activities, while in the foreign market they receive monopoly profits
(the example of such a model is the British Empire in the 19th century)
In the domestic market business entities operate at the expense of obtain-
ing a monopoly rent (profit), which serves as the basis for the introduction
II of innovative developments as a means of obtaining competitive ad-
vantages in the foreign market (real examples of the functioning of this
model are Japan, South Korea in the second half of the 20th century)

The combination of elements of monopoly and competition within a single

III
market. This state is described by the curve of F. Sherer

The empirical study of the relationship between competition and

innovations by F. Sherer confirms the stimulating effect of competition
on the introduction of research and development by economic entities
[12]. However, it has been proved that there is an optimal point of the
intensity of competition in the market (the point of maximum), after

25
which the intensification of competition intensifies the innovation activ-
ity of enterprises. This can be explained by the passive behavior of busi-
ness entities, which have received leading market positions through the
innovations.
In 2011 domestic scientists conducted a study on the interdependence
between the level of innovation activity of enterprises and their size in
the context of determining the impact of competition on the innovations
intensity. Thus, based on the statistics of the State Statistics Service of
Ukraine on the share of the largest enterprises in the volume of sales, in
the cost of innovation and in the cost of informatization, the following
results were obtained [13]:
- 0.16-0.17% of the largest enterprises in Ukraine account for 51-74%
of the innovation costs and 54-58% of the informatization costs;
- intensity of innovations implementation among the 20 largest
enterprises (by the volume of sales) is 15 times higher than the intensity
of innovation activity of enterprises occupying 151-200 places on a simi-
lar basis;
- there is a direct relationship between the average size of the
enterprise and the volume of expenses for innovations.
The researchers noted that there is a discrepancy in the Ukrainian
economy between the level of enterprise’s interest in conducting research
and design works in order to implement their results in the form of in-
novative developments and their financial and resource opportunities.
Large enterprises are unmotivated to carry out research and, conse-
quently, to innovate without experiencing pressure from competitors.
This is exactly the reason for their failure to innovate during periods of
instability in the country, while there are innovations that maintain
competitive positions in the market during the crisis in the world.
Continuing analysis of the competitive relations specifics of innova-
tive-active industrial enterprises, it is worth paying attention to another
problem that holds back the innovation development in the country. It is
pricing. In a free market, the price serves a sufficiently flexible factor –
the stimulator of competition in the market and, consequently, the trig-
ger of innovation in the industry. The experience of Ukraine shows the
inverse effect of this factor. For example, in the retail electricity market
there is no competition at all because consumers are not able to influence
the pricing policy and tariff grid of the company – the supplier of elec-
tricity. The situation is similar in the whole housing and communal com-
plex. Therefore, the state plays a significant role in ensuring healthy
competition, stimulating innovation activity.

26
 There is a generally accepted approach of the World Bank in world
practice regarding the assessment of state regulation of entrepreneurial
activity and the favorable conditions for doing business in general. This
study covers the following aspects [14]:
- minimum of capital required for starting a business, as well as
time costs and financial expenses for the execution of documents, regis-
tration and proper procedures;
- cost and time spent on registration and opening of the warehouse;
- procedures, time and cost of connection to the grid;
- procedures, time expenditures and cost of ownership transfer;
- quality and effectiveness of legislation on movable collateral;
- compliance with the rights of minority shareholders;
- tax burden (total amount of payment for all statutory taxes, time
to pay them);
- financial costs and spent time on resolving commercial disputes;
- the spent time and the ease of processing the documents of export /
import of products through the port;
- financial expenses, time expenditures, performance and interest
rate on condition of financial insolvency;
- the power of legislation in matters of financial insolvency of an
enterprise;
- quality of the credit information system, the depth of information
on creditworthiness, indebtedness, etc.;
- impact of the remoteness of the enterprise location from the border
on the simplicity and ease of doing business.
According to the results of 2014, Ukraine ranked 96th with a rating of
61.52 units from 189 countries. The conditions for doing business are
much simpler in Moldova (63 positions in the rating – 66.60 units), the
Russian Federation (62 positions in the rating – 66.66 units), the Repub-
lic of Belarus (57th position in the ranking – 68.26 units), Hungary (54th
position in the ranking – 68.80 units), Romania (48th position in the
ranking – 70.22 units), Armenia (45th position in the rating – 70.60
units), Poland (32nd positions in the rating – 73.56 units), Georgia (15th
position in the rating – 79.46 units).
In 2017 Ukraine ranked 80th with a rating of 63.90 units from 190
countries. Ranking positions of Ukraine on ease of doing business for the
period 2015-2017 are presented in Figure 1.3.

27
 65
64,5
64
63,5
63
62,5
62
61,5
61
60,5
60
DB2015 DB2016 DB2017

Figure 1.3. Ease of doing business ranking in Ukraine in 2015-2017

(based on [14])

As can be seen from Figure 1.3, Ukraine strengthens its position in

the world ranking; however, the current rating position does not provide
competitive advantages in the European market.
Reforms in Ukraine that were implemented:
1. Protecting minority investors. Ukraine strengthened minority
investor protections by requiring interested director or shareholder to be
excluded from the vote, by requiring that proposed related-party trans-
actions undergo external review, by introducing remedies in cases where
related-party transactions are harmful to the company and also clarify-
ing ownership and control structures.
2. Enforcing contracts. Ukraine made enforcing contracts easier by
introducing a system that allows users to pay court fees electroni-
cally [14].
Analyzing directly the ease of starting a business in Ukraine, it
should be noted a significant reduction in the number of procedures, as
well as the registration costs. The significant reduction in the length of
obtaining licenses and building permits is positive. This was achieved
through appropriate reforms in the registration of property rights to real
estate and their encumbrances, as well as the implementation of a new
simplified system of construction risk assessment and a 5-step classifi-
cation of construction projects depending on their complexity.
Along with the length of obtaining permits, connection to public util-
ities, compliance with all formalities and inspections, the number of pro-
cedures and the cost of issuing permissions through the abolition of value
added tax during registration of business and obtaining construction

28
permits has decreased. One of the important steps during the time re-
duction reform is the approval of the president for the company’s regis-
tration by removing the requirement to obtain a corporate seal license.
A significant contribution to the strengthening of Ukraine’s rating
positions was recently made by the tax reform, which has significantly
reduced the tax burden. This was achieved by simplifying the calculation
and payment of the general corporate profit tax, as well as deductions to
social insurance funds. Among other things, this led to a reduction in the
time required to comply with tax legislation, as well as a reduction in the
number of tax payments.
Experts noted positively the ease of access to information on credi-
tors, arrears. The state of international trade has improved, in particu-
lar, in terms of simplifying the procedure for verifying customs declara-
tions and reducing the number of inspections.
Summarizing briefly, one should note that the rating of ease of doing
business in the country is extremely important for the implementation
of innovative developments and the attraction of foreign financial
resources. This is due to the fact that foreign investors are guided by this
rating because it covers all the most important areas of activity and al-
lows comparing the conditions of doing business in different countries.
Ukraine’s competitive position is not the best today, but there are some
positive developments that make it possible to assert the correctness of
the chosen vector of the country’s development.
In order to obtain additional income, without increasing the price of
products, it is necessary to continuously improve the technological base
of production, to introduce the latest technologies and progressive forms
of organization of the production process thereby reducing production
costs. Business entities that carry out such activities receive additional
income. Consequently, competition is a force that provides scientific and
technical economic progress.
Returning to the competitive relations of innovative-active enter-
prises, it is appropriate to note that obtaining and sustainability of com-
petitive advantages is possible only with the effective implementation of
innovative marketing, high quality management of the enterprise, and
the possession of modern methods of product sales. Horizontal connec-
tions between enterprises play an important role in the market of inno-
vative products, in particular, processes of cooperation and integration.
Given the continuity of the process of technological development, inno-
vative active competing enterprises in some cases combine their efforts
to expand the sphere of influence in the market. In addition, horizontal
competition can lead to monopolization of the market through absorp-
tion. It is therefore necessary to have strong antimonopoly legislation

29
and to ensure the efficiency of work in this area of state authorities,
especially in strategically important branches of the economy.
Forms of competitive relations today are different. They are exam-
ined in Table 1.3.

Table 1.3. Forms of competitive relations (based on [15, 16])

Form Characteristic

Short-term cooperation of business entities to achieve a common

Co-production
goal (joint production of a particular product)
A system of cooperative organizations created to meet the economic,
social and other needs of its members. This type of competitive rela-
Cooperation
tionship is marked by the long-term partnership relations between
business entities
Unsystematic, random exchange of information between business
Contracting
entities
Long-term interaction of business entities in the information space,
Coordination
aimed at coordinating the actions
Mutually agreed information exchange on future plans and actions
Coevolution
to ensure effective long-term development of business entities
Full coordination of measures and actions, the emergence of common
Consolidation economic interests of economic entities whose activities are aimed at
their realization

The peculiarity of determining the price of innovative products is the

need to take into account complex economic forecasts regarding trends
in market development. The higher is the product innovation the less is
probability that the forecast will justify itself. Potential buyers are difficult
to assess the usefulness of innovation and its economic or any other effect.
Improving the efficiency of enterprises and ensuring their competi-
tiveness is due to the application of new technologies that are constantly
updated. The main areas of development of new technologies include the
following: the introduction of non-waste technological cycles, the use of
continuous production processes and increase of the knowledge intensity
of the latest technologies from the perspective of their prospects.
In order to manage successfully the prices of new products, it is nec-
essary to make correct forecasts based on clear and adequate estimates
of the dynamics of processes such as [17]:
- competition in time. As many companies try to reduce their re-
search and development periods, as well as the market cycles of their
products, to gain pioneering advantages in the market, the number of
price changes and new pricing decisions is increasing;

30
 - economic development and structural changes in the economy.
The transition of the center of significance in scientific and technological
changes from the primary and secondary branches of the technological
chain to the rest sectors of the economy takes place in the course of eco-
nomic development;
- an increase in the number of companies that is observed today, i.e.
the «foundation wave», the intensity of which is high in the field of inno-
vative products and services;
- new forms of products supply or sets of products and services sup-
ply that require determining the optimal price packages of the company.
Consequently, in determining the price of innovative products, it is
necessary to focus on the strategy of the industrial enterprise, to use
forecasting methods that take into account competition in time, eco-
nomic development and structural changes in the economy, the increase
in the number of companies in the field of innovative products, new
forms of product offerings. At the same time, it is necessary to take into
account own expenses for production as always, to carry out a thorough
analysis of the break-even point, which will allow receiving additional
revenues already at the expense of the best combination of the planned
price of the product and the planned volume of its release.
Exploring the specific features of the competitive relations of innova-
tion-active enterprises, it should be noted that the leading role in provid-
ing competitive advantages to economic entities belongs to innovations,
which is confirmed by empirical calculations by leading foreign specialists.
The economy of developed countries is becoming increasingly oriented
towards innovations. It also forms such a system of relations between
science, industry and society, in which innovation is the basis of devel-
opment. In these countries, with the participation of the state, industry
and the scientific sector, an innovative system is being built in which the
research environment and the economic environment are combined, as
well as industrial competition environment, consumer sphere, mecha-
nism of their interaction, orientation of the research environment to
meet the innovation needs of consumers.
Competition between the sales channels of innovative active ma-
chine-building enterprises in the conditions of globalization of economic
processes becomes of paramount importance, because, while producing
almost the same range of products with similar properties the main task
of the management is to find buyers and conclude contracts for the sup-
ply of goods, works and services. The effectiveness of implementing sales
policy by machine-building innovative enterprises is to use all available
tools in a balanced way, from a pricing policy to managerial training [18].

31
 Competition forces commodity producers to introduce innovative pro-
cesses and technologies to reduce production costs. In this way they in-
crease the quality of the product and attract the attention of new cus-
tomers, and thus increase their own profits. In a competitive environ-
ment, competitiveness manifests itself always at different levels, which
must be taken into account when managing it.

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[Innovative policy in the context of globalization]. Aktualnye problemy razvitiia
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promozhnist ekonomiky Ukrainy v umovakh hlobalizatsii [The competitiveness
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4. Olefirenko, O.M. & Lohvin, Yu.S. (2009). Pidvyshchennia yakosti yak ne-
obkhidna umova zabezpechennia konkurentospromozhnosti produktsii [Improving
quality as a necessary condition for ensuring the competitiveness of products].
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Development: Proceedings of the scientific and technical conference of lecturers,
staff, postgraduates and students of the Faculty of Economics and Management
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aging the life cycle of innovation – as a necessary procedure for strategic mar-
keting]. Proceedings from The Innovative development of modern economy: the-
ory and practice ‘11: VII Mezhdunarodnaia nauchno-prakticheskaia konfer-
entsiia – VII International Scientific and Practical Conference. (pp. 410-415).
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6. Pranevich, A.A. (2011). Innovatsionnii put povisheniia konkuren-
tosposobnosti natsionalnoi ekonomiki: vozmozhnosti i prepiatstviia [Innovative
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33
 1.3. Innovation communications within the high-tech sectors
development (case of space industry)1

Prokopenko O.V., Omelyanenko V.A.

Nowadays the high-tech industries development is a key for inte-

grated model of the economy innovation development. That is why the
threats to the national economic security can be neutralized through
their development. Under Ukrainian development conditions the high
technologies are able to increase traditional economy sectors efficiency,
which are in the stagnation state. For example, metallurgy can be essen-
tially different by the share of value added (e.g. traditional metallurgy
and space metallurgy). Agriculture can be similarly observed, which can
be eco-destructive as it is in Ukraine now or high-technological, stable
and effective as it is in Israel.
One of the tools to find institutional changes areas is an analysis of
main agents in the innovation process and their interconnection. Partic-
ularly, in 2000 H. Etzkovitz in his work «University – Industry – Gov-
ernment: The Triple Helix Model of Innovation» described the model
«Triple Helix», which included participation of universities, business and
state. Then this concept, interpreted by G. Karavanis and J. Campbell
[1], was changed, having been modified into the model Quіntuple Helіx.
It considers two additional spirals – consumers and «environments of
knowledge production» as constituents of the institutional environment
of innovations and knowledge transfer. The model Quіntuple Helix is a
base for wider analysis of the innovations development, particularly via
social capital [2].
In our previous studies [3] we have justified the expansion of the
Quintuple Helix model to International N-Helix model, which shows in-
novations globalization tendencies (technoglobalism), formation of the
innovation nets and intersectoral cooperation. In the context of intercon-
nections expansion, the main problem of the innovation systems is im-
possibility to realize stable, effective and competitive relations between
their main participants.
Thus, the object of the given research is to analyze strategic funda-
mentals of the institutional and technological planning of intersectoral
high tech complexes development, based on the innovation communica-
tions on example of space industry.

1
The research was publicly funded by Ministry of Education and Science of Ukraine for
developing of research project № 0117U003855 «Institutional and technological design of
innovation networks for Ukraine national security systemic providing»

34
 We suggest to consider maximum application of the scientific and
technical potential of high technologies as a basic principle for the inno-
vation system development in Ukraine for economic growth and social
objectives within the intersectoral high technological clusters. Necessity
of the given approach is caused by the fact that the total effect of inter-
connection within the innovation system exceeds effects of separate tech-
nologies application.
Space industry is one of the sectors, which has some innovation po-
tential level in Ukraine, is able to provide an essential impetus for eco-
nomic development, and requires active cooperation between state,
small and medium business [4, 5]. This industry takes special place in
the global innovation system, integrates modern achievements of the sci-
ence and technique and catalyzes them.
In study [6] the author has proved, that in the nearest future the
space industry will work on the platform principle, around which an in-
novation net of small and medium companies (SMEs) is being formed. In
order to create such a platform, it is important to use institutional plan-
ning, where innovation communications play the key role.
The development of the intersectoral high tech clusters and innova-
tion systems is based on the guided communications system (innovation
communications, ІnCo), which are tools, oriented to support interconnec-
tions between various subjects while generating knowledge, their trans-
fer and promoting innovation goods.
In the study [7] it is outlined, that opportunities for ІnCo are promising
and studying of key factors, best practice examples, and success criteria
for communicating innovation by companies, organizations, and other in-
stitutions is very important in the age of innovation globalization.
Among the main innovation communications, we suggest to observe
the following ones in our research:
1) communications in the «knowledge triangle» (InCoUniv, InCoSci,
InCoCorp, InCoGov, InCoEd);
2) innovation relations in society (InCoNGO – encouragement of in-
novations through non-governmental organizations, people’s creative po-
tential development and their integrations);
3) formation of the innovation communities at various levels (InLo-
ComIn – development of the innovation local community, GloCom –
integration into the global ІnCo-community);
4) development of eco-innovations (InCoEco);
5) communications within the Internet (WebInCo).
This is not full list of possible innovation communications, but we
have tried to present the main communications, which are critical for the
intersectoral high tech clusters development.

35
 In the Figure 1.4 the main dimensions of innovation communications
according to [8], which are derived from the conceptual definition innovation
communication and understood as the constitutive elements of the dynamic
innovation communication capability.

Figure 1.4. Elements of the innovation communications dynamic

capability [8]

We also believe, that additionally to elements of the innovation com-

munications dynamic capability we can consider innovation communica-
tions within the development resources security analysis [9] and innova-
tion priorities optimization in the context of national technological secu-
rity ensuring [10] (. Our suggestion deals with the understanding of dy-
namic capability according to Helfat et al. (2007) as a «capacity of an
organization to purposefully create, extend, or modify its resource
base» [11].
In the case of this study the space industry role is justified by the fact
that it is characterized by the largest value-added chains, which depend

36
on R&D [12]. That is why, scientific and technological potential and mu-
tually beneficial cooperation play key role for its development. And the
role of innovation communications is also growing.
Besides the factor of the current potential development and necessity
in the systematic innovation development, it is important to note, that
the modern tendency is to provide national security by space states via
space component. According to experts’ data, 6-7% of EU GDP is pro-
vided by the satellite data [13]. The growing support of space systems for
economy means that security on Earth will be further related with the
security in space. In this case we see an example of intersectoral tech-
nology transfer.
According to results of the Ukrainian profile analysis by patent and
cluster statistics, we can ascertain conformity of the innovation system
specialization to the global trends of the space industry development.
However, absence of innovation communications, current investigations
use in some products, absence of technologies marketing and state mo-
nopolism do not give opportunity to enter the global market with com-
petitive supply (product).
At the same time analysis of the sector trends proves radical changes
in the market structure (decrease of entering barriers, development of
the space infrastructure, new services). Amount of the global space mar-
ket is $320 billion, 25% of them is for state sector [14].
Such trends create opportunities for small and medium business,
which can use abilities of space technologies. In Ukraine necessity of
space industry macroeconomics reconfiguration is caused by the fact that
it is one of those, which mostly suffer from «resource starvation» as a
result of the long economic crisis and close relationship between geopo-
litical and business-interests, which lead to destruction of technological
linkages.
For the purposes of space industry macroeconomics analytics and de-
velopment we propose to consider the institutional & technological pro-
jecting, which includes the favorable environment for innovation
business development, personnel’s qualitative training and assisting in
formation of innovation relations (InCo).
Now due to the InCo absence the native consumers more often prefer
foreign producers’ technologies, and the system of knowledge generation
is on the decline. Giving preference to the foreign products, a consumer
wins, but however state loses, the innovation system of which is degrad-
ing.
The InCo rate is caused by the fact, that the threats amount in the
high-tech sectors depends on technological package fragmentation
(group of technologies, oriented to create a product), which provides

37
necessity to form active innovation networks for projects realization,
particularly international ones [15].
Space industry requires technologies of advanced physics, mathe-
matic modelling, data analysis, programming, robotization, microelec-
tronics, new «smart» materials and coatings, 3D-printing etc. That is
why, great perspectives will be opened for start-ups, which work in these
sectors, owing to the significant potential of the intersectoral technology
transfer.
An important organizational and economic principle of the sector de-
velopment consists in formation of the state order and its fulfillment by
the private sector. The whole modern situation of the applied aspect con-
cerning space industry development is demonstrated by the following
situation, when Ukrainian military department does not have any mod-
ern space pictures (photos) of ATO zone.
Innovation relations role can be illustrated by the applied aspect of
space sector. E.g. the systems of the distant probe of the Earth are very
useful for the development of agricultural sector of Ukrainian economy.
They are actively introduced in the world and provide receiving of the
reliable information about the state of land resources and crops to pre-
dict yield and agricultural technologies improvement, analysis of the cli-
mate factors dynamics etc.
In the situation with Ukraine, gap of the current chains considering
fragmentary character of technologies creates the following development
model: analysis of the current potential of the innovation system through
technological audit and resources concentration to solve tasks concern-
ing investigation of some technologies set, taking into account criterion
of terms and cost minimization, and maximization of key technologies in
the sector availability.
The peculiarity of the modern stage is creation of innovation net-
works to use new ideas of small and medium business. Today sectoral
competitiveness is defined by the management efficiency by supplier’s
chain.
It is well-known, that Boeing, Airbus, General Electric reduce num-
ber of details, investigated and produced individually, and give them for
outsourcing to small and medium business. For this purpose, they
«growth» suppliers, help to develop sectoral start-ups and as a result de-
velop the whole market [6].
It is reasonable in Ukraine to use experience of General Electric,
which monitors interesting technologies, appearing at the market, and
proposes young entrepreneurs, who develop them, to come into the cor-
porate acceleration. In practice it means, that experts of the company
help start-up to orient, and if it is necessary, to elaborate technology and

38
to work out mechanism of cooperation with General Electric as with a
potential customer.
After successful acceleration the company is an industrial partner,
stands surety for start-up in relation to investor and guaranties that it
will buy innovation investigations. The investor receives the project with
completed business-model and set sales channels. The start-up gets an
opportunity to enter the market fast, and then to sell its goods to another
corporation in the sector. Also, General Electric receives the trusting and
loyal supplier and partner.
This mechanism can be useful for the state innovation management
within the coordination function.
Also under the current conditions, we suggest to lay on the state func-
tions of the strategic management in the sector as it is done in USA, and
to realize main tasks via outsourcing, the tool of which we define virtual
innovation structures, particularly clusters, created through the select-
ing of the organizational and technological resources of various organi-
zations and their integration within the innovation network with the
help of different informational technologies and communication tools.
The virtual innovation integration involves relations of the total
informational transparency between partners and thus lets to material
flows reducing and costs decreasing. In the virtual integration coopera-
tion is maximum flexible, and integration is based on informational
flows. Functional environment is formed as it is required: the same agent
can be simultaneously a participant of national or international innova-
tion projects or their parts via participation in active networks.
In the context of Ukrainian integration vector and successful experi-
ence analysis of use space industry technologies management institution
framework, European Space Agency’s experience (ESA) should
also be used. The activity of ESA is generally based on the principle of
active networks formation. It means, that in order to realize a proper
task (project), ESA interested participants are united. Therefore, the
productive tasks are solved by the industrial firms under control of ESA
scientists and engineers.
In the USA technologies transfer is an obligation of NASA as a federal
agency. Here an extensive system is working, the peculiarity of which is
that it includes the inverse problem – searching of companies, which are
able to suggest innovation decision for NASA demands.
Innovative Partnership Program (ІPP) acts to solve both these tasks.
Within the framework of this program possible partners are being con-
stantly searched, with whom further the licensed agreements were con-
cluded to implement NASA technologies for commercial application.

39
 In practice terms, space industry is one of the sectors, which requires
development of the whole above communications complex and which can
become a hallmark of Ukraine in the global innovation system. Despite
the economic crisis, institutional functioning of the sector from the crisis
of 2008 remains stable on a global scale, and in several developing coun-
tries and economies of ОЕСD, budgets were grown.
So, in the context of InCo development we suggest to observe space
complex development as a coherent network of infrastructural objects
(agents), which produce goods and give service to study and to use space
in the scientific and applied activities. Let us point out that an ability to
use the integrated model of the innovation development is caused by the
fact that space industry unites all modern technologies of the high-tech
group and stimulates development of NBIC-technologies (nano-, bio-,
info- and cognitive technologies), that is a base of sixth technological age.
Space industry is developed depending on a number of supporting
sectors, particularly IT and tool engineering, which are of special atten-
tion in Ukraine. The sector possesses high multiplicative effect and as-
sists developing of the related sectors, being the source of technological
investigations, which owing the intersectoral transfer will essentially
impact efficiency of economic sectors. According to the experts’ calcula-
tions, the space technology and information use is able to increase 1,5-2
times the efficiency of various activities (environmental management,
planning and control of the territory development, transport, monitoring
of the water, forest and agricultural sector, creation of the electronic
maps, cadasters etc.).
According to the analysis of Ukrainian profile by the patent statistics
we can observe the correspondence of the innovation system specializa-
tion to these trends; however, absence of these investigations use in com-
plex (technological package) does not allow to enter into the global mar-
ket.
So, in Ukraine there is a task to search optimal strategy for the sector
development, based on consideration of the fact that the enterprises in
the given sector use simultaneously great number of technologies, dis-
tributed according to the functional specialization. However, only sepa-
rate of these technologies and only together with other technologies are
crucial ones from the viewpoint of the international specialization.
It is necessary to create communicative environment for coordination
and efforts uniting in order to develop the competitive package. The im-
portance of this aspect is reinforced with necessity to extend interna-
tional cooperation, problems in which uncertainty appears and deprive
sides the opportunity to develop strategic cooperation in the long-term
perspective.

40
 The figure 1.5 demonstrates the assessment of the technological pack-
age of Ukrainian space sector actual state, and also the expected growing
of its efficiency through the innovation communications development.

Figure 1.5. Features of technological package in the space industry

of Ukraine (author’s estimations)

The list of main actions to increase degree of communicative compe-

tence at various levels of the innovation system of space industry
includes:
1) activation of the international innovation cooperation, which in-
cludes collaboration with leading international high-tech companies (in-
cluding market leaders), international venture funds, small and medium
innovation business, engaged in the scientific, innovation and business
activity, fellow citizens abroad and their public organizations;
2) introduction of the corporative technological policy, based on fore-
sight, which is open for market participants and company owners
(including state);
3) realization of the actions, oriented to extend scientific and productive
cooperation, including mechanism of the proposals expertise to use new
technological decisions; spreading of the cooperative interconnection
practice by organizations of the innovation infrastructure (including within
the framework of the innovation clusters and technological platforms);

41
 So, the high technologies development in space industry requires
great systematic efforts and is complicated multicriteria task. Particu-
larly, the space industry development under conditions of the open
innovations is based on the business interest to technologies and deci-
sions, that are used within the space projects and which have great po-
tential for commercialization on the Earth. Creation of the effective fun-
damentals for innovation system and business-climate will let to attract
attention of small business and foreign companies to the space sector
from the viewpoint of collaboration and technologies exchange. Thus, the
communicative constituent of the innovation process is important mostly
for its economic, commercial and technological aspects as a base of high
technologies, which have to be provided with effective management sys-
tem, functioning in conditions of «great investments – high risks – high
profit». One of the main problems at the native enterprises and scientific
and research organizations in the high-tech sectors, is absence of per-
sonal investigations commercialization experience and legal problems,
theoretical knowledge and practical skills in the economy and marketing
sector. The given gap can be reduced by InCo establishing practice,
which can improve innovation processes efficiency in high-tech sectors.

References

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International innovation networks as new stage of innovation development.
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does the space industry expect from startups]. secretmag.ru. Retrieved from
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 7. Mast, C., Huck, S., & Zerfass, A. (2005). Innovation communication.
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43
 Section 2

Strategic management
of innovation active enterprises
2.1. Research of methods of strategic analysis of industrial enterprises

Bozhkova V.V., Goreta L.V., Kiseleva L.

Modern tendencies of economic relations of the enterprises of the ma-

chine-building industry determine the need for development an inte-
grated approach to the formation of an effective innovation strategy for
their development using classical and advanced (or advanced) strategic
analysis tools.
Ovsienko N.V. defines strategic analysis as an analysis of the enter-
prise environment, on the basis of which the marketing plan and future
market strategy are being developed in the market [1, p. 14].
Strategic analysis includes, first of all, analysis of a set of factors
(external and internal, direct and indirect), which in a complex influence
on the efficiency of the enterprise.
Dyolog T.I. emphasizes that when assessing the influence of the fac-
tors of the external and internal environment of the enterprise, manag-
ers should count the fact that these factors can have both positive and
negative impact. In this case, internal factors can cause negative conse-
quences in the external environment, and external – to have a negative
impact on the internal organizational environment [2, p. 47].
The purpose of strategic analysis of the development of machine-
building enterprises is to determine the factors of strategic success.
Scientists have widely researched various aspects of strategic analy-
sis. So, Bagorka M.O. notes that strategic analysis is an important com-
ponent of the marketing potential management process and the initial
stage of strategy development. His purpose is to select a specific strategy
for many strategic alternatives [3, p. 58].
Pecheritsa Yu.V. notes that strategic analysis of the marketing po-
tential of the industry also occupies one of the most important places in
the process of strategy formation, since it enables to determine its poten-
tial ability to carry out its activity according to strategic objectives [4].
Redchenko K.I. notes that strategic analysis is a comprehensive study
of positive and negative factors that may affect the economic state of the
enterprise in the long term, as well as ways to achieve the strategic ob-
jectives of the enterprise [5, p. 38].

44
 Shurpenkova R.K. considers the strategic analysis of the enterprise
as a multi-level study of the external and internal environment of the
strategic potential of the enterprise, their interaction, to determine the
strategic orientation, on the basis of which the strategy of enterprise
management is formed [6, p. 96].
According to Kulakova S.Yu. and Prituly A.I. the level of strategic
potential of the enterprise is determined primarily by the potential of
the enterprise [7, p.16]:
- own resources and resources of the external environment;
- balance of strategic potential and its adaptability to the chosen
strategies of enterprise development;
- the ability of the enterprise management to form a preventive sys-
tem of strategic development of the economic structure and its potential.
Depending on the type of strategic analysis, distinguish methods of
strategic analysis of the external, near and internal environment of the
enterprise.
We support Truhan O.L. who relates to the main tasks of strategic
analysis [8]:
- determination of the level of competitiveness and advantages of
competitive enterprises;
- analysis of the environment of the enterprise, macroeconomic
trends and their impact on the future development of the enterprise;
- analysis of the internal environment, personnel potential of the
enterprise and its structure.
The external environment is a combination of factors that shape the
long-term profitability of an enterprise and to which it cannot influence
at all or has a slight flow. The immediate environment is a set of factors
that shape the long-term profitability of an enterprise and to which it
can affect through the establishment of effective communications. The
internal environment of an enterprise is a set of factors that shape its
long-term profitability and are under the direct control of managers and
personnel of the enterprise [9, p. 14].
Datsenko G.V. stresses the need for the division of internal factors
into main and secondary ones. Internal factors determine the perfor-
mance of the enterprise. Internal secondary factors – these are struc-
tural changes in the composition of products, violations of economic and
technological discipline [10, p. 199].
Korzhenevskaya V.М. divides the environmental factors into sectoral,
global and state-level factors. Sectoral factors are related to the sectoral
activities of the enterprise, changes in the industry and the establish-
ment of relations with contractors and consumers. Global
factors are associated with the globalization of the market, the level of

45
development of the world financial market, the market of nanotechnolo-
gies and innovative products, the level of international economic compe-
tition. State factors are related to the state’s economic policy, innova-
tions in technology and technology, the legal field, the investment cli-
mate in the country, and the level of shadow economy [11, p. 105].
At the heart of strategic analysis – the study of internal and external
(positive and negative) factors of the enterprise, which in the future will
be able to affect its economic situation. Its purpose is to assess the most
significant factors affecting the current and future state of the entity.
Strategic analysis is aimed at determining the state of economic ac-
tivity of the enterprise in a specific period of time. In the course of stra-
tegic analysis, the assessment of the realism of strategic goals is deter-
mined [12, p. 198].
Relevant information, which is the basis for conducting strategic
analysis, is facilitated by the effective and well-founded adoption of stra-
tegic decisions of enterprises. So, strategic analysis is a means of trans-
forming the information data obtained as a result of the analysis of the
external and internal environment of enterprises into a database for
adoption by the strategic decision maker.
The strategic potential of the enterprise is the availability of suffi-
cient resources and competencies to develop and implement a strategy
that strengthens its competitive position [13, p. 129].
Strategic analysis involves the use of a large arsenal of techniques
that were developed mainly by foreign authors and companies and took
into account the peculiarities of their activities. However, in our opinion,
domestic scientists have not paid enough attention to the issues of the
appropriateness of choosing one or another method for conducting a stra-
tegic analysis of the relevant enterprises, the possibility of their adapta-
tion to real conditions, the possibility of their application for Ukrainian
industrial enterprises, in particular, machine-building enterprises.
The most commonly used methods of evaluating the quality of activi-
ties of the company in the West are models presented in the form of ma-
trices, where each business sector (business unit) is positioned graph-
ically in the fields of a two- or three-dimensional analytical matrix. The
most well-known methods are the matrices of the Boston Advisory Group
(BCG portfolio matrix «growth / market share»), the matrix «McKin-
cey» – «General Electric» («attractiveness / competitiveness»); Portfolio
Analysis Model by Shell-DPM (Matrix «Industry Attractiveness / Com-
petitiveness»); matrix firm Arthur D. Little (ADL / LC), based on which
is the concept of the life cycle of the industry (economic unit); matrix
I. Ansoff; three-dimensional scheme of Abel [14, p. 126].

46
 We consider it insufficient to conduct a one-time analysis of the stra-
tegic situation of enterprises using standard methods in connection with
the asymmetry of information at domestic enterprises of mechanical en-
gineering. Lack of sufficient experience of market activity and complete
(exhaustive) information about the internal state of the more successful
competitors (in this case, the machine-building industry) necessitate
more careful research and analysis. We consider it expedient to carry out
a strategic analysis of the following blocks (Figure 2.1.):

Preliminary
methods

SNW LOTS

SWOT MCC

PEST ABELL

Basic methods
SPACE PIMS

ADL/LC STEP

BCG GAP

Refinement
methods

Figure 2.1. Plan of interconnections between methods of conducting

strategic analysis of industrial enterprises (author’s proposal)

47
 1) preliminary methods – allow to analyze the strategic situation of
the enterprises of mechanical engineering by gathering information
about the existing situation (internal state) of the enterprise, on the in-
fluence of factors of the environment on the efficiency of its functioning
in order to form an appropriate database for the implementation of the
main methods of strategic analysis;
2) basic methods – allow an audit of financial and economic activity
of enterprises in order to assess their deviation from the underlying con-
dition and indicate the further direction of their development;
3) refinement methods – allow to identify additional factors that may
affect the competitiveness of the enterprise in the future. In particular:
- use of the same method for analysis in the same periods [15];
- conducting one (in-depth) analysis in one period with additions [16];
- conducting consistently different analysis methods in one period.
Approval of the author’s proposals was carried out on the example of
the activity of the Sumy machine-building enterprise PJSC Sumy Pump
and Power Mechanical Engineering Plant Nasosenergomash [17].
A generalized scheme of using the author’s methodology for conduct-
ing strategic analysis at an industrial enterprise using matrix models is
shown in Figure. 2.2. The using of the first two blocks is described in [18].
At the first stage (preliminary methods), we recommend conducting
diagnostics of the enterprise environment – identifying the factors that
influence the process of strategic management of the enterprise (PEST-
analysis) (using a scale of relative importance) with the further alloca-
tion of the factors of the greatest influence and their division into posi-
tive and negative factors impact. It will help to structure available infor-
mation about internal capabilities of enterprises using SNW-analysis
(estimation of internal resources of the enterprise), further eliminating
the factors of neutral influence, with subsequent allocation of factors in-
fluencing the competitive positions of enterprises (strengthening and
weakening) and separating them into those describing strong and weak-
nesses of enterprises.
The second stage (main method) is the analysis of competitive per-
spectives of enterprises – SWOT-analysis based on data obtained during
the previous methods: taking, if possible and threatening factors of the
greatest influence on the results of PEST-analysis; for the strengths and
weaknesses – factors that characterize the strengths and weaknesses of
the enterprises as a result of SNW-analysis.
The third step is to apply a refinement method (for example, to con-
duct BCG-analysis) to determine the orientation of an enterprise to the
manufacture of one or another type of product, which in turn will require
the development of new technologies, the provision of the technological

48
process necessary equipment, the involvement of qualified personnel
with the subsequent ability to implement this products in all markets
(both external and internal) [19]. So, an additional BCG-analysis will
allow an enterprise to determine in the development of an innovative
development strategy that the production of products will contribute to
the further growth of production.

Preliminary
methods (SNW-
analysis, PEST-
analysis)

Basic method
(SWOT-analysis)

Refinement
method (BCG-
analysis)

Figure 2.2. Example of application of the author’s methodology

for conducting strategic analysis of industrial enterprises

Matrix methods play an important role in the strategic analysis of

industrial enterprises. They are convenient and therefore have become
widespread. However, the use of one type of matrix analysis is not
sufficient, since the matrices allow to investigate the strategic state of
enterprises from individual parties and do not describe the complete pic-
ture. But, in combination with other methods, matrix approaches pro-
vide an opportunity for a clear demonstration of regularities in processes
taking place at enterprises, and the formulation of correct
conclusions when developing an innovative development strategy.
Consequently, the most qualitative will be the strategic analysis, pro-
vided that the matrices are used in a comprehensive manner, which cor-
respond to the specifics of production and sales of enterprises. When ap-
plying them to the analysis of enterprises, it is necessary to take into
account the specifics of the industry and the specifics of their production.

49
 The result of the application of strategic analysis methods for indus-
trial enterprises is to determine their potential, to assess the internal
and external environment with a long-term orientation that will allow
us to choose an innovative development strategy aimed at strengthening
the positions of enterprises in the market environment and anticipating
their threats [20].
Therefore, we consider it expedient to use the existing models and
methods for strategic analysis of the activity of domestic industrial en-
terprises, provided that they are adapted to the specifics of the latter and
features of the functioning environment.

References

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planuvannia diialnosti pidpryiemstv Ukrainy v umovakh nestabilnosti rozvytku
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visnik/econom/1_47/27.pdf.

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 9. Popov, V.N., Kasianov, V.S., & Savchenko, I.P. (2007). Sistemnyi analiz v
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51
 2.2. The basic strategy of potential development
of the commercial enterprises

Garmider L.D., Gonchar L.A.

Focusing of efforts on the solution of tasks of strategic planning, which

is based on the selection of strategic alternatives, taking into account ex-
ternal circumstances and needs of maintenance of competitive position, is
a characteristic feature of global management. Strategic planning of de-
velopment of capacity of the enterprise is seen as an essential prerequisite
for achieving the strategic goals of the company. At the same time the
development potential of the company does not fully meet the require-
ments of modern trade. All this indicates that work on development of
personnel potential is extremely important for Ukrainian trading compa-
nies. To ensure the development potential of the company, strategic en-
terprise management, which is a tool for strategy of development of per-
sonnel capacity of the company, should be used. The strategy aims to
improve the quality characteristics of human capacity.
Processes of human resource capacity of commercial enterprises.
To present a scientific and a methodical approach to justification of a
choice of strategy of personnel potential development of commercial enter-
prise through the use of diagnostic matrix, thus providing appropriate
strategic profile of human capacity in the ratio «phase of the life cycle – a
stage of development – the level of development» and to determine the
position of the company in terms of development its human resources, ac-
cording to which the strategy is chosen that contains a set of core compe-
tencies, which ensure the implementation of the chosen strategy.
Comparative, logical analysis and synthesis of scientific literature,
comparison and generalization methods, mathematical and statistical
methods of data analysis.
In our opinion, the strategy of human resources development, which
includes organizational training strategy, must be closely linked with
the strategy of personnel management. The works of I.L. Petrova [1]
A. Vorobyov, S. Zhdanov, J. Kuzmina, M.N. Bogdan, E.O. Mohylovkina,
O.N. Gromov, J.M. Ivantsevycha, I.G. Ishchenko, G.A. Dmitrienko,
V. Kolpakov, V.V. Buzyreva, M.S. Gusarova, N.M. Chikisheva
V.I. Maslov, M.V. Sorokin [2-4] and others are dedicated to the issue of
research of human resource management strategies and their classification.
Thus, methodical approach to human resource management strategies
demonstrate a wide range of opinions, similar to views on the general
(corporate, economic) ideas about a strategy as an instrument of effective
enterprise management. However, analysis of the scientific literature

52
shows that most of foreign concepts of enterprises planning need to
adapt to the difficult economic situation in Ukraine, to the specific eco-
nomic conditions during the formation of market relations. In domestic
sources some aspects of the role of human resource capacity in the sys-
tem of strategic management are not studied enough.
Based on the above analysis of the references and summarizing the
results of our studies [5-12], the main factors determining the strategy
of personnel potential development of the enterprise, namely: level of
human resources development, stage of human resources development,
the phase of the life cycle of the company are highlighted. According to
the superposition of stages of human potential development and phases
of the life cycle of enterprise and levels of personnel capacity develop-
ment of the enterprise considering approaches to justification of a choice
of basic strategy of personnel potential development general recommen-
dations for selection for diagnostic matrix were formulated. The position
of the company is defined by three parameters: phase of life cycle busi-
nesses, the stage of development of human capacity, the development
potential of the company (Figure 2.3).

Phases of life cycle of the enterprise

Development

Development

Recession

Recession
Level of personnel potential development

Maturity

Maturity

Maturity
Birth

1 2 3 4 5 6 7 8
High 4 1 8

9 10 11 12 13 14 15 16
Medium 2
6 5 7 9 10
17 18 19 20 21 22 23 24
Low 3
Stabilization nega-

Stabilization nega-
Stabilization posi-
Stabilization posi-
tive dynamics

tive dynamics

tive dynamics

tive dynamics
Formation

Formation

Extension

Extension

Management
typical real unique
situations

Figure 2.3. Diagnostic matrix «phase of the life cycle – development

stage – the level of development» (composed by the author)

53
 Diagnostic matrix allows us to identify areas of human resources, to
determine its appropriate strategic profile of the ratio «phase of the life
cycle – development stage – the level of development» and the position
of commercial enterprises on the development of its human resource ca-
pacity (Table 2.1).

Table 2.1. Recommended staff potential development strategy of the

company in accordance with the provisions on diagnostic matrix (com-
posed by the author)
№ of Level of Possible strategies
Superposi- Type of a
Area Posi- personnel Medium and
tion situation Small enterprises
tion development large enterprises
Extension /
3 High Typical
development Strategy of con-
Extension / Innovation solidation.
4 High Typical
maturity strategy. Innovation
1
Stabilization The strategy strategy.
positive of accessory Integrated strat-
5 High Typical
dynamics / egy
maturity
Extension /
11 Average Typical Strategy of ca-
development
Business strategy. reer develop-
Extension /
12 Average Typical Training strategy. ment.
maturity
2 The strategy of Identification
Stabilization
improving the ser- strategy.
positive dy-
13 Average Typical vice quality Attraction strat-
namics / ma-
egy
turity
Extension /
19 Low Unique The strategy of The strategy of
development
profitability use opportuni-
Extension /
20 Low Unique Strategy of per- ties. Training
maturity
3 sonnel adaptation. strategy.
Stabilization
Strategy of con- Partner strategy
positive dy-
21 Low Unique servative Strategy of a cir-
namics / ma-
management culation (cyclic)
turity
The strategy of use The strategy of
Formation / of opportunities. consolidation.
1 High Unique The strategy of ac- Innovation strategy.
birth
4 cessory. Strategy Self-preservation
of personnel econ- strategy. Person-
Formation / omy. Personnel ad- nel diversifica-
2 High Unique
development aptation strategy tion strategy
Strategy of person-
Formation / nel diversification.
10 Average Typical Training strategy.
development Business strat-
Strategy of use of
5 egy. Strategy of
opportunities. Liq-
Formation / dynamic growth.
18 Low Real uidation strategy
Liquidation
development
strategy

54
 Table 2.1. Continuation
№ of Level of Possible strategies
Superposi- Type of a
Area Posi- personnel Medium and
tion situation Small enterprises
tion development large enterprises
Strategy of per-
Formation / Training strategy.
9 Average Real sonnel adaptation.
birth Strategy of dy-
Stimulation strategy.
6 namic growth.
Partner strategy.
Formation / Identification
17 Low Typical Strategy of profit- strategy
birth ability
Stabilization
negative Consumer strat-
6 High Unique
dynamics / Stimulation strat- egy.
maturity egy. Strategy of con-
Stabilization Consumer strat- servative man-
negative dy- egy. agement.
7 14 Average Real
namics / ma- Strategy of per- Strategy of prof-
turity sonnel economy. itability.
Stabilization Strategy of Strategy of
negative dy- survival personnel
22 Low Typical
namics / ma- economy
turity
Stabilization
positive dy- Strategy of the use Strategy of con-
7 High Unique
namics / re- of opportunities. solidation.
cession Strategy of Innovation strat-
8
Stabilization accessory. egy.
negative dy- Personnel adapta- Strategy of sur-
8 High Unique
namics / re- tion strategy vival
cession
Stabilization
Integrated strat-
positive dy- Strategy of profit-
15 Average Typical egy.
namics / re- ability.
Training strat-
cession Strategy of per-
9 egy.
Stabilization sonnel adaptation.
Partner strategy.
positive dy- Strategy of acces-
23 Low Real Innovation strat-
namics / re- sory
egy
cession
Stabilization
negative dy- Stimulation strat- Strategy of con-
16 Average Real
namics / re- egy. servative man-
cession Strategy of per- agement.
10 Stabilization sonnel economy. Integrated strategy.
negative Strategy of acces- Strategy of per-
24 Low Typical sory sonnel economy
dynamics /
recession

The advantage of this matrix is the presence of specific recommenda-

tions within each strategy. Furthermore, it is clear and requires no
calculations. The proposed model allows to analyze the nature of changes

55
that make the profile of human resources, and to consider their interac-
tion for decision making. The proposed approach to the assessment of
personnel development gives an idea of the effectiveness of management
decisions of its improvement for the benefit of the enterprise.
Depending on ratio «phase of the life cycle – development stage – the
level of development» twenty-four possible positions in commercial en-
terprises matrix are selected. These positions can be located in ten areas.
Highlighting the position of specific companies in a particular area is
based on the similarity of their characteristics, and, therefore, it enables
to use the same type of decisions regarding the development of human
capacity commercial enterprises. In diagnostic matrix the following ar-
eas are identified: a high level of human resource capacity (area 1); with
sufficient level (area 2); unsatisfactory level (of 3-6); the critical level
(of 7.10). Areas 1 and 2 show sufficient human resources development
and are the most perspective for trade enterprises. Commercial enter-
prises in the regions 7-10 have characteristic of personnel potential,
which is significantly influenced by changing factors, and therefore for
the further development of human capacity their efforts should be di-
rected on areas 4-5.
Diagnostic matrix allows us to identify areas of human resources, to
determine its appropriate strategic profile of the ratio «phase of the life
cycle – development stage – the level of development» and the position
of commercial enterprises on the development of its human resources. It
should be noted that the proposed matrix of situation diagnosis of human
capacity is easy to use, it can also be adapted to the conditions of any
commercial enterprise. In addition, the model can include additional cri-
teria’s that take into account the specifics of a particular trade on a cer-
tain stage of its economic development.
Approbation of the proposed approach was conducted on eighteen
trading companies, which were grouped according to the number of em-
ployees and the size of the trade area (Table 2.2).
For Group 1 (small) commercial enterprises the superposition 3 is
typical (expansion of personnel potential/development of an enterprise);
for enterprises from Group 2 (average) – superposition 4 is typical (ex-
pansion of human capacity/maturity of the enterprise); For enterprises
from Group 3 (large) – superposition 5 is typical (stabilization of person-
nel potential (positive dynamics)/maturity of the enterprise). The results
of expert assessment of the characteristics of human resource potential
due to groups of the studied trade enterprises and the calculation of the
integral development of human resource capacity is given in [13].

56
Table 2.2. Investigated commercial enterprises groups
(composed by the author)
Average size Average
Group of
Name of the investigated enterprises of a floor number of
enterprises
space, sq. m. staff, pers.
PE «Antonio Biagi», PE «Lagon», PE «Igla»,
Ltd. «Aquatic», Ltd. «Aquatory», Ltd. «Carlo
1 (small) 400 47
Pasolini Trading», LLC «Kira Plastinina», Ltd
«Textile house»
Ltd «Omega» (supermarket «Uarus»), LLC
«ATB-Market», LLC «Comfy Trade», LLC
2 (average) 6000 110
«Iboya Premium» (supermarket Budapest),
TM «ABC-technique», TM «Foxtrot»
Ltd «Mall Meteor», TM «Metro», JSC «New
3 (large) 16000 500
Lane», TM «Epicenter Kº»

Analysis of the received data on diagnostic matrix leads to the con-

clusion that all three groups of investigated commercial enterprises are
in a typical situation that enables the use of typical management solu-
tions and offer the appropriate basic strategy for the development of hu-
man resource capacity (Table. 2.3).
Strategies of medium and large enterprises are especially interesting.
Considering the signs of the superposition № 4 (extension of human ca-
pacity/maturity) which are peculiar to group № 2 (medium) enterprises
and characteristics of continuous development of human capacity of
trading companies under the superposition, the strategy of innovation
was recommended to the group of medium enterprises. It is based on the
desire and suitability for innovation, creativity, high the level of cooper-
ation and adaptation to changing conditions and loyalty to the company.
Considering the signs of the superposition № 5 (maturity of enter-
prise/stabilization of staffing capacity) that belongs to group № 3 (large)
enterprises and characteristics of continuous development of human ca-
pacity of trading companies under the superposition, the strategy of con-
solidation was recommended to the group of large enterprises. It is based
on formation of the only solid labor working group, which employees ob-
serve the ability to work in a team, strive for professional and career
growth, and have an aspiration to personal independence and leadership,
quality orientation. In front of the investigated commercial enterprises of
group number 3 new challenges with a corresponding change of priorities
in the formation of human resources will arise. Since it is about develop-
ment of new markets, we the extension of human capacity will gain some
relevance again. On condition of successful implementation of such pro-
grams, commercial enterprise will start a new life cycle.

57
Table 2.3. Recommendations for the basic strategy of staff potential de-
velopment of the investigated commercial enterprises (composed by the
author)

Group 1 (small) 2 (medium) 3 (large)

Typical Professionalizing Advanced training.
Career growth and pro-
signs of Professional socialization. Retraining. gress. Professional and
the super- Formation of individ- Regular profes- personal development.
position ual style of professional ac- sional training. Encouragement of pro-
tivity. Personal growth of
duction results, quality of
Orientation in training on employees. work and performance of
the formation of profes- Encouragement forthe set standards of be-
sional management, stand- creativity, initia-
havior. Introduction of
ard functions and compe- tive. mentoring institute.
tencies, goals and val- Orientation in Improvement of corporate
ues of the company. training on master-
interaction.
Accumulation and use of ing the tools of effi-
Expanding of area of re-
information and knowledge ciency sponsibility. Maximum
attraction to participation
in «the business process»
Character- Training of new employees. CCD is aimed at Attracting of staff to inno-
istics of Implementation of adapta- further develop- vation.
continu- tion programs for personnel. ment of employees, System engineering of
ous devel- Problem-oriented profes- reaching maximum problem-oriented CCD in
opment sional education, develop- results, profes- the company as a whole.
(CCD) of ing necessary for the sional and business Training programs for cri-
human re- growth of quantitative and skills, knowledge, sis management in the
source ca- qualitative flexibility in and abilities. enterprise.
pacity changing conditions. Development of Development of personal
The development of em- personal plans for plans for career promo-
ployees’ competence in gen- staff training. tion.
eral business development Organization of Organization of trainings
through special programs training programs for fixing of the created
for managers. with taking the per- management commands,
The development of man- sonal needs of em- their close interaction
agement and administra- ployees into ac-
tion skills for managers count
Recom- Accessory Innovation Consolidation
mended
strategy
Recom- Innovation activity The desire and ac- Ability to work in team
mended Participation in shaping ceptability for inno- Desire for professional
competence the goals and strategy of vation and career growth
the organization The high degree of Commitment to work
Thinking outside the box cooperation Focus on quality
Strategic thinking The high degree of Aspiration to personal in-
Art tolerance for risk dependence and leader-
Initiative Adaptability to ship. Discipline
Teamwork changing conditions
Loyalty Loyalty to the com-
pany (focus on long-
term performance)

58
 Thus, summarizing the above, it is necessary to make the following
conclusion: each phase of the life cycle of commercial enterprises and
stage of development of its human resource capacity corresponds to one
of the basic strategies for the development of human resources, which is
the methodological basis for determining appropriate strategic direc-
tions of development of human resources. The results of the above stud-
ies are taken as a basis for further research to determine the competence
of personnel that should be developed to implement this strategy and to
take them into account when developing quality standards for the devel-
opment of personnel capacity of the enterprise.

References

1. Petrova, I.L. (2010). Stratehichne upravlinnia liudskymy resursamy

[Strategic management of human resources]. Kyiv: KNEU.
2. Vorobov, A. Zhdanov, S, & Kuzmina, Ye. (2008). Stratehicheskoe uprav-
lenie personalom [Strategic management of human resources]. Upravlenie per-
sonalom – Personnel management, 15, 23-29.
3. Hromova, O.N. (1999). Formirovanie stratehii upravleniia personalom
(teoreticheskie i metodicheskie aspekty) [Formation of strategy of human re-
source management of an enterprise (theoretical and methodical aspects)].
Economika i upravlenie narodnym khoziaistvom [Economy and management of
the national personnel]. Moscow: HUU.
4. Maslov, V.I. (2004). Stratehicheskoe upravlenie personalom v usloviiah
effectivnoi orhanizatsionnoi cultury [Strategic management of human resources
in the conditions of effective organizational culture]. Moscow: Finpress.
5. Garmider, L.D. (2013). Rozvytok kadrovoho potentsialu za zhyttevym
tsyklom torhovelnoho pidpriemstva [Development of personnel potential accord-
ing to the life cycle of enterprise]. Derzhava ta rehiony – State and regions, 1,
101-114.
6. Garmider, L.D. (2012). Typolohiia torhovelnykh pidpryiemstv ta model
formuvannia ih kadrovoho potentsialu [Typology of trade enterprises and the
model of formation of their personnel potential]. Torhivla ta rynok Ukrayny –
Trade and market of Ukraine, 34, 363-371.
7. Garmider, L.D. (2012). Vosproizvodstvo kak forma razvitiia kadrovoho
potentsiala i uslovie obespecheniia ekonomicheskoi bezopasnosti predriiatiia
[Reproduction as a form of personnel potential development and condition of
providing economic security of an enterprise]. Suchasni perspectyvy rozvutku
system ekonomichnoi bezpeky derzhavy ta subiectiv hospodariuvannia [Modern
prospects of development of systems of state economic security and systems of
managing]. (pp. 490-516).
8. Garmider, L.D. (2012). Teoretychni aspekty otsinky kadrovoho potentsi-
alu pidpryiemstva [Theoretical aspects of an assessment of personnel capacity of

59
the enterprise]. Sbornik nauchnykh trudov SWorld – Collection of scientific
works SWorld, 29, 64-71.
9. Hurkov, I.B., Zelenova, O.I., & Mutovin, A.A. (2007). Biznes-stratehii i
sotsialno-kadrovaia politika rossiiskikh predpriiatii [Business strategy and so-
cial personnel policy of Russian enterprises]. Moscow: Higher School of Econom-
ics.
10. Sorokina, M.V. (2006). Stratehicheskoe upravlenie personalom v torhovle
[Strategic human recourse management]. Saint Petersburg.
11. Ivanovskaia, L. (2009). Stratehiia upravleniia personalom [Strategy of
human resource management]. Kadrovyi menedzhment – Human recourse man-
agement, 1, 4-11.
12. Zelenova, O.I. (n.d.). Stratehiia upravleniia personalom [Strategy of hu-
man resource management]. Upravlenie chelovecheskimi resupsami:
menedzhment i konsultirovanie [Management of human resources: management
and consultation. Retrived from http://ecsocman.hse.ru/text/19209218.html.
13. Garmider, L.D. (2015). Rozvytok kadrovoho potentsialu torhovelnykh
pidpriemstv [Development of personnel capacity of trade enterprises: concept
and methodology]. Ekonomika ta upravlinnia pidpriemstvamy (za vydamy
ekonomichnoi diialnosti) [Economy and management of commercial enterprises
(according to their economic activity)], 38.

2.3. The relationship between scientific and educational projects

and innovative activities of industrial enterprises on the way
of the outstripping development

Golysheva I.O., Gryshchenko O.F., Illiashenko N.S., Masár D.

Today, the perspectives of Ukraine’s economy development lie in the

area of new model of growth. The analysis of the experience of the most
developed countries shows that the major factor for success is providing
mechanisms of innovation activity on the business level, as well as on the
state level.
The scientific and educational sphere influenced to the development of
innovative activity. The training and raising of the qualification level of
personnel for enterprises, the development of new technologies of the pro-
duction and business, the solving of economic development and production
problems ae taken part in this area. One of the best methods of interaction
between the scientific and business spheres for solving common problems
is educational and scientific projects. Under these conditions, the top issue
is the development of the national scientific potential, in particular the
support or stimulation of educational and scientific projects.
Project management includes many aspects. To begin with, we will con-
sider a concept of the project.

60
 The term «project» comes from the Latin word «projectus» (which was
formed from the words «pro» (forward) and «jacere» (to throw)) and means
«to throw or cast forward».
There are different interpretations of the concept «project» in the mod-
ern literature and in the Internet. However, a big variety of approaches
shows that the meaning of the terms is very similar. The classification is
given in the figure below (Figure 2.4).

a sequence of activities which are connected, conducted over a limited period of time, and targeted to generate a unique but well-defined outcome
(Baguley, 2009)

a limited in time and resources purposeful action on the creation of something (Funtov, 2011)

a process or
a unique activity, which includes coordinated implementation of actions for achieving certain goals within a limited period of time (Kovalev, 2003)
activity

a temporary endeavour undertaken to create a unique product, service, or result (PMBOK guide, 2004, 2013)

is a unit, a complex of tasks and actions that have the following distinctive features: clear goals, connection between goals and resources, specific start
and end dates of the project, a certain degree of novelty purposes and conditions of implementation, inevitability of various conflicts within and around
the project (Maliuk, & Niemchin, 2013)

an endeavour in which human, material and financial resources are organised in a novel way, to undertake a unique scope of work, of given specification,
within constrains of cost and time, following a standard life cycle, so as to achieve beneficial change defined by quantitative and qualitative objectives
(Gaupin, Knopfel, Morris, Motzel, & Pannenbacker, 1999)

a unique process, consisting of a set of coordinated and controlled activities with start and finish dates, undertaken to achieve an objective conforming to
Project

specific requirements, including the constraints of time, cost and resources (Bureau of Indian Standards, 2003)

a unique set of processes consisting of coordinated and controlled activities with start and end dates, performed to achieve project objectives (The British
Standard Institution, 2012)
a set of
activities an initial intent, image of the object planned to create, presented in the form of its description, schemes, drawings, calculations, justifications, indicators)
(Raizberg, & Lozovskiy, 2008)

a unique set of co-ordinated activities, with defined starting and finishing points, undertaken by an individual or organisation to meet specific objectives
within a defined schedule, cost and performance parameters (Gaupin, Knopfel, Morris, Motzel, & Pannenbacker, 1999)

is a complex of scientific, research, design, social, economic, managerial, business and other components, connected by resources, performers and
deadlines (designed and aimed at changing an object of management) (Tarasiuk, 2006)

a temporary undertaking to create a unique product or service with a defined start and end point and specific objectives that, when attained, signify
completion (Ward, 2000)
an undertaking
an undertaking which is in principal characterised by its uniqueness of conditions; e.g. as objectives, clear time, cost and quality and other conditions,
differentiation to other endeavours, project specific organisation (Gaupin, Knopfel, Morris, Motzel, & Pannenbacker, 1999)

Figure 2.4. A project: the essence of the term

To determine the place of educational and scientific projects in project

management it is necessary to analyze different types of projects. The
number of factors can be used to define the project classification. The
classification of projects presented below (Figure 2.5) was derived from
Baguley (2004), Shenhar & Wideman (1997), Project Classification
(2008), Shenhar, Dvir, Levy & Maltz (2001) and own observations.

61
 Types of Projects

1. Project size 2. The type of core process 5. The level of technological uncertaincy

2.1. Laboratory project Low-tech project

1.1. Investment volume
2.2. Review project Medium-tech project
Enhancement project (under 250 thnd $) Meta-analysis project High-tech project
Small project (250 thnd – 1 mln $) Data-analysis project Super high-tech project
Medium project (1 – 3 mln $) Observation project
6. The field of implementation
Large project (3 – 10 mln $) 2.3. Invention (innovation) project
Very large project (10 mln $ and more) Technical/ technological project

3. The type of key activity Social project

1.2. Geography Medical project
3.1. Education project
Local project Cultural project
3.2. Research project
National project Economic project
Fundamental project
Multinational project Applied research project Innovation project etc.

Worldwide project 3.3. Extension project

7. The level of communication complexity
3.4. Integrated project
Low complexity project
1.3. Number of partners
Medium complexity project
Minor project (under 5 partners) 4. Type of work – type of product factor
High complexity project
Medium project (5-15 partners) Tangible-intellect project
Major project (15 partners and more) Intangible-intellect project

Intangible-craft project

Tangible-craft project

Figure 2.5. The classification of projects

For effective management of educational and scientific projects it is

necessary to consider strategies for their initiation and implementation.
The authors propose use the push and pull strategies according to Ko-
lodovski (2006). In short, in the frame of pull strategy it is stated that
recognition of demand is a more important factor in successful innova-
tion than recognition of technical potential. On the other hand, push
strategy states that the discovery of the new capabilities often leads to
the more radical innovations. In other words, if project starts with stat-
ing a problem and then a solution comes, this is the pull strategy. If the
project starts with a solution (technology), and then the problem it can
solve defines, it is push strategy. Pull strategy starts with sponsor’s ini-
tiative to grant something (individual researches or group researches) in
specific thematic section (usually addressing global challenges). The
sponsor’s funding initiative becomes available in the form of challenges.
If research team wishes to respond to a challenge, it must submit a pro-
posal according to the admissibility conditions and eligibility criteria be-
fore the deadline. Once a proposal passes the evaluation stage a project
team starts the project management process. The push strategy assumes
the primacy of the research team initiative. Research team has an idea

62
or technology which needs to be funded. If sponsor wishes to fund, the
admissibility conditions and eligibility criteria must be stated. If re-
search team wishes to cooperate with sponsor, it must present a project
according to the admissibility conditions and eligibility criteria before
the deadline. Once all formalities are settled, the project team starts the
project management process.
Any process suggests existence of a definite list of consequent stages
of its implementation. Scientific and educational projects are not an ex-
ception. Project developers also divide projects into stages to provide bet-
ter management control and appropriate information flows between pro-
ject team. It is often said that the majority of authors suggest similar set
of stages, but still some differences can be found.
Another important issue in project management is the definition of
planning and implementation phases of projects. To determine the
stages of the life cycle of educational and scientific projects, it is neces-
sary to analyze the existing approaches in project management. The
works of Cooper (2007) and The Office of Energy Efficiency and Renew-
able Energy (2007) use the concepts of stages and gates in the process of
project implementation. Schindlholzer, Uebernickel and Brenner (2011)
consider that project process «consists of the three main phases: prepa-
ration, design and specification, as well as the sub phases for these three
main phases». On the other hand, authors of PMBOK guide (2004) sug-
gest analyzing project stages in a form of project life cycle.
Allan (2001, p. 333) mentions that «all projects involve the cyclical
process»: 1) defining the project; 2) basic project planning; 3) planning
the schedule; 4) staffing the project; 5) costing the project; 6) developing
a communication strategy; 7) project management and reporting;
8) implementation; 9) management of change; 10) project completion.
Munns and Bjeirmi (1996, p. 84) use a six-stage model of the life of a
project. The stages being as follows: 1. Conception phase (the idea for the
project is birthed within the client organization and its feasibility deter-
mined); 2. Planning phase (the method to achieve the original idea is
planned and designed); 3. Production phase (the plans are converted into
physical reality); 4. Handover phase (the finished project is handed over
to the client for use); 5. Utilization phase (the client makes use of the
finished project); 6. Closedown phase (the project is dismantled and dis-
posed of at the end of its useful life).
The Tasmanian Government Project Management Guidelines (2011)
suggests to use a high-level project management approach. This
approach fits most projects at a macro level. The model presented on
Figure 2.6 represents an over-simplification of most projects, but it is
included to make sense of what, in reality, can be a complex and non-

63
linear process. It is stated that the project manager needs to consider the
eleven key elements: planning and scoping; governance; outcome reali-
zation; stakeholder engagement; risk management; issues management;
resource management; quality management; status reporting; project re-
view and evaluation; project closure. These key elements must be con-
sidered no matter what the size or complexity of the project.

Generic Life of a Project

INITIATE SETUP MANAGE FINALISE

Project Processes

Realisation
Outcome
Delivery
Initiation Initial

Output
Feasibility Scoping Project
Project Utilization
Cost Benefit Planning Processes
Setup
Example Documentation

Business Case Project Business Plan

Feasibility Report Review & Evaluation Review & Closure

Project
Proposal Project Execution Plan

Outcome Realization Plan

Figure 2.6. High-level conceptual view of the generic life of a project

(The Tasmanian Government Project Management Guidelines,
2011, p. 11)

Research of publications on this issue allows to form staged of scien-

tific and educational projects management process: 1) initiating, 2) plan-
ning & executing; 3) monitoring & controlling; 4) closing.
It should be noted that information management process within sci-
entific and educational projects must take into account the information
flows characteristics (especially it’s directions and features) that arise
between structural elements. The main structural elements of scientific
and educational projects are the following: project team (manager, mem-
bers), donors (sponsors, creditors), stakeholders, competitors, intermedi-
aries, suppliers, community (external environment, public) and custom-
ers. We think it expedient to consider information flows in more detail
(Figure 2.7).

64
 Figure 2.7. Structural and logical scheme of project management
process with the indication of the main information flows
Source: Own development

65
 The description of roles performed by main structural elements of sci-
entific and educational projects is presented in the Figure 2.8 (developed
on the basis of Brandon (2006); Schindlholzer, Uebernickel and Brenner
(2011)).

Initiator – Anyone of key project

a person, group of people or participants
organization which determines the (stakeholders, sponsors,
nature and scope of the project team members etc. Customers –
a person, group of people
Stakeholders –
or organization which acts
a person, group of
as the actual or potential
people or organization,
consumer (user) of the final
internal or external to Project Team: project product or service
the project team, which Government organizations,
is impacted by, or can The leader of team
community, business
impact, the outcomes of Project Manager – members who has the
structures, educational and
the project a person responsible for ensuring experience in research
scientific establishments
that the project team completes the projects and the power
Project team, sponsors, project to influence other
customers, government members Community (external
organizations environment, publics) –
Project Manager – contact audiences which
people with different skills, Representatives from interact and influence the
Sponsors (donors, process of launching and
personalities and experience who different scientific and
creditors) – executing the project
are appropriate to launch and practical areas
a person, group of Local population,
execute the project
people or organization government organizations,
which gives funding non government
opportunities for the organizations, mass media
project
SCIENTIFIC AND Competitors –
Foundations, grant EDUCATIONAL a person, group of people
organization, PROJECT or organization which is
government trying to achieve such
organization, business goals as the project team
structures, banks, Educational and scientific
investment funds etc. establishments, venture
Insurance, financial, enterprises
Intermediaries –
logistics, consulting,
a person, group of people or
government, legal
organization which offers
service organizations,
intermediation services suppliers, etc.

Figure 2.8. Interaction of the main structural elements during

the scientific and educational project creation

Munns and Bjeirmi (1996, p. 84) provided the vision how each of the
structural elements (project parties) interact with the project during life-
cycle (Figure 2.9). The author highlights the role third parties in project
management process, which could significantly influence the develop-
ment and use of a project. Third parties include statutory authorities
(both local and national), the media, environmental groups and the gen-
eral public (society).

66
 Time

1 2 3 4 5 6

1 2 3 4 5 6
Stage

Conception Planning Production Handover Utilization Closedown

Client Client Client Client Client Client
Users Project Team Project Team Project Team Users Third Parties
Interested
Parties

Third Parties Third Parties Producer Producer Third Parties

Third Parties Third Parties

Figure 2.9. The stages in a project life cycle, and the parties interested
in each stage (Munns & Bjeirmi, 1996, p. 84)

Every project has to be funded. The problem of the funding forms

arises at the very beginning of the project process. A wide range of fund-
ing opportunities exists to support programs and projects. In recent
years, the funding forms of domestic scientific and educational projects
have had slight changes. This is largely due to the European vector of
Ukrainian development. As a result, the following forms of financing
have become widespread in Ukraine (Figure 2.10).
Most of the forms presented in the Figure 2.10 have been distributed
in Ukraine through foreign sources. Therefore, we propose to establish
the factors of influence on the level of foreign attraction.
Within the research of impact factors on the funding levels of Ukrain-
ian scientific and educational projects provided by Bilovodska,
Golysheva, Gryshchenko, Strunz (2017) a set of hypotheses was formed
(Figure 2.11). To verify the hypotheses the data of the State Statistics
Service of Ukraine regarding a number of researchers who travelled out-
side Ukraine for scientific or educational reasons, a share of expendi-
tures on scientific and scientific-technical activities in GDP, a number of
organizations involved in scientific and scientific-technical activities
were used.

67
 It is a support in a form of non-repayable funds given to launch • Horizon 2020,
and to develop specific project. Usually a grant maker defines the
procedure submission process, and requires some level of • Erasmus+,
Granting
compliance and reporting from a recipient. Usually (but not
always), grant recipients are educational institutions, non-profit • European Regional
organizations, scientific institutions Development Fund

• Marie Skłodowska-
Curie actions,
It is a form of short-term academic financial aid (usually with a
Awards and • Scholarship for Young
stipend) which is provided for researchers at all stages of their
scholarships Scientists provided by
careers or scientific search
the President of
Ukraine

State research • The Agriculture and

Can be described as a funding for fundamental and applied Food Research
and
research, extension and education to address certain social, Initiative provided by
educational
economic or technological problem or scientific area US Department of
programs
Agriculture

Can be described as support of an event, project, person or

organization financially or in a material form. Also sponsorship is
Sponsorship • IBM Global Financing
a cash and/or in-kind fee paid to a project in return for access to
the exploitable commercial potential associated with that project

It is the reallocation of the assets for a certain period of time

Business loan between the lender and the borrower at an interest rate, and
or bank loan evidenced by a note which specifies, among other things, the
principal amount, interest rate, and date of repayment

Figure 2.10. Funding forms in the scientific and educational sphere

Resulting
Hypotesis Impact factor
attribute Correlation Long term consequences
(Hn) (Xm)
(Y)

H1. The levels of foreign

X1. A number of
A number of grants received for scientific and Educational

funding of scientific and

educational projects are researchers who travelled Insignificant
outside Ukraine for • Inefficient use of opportunities
directly proportional to ryx1 = -0,16794
international mobility of scientific or educational given by the programs of
reasons international mobility;
Ukrainian scientists
projects from international funds

• The brain drain of scientists

abroad where the work of
H2. The levels of foreign Ukrainian experts will be
funding of scientific and X2. A share of valued;
Significant
educational projects are expenditures on scientific • The problems that are relevant
inverse
directly proportional to and scientific-technical only for Ukrainian realities can
government support of ryx2 = -0,81377
activities in GDP stay outside the scope of the
scientific activity Ukrainian researchers interests;
• Nonrecoverable reduction of
H3. The levels of foreign intellectual and tangible assets
funding of scientific and • Reduction in the number of
educational projects are
X3. A number of Significant Scientific and research
directly proportional to a organizations involved in inverse organizations
number of organizations scientific and scientific-
ryx3 = -0,8008
involved in scientific and technical activities
educational activities

Figure 2.11. The correlation analysis results

68
 The research results show that it is not necessary to rely entirely on
foreign funding opportunities. The priority task is to develop research
cooperation with the business sector representatives.
In addition to foreign sources of funding for scientific and educational
projects in Ukraine, the following sources are also common: state budg-
etary (including local budgets); own budgets of organizations engaged in
scientific and technical activities; funds of public sector organizations;
funds of the business sector organizations; funds of organizations of
higher education sector; funds of private non-profit organizations; other
sources.
Let’s consider the dynamics of financing the scientific and technical
(including educational) projects in Ukraine through different sources
over the past 10 years (Table 2.4).

Table 2.4. Funding for scientific and technical projects in Ukraine by

sources of financing
Source: Compiled based on State Statistics Service of Ukraine data

Sources 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*
10558, 10320, 12223, 11530,
Total, mln UAH 6149,2 8024,7 7822,28995,99591,4 11161
6 3 3 5
Total, mln USD 1217,7 1525,6 1004,11134,41203,4 1321,5 1396,9 867,9 559,7 450,4
Total, % 100 100 100 100 100 100 100 100 100 100

Budget, mln UAH 2837,8 3949,7 3429,2 3730 3885,1 4774,6 4826,8 4088,4 4296,4 3910,8
Budget, mln USD 561,9 750,8 440,2 470,4 487,5 597,6 604,1 343,8 196,7 152,8

Budget, % 46,1 49,2 43,8 41,5 40,5 45,2 43,2 39,2 35,1 33,9
Own funds, mln
521,2 592,5 629,4 872 841,8 1121,3 1466,6 1927,8 3003,6 1146
UAH
Own funds, mln
103,2 112,6 80,8 110,0 105,6 140,3 183,6 162,1 137,5 44,8
USD
Own funds, % 8,5 7,4 8,0 9,7 8,8 10,6 13,1 18,7 24,6 9,9
Organization
1725,7 2072,2 1870,81961,22285,9 2458,4 2306,6 2152,4 2455,9 3741,1
funds, mln UAH
Organization
341,7 393,9 240,1 247,3 286,8 307,7 288,7 181,0 112,4 146,1
funds, mln USD
Organization
28,1 25,8 23,9 21,8 23,8 23,2 20,7 20,9 20,1 32,4
funds, %:
including:
- - - - - - - 2,9 2,8 3,1
state organizations
private organiza-
- - - - - - - 17,8 17,2 29,2
tions
higher education
- - - - - - - 0,04 0,04 0,06
organizations

69
 Table 2.4. Continuation

Sources 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*
private non-profit
- - - - - - - 0,03 0,003 0,02
organizations
Foreign sources,
978,8 1254,9 1743,42315,92478,1 2045 2411,5 2043 2222,2 2550,3
mln UAH
Foreign sources,
193,8 238,6 223,8 292,0 310,9 255,9 301,8 171,8 101,7 99,6
mln USD
Foreign sources,
15,9 15,6 22,3 25,7 25,8 19,4 21,6 19,8 18,2 22,1
%
Other, mln UAH 85,7 155,4 149,4 116,8 100,5 159,3 149,5 108,7 245,2 182,3
Other, mln USD 16,9 29,5 19,2 14,7 12,6 19,9 18,7 9,1 11,2 7,1
Other, % 1,4 1,9 1,9 1,3 1,04 1,5 1,3 1,05 2,0 1,6
* – data for 2016 are presented excluding expenditure on scientific and technical
services

The following conclusions come out of the results of the analysis,

Table 2.4:
1. The amount of financing in UAH increased each year. However, if
converted into USD, these funding amounts have significantly decreased
starting from 2014. This happened due to a significant inflation rate of
the national currency.
2. By 2014, 40 to 49% of the total funding came from the state budget,
that comprised almost half of the funding for scientific and technical pro-
jects in total. Almost 99% of that was the state budget and a small share
of budgets of other levels.
3. Since 2014 shares of financing sources have changed. The share of
the state budget financing has decreased to 34%. At the same time, in
2014 and 2015, the share of own funding increased twice. However as
soon as in 2016, it decreased to almost 10%. This presumably happened
due to exclusion in 2016 of such an expense item as the cost of scientific
and technical services. This was due to an increasing share of financing
scientific and technical projects by orders of various organizations. In
2016, this expense item increased to 32.4% and almost completed with
state budget financing as a consequence of both relative and absolute
increase of funding from private organizations. In 2016 their share was
almost 30% of the total funding.
Based on conclusions of Table 2.4 the analysis of the impact of
funding indicators on indicators of scientific, technical and innovative
activity in Ukraine is worth conducting.
Firstly, it is necessary to analyze beneficiaries of funding (Table 2.5).

70
Table 2.5. Financing of scientific and technical projects according to
fields of activity and sources of funds

The sectors receiving funds

sources of funds business education private nonprofit
public sector
sector sector sector
2007
Total, mln UAH 2318,6 3406,7 423,8 0,2
including (%):
budget 86,5 16,4 65 0
own funds 3,3 12,7 2,6 35
funding from organizations 7,3 42,5 25,3 0
foreign sources 2 27 2,7 0
other 0,9 1,4 4,4 65
2010
Total, mln UAH 3274,4 5156,2 565 0,2
including (%):
budget 85,5 10,5 73 0
own funds 4 14,1 2,1 0
funding from organizations 6,6 31,7 19,5 100
foreign sources 3,6 42,2 3,3 0
other 0,3 1,5 2,1 0
2013
Total, mln UAH 4305,4 6167,6 688,1 0
including (%):
budget 86,2 10,5 68,6 0
own funds 4 20,6 2,5 0
funding from organizations 7,3 29,8 22,5 0
foreign sources 2 37,2 4,2 0
other 0,5 1,9 2,2 0
2015
Total, mln UAH 3996 7573,6 653,5 0
including (%):
budget 83,2 7,2 64,8 0
own funds 4,2 37,2 2,5 0
funding from organizations 9,5 25,6 21 0
foreign sources 2,8 27,3 5,8 0
other 0,3 2,7 5,9 0
2016
Total, mln UAH 3672,2 7133 725,5 0
including (%):
budget 77,7 7,8 70 0
own funds 6,9 12,3 1,5 0
funding from organizations 8,5 46 20,2 0
foreign sources 6,4 31,8 6,3 0
other 0,5 2,1 2 0

71
 The following conclusions come out of the results of the analysis,
Table 2.5:
1. The sector of private non-profit organizations is the smallest sector
of financing. And since 2013, the sector meets no financing and, conse-
quently, carries out no scientific and technical projects.
2. The educational sector performed scientific and technical projects
according to various organizations’ orders (mostly private entities) com-
prising about 20% of the total funding.
3. Over the past 10 years, the financing of public sector remains al-
most unchanged and 80% consists of the state budget.
4. The business sector remains the most financed for the last decade.
At the same time, the shares of sources of financing are changing con-
stantly:
- the share of state budget has halved and is 7.8% at present;
- by 2016, the share of own resources of enterprises has been con-
stantly increasing, and in 2015 it amounted to 37.2%, however, in 2016
it has decreased to 12.3%;
- inconstant orders from different organizations reflected in the cor-
responding share of financing: 2007 – 42.5%, 2015 – 25.6%, 2016 – 46%
(with the main share in 2016 obtained from private enterprises);
- by 2010, the share of foreign financing increased three times, but
from 2011 to 2016, it dropped again to 31.8%.
It should be noted that resources obtained by business sector were
mostly directed at applied research and scientific and technological (ex-
perimental) development. The merits are obvious, since the money spent
should be aimed at obtaining a clear positive result for the domestic
economy. According to innovative countries’ experience the main pur-
pose of financing scientific and technical projects is their gradual inclu-
sion to innovative projects. Therefore, the matter of interdependence of
scientific and technical activity and innovation activity of industrial en-
terprises being implemented in the country (as the catalyst for economic
development) needs further research. The study was performed using
correlation analysis in the Excel package. The results and highest in-
dexes are presented in Table 2.6 (conclusions on the basis of the Chad-
dock’s scale).

72
Table 2.6. Financing of scientific and technical projects according to
fields of activity

The coeffi-
№ Hypothesis cient of Conclusions
correlation
The amount of scientific and technical 0,94 Such result is not accidental.
works performed depends on the number a high Indeed, the more partici-
1 pants in the process, the
of organizations involved in scientific and positive
technical activities correlation more processes can be accom-
plished. However, the proba-
The amount of scientific and technical 0,96 bility of performing scientific
works performed depends on the number a high and technical works is more
2
of organizations engaged in scientific and positive dependent on organizations
technical activities in the business sector correlation of the business sector
-0,87 The obtained indicators sug-
The amount of scientific and technical
a high gest an inverse relationship
3 works performed depends on the financ-
negative between the performance of
ing of scientific and technical projects
correlation scientific and technical activ-
ities and the amount of their
The amount of scientific and technical -0,78
financing. This can increase
works implemented depends on the fi- a high
4 the initiative in the field of
nancing of scientific and technical pro- positive
scientific and technical activ-
jects in the business sector correlation
ities
The number of innovative industrial en- 0,45 The innovation activity in the
terprises depends on the number of or- low posi- country is stirred up both by
5 the concept of «science-push»
ganizations engaged in scientific and tive corre-
technical activities in the business sector lation (on the basis of scientific and
technical activities) and «de-
The number of industrial enterprises 0,58 mand-pull» (through market-
that introduced innovations depends on medium based marketing incentives)
6
the number of organizations engaged in positive
scientific and technical activities correlation
The number of industrial enterprises 0,66 The effectiveness of scientific
that introduced innovations depends on medium and technological activities
7 (as a share of implemented
the number of scientific and technical positive
works implemented correlation results in the total number of
performed works) strongly af-
The number of new technological pro- 0,91 fects the performance of inno-
cesses implemented depends on the num- high posi- vation activities. However,
8
ber of implemented scientific and tech- tive corre- the impact is directed to-
nical works lation wards effectiveness of inno-
The amount of innovations introduced -0,21 vation activity through im-
into production at industrial enterprises Low nega- plementation of technological
9 processes, rather than inno-
depends on the number of scientific and tive corre-
technical works implemented lation vative products

Results from Table 2.6 make up following conclusions:

1. Scientific and technical activities are most productive in projects
performed by the business sector (the result of hypotheses 1-2).

73
 2. Currently, scientific and technical activities can be effective due to
performers’ initiatives and not to financing received (hypothesis 3-4).
3. Scientific and technical activities have a certain influence on inno-
vative activity (hypotheses 5-6). And this effect is reflected by innovators’
making use of science while creating and introducing new types of tech-
nologies and processes. Innovative enterprises work independently with
ready-made innovative products, forgetting about results of scientific re-
search.
All these results prove that a joined activity of industrial enterprises
and scientific institutions will intensify innovation activities in the coun-
try. This is a common practice for most of developed countries.

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ALSYSTEM1104.pdf.
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75
 2.4. Optimization of the duration of collection of orders
on the enterprise’s products

Zaruba V.Ia.

To avoid the problem of risks arising from planning on the basis of

demand forecasts, enterprises often focus their work on fulfilling only
orders received over a period of time. In this case, there arises the prob-
lem of optimizing the duration of the planning period (accumulation of
orders). As time of receipt of orders and their volumes have casual char-
acter, that at small duration of the period of planning the enterprise will
non-uniformly work. This leads to losses associated with either excess
utilization of production capacity or downtime. However, with a long du-
ration of the planning period, there is a risk of loss of orders due to long
terms of their fulfillment.
Thus, under conditions of fluctuations in current demand, the prob-
lem arises of the current planning of production volumes. Her solution
requires improving the methods of managing production resources and
forecasting demand. At the same time, incomplete definiteness of de-
mand leads to occurrence of risks of losses, which depend on the planning
policy adopted by the enterprise. Therefore, ensuring the balance of the
enterprise’s resources with demand is closely related to mathematical
modeling of risks and improvement of risk management in enterprises.
With the idea of a balance in resource management, is closely related
the concept of ERP (Enterprise Resource Planning) of information sys-
tems that provide complex automation of management in large and me-
dium-sized enterprises [1, 2]. ERP system technologies provide ample
opportunities for solving various tasks of production planning. However,
they are oriented at certain levels of demand, which act as input data.
They do not support decision-making that takes risks into account.
In the last decade, attention to risk management has been increasing,
as evidenced by the appearance of ISO 31000: 2009 "Risk Management.
Principles and guidance [10]. The notion apparatus of risk management
is being improved [11]. With mathematical modeling of risks and man-
agers’ preferences in relation to risk are connected the work of many
Ukrainian and Russian scientists, in particular, EV Afanasyev, G.I. Ve-
likoivanenko, V.V. Vitlinsky, A.M. Dubrova, B.A. Lagoshi, S. V. Slabin-
sky, R. F. Suleymanova. E. Yu. Khrustaleva [5-9]. The decisions to opti-
mize production plans by estimating the probability of the volumes of
future orders was the subject of our publications [10-11]. At the same
time, methods of planning production volumes in conditions of not fully
defined demand require development. Therefore, the goal of the work

76
was the development of a conceptual model that optimizes the duration
of the current planning of production volumes (of the collection of orders
on products) under conditions of random fluctuations in demand.
For a formalized description of the planning situation, we introduce
the following notation: t – the number of products produced per unit time
(productivity of the enterprise) at normal loading of production; x – the
summary volume of orders arriving behind a unit of time (intensity of
demand); x(t) – the summary volume of orders received over a period of
time t; v(t) – the products volume that can be produced by the enterprise
over a period of time t under normal operation mode, v(t)=t; u(t) – the
volume of production planned for a period of time t, u(t)= x(t).
In the case when the productivity of the enterprise t and the demand
intensity x are deterministic constant values, the resources of the enter-
prise and the stream of orders will be balanced if t=x. Behind the period
of accumulation of orders will be followed by an equal in duration period
of direct fulfillment of these orders. In this case, for any duration t of the
periods of planning and production, there will be no production losses,
x(t)= v(t), and to shorten the order fulfillment time, it is advisable to se-
lect the minimum duration t of the planning period.
For research of the situation in which the intensity of demand x is a
random variable, we represent the planning period in the form of a se-
quence n of single time intervals Dt, t=n, Dt=n. Suppose that in these
intervals there were volumes of orders x1, x2, … xn, 𝑥(𝑛∆𝑡) = ∑𝑛𝑖=1 𝑥𝑖 𝐷𝑡 .
Then the operational effect S(n) for the n planning periods with duration
𝑛
Dt is a value S(n) = 𝑒𝑖=1 𝑆𝑖 , where Si – the operational effect in the i-th
planning period.

𝑆𝑖 = 𝑑̅ 𝑥𝑖 − 𝑏(𝑡 − 𝑥𝑖 ), 𝑖𝑓 𝜏 ≥ 𝑥𝑖 ;
(2.1)
𝑆𝑖 = 𝑑̅𝑥𝑖 − 𝑏(𝑥𝑖 − 𝑑), 𝑖𝑓 𝜏 ≤ 𝑥𝑖 ,
where 𝑑 – the amount of profit from the production and sale of a unit
of production; b – the amount of loss per unit of output caused by the
payment of «unproductive» salaries to staff in conditions of downtime,
the costs of storing unused circulating material resources and «freezing»
money spent on the purchase of these unused material resources; d – the
value of losses per unit of output, due to overpayments to staff for overtime
work and the need for the operational procurement of additional quanti-
ties of negotiable material resources at higher prices and etc.

If the planning period has a duration of t=n, Dt=n, then the opera-
𝑛
tional effect for this period is S(n) = 𝑒𝑖=1 𝐸𝑖 = 𝑛𝐸, where Ei is the opera-
tional effect in the i-th unit time interval with the average intensity 𝜒 =

77
 1
𝜒(𝑛) = ∑𝑛𝑖=1 𝑥𝑖 of the incoming orders for the planned period of time,
𝑛
Ei=E(i=1,2,…n).

𝐸 = ̅̅̅
𝑑𝑥̅ (𝑛) − 𝑏(𝑡 − 𝑥̅ (𝑛)), 𝑖𝑓 𝜏 ≥ 𝜒(𝑛),
(2.2)
𝐸 = ̅̅̅
𝑑𝑥̅ (𝑛) − 𝑑(𝑥̅ (𝑛) − 𝑡), 𝑖𝑓 𝜏 ≤ 𝜒(𝑛),

Thus, if as the planning periods are chosen intervals with a duration

of Dt, t= Dt, it can be expected that the values of x1, x2,…xn will differ
from the productivity t both in large and in smaller side. Therefore, after
some planning periods, there will be losses associated with the use of
production capacities in the in excess mode, and after others – related
with downtime. If the enterprise chooses the planning period n times as
much, t=nDt, and set on his intervals Dt production volume, equal to the
average intensity of demand 𝜒(𝑛), then the deviations of the volumes
orders from the productivity of t to the greater and to the lower side will
be mutually compensated.
The values of x1, x2,…xn orders volume will be considered as an imple-
mentation of ξ1, ξ 2,… ξ n random quantity x of demand intensity, for
which there is a mathematical expectation λ and variance of 𝜎𝜉2 . Suppose
that for conformity of the resources of an enterprise to a random flow of
orders, the enterprise provides a level of productivity equal to the math-
ematical expectation of the intensity of demand, t=λ. Then, in accordance
with formula (2.1), the size of losses b(t-xi), d(xi-t) will be determined by
the expected deviations of the random quantity x of demand intensity
from its mathematical expectation λ. At the same time, in accordance
with formula (2.2), the size of losses b(t-𝑥̅ (𝑛)), d(𝑥̅ (n)-t) will be deter-
mined by the deviations ε(n) of averaged over n time intervals of demand
intensity 𝑥̅ (𝑛), from the mathematical expectation of λ.
To investigate the dependence of the operational effect on the dura-
tion n of the period of the accumulation of orders, it is necessary to have
the dependence of the expected deviations ε(n) on this duration. In ac-
cordance with the law of large numbers, the probability of δ event, when
1
the empirical mean 𝜒(𝑛) = ∑𝑛𝑖=1 𝜉𝑖 differs from the mathematical expec-
𝑛
tation λ by more than a given value of e>0 , turns for sufficiently large
values of n is almost equal to 0: 𝑃{|𝜒(𝑛) − 𝜆| ≤ 𝛿}. The Chebyshev ine-
quality [12] establishes the dependence of the probability δ on the value n:

𝜎𝜉2
𝛿 = 𝑛2 , (2.3)
𝜀

78
 If we set the for probability δ her to a small value of P*, we can obtain
from expression (2.3) an expression for the dependence ε*(n) of the max-
imum deviation modulus 𝜀 ∗ = |𝜒(𝑛) − 𝜆| on the duration n of the plan-
ning period:

𝜎2
𝜀 ∗ (𝑛) = √𝑛𝑃𝜉∗ , (2.4)

1
It is obvious that the realizations of the value 𝜒(𝑛) = ∑𝑛𝑖=1 𝜉𝑖 and the
𝑛
average value x of the demand intensity take their values within a cer-
tain limited interval [0, xmax].
It can be seen from formula (2.4) that for a fixed duration n of the
planning period, with a decrease in the probability P* of events for which
|𝜒(𝑛) − 𝜆| > 𝜀, the quantity 𝜀 ∗ (𝑛) increases. If P*→0, then 𝜀 ∗ (𝑛) → ∞.
Therefore, formula (2.4) will be valid for small values only if the duration
of the planning period n is not less than a certain minimum value nmin.
Otherwise, the maximum deviation estimate 𝜀 ∗ (𝑛) will formally admit
the possibility of either negative values of the empirical averages 𝜒(𝑛),
or of such their values, that exceed the maximum possible intensity of
demand xmax.
For definiteness, we shall restrict our discussion to such random
quantities ξ of demand intensity for which the distribution functions
𝐹𝜉 (𝑧) = 𝑃{𝜉 ≤ 𝑧} are symmetric functions with respect to the mathemat-
ical expectation λ: 𝐹𝜉 (𝜆 + 𝜀) − 𝐹𝜉 (𝜆) = 𝐹𝜉 (𝜆) − 𝐹𝜉 (𝜆 − 𝜀) for all 0≤ε≤λ. In
this case, the functions 𝐹𝜒 (𝑧) distribution of random variables 𝜒 = 𝜒(𝑛) =
1 𝑛
∑ 𝜉 also turn out to be symmetric: 𝐹𝜒 (𝜆 + 𝜀) − 𝐹𝜒 (𝜆) = 𝐹𝜒 (𝜆) −
𝑛 𝑖=1 𝑖
𝐹𝜒 (𝜆 − 𝜀) for all 0≤ε≤λ.
In accordance with the law of large numbers, the random variable 𝜒 =
𝜒(𝑛), for which |𝜆 − 𝜒| ≤ 𝜀(𝑛), is realized with a probability of at least 1-
P* or on the interval [z*, λ] or on the interval [λ, 2λ- z*], where z*= z*(n)=λ-
ε*(n). It follows from the symmetry property of the distribution functions
𝜒 that the probability of realizing the value of 𝜒 in each of the intervals
[z*, λ] [λ, 2λ- z*] is no less than 0,5(1-P*). Since P*≈0, we assume that the
value of 𝜒 is realized at each of these intervals with the probability of
0.5. We introduce the following notation: 𝜌1 = 𝜌1 (𝑛), 𝜌2 = 𝜌2 (𝑛), 𝜌 = 𝜌(𝑛)
is the mathematical expectation of the deviation values 𝜌1 = 𝜌1 (𝑛) = 𝜆 −
𝜒, 𝜌2 = 𝜌2 (𝑛) = 𝜆 − 𝜒, 𝜌 = 𝜌(𝑛) = |𝜒(𝑛) − 𝜆| on the intervals 𝜆 − 𝜒, 𝜒 − 𝜆;
|𝜒(𝑛) − 𝜆|, ̅̅̅
𝑥1 = ̅̅̅(𝑛).
𝑥1 𝑥̅ = 𝑥̅ (𝑛) – the mathematical expectation of the
value 𝜒 on the intervals [z*, λ], [λ, 2λ- z*], [z*, 2λ- z*]. Then:

79
 𝜌1 = 𝜌2 , 0,5𝜌1 + 0,5𝜌2 = 0,5𝜌, 0,5𝑥 ̅̅̅1 + 0,5𝑥
̅̅̅2 = 𝑥̅
𝑥̅ = ̅̅̅
𝑥1 = 0,5(𝜆 − 𝜌), 𝑖𝑓 𝜆 ≥ 𝑥̅ ; (2.5)
𝑥̅ = ̅̅̅
𝑥2 = 0,5(𝜆 + 𝜌), 𝑖𝑓 𝜆 ≤ 𝑥̅ (𝑛)

When estimating the expected values 𝜆 − 𝜒(𝑛) and 𝜒(𝑛) − 𝜆 of devia-

tions, we assume that if the value 𝜒 falls into the interval [z*, λ] or into
the interval [λ, 2λ- z*], its most probable value 𝑥̅ (𝑛) corresponds to the
middle of these intervals 𝜆 − 0,5𝜀 ∗ (𝑛), 𝜆 + 0,5𝜀 ∗ (𝑛), i.e. what:

𝜌 = 𝜌(𝑛) = 0,5𝜀 ∗ (𝑛), (2.6)

Let’s assume that because of the possibility of above-normative load-

ing of production capacities, the guaranteed total execution time of indi-
vidual orders (from the moment of receipt of the order before to the re-
lease finished product) does not exceed the duration of the collection of
orders. Let us express the dependence 𝜆(𝑛) mathematical expectation
intensity of demand 𝜆 from the duration n of the planning period in the
following form:

(𝑛1 −𝑛)𝐶
𝜆 = 𝜆(𝑛) = 𝜆0 , if 𝑛0 ≤ 𝑛 ≤ 𝑛1 , (2.7)
(𝑛1 −𝑛0 )𝐶

where 𝑛1 is the minimum duration of the planned period that is un-

acceptable for all customers, 𝜆(𝑛1 ) = 0; 𝑛0 – the maximum duration of
the planned period acceptable for all customers; C – parameter of the
function, which affects the rate of decrease in demand intensity, 𝐶 ∈
(0,1). Function 𝜆(𝑛) can be determined on the basis of data on the inten-
sity of demand for individual customers and the results of their interview
about the maximum acceptable for each of them the deadline for ful-
filling orders.

In accordance with formulas (2.2), (2.5), the magnitude of the effect

E=E(n) on the unit interval of time Dt, obtained in the process of fulfilling
the average volume of orders received during period t=n, expresses the
following formulas:

𝐸 = 𝑓1 (𝑛) = 0,5(1 − 𝑟(𝑛))𝑑̅ − 0,5 𝑏 𝜌(𝑛), 𝑖𝑓 𝜏 = 𝜆(𝑛) ≥ 𝑥̅ (𝑛),

(2.8)
𝐸 = 𝑓2 (𝑛) = 0,5(1 + 𝑟(𝑛))𝑑̅ − 0,5 𝑑 𝑟(𝑛), 𝑖𝑓 𝜏 = 𝜆(𝑛) ≤ 𝑥̅ (𝑛),

The average magnitude of effect 𝐸̅ =𝐸̅ (𝑛) on the unit time interval Dt
received in the process of fulfilling the average volume of orders for the
period t=n, is defined as follows:

80
 𝐸̅ (𝑛) = 𝑓1 (𝑛) + 𝑓2 (𝑛) = 𝑙(𝑛)𝑑̅ − 0,25(𝑏 + 𝑑)𝑒 ∗ (𝑛) (2.9)

In accordance with formulas (2.4), (2.6), (2.7) this formula can be rep-
resented as:

𝐸̅ (𝑛) = 𝑙𝑑̅ − 𝑦2 𝑛−0,5 , 𝑖𝑓 𝑛𝑚𝑖𝑛 ≤ 𝑛 ≤ 𝑛0

(2.10)
𝐸̅ (𝑛) = 𝑦1 𝑙(𝑛1 − 𝑛)𝑐 − 𝑦2 𝑛−0,5 , 𝑖𝑓 𝑛0 ≤ 𝑛 ≤ 𝑛1

where 𝑦1 = 𝑙(𝑛1 − 𝑛)𝑐 𝑑̅ , 𝑦2 = 0,25(𝑏 + 𝑑)√𝑠𝑥2 (𝑃 ∗ )−1 . As can be seen, op-

timal duration 𝑛∗ of the planning period, which provides a maximum of
the average effect 𝐸̅ =𝐸̅ (𝑛), is found from the condition: 𝐸̅ (𝑛∗ ) =
𝑚𝑎𝑥{𝐸̅ (𝑛)|𝑛 𝑂[𝑛0 , 𝑛1 ]}. Since the quantity n in the interval [𝑛0 , 𝑛1 ] can not
be large, the value of 𝑛∗ can be easily found by simply listing the values
of 𝐸̅ (𝑛), n=n0,n0+1,…n1.

So, here is presented a conceptual model for optimizing the duration

of collection of orders on the enterprise’s products in conditions of ran-
dom fluctuations in demand. It should show the usefulness and the pos-
sibility of this optimization. At the same time, some simplifying assump-
tions are used in the model, which require more detailed representation
and analysis for the practical application of the model. The introduction
of the model also requires a computer software product that will provide
information support and calculations. This is the subject of future re-
search and development.

References

1. Klaus, H., Rosemann, M., & Gable, G.G. (2000). What is ERP. Information
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worldexpo.com. Retrived from http://www.secureworldexpo.com /2011/de-
troit/Louis_Kunimatsu.pdf.
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http://www.husdal.com/2010/11/21/risk-management-vocabulary.
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velykykh promyslovykh pidpryiemstv z monoproduktovym vyrobnytstvom [Eco-
nomic and mathematical modeling of risk of large industrial enterprises with
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ta pidpryiemnytstvi [Risks in economics and entrepreneurship]. Kiev: KNEU.
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riskovykh situatsii v ekonomike i biznese [Modeling of risk situations in economy
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matelstvo – Russian Entrepreneurship, 6-2, 88-93.
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iakh riska i neopredelennosti [Making decisions in the field of marketing in a
risk and uncertainty environment]. Rossiskoe predprinimatelstvo – Russian En-
trepreneurship, 12, 63-69.
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timations of probability of the future orders]. Marketynh i menedzhment inno-
vatsii – Marketing and Management of Innovations, 2, 222-232.
11. Zaruba, V.Ia. (2017). Modeli sohlasovaniia obemov proizvodstva s
prohnozami sprosa [Models coordinate volume production with demand fore-
casts]. Aktualni problemi prohnozuvannia rozvitku ekonomiki Ukraini – Topical
problems of forecasting the development of the economy in the Ukrainian. (pp.
258-264). Berdiansk: «Tkachuk O.V.».
12. Rozanov, Yu.A. (1971). Sluchainie protsessy [Random processes]. Hlav-
naia redaktsiia fiziko-matematicheskoi literatury – Main edition of physical and
mathematical literature. Moscow: Nauka.

82
 Section 3

Features of innovative development of Ukrainian

enterprises in the globalized economy
3.1. Current state and prospects for the development of innovative ac-
tivity of industrial enterprises in Ukraine and the world2

Sager L.Yu., Syhyda L.О., Gryshova I.

At the present stage of the development of society, there is a transi-

tion from a reproductive to an innovative type of development, which
simultaneously opens up great prospects for individual countries in par-
ticular and society as a whole, but, unfortunately, at the same time gen-
erates risks.
Given the current trends, it becomes clear that the national innovative
development can be achieved only through the development of various in-
dustries on an innovative basis. This applies primarily to industry.
According to [1], it is possible to single out the main barriers to the
modern industrial policy of an innovative nature, in particular:
- economic and political instability;
- tendency towards migration of highly educated youth and scientists;
- low level of development in innovative infrastructure and weakness
of institutes for development;
- lack of developed financial system with the participation of the
state, which can support lending to the economy, aside from innovations
that have heightened risks;
- weak venture funds and an undeveloped system for regulating their
activities, as well as taxation.
These barriers are global in nature and their solutions, first of all, de-
pend on the government, although each individual innovative industrial
enterprise can contribute to the formation of an industrial policy of an in-
novative nature.
To better understand the essence of innovation, we will focus on the
approaches to classification of innovations in terms of the level of novelty
(the depth of changes that are made in the sphere of their creation and

2
The paper was written according to budget money from the Ministry of Education and
Science in Ukraine, given to develop research topics № SR 0117U003928 «The mechanism
of management of the formation of strategies of outstripping innovative development of
industrial enterprises»

83
use) and the types of strategic behavior of innovatively active enterprises
in more details.
So, according to innovative potential and degree of novelty, Pry-
gozhyn A.I. [2] determines radical, combinatory and improving innova-
tions. Ilienkova S.D. [3] separates radical (basic), improving and modify-
ing innovations in compliance to the depth of introduced changes. In turn,
according to the level of novelty N. Chukhrai and R. Patora [4, p. 15-16]
define radical (the introduction of discoveries, inventions, patents) and or-
dinary innovations (know-how, rationalization proposals). For the degree
of novelty, Glushchenko L.D. identifies basic, perfecting and elementary
innovations [5, p. 97], Based on the level of novelty, I. Lutsykiv presents
radical, relative and improving innovations [6, p. 91-92]. Illiashenko S.M.
[7, p. 14] distinguishes the following types of innovations in terms of the
level of novelty:
- radical (pioneer) innovations, based on discoveries, they usually
cause the creation of new branches of production and consumption, new
markets, the formation of new relations in various spheres of human ac-
tivity, and the like;
- ordinary innovations, based on inventions or new solutions; they
make significant changes to traditional industries;
- improving innovations, based on rationalization proposals; they
develop traditional products, technologies, management methods and
the like.
In addition, Shkola V.Yu. [8, p. 76-78] proposes to consider modifying
and replacing innovations as variants of improving, where modifying in-
novations mean new modifications of existing goods within the reached
level of development of the corresponding technical system. And replacing
innovations are new improved models of existing goods, reflecting the
growth of main technical parameters, that is, the evolutionary develop-
ment of technical system in accordance with the state of socio-ecological
and economic systems.
In prospect we will adhere to the opinion of Illiashenko S.M. [7, p. 14],
taking into account the view of Shkola V.Yu. [8, p. 76-78], and consider
radical, simple and improving (modifying and replacing) innovations.
The enterprises are engaged in the production of the corresponding in-
novations with different levels of novelty, they also differ in the level of
their innovative activity and act in accordance with innovative develop-
ment strategy they have chosen.
According to the type of strategic behavior, all innovatively active
enterprises are divided into four groups: explerents, patients, violents and
commutants. Each type of strategic behavior provides for the use of enter-
prises by various innovative strategies and, accordingly, the production

84
and distribution of products with different levels of novelty. Table 3.1
shows the relationship between the type of strategic behavior of enter-
prises, the innovative strategies that they use, and the type of innovation
in terms of the level of novelty that they produce.

Table 3.1. Financing of scientific and technical projects according to

fields of activity
Type of stra-
tegic behav- Relevant Innovations
ior of inno- General characteristics innovation on the level
vation enter- strategies of novelty
prises
Innovative activity is aimed at the devel- Active and Radical in-
opment and production of radical innova- offensive novations
Explerent tions.
They operate from the beginning of pro-
duction release at pre-investment stages
Narrow specialization. They focus on spe- The strategy Ordinary in-
cific areas of activity. Concentration of of finding novations,
efforts on the products limited in de- your own radical inno-
mand. Production of products with niche and vations are
unique properties which has an exclusive traditional possible
Patient
character and is of high quality and fo- strategy
cuses on demanding consumers.
It functions simultaneously at the stages
of production release and fall of inventive
activity
Mass standard production. High quality Passive and Ordinary
of products, its high level of standardiza- offensive, de- and modify-
tion, unification and manufacturability. fensive, tra- ing innova-
Satisfying the needs of a wide range of ditional and tions
consumers. Orientation to innovations imitation (li-
Violent
which make products cheaper. More fo- censing)
cused on partial improvements. strategies
They operate at the stage of reducing de-
mand for products, that is, at the end of
the life cycle
Satisfy local or even individual demands. Opportunis- Replacing
Better fitness to meet small sized needs tic (quality innovations
of specific consumers. Individualization strategy) based on
of the use value of the goods. Use innova- product dif-
tions created by others, enriching them ferentiation
with individual characteristics and
Commutant
adapting to the needs of specific consum-
ers. There is a tendency to imitate. Focus
on innovations, aimed at improving prod-
uct quality and serving local needs. Or-
ganization of new services based on new
technologies

85
 Based on the analysis of Table 3.1, it can be argued that innovation
enterprises with different types of strategic behavior have different lev-
els of innovative capacity. This relationship is clearly shown in
Figure 3.1.
Level of innovation
potential of
enterprise

high

average

low

null

commutant Type of innovation

explerent patient violent
enterprise

Figure 3.1. Dependence between the type of strategic behavior

of innovation enterprise and the level of its innovation potential
(compiled by the authors)

According to Figure 3.1, explerent companies which are leaders in the

production and promotion of innovative products have the most innova-
tive potential. They create radical innovations. The level of innovative
potential of patient enterprises varies between high and average. As a
rule, they create simple innovations, although they have the potential to
develop the radical ones. Violent enterprises have an average innovative
potential and direct their activities mainly to modifying and simple in-
novations. The level of innovative potential of commutant enterprises
fluctuates between average and low, they focus their activities on replac-
ing innovations oriented to a limited number of consumers (in the local
market). So, we can conclude that, depending on the type of strategic
behavior chosen by the enterprise, its products will differentiate.
Next, we will analyze the indicators of innovative activity of domestic
industrial enterprises for the period from 2000 to 2015 (Table 3.2).

86
Table 3.2. The main indicators of innovative activity of industrial enter-
prises for 2000-2015 (compiled by the authors on the basis of
[17-22])

New technological processes, pro-

volved in innovations, %, number
of enterprises engaged in innova-

Realization of innovative types of

Number of industrial enterprises

mented innovations (in brackets)

mented innovations (in brackets)

Proportion of realized innovative

products in the volume of indus-
implemented innovations, %,

implemented innovations, %,
number of enterprises imple-

number of enterprises imple-

that sold industrial products

Proportion of enterprises in-

Proportion of enterprises,
Proportion of enterprises

production *, titles
tions (in brackets,)

trial, %
cesses
Year

2000 9475 18.0 (1705) 14.8 (1491) 14.3 (1352) 15323 1403 -
2001 10293 16.5 (1697) 14.3 (1503) 12.6 (1298) 19484 1421 6.8
2002 10037 18.0 (1808) 14.6 (1506) - (-) 22847 1142 7.0
2003* 9931 15.1 (1496) 11.5 (1120) - (-) 7416 1482 5.6
2004 9920 13.7 (1359) 10.0 (958) 11.0 (1095) 3978 1727 5.8
2005 10047 11.9 (1193) 8.2 (810) 10.2 (1022) 3152 1808 6.5
2006 9995 11.2 (1118) 10.0 (999) 9.2 (918) 2408 1145 6.7
2007 10346 14.2 (1472) 11.5 (1186) 10.0 (1035) 2526 1419 6.7
2008 10728 13.0 (1397) 10.8 (1160) 9.3 (993) 2446 1647 5.9
2009 10995 12.8 (1411) 10.7 (1180) 9.0 (994) 2685 1893 4.8
2010 10606 13.8 (1462) 11.5 (1217) 9.1 (964) 2408 2043 3.8
2011 10350 16.2 (1679) 12.8 (1327) 10.1 (1043) 3238 2510 3.8
2012 10089 17.4 (1758) 13.6 (1371) 10.3 (1037) 3403 2188 3.3
2013 10103 16.8 (1715) 12.9 (1312) 10.2 (1031) 3138 1576 3.3
2014** 10010 16.1 (1609) 12.1 (1208) 9.0 (905) 3661 1743 2.5
2015*** 4767 17.3 (824) 15.2 (723) 11.9 (570) 3136 1217 1.4
Notes: * – until 2003 – new types of products; ** – starting from 2014 – excluding
the temporarily occupied territory of the Autonomous Republic of Crimea, Sevas-
topol and part of ATO zone; *** – starting with the report for 2015 – legal entities
of types of economic activity in industry with a working force of 50 people or more.

As can be seen from Table 3.2, the proportion of enterprises engaged

in innovative activity in the total number of them during the period un-
der review was insignificant but did not have a steady upward trend. If
in 2007 the proportion of innovatively active enterprises increased to

87
14.2% against 11.9% in 2005, whereas in 2008 and 2009 there was a de-
crease. In 2010-2012 they were characterized by an increase in the pro-
portion of enterprises engaged in innovative activity to 13.8%, 16.2% and
17.4%, respectively. In 2013-2014 there was a gradual decrease in the
proportion of innovatively active enterprises to 16.8% and 16.1%, respec-
tively. However, despite the gradual activation of innovative activity at
Ukrainian enterprises and the growth in the number of new technologi-
cal processes and production of innovative products that have been in-
troduced, the proportion of realized innovative products in the industrial
volume tends to decrease from 6.7% in 2006, to 3.3% in 2012 and 2013
and to 2.5% in 2014. However, the deterioration in the indicators in 2014
can be explained by the complication of the situation in the East of
Ukraine as part of the antiterrorist operation.
Figure 3.2 shows the volume of sales of innovative products by indus-
trial enterprises of Ukraine.

35000 8
30000 7
25000 6
5
20000
mln UAH

4
15000

%
3
10000 2
5000 1
0 0
2007 2008 2009 2010 2011 2012 2013 2014 2015

Products were new for the market, mln UAH

Products were new for the enterprise only, mln UAH
Realization of innovative products, %

Figure 3.2. Volumes of realization of innovative products by industrial

enterprises [17-21]

According to Figure 3.2, there is a tendency to decrease in the vol-

umes of realization of innovative products on the market (by 3.4% in
2013 compared to 2007, by 4.2% in 2014 as compared to 2007) that can
be explained by the lack of financial resources of enterprises and diffi-
culties with bringing innovations to the market. Quite often enterprises
are able to create innovative products, but they do not know how to bring

88
them to the market and interest consumers, which can be explained by
the lack of marketing policy of distribution.
In addition, it should be noted that although in 2007 the proportion
of enterprises with innovative products which were new to the market,
predominated, since 2008 most enterprises focused on the development
and implementation of innovative products that are new within the en-
terprise, but not for the market (in 2013 65% and 35% respectively, in
2014 − 72% and 28%, in 2015 − 68% and 32%, respectively). This is de-
termined by the lack of funds, insufficient level of development of R&D
at enterprises, incomplete market data, undeveloped system of bringing
innovative products to the consumer.
If we consider the distribution of the volume of expenditures in the
areas of innovation activity, then we can trace the disproportion between
the directions and the amount of deposits (Figure 3.3).

0,6
2015 14,8 80,6 4
0,6
2014 22,8 66,5 10,1
0,9
2013 17,1 58 24
0,4
2012 10,4 70,1 19,1
2,3
2011 7,5 73,2 17

0% 20% 40% 60% 80% 100%

Internal and external scientific and research
Acquisition of other external knowledge (new technologies)
Purchase of machinery, equipment, software
Other expenses, incl. marketing and advertising

Figure 3.3. Distribution of the volume of expenditures in the areas

of innovative activity [17, 21]

During all 5 years (from 2011 to 2015), a bulk of the funds is spent
on the acquisition of machinery, equipment and software. To implement
innovations, in 2014, 1,206 enterprises spent 7.7 bln UAH, more than
two thirds of which to purchase machinery, equipment and software,
15.9% − to make research and development (R&D) by own forces, 6.9% −
to purchase R&D results in other enterprises (organizations), 0.6% − to
make an acquisition of other external knowledge (new technologies) and

89
10.1% − to educate and train personnel for the development and imple-
mentation of new or significantly improved products and processes, ac-
tivity on market introduction of innovations and other works related to
the creation and implementation of innovations (other costs) [23-24].
In 2015, enterprises spent 13.8 bln UAH on innovations, including
11.1 bln UAH for the purchase of machinery, equipment and software,
2 bln USD for internal and external research and development, 0.1 bln
UAH for acquisition of other external knowledge (acquisition of new
technologies) and 0.6 bln UAH for education and training of personnel
to develop and implement new or significantly improved products and
processes, market innovations and other activities related to the creation
and implementation of innovations (other costs).
In addition, it should be noted that Ukrainian proportion in the world
trade volume of high-tech science-intensive products is very small – it
takes only 0.1%. This can be explained by the apparent type of develop-
ment in Ukraine.
It is equally important to determine the proportion of innovative
products exported abroad. So, the number of enterprises, implemented
innovative products outside Ukraine, and their proportion in the total
volume of innovative products sold are presented in Table 3.3 [25].

Table 3.3. The number of enterprises, implemented innovative products

outside Ukraine, and its proportion in the total volume of innovative
products sold
Number of enterprises, imple- Proportion of innovative products sold
Year mented innovative products out- outside Ukraine in the total volume of
side Ukraine, units innovative products sold, %
2010 343 40.7
2011 378 29.8
2012 332 36.9
2013 334 44.8
2014 295 29.2
2015 213 47.0

Thus, during the analyzed period, there is a significant change in the

dynamics of the proportion of innovative products sold outside Ukraine.
The smallest proportion of sales was observed in 2011 and 2014.
Since 2006, the State Statistical Service of Ukraine has started to
conduct surveys of innovation activities of enterprises on the methodology
of the Community Innovation Survey, CIS, implemented by the EU.

90
 In the course of four studies conducted between 2006 and 2015,
Ukrainian enterprises with innovative activity were identified according
to the types of innovations they were engaged in (Figure 3.4).

2012-2014 24
76

2010-2012 38
62

2008-2010 38
62

2006-2008 27
73

0 20 40 60 80
enterprises with non-technological innovations
enterprises with technological innovations

Figure 3.4. The proportion of innovative enterprises with technological

and non-technological innovations in industry by survey periods, %
(calculated according the State Statistical Service of Ukraine)

During four study periods the ratio of enterprises with technological

and non-technological innovations remained almost unchanged. The pro-
portion of enterprises with non-technological innovations ranged from
24 to 38%, while the proportion of enterprises with technological innova-
tions varied from 62 to 76%.
Thus, the primary focus of Ukrainian innovative enterprises is on the
introduction of technological innovations, that is, new products and new
processes. Simultaneously, the proportion of marketing and organiza-
tional innovations remains insignificant.
If compared with the indicators of innovative activity of enterprises
in the European Union (EU-28), during 2012-2014 49.1% of enterprises
showed innovative activity. During 2010-2012 the innovative activity in-
dex was 48.9%. The greatest innovative activity was shown in Germany
(67.0%), Luxembourg (65%) and Belgium (64%); the lowest in Poland
(21.0%) and Romania (12.8%) [26].
If consider in the context of types of innovations, the situation in
2012-2014 will be the following: 27.3% of innovatively active enterprises
were engaged in organizational innovations, 23.9% introduced product

91
innovations, 22.8% introduced marketing innovations and 21.6% – pro-
cess innovations. Thus, we can observe that the innovatively active en-
terprises of EU-28 introduce different kinds of innovations almost
equally [26]. Thus, it can be argued that the European Union countries
focus their attention on both technological (product and process) and
non-technological (marketing and organizational) innovations.
Let us consider the activity of the innovation leader of the European
Union, Germany, in the implementation of non-technological innova-
tions in more detail. In 2012-2014 the proportion of enterprises in Ger-
many that implemented marketing and organizational innovations was
about 45% of all enterprises. In 2012, 14% of enterprises introduced only
marketing innovations, 13% – only organizational innovations without
significant changes in marketing and 18% introduced both marketing
and organizational innovations.
Table 3.4 presents the dynamics of the introduction of marketing in-
novations at German enterprises in 2010-2014.

Table 3.4. Distribution of enterprises and organizations in Germany for

subtypes of marketing innovations (compiled based on [27])

2010-2012 2012-2014
Marketing innovations share in all share in all
marketing-innovators marketing-innovators
Distribution channels 58 52
Design 41 45
Pricing 32 30
Advertisement 53 53

As can be seen from Table 3.1, in 2012 and 2014 more than 30% of all
German companies have presented at least one marketing innovation.
In 2012 and 2014, new advertising techniques and new distribution
channels were the most common types of marketing innovations, fol-
lowed by a new design and new pricing. In addition, during the period
under study, the positive dynamics of the introduction of new design of
products at innovation enterprises was traced, the percentage of
enterprises decreased somewhat, new distribution channels and pricing
were introduced, the proportion of enterprises, introduced new advertis-
ing techniques, remained unchanged.
The dynamics of introduction of organizational innovations at
German enterprises in 2010-2014 is presented in Table 3.5.

92
Table 3.5. Distribution of enterprises and organizations in Germany for
subtypes of organizational innovations (compiled based on [27])

2010-2012 2012-2014
Organizational
innovations share in all share in all
organizational-innovators organizational-innovators
External relations 37 38
Work organization 67 66
Business processes 66 59

In accordance with Table 3.2, 31% of all enterprises presented at least

one organizational innovation in 2012 and 2014. Such organizational in-
novations as a new work organization made up the largest proportion
(66% in 2014 and 67% in 2012 for all enterprises-organizational innovators,
21% in 2014 and 20% in 2012 for all enterprises), new business processes
and new external relations comprised a slightly smaller proportion.
So, innovative and active German companies actively introduce non-
technological innovations.
According to a study done in in Great Britain 2012-2014, 53% of en-
terprises showed innovative activity, including 61% of large enterprises
and 53% of small and medium-sized enterprises.
At the same time, 25% of innovatively active enterprises have intro-
duced technological (product and process) innovations. 19% (with
almost a third of product innovations (32%) were new for the market),
while the process innovations – 13% (more than a quarter (27%) of tech-
nological innovations were new for industry processes).
At the same time 42% of innovative and active UK companies intro-
duced non-technological innovations. In particular, 27% of enterprises
engaged in the introduction of «new business practices», 20% – in «new
method of organizing work responsibilities», 16% – in «changes in mar-
keting concept and strategies» [28].
In accordance with the above-mentioned Ukrainian innovation enter-
prises, it is necessary to pay attention to non-technological innovations
as a basis for providing advanced innovative development [29; 30].
At present, given the current trends in the development of Ukrainian
innovation activity, it is advisable to develop its traditional sectors as [1]:
- complex modernization of production with the introduction of
modern achievements of domestic and world science and technology;
- the development of priority industries that will determine the
main vectors of the growth of science-intensive types of engineering
activities, in particular, the production of aviation and rocket and space
techniques, instrument engineering, shipbuilding, manufacture of the

93
newest rolling stock and other equipment for railway transport, machine
tool, power and agricultural machinery, production of electronic equip-
ment and communication tools;
- the development of technological equipment for the modernization
of basic industries in the direction of resource and energy conservation,
greening production and increasing its overall level of efficiency.
Summarizing the above, it can be noted that in its scientific and tech-
nological and innovative development, Ukraine lags far behind the de-
veloped countries of the world. This is caused both by the lack of proper
state support for the innovative activity of industrial enterprises, and by
the fact that enterprises themselves are not ready for its implementation.

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3.2. Some European challenges for the Ukrainian innovation system

Porev S.M.

The development of the national innovation system (NIS) of each

country is accompanied by solving tasks and problems of varying degrees
of complexity, some of which can be overcome by effective policies and
management, while others remain insurmountable and pose challenges
for the economy and society. The formation of balanced and productive
NIS in transition economies at the stage of society’s reform may become
complicated by difficulties that was successfully overcame or weakened
by more developed countries. Also, total corruption, political instability
and poverty of the population are permanent pressure factors during
Ukrainian NIS transformations, which in recent years are being supple-
mented by external military aggression.
On the one hand [16], innovation is about bringing better products
and services to market as the first key element of the system, while the
parts of knowledge creation, dissemination and technology transfer in
innovation cycles [3] are no less important and have essential difficul-
ties. Different types of non-coherent knowledge for efficient innovation
process should be composed. As B.-A. Lundvall et al. noted [11], «most of
the new knowledge needed for innovation did not come directly from …
research and experimental development but rather from other sources
like production engineers, customers, marketing, etc.». According to
R. Veugelers & E. Del Rey [18, p. 2], the link between research and

96
innovation and between science and industry is «neither direct nor obvi-
ous», while «there is strong evidence of complementarity between pub-
licly funded research … and private investment on R&D and corporate
innovation». The more technologically complex and radical are innova-
tions the more they should be based on excellent research and develop-
ment, especially if it refers to knowledge–based economy. That’s why the
challenges of R&D policy and management should be a matter of great
importance for studying and solving. It is essential, that deformed parts
of the whole NIS should have very important meaning, because each el-
ement of the system makes the other elements more or less effective [16].
As economic and social studies show, Ukrainian NIS is in a difficult
position. Traditionally, researchers of the Ukrainian NIS pay attention
first of all to the most general problems of its formation and effective
activity, among which: corruption, policy instability, inflation, inefficient
government bureaucracy, access to financing, government instability [2,
14, 16]. According to United Nations Economic Commission for Europe
[16, p. XVI]: «Ukraine has adopted many innovation initiatives in the
past. However, implementation has been uneven, due to the lack of nec-
essary follow-up steps to give concrete expression to high-level objec-
tives, including the provision of financial resources. The lack of engage-
ment of key innovation actors in the design process has also undermined
implementation. In addition, no systematic evidence has been collected
on the innovation impact of past programmes to assess performance».
Innovation performance assessment, used by the European Innovation
Scoreboard 2017 (EIS-2017) [8], shows, that Innovation index of Ukrain-
ian NIS in 2016 is lowest among 28 EU and 8 neighbouring countries.
According to the source [8], the «Attractive research systems» dimen-
sion of the Ukrainian NIS Innovation index is the lowest among 28 EU
and 8 non-EU countries. This dimension of the EIS-2017 Innovation in-
dex consists of elements: international scientific co-publications (per mil-
lion population) according to Web of Science 2016, scientific publications
among the top 10% most cited publications worldwide (share of total sci-
entific publications of the country, Web of Science 2014) [8, p. 28], and
the «Foreign doctorate students» indicator [8, p. 9].
The Important events for Ukrainian NIS assessment were the studies
and propositions worked out by the independent panel of Horizon 2020
Policy Support Facility (PSF) [9]. The PSF panel defined thirty recom-
mendations and seven policy messages to the Ukrainian government. As
noted [9, p. 9]: «R&D in Ukraine should be based on «excellence» in terms
of academic world-class science and on «excellent science for innovation».
According to K. Schuch et al. [13, p. 5]: «… one can observe a low share
and negative trend of Ukraine’s most cited publications worldwide as %

97
of total scientific publications of Ukraine, a very low level of public-pri-
vate publications and a rather low but steadily increasing level in inter-
national scientific co-publications».

Table 3.6. Innovation indicators and the place of Ukraine among Euro-
pean countries according to EIS-2017 [8]

Ukraine, Romania, Bulgaria, Poland, Turkey,

index/place index index index index
Innovation Index 0.142 /38 0.167 0.234 0.270 0.294
Human resources 0.263 /33 0.198 0.286 0.308 0.182
Research systems 0.060 /38 0.121 0.116 0.133 0.110
Friendly environment n/a 0.390 0.289 0.364 0.482
Finance and support 0.108 /35 0.102 0.091 0.289 0.395
Firm investments 0.195 /36 0.050 0.247 0.356 0.594
Innovators 0.088 /33 0.000 0.064 0.012 0.468
Linkages 0.023 /38 0.148 0.089 0.134 0.316
Intellectual assets 0.116 /35 0.122 0.487 0.383 0.106
Employment impacts 0.419 /25 0.199 0.526 0.473 0.052
Sales impacts 0.214 /37 0.401 0.216 0.356 0.308

Some innovation challenges, in particular as to R&D performance,

are simple to note, but difficult to explain due to interconnection of fac-
tors. For example, D. Castellani et al. [6] found evidence of a positive and
significant impact of the R&D performance into productivity, and that
US firms have a higher capacity to translate R&D into productivity
gains, than EU firms, but they paper leaves open questions why. We
think, Ukrainian R&D problems among innovation challenges can be ac-
tual object for our study in order to define, why and how they are possible
and what are they origin.
Why we should talk about R&D excellence and performance not as
about solving evolutional incremental development tasks, but as about
problems and challenges for the Ukrainian NIS? Because there are neg-
ative R&D management aspects, which not only exist in scientific com-
munity activities, but corresponds to the legislation and to aims and val-
ues of Ukrainian science, which were deformed. Although the PSF panel
of Horizon 2020 [9] recommended to transform R&D activity on scientific
excellence and performance for innovations using recently changed the
Law of Ukraine «On scientific and scientific-technical activity» [1]
(LoSSTA), our study will show, that existing legislation does not promote
high standards of scientific excellence.

98
 We can show, that some regulations of the LoSSTA far from the needs
to reform R&D. This law defines «a scientist» and «a scientific worker»
as the main subjects of scientific and scientific-technical activities,
where the scientist carries out fundamental and/or applied scientific re-
search and obtains scientific and/or scientific-technical results. Empha-
sis on performance is important, but the scientist could obtain results
only «in principle», and there are no other clarifications regarding the
quality of ones. According to the Article 6 of the LoSSTA [1], a scientific
worker has the obligations to conduct R&D according to agreements or
contracts, to publish results etc., but he or she has no direct obligations
to obtain R&D results and as regards to their quality.
It is clear, that if the aims, principles, requirements and tasks of R&D
policy are defined in a certain legislative document, they should lead to
results quality, excellence and performance and should be a base for ef-
fective management. According to the Article 2 [1], the purposes of the
Law include «creation of conditions to improve the efficiency of research»
only as general declaration without propositions, how and what condi-
tions could be created. The State should provide conditions for the devel-
opment and effective use of scientific potential, and among the objectives
of public policy is to achieve «a high level of science and technique devel-
opment» (Article 45) [1]. But there were no directly defined principles
and tasks of the State policy (Articles 2, 45, 46) to ensure high quality
results of R&D, their excellence and performance.
Our previous studies suggest [4], that in a country with socioeconomic
deformations could arose situations in which access to funding and pref-
erences don’t strongly connected with scientific and educational excel-
lence or performance. Individuals always search an optimal and a simple
way to obtain maximal salary. According to the LoSSTA [1] and our stud-
ies [4] of the Law «On Higher Education» and the Government resolu-
tions, for scientists often is more optimal to obtain scientific degrees of a
Candidate of Science (PhD) and a Doctor of Science and academic titles,
which are not always an equivalent to creation of high quality scientific
knowledge in Ukrainian realities. There are essential needs of the «de-
grees» and «titles» for scientific-pedagogical workers in order to obtain li-
cense on education activity, especially to prepare graduate students.
So, the first Ukrainian NIS challenge in the R&D dimension is the
research excellence problem (RE challenge), which appears because of the
fact that it is possible to obtain an academic position and resources, sal-
ary, without the constant creation of excellent scientific knowledge, and
this is allowable by legislation, policy and management. The main prob-
lem of R&D excellence is that the subsystem of organization and evalu-
ation of research of the Ukrainian NIS proved unable to create and use

99
methods and means of separating qualitative scientific results from me-
diocre and low ones.
The next challenge could be defined as the problem of research excel-
lence for innovations (REI challenge).
In order to show the level of knowledge-based cooperation between
academic and business R&D, PSF panel [9, 13] used the bilbiometric in-
dicator of public-private co-publications by million populations. If the EU
average for 2008-2014 fluctuates between 33.9 and 41.6, the Ukrainian
series data lies between 0.9 and 1.5 [9, p. 35].

Table 3.7. The University staff in 2015 and the R&D funding by grants
and contracts [4]

Teaching R&D grants and R&D grants

University staff and re- industry con- and contracts
searchers tracts, th. UAH* per scientist, €
Taras Shevchenko national university of
3266 3123 39.6
Kyiv
National technical univ. of Ukraine «Igor
2622 12324 193.9
Sikorsky Kyiv polytechnic institute»
Lviv Polytechnic national university 2100 7266 142.7
Ivan Franko national university of Lviv 1962 2762 58.2
V.N. Karazin Kharkiv national university 1826 4101 92.8
National technical university «Kharkov
1919 1877 40.4
polytechnic institute»
Odessa I.I. Mechnikov national university 1500 2064 56.9
Oles Honchar Dnipro national university 1397 1438 42.9
Sumy state university 771 8781 469.9
* thousand UAH

Our studies [4] give reason to believe that today for Ukrainian uni-
versities the most significant indicator of research excellence for innova-
tions are the R&D funding obtained from industry and entrepreneur-
ship, foreign and domestic grants. The results, presented in Table 3.7, of
the leading universities of Ukraine for R&D at the expense of customers
are quite low, but indicators of economic and pedagogical institutions are
even lower.
According to our study [4], ten Ukrainian Economic Universities in
2015 had a total of 4290 staff lecturers and researchers and received 171
160 UAH by R&D contracts with industry and grants, an average of 399
UAH or only 16 euros per scientist throughout the year. So, there exist
the problem of R&D performance usefulness for industry and

100
entrepreneurship, and this is the challenge for entering of Ukraine into
the European research an education area. What does the problem look
like in the goals and values dimensions that determine the activity of sci-
entists in Ukraine as the country with weak economy and society «in tran-
sition»?
A limited industry request to R&D results in the country stimulates
they decline. Scientists are looking for opportunities to get results as
such that will be well enough and stably paid. To a sufficient degree –
it’s abroad, in more prosperous countries. Scientific results could be sta-
bly paid in educational activity at the university. But for to be used the
frontier research knowledge often requires a reflexive methodological re-
construction. Such transformation helps to systematize knowledge,
make one more coherent with existed theory systems, possibly, expand
objects of cognition as an alternative to constant search and deepening
ones in the narrow direction. But this also leads the scientist activity
from frontier research to secondary knowledge processing for educa-
tional explanations.
The challenge of research excellence for innovations lies in the fact
that the scientists who have long been oriented either to cooperation
with foreign partners or to teaching at universities should be redirected
to work with Ukrainian industry and entrepreneurship. In part, this
may be organizational-methodological reorientation of scientists, the
change of R&D rules, and partly – the revival of the industry order, the
restoration of value «utility» and its materialization in remuneration.
As PSF panel noted [9], Science in Ukraine should be radically
changed, and R&D should be based not only on excellent science, but also
on «excellent science for innovation». Among the barriers the PSF panel
is defined [9, p. 14]: lack of incentives for public research organizations
to engage in innovation activities; lack of entrepreneurial and innovative
culture; insufficient interest in R&D activities of economic actors; lack of
awareness and ability of SMEs to innovate; absence of effective channels
to convey information between industry, science and education. Accord-
ing to PSF panel [9, p. 63], the introduction of three specific innovation
support instruments is suggested: innovation vouchers, science-industry
mobility schemes, and collaborative projects between public research or-
ganizations and industry. A very useful proposal is to change the em-
ployment contracts for researchers in public organizations in order to
integrate the commercialization aspects into their research [9, p. 64].
Ukrainian innovation policy more deals with the rough effects of the
gap between R&D and industry, and therefore does not pay much atten-
tion to epistemological subtleties of the modern knowledge productions
[12]. The LoSSTA used the concepts of fundamental and applied

101
research and experimental development according to the well-known
«linear model», while modern scientific communities and R&D managers
are looking for the ways to bridge the gap between research and appli-
cation, between science and economics [4]. For example, in [10] there is
proposed «a distinction between science-driven research and innovation-
driven research». The last one should be oriented to solve problems, use
the relevance for sector or region as quality criteria, and do transdisci-
plinary and translational research with close interactions [10, p. 19].
As noted C. Blümel et al [5], translational research (TR) has become
an intensely debated in biomedicine. The aim of TR is to support an effi-
cient translation from laboratory research into practice and vice versa,
but the notions show some common features. TR proposed solutions to
overcome either the innovation or the implementation gap and they need
adequate policies and regulations on various levels from research and
industry to politics.
It should be noted that today is not only a science «in the strict sense»
needs legislative stimulation. Concept of «Mode 2» knowledge production
defined in publications of H. Nowotny, Р. Scott and M. Gibbons [12] is
not epistemologically sound but very useful in the aspects of «social ro-
bustness» and as a cooperation of society for common responsibility, and
as a tool for «research in context of application», which join more closely
research with innovation. The concept of «Mode 2» is also leads the R&D
from ideals to obtain truth and objectivity in Science to solving problems
in wide world of Practice, in some sense, from excellence to performance.
In world practice one of the main means to increase the productivity
of R&D for innovations is to stimulate entrepreneurial activity of scien-
tists, in particular to support the transformation of research groups into
firms. According to H. Etzkowitz, the transfer of technology has been
accepted as an administrative function of research universities [7, p.
115]. The first phase is to provide R&D for innovation, where the re-
search groups act as «quasi-firms», as nascent entrepreneurial struc-
tures, the second phase refers to the translation of the R&D results into
economic goods [7, p. 119].
However, in our opinion, achieving R&D excellence for innovation can
for a long time remains the challenge for the Ukrainian NIS, even with the
use of modern incentives, including recommendations of the PSF panel [9],
because it is very difficult to shift industry to innovations, and to turn the
scientists from orientation to work abroad and teaching at universities.
Studies of Ukrainian [4] and foreign experts [9, 13] indicate that R&D
funding, research infrastructure facilities and salaries paid to researchers
in the country is insufficient and does not meet the legal norms and this
may by defined as a challenge for innovation policy. According to

102
UNESCO statistics [17], Ukrainian GERD ‘000 in current PPP$ was 2 100
862.10. Table 3.8 show the comparison of Ukrainian data with other coun-
tries according to the calculation of the number of researchers in a full
time equivalent (FTE), and Scopus data in the calculations per researcher.

Table 3.8. The University staff in 2015 and the R&D funding by grants
and contracts [4]

Ukraine Romania Bulgaria Poland Turkey

Researchers in FTE 43016.1 17459 14224 82594.3 89657.26*
GERD per researcher, FTE (‘000
48.84 122.48 88.09 124.08 171.07*
in current PPP$)
Publications in Scopus per re-
0.24 0.84 0.28 0.50 0.48
searcher, FTE
Citations in Scopus per re-
0.46 1.72 0.90 1.39 1.00
searcher, FTE
*in 2014

There is a combination of the problems of inadequate R&D funding

and the number of active and productive researchers required for the
Ukrainian NIS. At the same time, in the context of European integration
activities of Ukraine, a challenge is also the low number of publications
and their citations in Scopus and Web of Science. It should be noted that
Ukrainian researchers still traditionally continue to publish their re-
sults in domestic journals which mostly not indexed in the leading inter-
national databases. So, the very low performance of Ukrainian research-
ers in line with the standards adopted in European countries is a chal-
lenge in the context of European integration.
It should be noted that the Ukrainian NIS has significant scientific,
technological and innovative potential in such fields as Materials sci-
ence, Energy and Computer Science. It also retains the potential and
effectiveness in such branches of science as Mathematics, Physics and
Astronomy, Chemistry that confirms by the Scopus data [15] and inter-
national studies [13]. But the situation demands quick and complex re-
action on the challenges for Ukrainian NIS and its R&D subsystem by
the policy and management measures.

References

1. Zakon Ukrainy «Pro naukovu i naukovo-теkhnichnu diialnist» [The Law

of Ukraine «On scientific and scientific-technical activity»] (2017). za-
kon3.rada.gov.ua. Retrieved from http://zakon3.rada.gov.ua/laws/show/848-19.

103
 2. Heiets, V. et al. (eds.). (2015). Innovatsiina Ukraina: Natsionalna dopovid
[Innovative Ukraine 2020: National Report]. Kyiv: NASU.
3. Porev, S.M. (1998). Innovatsiinyi pidkhid: teoriia i practyka [An innova-
tive Aapproach: theory and practice]. Nauka i naukoznavstvo – Science and Sci-
ence of Science, 2, 61-69.
4. Porev, S.M., & Sandyha, I.V. (2016). Shliakh nauky universytetu [The
Way of University Science]. Kyiv: Khimdzhest.
5. Blümel, C., Gauch, S., Hendriks, B., Krüger, A., & Reinhart, M. (2015). In
search of translational research. Report on the Development and Current Un-
derstanding of a New Terminology in Medical Research and Practice (iFQ-BIH-
Report). Berlin: Berlin institute of health.
6. Castellani, D., Piva, M.C., Schubert, T., & Vivarelli, M. (2016). R&D and
productivity in the US and the EU: sectoral specificities and differences in the
crisis. (Papers in Innovation Studies 2016/15, Center for Innovation, Research
and Competences in the Learning Economy). Lund: Lund University.
7. Etzkowitz, H. (2003). Research groups as ‘quasi-firms’: the invention of
the entrepreneurial university. Research Policy, 32, 109-121.
8. European Commission. (2017). European Innovation Scoreboard 2017.
Retrieved from ec.europa.eu/growth/industry/innovation/facts-figures/scoreboards.
9. European Commission. (2016). Peer review of the Ukrainian research and
innovation system. Horizon 2020 Policy Support Facility. Luxembourg: Publica-
tions Office of the European Union.
10. EU SCAR. (2013). Agricultural knowledge and innovation systems to-
wards 2020 – an orientation paper on linking innovation and research. Brussels:
European Comission.
11. Lundvall, B-Å., Johnson, B. Andersen, E.S., & Dalum, B. (2002). National
systems of production, innovation and competence building. Research Policy,
31(2), 213-231.
12. Nowotny, H., Scott, Р., & Gibbons, М. (2003). Introduction: «Mode 2» Re-
visited: the New Production of Knowledge. Minerva, 41(3), 179-194.
13. Schuch, K., Weiss, G., Buesel, K., & Brugner, P. (2016). Ukrainian Re-
search and Innovation System. Background Report. Luxembourg: Publications
Office of the European Union.
14. Schwab, K. (2016). The Global Competitiveness Report 2016–2017. Ge-
neva: World Economic Forum.
15. Scimago Journal & Country Rank. www.scimagojr.com. Retrieved from
http://www.scimagojr.com.
16. UNECE (2013). Innovation performance review of Ukraine. Geneva:
United Nations.
17. UNESCO Institute for Statistics, UIS online database.
data.uis.unesco.org. Retrieved from http://stats.uis.unesco.org.
18. Veugelers, R., & Del Rey, E. (2014). The contribution of universities to
innovation, (regional) growth and employment (EENEE Analytical Report No.
18). Brussels: European Commission.

104
 3.3. Risks and threats on the development
of foreign economic activity in globalization conditions

Gerasymchuk V.H.

In 2016 Ukraine, according to the State Statistics Service, carried out

foreign trade operations with partners from 226 countries of the world.
Given that there are 193 members of the United Nations, it can be ar-
gued that Ukraine’s participation in foreign economic relations is more
than sufficiently large. The country’s participation in export-import op-
erations is calculated from multibillion-dollar sales to a minimum of
$100, which is accounted for in official statistical reporting. As for very
small «orders», for example, $100 was sold: Uzbekistan and Estonia –
two units of watches of the Ukrainian brand, Austria – threads, Andorra
and Ireland – canned vegetables, Kyrgyzstan – leather goods and
Greece – caps. Aborigines of the Cayman Islands were sold for $100 of
alcohol and $100 honey. The smallest import is for $100 goods in the
ports of the island of Maine (souvenirs, hygiene items), for the same
amount – articles made of ferrous metal (nails, etc.) [1].
The purpose of our study is to identify the characteristic features,
trends, patterns in bilateral and multilateral trade relations of Ukraine
with foreign partners. On this basis, we can talk about the long-term
nature of the strategy of the state foreign trade policy, of course, taking
into account the risks and uncertainties both within the country and at
the global level.
To achieve this goal, we have identified the need for solving the fol-
lowing tasks:
- analyze the essential characteristics of globalization processes;
- characterize the political and economic challenges of global devel-
opment for Ukraine during the years of independence (1991-2017);
- to investigate changes in the commodity and geographical struc-
ture of Ukraine’s exports and imports in conjunction with changes in the
structure of GDP;
- to study the competitive advantages, as well as risks and threats
in the implementation of the state’s export policy, import substitution,
taking into account the reorientation of the activities of the CIS market
to the markets of the EU and other regions;
- to put forward proposals on perspective directions of development
of foreign economic relations of Ukraine taking into account the influ-
ence on them of global problems of the world economy.
Essential characteristics of globalization processes in the world econ-
omy. The globalization model of international economic relations is in a

105
continuous transformation process. It is quite understandable that the
majority of the world’s planet’s desire to see the world is not in a state of
chaos or controlled chaos, unpredictability through individual policy-
makers, and to be sure that the globalization system is turning into a
new, more integrated, higher level of orderliness.
The worrying phenomena associated with the manifestations of terror-
ism, bloody conflicts during «colorful» revolutions, military actions in the
east of Ukraine and in Syria, «Brexit», nuclear tests in the DPRK, riots in
Venezuela, election campaigns in the United States, Britain, France, Ger-
many and their consequences, etc. In this situation, the tasks of each state
should be reduced to the ability to benefit from the processes of globaliza-
tion, to put above all the national interests aimed at improving the quality
of life of all segments of the population. Ukraine must act on the basis of
the interests of every citizen, nation as a whole.
From globalization to win, above all, «the strongest of this world», that
is, powerful, highly developed states. In the case of developing countries,
they are hardly involved in such processes as post-industrialization, inte-
gration or trans-nationalization. At the same time, they are included in
the process of globalization of world markets and are largely focused on
external markets: services, goods, labor (active export), knowledge (im-
port) and capital (receiving assistance) [2].
For a deeper understanding of the laws of the development of globali-
zation processes, it is important to understand their origins, root causes,
periodicity, factors, advantages and disadvantages, problems, risks and
threats to restrain, reduce the negative effects of these processes and in-
crease the positive effects. Globalization issues became the subject of in-
creased attention from researchers especially in the second half of the
twentieth century. Globalization of the world economy is expressed in its
transformation into a single economic zone, open to the unimpeded move-
ment of goods, services, information and capital. At the same time, glob-
alization processes are not limited to the sphere of the economy. They have
a significant impact on all key spheres of society – ideology, politics and
culture.
In the historical plan distinguish several stages of the formation and
development of globalization [3]. At the initial stage (XIV century – the
end of the XIX century), the first elements of the globalization process of
the world economy, which are associated with the emergence of the world
commodity market and world trade, are formed. At the second stage (the
end of the XIX century – the beginning of the XX century), the funda-
mental foundations of the international division of labor, as well as the
future globalization of world trade, are laid. The transition of initial cap-
italism to the stage of monopolization of production is being carried out.

106
There is a section of the world’s territory and areas of economic influence
between the leading powers, increasing cross-border flows of capital.
The third stage on the path to global globalization (1914-1939) is asso-
ciated with the period between two world wars. It is characterized by de-
structive actions in existing international economic ties. The financial sys-
tem at the transnational level is extremely volatile and unstable. From
industrialized countries there is long-term capital, the process of division
of labor is intensifying; the first international corporations are formed. As
a result of the revolutionary events in Russia (October 1917), the world is
divided into two opposite systems of economic development – capitalist
and socialist.
The fourth stage (the end of the Second World War – the beginning of
the 90’s of the twentieth century) is characterized by the establishment of
new economic relations between the states. The main influence on the in-
ternational economy is provided by the liberalization of foreign trade pol-
icy, the growth of labor productivity, accelerating progress in the field of
science and technology, the rapid pace of growth of the world economy.
The basis of the globalization of world finances is laid, the macro-system
that regulates world economic development through the organization of
political, financial and economic orientation (UN, IMF, MB, IBRD and
WTO) is being built. The colonial system, which regulates the interaction
of metropolises with colonies, collapses.
The fifth stage of the development of the world economy (from the
early 90’s of the twentieth century.) is connected, first of all, with the
collapse of the socialist economic system. Post-socialist countries are
moving to the markets of a market economy, the process of their acces-
sion to the WTO is being implemented. The development of the world
economy is characterized by a number of features: the liberalization of
foreign economic relations; Tran nationalization of capital and produc-
tion; regional economic integration; internationalization of economic life;
unification of rules of economic life, creation of a system of interstate
regulation of world economic relations; manifestation of protectionist
sentiment. The contradictions between the sovereignty of many coun-
tries and the policy of globalization are sharpening. The effectiveness of
using traditional macroeconomic instruments at the national level (ex-
port subsidies and import barriers, central bank refinancing rates and
the national currency rate) is decreasing [2, 4].
Globalization processes in the global economy have both positive and
negative sides [5]. The advantages of transforming the world economy into
a single system include:
- international competition intensifies, from which, in the first place,
the leading world economies;

107
 - there is an increase in labor productivity as a result of rationaliza-
tion of production, introduction of innovations and dissemination of ad-
vanced technologies;
- the development of cooperative ties is associated with economies of
scale in production, which leads to a significant reduction in costs and
prices;
- in mutually beneficial international trade, all subjects of market re-
lations (individuals, companies, countries, trade unions, continents) are
interested;
- developing countries have opportunities to increase their economic
potential by increasing participation in the international division of labor.
Globalization, as an economic phenomenon, was initially planted and
continued to be used by developed countries with a powerful economy of
the rest of the countries with a rather low level of technological develop-
ment, with a low standard of living. The first part of the countries or coun-
tries of the «golden billion» (slightly more than three dozen) successfully
trade with each other on a mutually beneficial, innovative basis, preserves
a high level of consumption for its citizens. In relation to more than 200
developing countries, they are pursuing a policy of maximizing the use of
the latter as a raw material appendage, dumping of harmful waste, hu-
miliating «second hand».
You can also point out a number of negative aspects that reflect the
process of globalization:
- in many countries, the whole industry, hundreds and thousands of
enterprises are being destroyed, the process of economic deindustrializa-
tion is under way, traditional markets for the sale of goods are lost;
- hundreds of professions, highly skilled personnel, or people who fill
the ranks of the unemployed or are looking for work outside the country
become unnecessary;
- departments are closed in technical universities, because there is no
demand for engineers – creators of innovations and innovations;
- there is a decline in fertility, a decrease in the population;
- the gap between developed and developing countries between the
poor and the rich increases (the decoupling rate of income inequality);
- tensions in the world are increasing due to the incorrect use of eco-
systems in the struggle for resources.
The processes of globalization, in our opinion, should be considered
from the standpoint of dialectics. The world as a whole, and the system
of globalization, in particular, develops, including the law of unity and
struggle of opposites. There are no such phenomena that would be out-
side the process of infinite development, the process of occurrence within
each integrity of opposite moments, their transformation into each other,

108
beyond the contradictory relations between them. The law of unity and
struggle of opposites removes the illusion of the ultimate of any limited
form of existence in nature and society. This law focuses on the disclo-
sure of the transitive nature of such forms, their transition to higher,
qualitatively new and developed forms as they exhaust their capabilities
[6, 7].
Political and economic challenges of globalization for Ukraine. Since
1991 Ukraine is at the epicenter of the events taking place in the global-
ized world. Her political and economic history began on August 24, 1991.
During the 26 years of independence (1991-2017), the country went
through a difficult path – from hyperinflation and total poverty of the 90’s
of the twentieth century to break economic relations with the Russian
Federation and the acute need to finance their own army and navy.
By the degree of readiness for economic independence from the USSR,
Ukraine in 1991clearly outpaced other republics of the union state. The
experts then assessed the main components of the economic potential of
Ukraine on a 10-point scale in the following way: industry – 9, agricul-
ture – 10, raw stock – 8, market opportunities – 3, overall readiness –
7.5. The economic potential of Ukraine was assigned by experts to the
10th place in the world ranking. The idea of obtaining independence in
1991 was supported by the majority of Ukrainian citizens. At the same
time, from the first days of independence, its economy began to degrade.
It was important to manage the accumulated labor of millions of rich
heritages, to reorient the economy from the planned system of manage-
ment to the market rails, to consolidate it in the traditional markets and
to develop new ones.
Due to the collapse of domestic production in the first nine years of
independence (1991-1999), GDP declined to 40.8% compared with 1990
levels. The crisis reached its peak in 1994: GDP fell by 22.94%. And only
in 1999 began a gradual recovery of the economy. In 2008 GDP was 74.2%
of the GDP of the UkrSSR in 1990 and this is the maximum figure for
years of independence. However, the crisis of 2008-2009 again rejected
Ukraine five years ago. GDP per capita was the lowest among the former
Soviet republics. 2009 becoming crisis: GDP declined by 14.8%. Economic
results of Ukraine in 2010-2013 were more than modest. 2013-2014 asso-
ciated with the «Revolution of Dignity». The year 2015 ended in Ukraine
with a nominal GDP per capita of $2,110 (in the 2009 crisis – $2,550).
If you analyze the data in the Table 3.9 in relation to the production of
the main types of products during 1990-2016, it is easy to conclude that
the country’s economy has significantly lost its power in many positions.
This concern, above all, the industrial sphere.

109
Table 3.9. Production of main types of products in Ukraine, 1990-2016

2016/
Indicators 1990 2000 2010 2013 2015 2016
1990, %
Electricity, billion kW. a year 298 171 189 194 163,7 164,6 55,2
Coal, million tons 130 62,4 55 64,2 30,2 31,6 24,3
Ready-made rolling, million tons 38,6 22,6 17,6 17,8 12,1 13,3 34,5
Steel pipes, million tons 6,5 1,7 2,0 1,8 1,0 1,0 15,4
Ammonia compound, million tons 4,9 4,4 1,2 4,2 2,2 1,7 34,7
Min fertilizers, million tons 4,8 2,3 2,3 - 4,5 4,0 83,3
Cement, million tons 22,7 5,3 9,5 9,2 8,5 9,0 39,7
Cars, thousand pcs. 196 31,9 83,3 45,8 8,3 5,3 2,7
Fabrics, mln. sq. m. 1210 66,7 88,2 93,6 86,3 91,0 7,5
Shoes, million pairs 196 13,5 25,7 30,5 23,6 24,1 12,3
Sausage products, thousand tons 900 175 281 294 236 239 26,6
Butter, thousand tons 444 135 79,5 94,3 102 103 23,2
Oil, thousand tons 1070 973 3030 3403 3716 4412 412,3
Calculated by the author according to the State Statistics Committee of Ukraine,
other available sources

According to the World Bank, Ukraine is on the list of countries on

GDP growth (PPP) in percentage terms for the period 1990-2015 at the
last, 191st place. Moreover, Ukraine is the only country in the world
ranking, which has a negative result: minus 3% (!?). In other words, the
process of creating a national product, the process of creativity is in an
improper level in the country.
Achievements and problems in the implementation of foreign economic
policy. Data Table 3.10 indicates that during 1996-2017, Ukraine’s for-
eign-economic activity as a whole is characterized by relatively stable
growth. Significant recession occurred in 2013 when, in connection with
military actions in the east, the political and, of course, trade and eco-
nomic relations of Ukraine with Russia, CIS countries sharply deterio-
rated.
On January 1, 2016, the economic part of the Association Agreement
between Ukraine and the EU entered into force. In this situation,
Ukraine had to expand its influence on the EU markets. According to
the results of 2016 Ukrainian exports amounted to $36.36 billion
(-4.6%), imports were $39.25 billion (+4.6%). The trade surplus was $2.89
billion. In 2016, agricultural and food industry enterprises ($15.2 billion
or 42%), metallurgy ($8.3 billion or 23%) and machinery ($4.2 billion or
12%) were the main exporters of goods.

110
Table 3.10. Ukraine’s foreign trade in goods and services, 1996-2017,
$billion

Indices 1996 2000 2005 2010 2012 2013 2014 2015 2016 2017
Turnover 37,96 33,17 79,50 129,38 173,70 158,17 123,90 75,64 89,44 24,79
Export 19,15 18,06 40,42 63,19 82,34 74,83 63,89 38,12 44,89 12,45
Imports 18,81 15,11 39,08 66,19 91,36 83.34 60,01 37,52 44,55 12,34
Balance 0,34 2,95 1,34 -3,00 -9,02 -8,51 3,88 0,60 0,34 0,11
Written by the author according to the State Statistics Committee. Data for 2017
submitted on the results of I quarter

The EU share in Ukraine’s foreign trade has increased from 26.5% in

2013 to 37.0% in 2016 during the same period of time, the share of CIS
countries decreased from 34.8% to 16.6%. During 2013-2016 the total
volume of exports in the European direction decreased by 17.0%. Exports
to CIS countries for the analyzed period fell by 73.0%, in Russia by
76.0%. It is important that Ukraine does not move to the agrarian and
raw material appendage of the EU.
Co-operative ties with the EU, other countries in the processing in-
dustry, and high technologies need to be strengthened. The reorientation
of export supplies mainly from the markets of Russia, the CIS to the
markets of the EU and other directions (South-East Asia, Africa, etc.)
requires new approaches to the development and implementation of a
strategic program for qualitative improvement both commodity and ge-
ographic structure. For the development of new markets, it takes time
and hard work to revise many of the provisions of the law, improve mar-
keting activities, logistics, etc.
Ukraine is interested in expanding its influence on the world market,
as it has the most favorable effect on the country’s economic develop-
ment. In order to establish economic relations with business foreign
partners in the first place, it is necessary to clearly define in the system
the goals of such cooperation. Only after identifying the expected results
of mutually beneficial cooperation is the choice of methods or ways to
achieve the goals. In any case, in the formation of intentions to enter a
certain segment of the market should take careful collection of business
information, information about potential partners, competitors and their
capabilities, analysis of price dynamics, to specify the mechanisms and
forms of cooperation [8, p. 141-149].
Prospects for the development of Ukrainian entrepreneur’s markets
should be evaluated according to a certain scale of indicators, which
should include market volume, growth prospects, cost of doing business,

111
level of competition and degree of risk. The main indicators that can de-
termine the potential of the target market include:
- political characteristics (political structure in the country, political
philosophy of the government, the government’s relation to foreign busi-
ness, forms and methods of stimulating private business and foreign in-
vestors);
- demographic characteristics (population size and population
growth, urbanization level, population density, age structure and com-
position of population, family size, stage of family life cycle);
- geographical features (continent, size of the country, topograph-
ical characteristics, climatic conditions);
- economic indicators (per capita GNP share, income distribution,
GDP growth rate, investment volume ratio, and GNP);
- technological indicators (technological skills level, prevailing tech-
nology of production, engineering training);
- socio-cultural indicators (social values, lifestyle, national composi-
tion of the population, linguistic diversity, attitude to religion);
- national goals (priorities of industrial and agrarian development,
plans for infrastructure development) [9, p. 144-147].
On the basis of the analysis carried out, the advantage is given to the
market segment, which has a high demand, high consumption rates and
high profit margins, moderate competition, real requirements for pricing
and marketing policies, can provide maximum benefits in the long run,
including the investment of relevant investments.
Marketing risks in the development of new markets. The development
of new markets is necessarily accompanied by a manifestation of mar-
keting risks that arise from the following reasons: the wrong choice of
markets for the sale of goods and services; biased assessment of potential
market capacity; incorrect definition of target consumer segments; in-
sufficient analysis of consumer needs; lack of thought, lack of or lack of
distribution network in the foreseeable markets.
On the way of more extensive foreign trade development, there are a
number of obstacles, namely: the continuation of hostilities in the east and
the aggravation of problems in trade, economic and political relations with
Russia; irrational structure of domestic exports; low competitiveness of
Ukrainian goods; fluctuations of world currencies and commodity prices;
instability of the exchange rate of the national currency; unfavorable con-
ditions on the key markets for Ukraine in Ukraine, etc.
In the current context of the implementation of export-import opera-
tions, it is necessary to take into account the existence of a number of
potential threats to the global economy and trade, including threats to
national security and terrorism; cyber security and pandemics;

112
geopolitical uncertainty and instability; economic crises, recession or pe-
riods of slow growth for a number of countries and regions; turning coun-
tries into protectionism (England, USA), regulatory requirements at the
level of national economies and individual industries.
It is worrying that during 2014-2016 in Ukraine, the most important
spheres that reflect the qualitative characteristics of the index of the fa-
vorableness of the national environment for the development of foreign
trade remain problematic: access to the domestic market and the com-
plexity of access to external markets; efficiency and transparency of bor-
der management (customs); accessibility and quality of transport infra-
structure, transport services; availability and use of ICT; operating en-
vironment (business climate).
According to the World Bank, Ukraine has worsened its export posi-
tion in terms of all components of the efficiency and logistics index,
namely: customs, infrastructure, international transportation, the qual-
ity and capabilities of the logistics system, tracking of goods movements
and the timeliness of delivery of goods to the destination.
Perspective directions of development of the world economy. An anal-
ysis of the trends in the development of trade and economic cooperation
between Ukraine and other countries indicates that it cannot be carried
out outside the global context, beyond the processes of globalization. It
is important to focus on the fundamental factors that will determine the
dynamics and structure of exports and imports.
In the long term, the state of world trade will be shaped by the fol-
lowing technological changes:
- the evolution of industrial production: digital innovation, aimed at
new opportunities diversified approach to different categories of consum-
ers, new markets, strengthening the imperative of environmentally sus-
tainable growth;
- application of inverse innovations and mass personalization of
goods and services;
- the rise of micro-TNCs that is, the implementation of the digital
revolution and the formation of stable and interrelated global production
and commercial ties;
- improvement of logistics by reducing the cost of moving goods from
the place of production to the place of consumption and increase in the
speed of goods;
- continuation of the process of liberalization of trade.
Thus, as I. Burakovsky emphasizes, there are two trends: the further
increase in the number and complexity of regional free trade agreements
and the harmonization of standards, technical requirements, or in the
broad sense of regulatory procedures. Particular attention is paid to the

113
stability of the political, regulatory and monetary financial environment
of the production and commercial activity of economic agents [10].
After Ukraine gained independence, a number of political and eco-
nomic problems arose. The quality of life in Ukraine is lower compared
to other European countries. Ukraine should constructively build its re-
lations with the EU on the path of European integration. The developed
economy allows successful export policy and import substitution policy
not based on cheap raw materials, but on the basis of production of in-
novative products. In order to strengthen its participation in the pro-
cesses of globalization, in the international division of labor it is neces-
sary to strengthen the position on traditional markets and expand the
sphere of influence in new markets. When developing new markets, it is
necessary to take into account the manifestation of various kinds of in-
terference, risks and potential threats to minimize possible losses for for-
eign economic entities. Particular attention should be paid to foreign
trade with neighboring countries, with traditional partners, as well as to
actively develop new markets. The strengthening of export potential
should be facilitated by a system of protectionist measures of organiza-
tional, legal, financial, marketing, technological orientation on the part
of the state.

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vaia ekonomika pered vyzovami «Annus Horribilis»: na porohe novoi rehionali-
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of a new regionalization]. Izvestiia Sankt-Peterburhskoho hosudarstvennoho
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[What is globalization – the pros and cons of globalization and its consequences].

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6. Spirkin, A.H. (2000). Filosofiia [Philosophy]. Moscow: Hardariki [in Russian].
7. Voitko, V.I. Dialekticheskii i istoricheskii materialism [Dialectical and histor-
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cles?pid=5503 (reference date: February 16, 2017).

3.4. The perspectives of IT-industry development in Ukraine

on the basis of data analysis of the world economic forum

Bublyk M.I., Karpyak A.O., Rybytska O.M.

While the information, methods of its processing and transmission

are becoming more important sources of value, the progressive develop-
ment of information and communication infrastructure becomes a pre-
requisite for the economy competitiveness increase of Ukraine and its
integration into the global information and cultural community. Nowa-
days, issues of factors and perspectives of IT industry development in
Ukraine remain poorly studied. The authors foremost consider the issues
of establishing interdependencies between the state of ICT development
and the level of country development in general. Therefore, it is sug-
gested to analyze the dynamics of global competitiveness indices (accord-
ing to the World Economic Forum). The data obtained show that at pre-
sent there are many factors that while keeping negative tendencies seri-
ously affect the IT market development in Ukraine. Taking into account
that in the modern post-industrial economy the tendencies of the ICT
share increase in GDP and exports of goods and services are irreversible,
an adequate state sectoral policy is of importance.
In the era of the post-industrial information society, the IT industry
is one of the most important sectors of the economy. Slowing down the
rate of industrial production and increasing the role of information ser-
vices in the economy encourage to analyze and to study the perspectives
of these processes.
Elizabeth Sparrow conducted an analysis of the conditions for the
successful IT market development. The Ukrainian market of ICT

115
technologies as an object of foreign investment and a promising branch
of the national economy is studied in the papers of L. Fedulova,
L. Nozdrina, S. Voitko, R. Labzhania, O. Babanin, M. Tchaikovska,
O. Chubukova, O. Kulinich, V. Yashchuk O. Polotai.
The purpose of the article is to study the state and perspectives of the
domestic information technology market development taking into
account the state of the Ukrainian economy on general, as reflected in
the data of the World Economic Forum (Global Competitiveness Index).
Over the past decades, the world community has become the creator
and the witness of the rapid entry of information technology into all ar-
eas of its activities. It is accompanied by the development of software,
intellectualization of various technical means, information support for
decision-making in the field of economics, politics, sociology, medicine,
etc. The development of IT industry in the country is a pledge of high-
tech and well-paid work for its citizens and generations to come; strong
and irreversible integration into the world economy, the possibility of
improving the living conditions in virtually all directions from online ser-
vices to e-government, smart cars, houses and cities [1].
The past century clearly demonstrated the key role of such principles
as the free market and the openness of the domestic economy to the
world in the country’s rapid economic growth. It is in the market envi-
ronment that an intellectually strong and active part of the citizens of a
certain state, even without any legislative, tax or other support, is able
to find a niche in the diversity of spheres of possible economic activity
for optimum realization of its potential. A striking example of self-organ-
ization in economic activity was the formation of an entire industry in
Ukraine, namely, the industry of high technologies. The destruction of
old business principles and the long and often contradictory path of dem-
ocratic reform, as well as the strong intellectual and educational poten-
tial in Ukraine, led to the emergence of an IT market.
Market relations involve the development of those sectors of the econ-
omy whose products are competitive on the domestic market, and above
all on the foreign market. It is the presence of demand on the foreign
market, as well as the lack of direct dependence of such a business on
state regulators, that contributed to the rapid development of the indus-
try. Also, one of the reasons for the active infusion of new intellectual
forces into the industry was the volatility of the national currency, the
rapid spin-off declines in real incomes of citizens in other sectors of the
economy and, as a consequence, the desire of workers to get honestly
earned money for their work in dollar terms.

116
Table 3.11. Ukraine’s rating in some areas (according to the Global Com-
petitiveness Report [2-9])

Years 2007 2008 2009 2010 2011 2012 2013 2014 2015
Global Competitiveness
72 82 89 82 73 84 76 79 85
Index
1 st pillar: Institutions 115 120 134 131 132 137 130 130 129
1.02 Intellectual property
* * * * 120 133 129 120 125
protection
1.21 Strength of investor
* * * * 141 100 105 95 79
protection
2nd pillar: Infrastructure 79 78 68 71 65 68 68 69 75
3rd pillar: Macroeconomic
91 106 132 112 90 107 105 134 128
environment
3.03 Inflation, annual % * * * * 107 1 75 134 136
8th pillar: Financial mar-
85 106 119 116 114 117 107 121 130
ket development
8.01 Availability of finan-
* * * * 113 109 102 101 112
cial services
8.06 Soundness of banks * * * * 142 143 138 140 138
Rank out of 134 133 139 142 144 148 144 140 138
Notes: * – missing data, based on materials [6-9]

For many objective and subjective reasons, the analysis of which is not
the purpose of the proposed study and is, apparently, extremely complex,
Ukraine has been continuing to lose its position in world developmental
rankings in recent years. Thus, after analyzing the data of the World Eco-
nomic Forum for 2011-2015 (see Table 3.11), we can conclude that Ukraine
cannot rise to the first hundred of the rated countries (only 133-124 coun-
tries in the world in different years submit data for rating). A large num-
ber of significant indicators from the survey perspective remain in the
downward trend (see Table 3.11).
So, Ukraine, having ranked 72 in the Global Competitiveness Index
from 134 indexed countries, already in 2015 lowered its performance and
ranked only 85th among 138 countries. In the category «Institutions» dur-
ing the same years, Ukraine’s position moved from 115 to 129. The state
of affairs with the reliability of banks is catastrophic. According to the
same data, Ukraine in recent years occupies the last or one of the last
three positions (142 out of 144 in 2011 and 138 out of 138 in 2015). The
same situation in 2014 and 2015 is observed with the inflation index: 134
(out of 140) and 136 (out of 138), respectively. The 3rd pillar index is con-
sistently low: Macroeconomic environment: Ukraine moved from 91 posi-
tions (out of 141) to 134 positions in 2011, and slightly improved its per-
formance in 2015 (128 out of 138).

117
Table 3.12. Ukraine’s rating in some areas (according to the Global Com-
petitiveness Report [2-9])

2007 2008 2009 2010 2011 2012 2013 2014 2015

4th pillar: Health and primary
60 68 66 74 62 62 43 45 54
education
4.09 Quality of primary education * * * * 44 37 40 45 51
4.10 Primary education enroll-
* * * * 90 94 31 33 57
ment, net %*
5th pillar: Higher education and
43 46 46 51 47 43 40 34 33
training
5.01 Secondary education enroll-
* * * * 49 54 41 39 53
ment, gross %*
5.02 Tertiary education enroll-
* * * * 10 10 13 14 11
ment, gross %*
5.03 Quality of the education
* * * * 70 79 72 54 56
system
5.04 Quality of math and science
* * * * 34 28 30 38 27
education
5.05 Quality of management
* * * * 117 115 88 87 93
schools
5.06 Internet access in schools * * * * 62 70 67 44 35
5.07 Availability of research and
* * * * 98 92 84 78 77
training services
5.08 Extent of staff training * * * * 106 103 92 74 94
Rank out of 134 133 139 142 144 148 144 140 138
Notes: * – missing data, based on materials [6-9]

Significantly better, although far from desirable, is the situation with

regard to indicators related to education (see Table 3.12). Ukraine’s high-
est rating for 2015 has risen, ranking 11th, compared to all others, with
only a percentage of Tertiary education enrollment. The relatively high
position (27th position), with a tendency for improvement (34 th position
in 2011) is ranked by Ukraine in Quality of math and science education
rating. However, in general, the quality of the educational system, with
a tendency to improve (70 and 56 positions in 2011 and 2015, respec-
tively), is at a rather low level. It’s hard to imagine that in the center of
Europe there is a country in which Internet access in schools is worse
than in 34 countries of the world. True, in 2012 Internet access in schools
was better in 69 countries.

118
Table 3.13. The most problematic factors for doing business (according
to the Global Competitiveness Report [2-9])

The most problematic fac-

2007 2008 2009 2010 2011 2012 2013 2014 2015
tors for doing business
Corruption 8,80 10,3 13,9 16 14 15,5 17,8 16,6 14
Policy instability 15,40 16,5 15,6 6,6 6,2 10,1 14 10,6 13,2
Tax rates 13,40 3,9 8,4 9,3 10,5 8,4 7,7 8,1 7,3
Inflation 13,60 8,4 8,8 7,6 6,6 3,7 8 11,5 11,9
Inefficient government
4,60 8,2 8,8 10,3 7,9 13,4 8,8 8 11,4
bureaucracy
Access to financing 8,50 13,5 10,8 13,6 15,3 16,7 13,9 12,2 11,2
Government instabil-
7,00 9,8 9,5 5,1 3,4 3,5 10,5 6,4 8,2
ity/coups
Tax regulations 6,70 10,1 9,6 14,4 13,6 11 4,3 7,9 6,8
Foreign currency regula-
tions Foreign currency 2,10 6,5 2,8 2,8 1,8 4,2 4,1 7,1 4,5
regulations
Inadequate supply of in-
* 1 1,5 2,8 3 2,2 1,7 1,8 2,7
frastructure
Restrictive labor regula-
2,30 3,40 2,8 4,8 7,9 1,9 3,4 3,1 2,5
tions
Insufficient capacity to
* * * * 1,6 4,1 1,8 2,3 1,6
innovate
Crime and theft 1,90 2,6 2,5 3,5 3,6 2,5 1,7 1,4 1,6
Poor work ethic in na-
5,70 2,5 1,8 0,8 1,9 0,6 0,6 0,9 1,5
tional labor force
Poor public health 3,60 1,2 2,8 1,3 1,3 1,3 1,1 1,1 1,3
Inadequately educated
3,40 2,2 1,4 1,2 1,4 0,8 0,8 0,9 0,5
workforce
Notes: * – missing data, based on materials [6-9]

Thus, for many years the level of education of Ukrainian citizens has
been significantly outpacing the level of economic development of the
state. This, according to the authors, has become one of the most im-
portant factors in the rapid development of the branch of economy that
was able to develop, being at least dependent on the economic and polit-
ical situation; level of corruption, inefficiency of management, problems
of tax regulation, etc. (see Table 3.13).
That is why, according to the authors, the development of the IT mar-
ket began in Ukraine with outsourcing. And in a few years, some IT out-
sourcing companies based in Ukraine have grown to technological giants
with offices around the world. Among these companies are Ciklum,
DataArt, Infopulse, Lohika, Miratech, SoftServe. An example of rapid
growth is AOG – a service IT company from Cherkasy, which attracted
119
about 5,000 freelance engineers in less than three years of operation.
Over the past 15 years, overseas outsourcing companies such as EPAM,
GlobalLogic, Luxoft have created several offices in Ukraine that are now
at the positions of the main R & D hubs (centers) for these global IT ser-
vice providers. All outsourcing companies employ more than 50,000 engi-
neers (about 60% of all engineers) living in Ukraine [10].
In 2016, more than 1000 large enough IT companies are officially reg-
istered in Ukraine. Among them, as well as taking into account small
enterprises, as of January 2015, according to the classification of types
of economic activity in Ukraine, 8 371 IT enterprises were working. In
particular, 479 were working on software publishing, 4890 were working
on computer programming, consulting and related activities, 1193 com-
panies were working on data processing, web site information placing
and related activities, and web portals [11]. Ukrainian software compa-
nies offer virtually all possible software services, not limited to software
development, web and mobile applications development, testing and
quality testing, outsourcing of business processes, outsourcing of special
teams, research and development services, IT consulting, management
with IT security. Most of the major outsourcing companies in Ukraine
offer a full range of solutions in various diverse industries. Smaller com-
panies tend to focus on a few services, in particular on web design and
design, mobile applications development and testing, and more [12].
With regard to total income and taxes paid to the budget, there are
enough diverse data. But, according to [13], already in 2014 IT compa-
nies paid UAH 2 billion to the budget, as well as UAH 1 billion. paid by
IT professional engineers (PEs). According to the World Bank, in 2014,
private entrepreneurs involved in the IT sector received revenue of 18.1
billion UAH. The same source argues that the export of information and
communication technology products ranked third in the amount of $5
billion in the overall ranking of Ukrainian exporters after the agrarian
sector and metallurgy ($17 and $14.3 billion, respectively). By 2020, out-
put of ICTs production is expected to be second in exports, leaving only
agricultural products ahead [12].
According to data [15], shown in the following graphs, the dynamics
the growth of exports of services and the export of computer services in
Ukraine, as well as the dynamics of the growth of the Ukrainian IT in-
dustry market, illustrate that the share of exports of intellectual tech-
nologies in 2015 is already 25% of total exports services of Ukraine, and
the increase of market growth in 2014 and 2015 in percentage terms is
equal to 175% and 196% respectively. This is at the time when Ukraine

120
is in a war and poor conditions for doing business in almost all industries
at best do not fall.

15000,00

10000,00

5000,00

0,00
2008 2009 2010 2011 2012 2013 2014 2015

Export of services, mill. $ Export of computer services, mill. $

Figure 3.5. Dynamics of Ukrainian export of services

and export of computer services

Thus, the percentage of exports of the computer service from the total
exports of services for 8 years has increased from 2.41% to 25.68%, that
is, more than in ten times (fig. 3.6).

Figure 3.6. Dynamics of growth of the percentage of exports from the

computer ambassador from the total exports of services

The IT industry also performs an extremely important function,

namely the provision of skilled workers. The percentage of people em-
ployed in this area among the economically active working population
has increased from 2014 to 2016 from 0.39% to 0.56% [11], [16]
(fig. 3.7).

121
2016

2015

2014

2013

0 20000 40000 60000 80000 100000

Figure 3.7. Growth of regular industry workers

The positive dynamics of growth, which today is more than 100 en-
terprises, is shown by R & D centers, which carry out research work. The
dissemination of high-value R & D (international development and re-
search centers) services has increased substantially, especially in recent
years, in industry profits. According to the forecasts of the head of the IT
Association of Ukraine, Victor Valiev, such services may account for up
to 20% of Ukrainian IT exports in 5 years [14].
Ukraine is becoming more and more powerful in the global arena as a
technology development center. Such international giants as Aricent, Boe-
ing, Ericsson, Huawei, Oracle, Siemens and Teleperformance are just
some of those who have chosen Ukraine as one of their R & D centers.
These companies are working on innovative products in all the well-
known industries, such as e-commerce, software, cloud environments, se-
curity, healthcare, finance, transportation, retailing, telecommunications,
etc. Other international companies such as Cisco, HP, Microsoft, and
Google do not have R & D centers in Ukraine, but they have long-term
relationships with the leading software developers from Ukraine.
Experience in outsourcing has become the basis for the beginning of
rapid startup development in Ukraine. Among these internationally-ori-
ented startups there are BPMOnline, DepositPhotos, Grammarly, Invisi-
bleCRM, Jooble, Looksery (Snapchat in September 2015), MacPaw, Pay-
mentwall, Readdle, Starwind Software, and others. Some of them, such as
Paywall and Grammarly, have grown into global companies, leaving their
main R & D offices in Ukraine, that is, in the country of their creation.
The range of international funds in Ukraine includes, but is not limited to,
corporations such as Almaz Capital, the EBRD, Intel Capital, Horizon Cap-
ital, Naspers, and local players such as AVentures Capital and TA Ventures
[15]. Beginning its activities solely from outsourcing, by 2015, the share of
companies engaged in product development has grown to 28.5%, and com-
panies – start up more than 4.5% (fig. 3.8).

122
 Figure 3.7. Distribution of the type of IT companies (in%) as of 2015

The level of qualifications of the employees covered by the IT industry

in comparison with other leading countries is very high. This is evi-
denced by the following facts. Software developers accounted for more
than 50% in 2015. 87% of all employees in the field have higher educa-
tion, including 64% in programming or exact sciences (mathematics,
physics), 10% in economics or management, and 12% in other fields (de-
sign, applied linguistics, etc.). And only 3% have a secondary or second-
ary special education.
An important factor in the growth of the IT industry in Ukraine is the
breadth of localization of enterprises. Although 86% of all programmers
work in one of five cities: Kyiv, Kharkiv, Lviv, Dnipro and Odessa, how-
ever, all regions are covered in essence. High growth rates are demon-
strated by Kyiv (more than half of all programmers) and Lviv. Distribu-
tion of employees by regions is reported by [16] as of 2015.
Prospects for the development of the information technology market
can also be outlined on the basis of certain indices of the Global Compet-
itiveness Index (see Table 3.14) and other macroeconomic indicators. In
terms of exports, as a percentage of GDP, Ukraine occupied the 27th po-
sition in 2015 (for comparison, in 2012 it ranked 50th in the ranking). As
already mentioned above, export to Ukraine is growing at the expense of
the IT technology market.
The years of outsourcing have provided IT professionals with a high
level of professionalism and willingness to innovate in the Ukrainian
economy. After a sharp fall in 2015, there is a rise in the rating list for
such an index as «Technological readiness», in particular: «Availability
of the latest technologies», «Firm-level technology absorbtion», «Individ-
uals using the Internet». Indices such as «Capacity for innovation»,
«Quality of scientific research institutions», «Gov’t procurement of ad-
vanced tech product» are growing. It is extremely important that the IT
business has significantly changed its policy towards research develop-
ment. Ukraine has risen significantly in the ratings of the indexes
«Company spending on R & D» and «University-industry cooperation in
R & D». For 2014-2015, Ukraine returned its five years ago positions

123
with the index «Availability of scientists and engineers» and ranked 29th
in the rating. We are witnessing a transition in the prospects of intellec-
tual work in Ukraine. It is the work of the IT industry that satisfies the
growing need of young Ukrainian citizens in paid intellectual work.
Therefore, over the past few years, (82%) the choice in favor of work in
IT (82%) is so high.

Table 3.14. Ukraine’s rating in some areas (according to the Global Com-
petitiveness Report [2-9])

2007 2008 2009 2010 2011 2012 2013 2014 2015

9th pillar: Technological readiness 65 80 83 82 81 94 85 86 85
9.01 Availability of latest technol-
* * * * 80 106 113 96 93
ogies
9.02 Firm-level technology absorp-
* * * * 69 100 100 100 74
tion
9.03 FDI and technology transfer * * * * 109 131 127 117 115
9.04 Individuals using Internet, %* * * * * 88 93 82 80 80
10th pillar: Market size 31 29 38 38 38 38 38 45 47
10.03 GDP (PPP$ billions)* * * * * * 38 41 47 48
10.04 Exports as a percentage of
* * * * * 50 54 41 27
GDP*
12th pillar: Innovation 52 62 63 74 71 93 81 54 52
12.01 Capacity for innovation * * * * 58 100 82 52 49
12.02 Quality of scientific re-
* * * * 64 69 67 43 50
search institutions
12.03 Company spending on R&D * * * * 104 112 66 54 68
12.04 University-industry collabo-
* * * * 69 77 74 74 57
ration in R&D
12.05 Gov’t procurement of ad-
* * * * 97 118 123 98 82
vanced tech product
12.06 Availability of scientists and
* * * * 25 46 48 29 29
engineers
12.07 PCT patents, applica-
* * * * 51 52 52 50 49
tions/million pop.*
Rank out of 134 133 139 142 144 148 144 140 138
Notes: * – missing data, based on materials [6-9]

In 2016, 8188 questionnaires were collected, that is, every 12 th spe-

cialist of IT industry of Ukraine took part in the survey. To the question
«If you should not have to make money, then you would» 43% of the par-
ticipants of the Internet survey among IT employees said that they
would continue to work, but fewer hours; 37% would continue to work
for pleasure and 13% would do the rest, but IT.

124
 In this study it is not possible to ignore the results of PwC experts’
research, which they performed by commission of the European Business
Association. The result of this study was, for example, the following
facts: over the past four years, IT’s contribution to Ukraine’s GDP has
increased from 0.6 to 3.3 percent (from 1.1 to 2.7 billion dollars), that is,
more than in 5 times; the number of programmers has increased from
42.4 thousand to 91.7 thousand people. The development of this industry
also has a great positive impact on the banking system of the state. In
particular, the volume of mandatory sale of foreign exchange earnings is
2 billion hryvnia, and deposits of IT specialists in Ukrainian banks last
year amounted to 5.8 billion hryvnia. In general, as analysts say, 19% of
highly skilled professionals provide 41% in the structure of value crea-
tion. While maintaining the current tax rate, the state budget revenues
in 2020 will amount to UAH 21 billion [18].
One of the problems with the development of the IT market is that IT
professionals can easily find employment abroad. Over the past 12
months, from 2 to 5 thousand programmers left. The probable liberali-
zation of the labor market with the European Union, the introduction of
a visa free regime may accelerate the emigration process like the one
observed in Poland and the Baltic States in 2007-2012. Due to the lack
of modernization of education and the improvement of the status of its
employees, a rapid decline in the level of training of future employees, in
particular the IT industry, may start. Understanding of this circum-
stance has already prompted a number of companies, as mentioned ear-
lier, to begin the creation of a network of educational institutions of the
appropriate direction. But to provide all the educational needs of these
capacities will not be enough. The development of the IT market is also
very sensitive to the tax burden on the industry.
Ukraine has good reasons to rely on the stable and rapid growth of
the IT market. The key to growth of the industry is to provide a comfort-
able tax, legal, medical and educational system, a free and open market
and, of course, to eliminate external threats. The only way to achieve the
described state is to eliminate the most problematic factors in doing busi-
ness. According to the CEF, in 2015, corruption (with an index of 14%)
and political instability (with a rate of 13.2%) remained (see Table 3.13).
Despite the negative tendencies in the dynamics of the Ukrainian eco-
nomic development level in general, the IT industry is the one showing
rapid growth. Over the past two decades, Ukraine:
- entered the Top 5 world freelance locations, Top 10 countries with
the most professional IT specialists;
- -takes 11 positions in the Top 100 among outsourcing and high-
tech countries;

125
 - has the best security specialists and ets.
There is a slow growth the indicators of the penetration level into
other sectors of the national economy of the information technology. The
enterprises which develop the final product grow in number and quality.
The result of the study is a dynamic analysis of the development level
and the growth potential of the Ukrainian society information processes
within international rankings.
It is concluded that the preconditions for IT industry growth are:
- high level of primary, secondary and higher education;
- renewal of a high level of natural and mathematical training of
specialists;
- incentive tax policy;
- development of state and non-state research centers;
- the wide implementation of information technologies in the public
sector.
Further research will be devoted to the comparative analysis of the
indices (according to the World Economic Forum) of the top 5 countries
with the most developed IT industry and Ukraine. Formulation of possi-
ble perspectives of IT industry development in the context of state policy
to strengthen Ukraine’s position in international ratings.

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1475319474.html.

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 Section 4

Features of innovative development

of separate regions in Ukraine

4.1. Formation of the innovative development potential

in mountainous area of Lviv region

Komarnytskyy I.M., Komarnitska G.А.

The mountainous areas of Lviv region, in particular, the Ukrainian

Carpathian Mountains, have an important natural and cultural heritage
and maintain the stability of the eco-system on the neighboring territo-
ries. However, the mountainous areas face the challenges in their eco-
nomic and social growth due to the complicated natural conditions that
are not favorable for the economic development of the population and
require a special regional development policy. The economic crisis in our
country led to particularly acute social problems of the population inhab-
iting the mountainous areas: unemployment, small areas of the agricul-
tural land, a specific character of life in the mountains, unequal distri-
bution of funds to the social and humanitarian sphere.
The theoretical and applied grounds of the mountainous areas devel-
opment have been studied both by the foreign and domestic scholars, in
particular, such as J. Forrester, L. Velukhov, H. Lappo, V. Nudelman,
B. Khorev, І. Ilin, Ye. Pitiurenko, P. Kovalenko, І. Komarnytskyy,
Т. Kachala, L. Shevchuk, S. Shults, etc.
In spite of the investigations made, there remain understudied the
approaches to the formation of the innovative development potential
within the context of the provision of the innovative changes, by means
of interference of the social and humanitarian policies of the state.
The analysis of the foreign experience of formation and implementa-
tion of policy focused on the development of the mountainous areas is
based on different approaches. In particular, according to the Swiss leg-
islation, the mountainous areas development delay was supposed to be
overcome primarily through the transport network infrastructure devel-
opment. However, since 2008 the approach that was thought to be much
too expensive, has been changed. Now the emphasis is laid on the devel-
opment of regional (cantonal) policies that may receive financial assis-
tance on the part of the federal government.

128
 In Austria, the mountainous regions development facilitation is based
on maintenance of industries that are important for their economy (of
course it includes the agriculture) and only in the regions that are rela-
tively under-developed.
In Germany (Bavaria) there have been developed the programs to fa-
vor the mountainous territories development, which include the devel-
opment of tourism, agricultural industries as well as promotion of the
investment projects in the production sector.
Mountainous regions in Sweden receive general and special economic
support. The general support includes the provision of benefits for unfa-
vorable geographic arrangement in the form of transport grant (up to
40% of transport costs for the companies operating in mountainous re-
gions) and provision of incentives to entrepreneurship by decreasing of
payroll tax expense.
The special support is carried out through the investment subsidies
as investment in buildings, equipment, education, consulting services (a
number of subsidies may reach 50% of the approved investment, that is
the investment in objects, measures, included in the program of regional
development) and subsidies of the employment incentives, available to
firms for creating new vacancies.
Considerable is the experience of maintaining of the mountainous
and remote territories development in Canada and the USA. In particu-
lar, commencing from the 1960s there were introduced in Canada the
tax incentives for investment in the basic capital of the regions with high
level of unemployment.
The present-day programs of regional development in Canada are fo-
cused on immunity grant (including tax, credit etc.) to small and medium
enterprises as the main sector of economic development.
Economically problematic territories, which include a lot of moun-
tainous regions, receive federal and regional (state) support of the US
development: grants programs with participation of the federal support
(up to 50% of the project cost), credit support, tax incentives, boost in
amortization rate.
Actually, most of the countries with mountainous territories use the
strategies concentrated on the compensation of influence of negative con-
ditions in mountainous territories through production grant, investment
assistance, granting of benefits to the manufacturers.
The provision of the integral approach to the steady development prob-
lems settlement in the Carpathian region of Europe is seen through the
development of separate policy, focused directly on the mountainous ter-
ritories, with consideration of its principles in the national and regional
development strategies and programs for their implementation.

129
 Recommendation 296 (2010) of the Congress of Local and Regional
Authorities of the Council of Europe «Steady development of mountain-
ous regions and experience of the Carpathian Mountains» calls for this.
In Ukraine, there has been developing the Macro-regional strategy of
Carpathian development, which will offer this territory the possibilities
for taking measures directed to the specific needs of the region. The macro-
regional strategy of Carpathian region includes three main priorities:
1. The competitive Carpathian Mountains. The activity offered in the
strategy is focused on strengthening of economic cooperation in the stra-
tegic macro-regional sectors: environmental industry, developed tourism
and competitive agro-industrial sector through the development of clus-
ters, development of value-added chain and construction of the macro-
regional innovative eco-systems. The measures of strategy should be fo-
cused on the effective use of local resources and consider the potential of
less developed territories for the improvement of the competitiveness of
the whole region;
2. Green Carpathians. The strategy foresees the protection of environ-
ment and activities on ecological education. Ecological projects, protection
of the cultural heritage, development of Carpathian regional brand also
makes the region more attractive for the tourism development;
3. Joint Carpathian Mountains. Activities directed to the improve-
ment of Carpathian accessibility – comfortable transport, social and dig-
ital infrastructure.
The similar approaches are used in Ukraine in the development of
the same documents. According to the Resolution of the Cabinet of Min-
isters of Ukraine as of 21.09.2011 No. 896-р the central and regional au-
thorities were entrusted to develop the draft of the State Steady Devel-
opment Program of the Ukrainian Carpathian Mountains as a compo-
nent part of the EU program «Carpathian space» [6].
The delay of the program adoption by the European Union delayed
the process of the development and adoption of the corresponding na-
tional program. At the same time the need for targeted program ap-
proach to a solution of tasks of economic and social development of the
mountainous territories, saving of their ecological potential holds sway.
The economic development indices of the mountainous territories are
several times lower than the average indices in the region and the coun-
try. It has been stipulated by the complicated conditions of running a
business in the mountainous area and narrowing of a sectoral and in-
dustrial structure of the economy, low level of transport and engineering
infrastructure development, the absence of effective tools of government
support to maintain the economy of the mountainous regions, which is
mainly depressive by its nature.

130
 The state of economic development caused the problems related to
employment of the local population, among which the acutest ones are
unemployment and hypertrophic external labor migration.
As a result, the level of life of people inhabiting the mountainous ter-
ritories of the Carpathian Mountains remains low, the social and demo-
graphic problems become even acuter – depopulation, social degradation,
washing out of the intellectual potential, threatening to lose the cultural
heritage of mountain dwellers [3].
SWOT-analysis of the mountainous territories development (Ta-
bles 4.1, 4.2 and 4.3) visually demonstrates their main weaknesses and
strengths, as well as risks and possibilities for the development.

Table 4.1. SWOT-analysis of the key spheres of the mountainous terri-

tories development. Economic development

Strong points Weaknesses

Availability of land resources for the cre- Lack of investment resources for the devel-
ation of new enterprises opment of the economy in the region
Possibilities Threats
Starting of new enterprises within the Unsustainable legislation and taxation
framework of the projects’ implementa- system
tion
Source: developed by authors

Table 4.2. SWOT-analysis of the key spheres of the mountainous terri-

tories development. Engineering infrastructure

Strong points Weaknesses

1. Development of residential 1. Poor quality of road surface.
buildings 2. Nonscheduled transport connection with re-
2. The readiness of the city au- mote villages.
thorities to solve the problems in 3. Substantial wear of the means of transport.
the sphere of communal infrastruc- 4. Substantial wear of the main networks of heat
ture development. and water supply as well as a water drain.
5. The population is not satisfied with the level of
housing and public utility services
Possibilities Threats
1. Improvement of road condi- 1. Worsening of the communal infrastructure
tions. state of the region.
2. Improvement of the transport 2. Limited experience and knowledgeability in
connection. attraction of the domestic funds or financial assis-
3. Renewal of the means of tance of foreign funds
transport, construction of new net-
works of water and gas supply
Source: developed by authors

131
Table 4.3. SWOT-analysis of the key spheres of the mountainous terri-
tories development. Social infrastructure

Strong points Weaknesses

1. Developed social infrastructure net- 1. The unsatisfactory material-and-tech-
work nical condition of the social infrastructure
2. High professional, educational, cul- objects.
tural level of the population. 2. Underfunding of cultural, medical, edu-
3. Availability of health-improving and cational and sports institutions.
recreational potential. 3. Poor level and quality of social and medi-
4. Availability of cultural heritage objects cal services provision, insufficient supply of
medical establishments with modern diag-
nostic and treatment equipment and high-
quality drugs.
4. Personnel deficiency for cultural, medical,
educational and sports institutions
Possibilities Threats
1. The attraction of small and medium 1. Unsustainable legislation and taxation
enterprises to the settlement of social system.
problems of the region.
2. Creation of conditions for studying and
retraining of workforce.
3. Improvement of primary medical assis-
tance to the population.
4. Improvement of public health and pre-
vention of diseases.
5. Complete computerization of the edu-
cational establishments.
6. Promotion of architectural and histori-
cal objects, the organization of different
festivals, exhibitions and sports events
Source: developed by authors

Common problems of mountainous territories– insufficient business

development and low investment attractiveness, transport, road infra-
structure, and ecological problems.
Economic, social and ecological problems and ways of their settlement
are interconnected. These problems should be settled by public and local
authorities, business entities, research institution, public organizations
and citizens of the region. It is important to use the possibilities of trans-
border and international cooperation that will be provided by participa-
tion in the European programs of territorial cooperation. Complex set-
tlement of issues with the broad participation of all interested parties is
possible in case of development, adoption, and execution of the target
Programs of the mountainous territories development in Lviv region.
Low level of development and effectiveness of the institutional bodies,
the absence of appropriate road and transport connection, sufficient

132
number of objects of the market, financial, social and informational in-
frastructure.
The level of the institutional environment development in the moun-
tainous regions does not meet the up-to-date requirements and objective
needs of business entities. High-quality support and business mainte-
nance services, improvement of access to the resources and markets may
be received by the entrepreneurs only in the regional and district cen-
ters, big cities. On the territories of the districts, there are no business
incubators, business support centers, there are underused such institu-
tional instruments of the small and medium enterprises development
promotion as the regional and local development agencies;
7. Problems of formation, development, and reproduction of the hu-
man capital.
Worsening of social and economic development of mountainous areas
in Lviv region inspires local population, first of all, the youth, to go
abroad and move to big cities and work there. It happens because the
payroll rate is much higher, the labour market is more saturated, there
is developed infrastructure and better living conditions. It complicates
the formation and effective use of intelligent and workforce capacity of
small and medium enterprises of mountainous regions.
Let’s analyze the results of the problem sociology studies. In order to
detect the reasons causing the above-mentioned problem, as well as key-
obstacles and promising directions and means that favor small and me-
dium enterprises development located in the mountainous areas of Lviv
region there was held an opinion poll of these subjects’ representatives,
carrying out their activity on the territory of the regions.
The opinion poll was held in June 2017. There were interrogated 85
respondents that make above 2% of the total amount of those involved
in small and medium enterprises in the analyzed regions.
There has been established that the main (the most problematic as-
pects of functioning and development of small and medium enterprises
subsequent to the ranging results) problems of mountainous areas of
Lviv region in the year 2017 have been as follows:
- Firstly, absence (insufficient amount) of financial, investment and
resources’ provision. Within the structure of this the most up-to-date
problem for the development of small and medium enterprises in moun-
tainous areas of Lviv region there have been determined the most sub-
stantial defects:
- the high cost of bank crediting;
- the absence of financially capable investors;
- insufficient financial state and limitation of own financial re-
sources of small and medium enterprises;

133
 - Secondly, worsening of human capital, lack of skills, necessary to
start and carry out business activity because of poor working conditions,
caused inappropriate condition of personal service facility of the popula-
tion and social infrastructure, low level of job prestige in a village, limi-
tation of profits of the rural population, worsening of cultural objects and
insufficient condition of the rural medicine infrastructure, high level of
unemployment, worsening of ecological situation and environment pro-
tection state;
- thirdly, unfavorable business environment on the territory of
mountainous regions (limitation of demand, resources, investments, ne-
glect of infrastructure, insufficiency of social and living conditions) and
absence of formed efficient economic stimuli to formation and develop-
ment of investment activity of small and medium enterprises, attraction
of funds owned by population and external migrant workers for the in-
vestment purposes.
Within the structure of business environment defects of the moun-
tainous areas of the region the most problematic aspects remain the fol-
lowing:
- underdevelopment of the territory infrastructure;
- insufficient amount of financial infrastructure objects;
- unformed market infrastructure;
- undeveloped internal market of the region.
On the territory of mountainous areas of the region, there is actually
carried out no activity directed to the formation and financing of invest-
ment, innovative and other small and medium enterprises development
funds, maintenance of functioning and further development of the in-
vestment entrepreneurial infrastructure.
The economic and physiological stimuli as well as mechanisms of at-
tracting monetary funds of migrant workers into business development
are insufficient. In spite of the substantial amount of cash transfers
which exceed a number of investments that come to the economy of the
mountainous areas, migrant workers mainly spend their funds to buy
real estate, vehicles, longstanding objects) to pay for their children’s ed-
ucation. However, there no effective mechanisms to start own business
by the migrant workers, which is in most cases stipulated by low level of
trust to the public and private institutions, insufficient level of the in-
vestors’ rights protection, higher risks of running a business, high trans-
actional costs;
- Fourthly, insufficient statutory regulation of the entrepreneurial
activity:
- availability of preferences for separate business entities or selec-
tive administrative discrimination;

134
 - presence of express prohibition or restrictions for the business;
- the excessive regulatory pressure of separate permissible and
other procedures;
- Fifthly, low level of efficacy and effectiveness of the regional and
local strategies and programs maintaining small and medium enter-
prises, their focus on the realization of a significant amount of events
that are servicing not investing by their nature that is mainly imple-
mented in the center of the region. Low level of program effectiveness
especially those supporting small and medium enterprises stipulated by
their mainly declarative character, absence of specific events directed to
the creation of new enterprises or development of the existing ones,
starting new kinds of business activity, as well as not taking into consid-
eration the specific feature of each territory development;
- Sixthly, the absence of effective institutions and mechanisms of
financial and crediting, investment and informational provision, crea-
tion, and development of cooperative relations between the small and
medium business entities.
The obstacles on the path of cooperative relations development of
small and medium enterprises are stipulated by both objective (presence
of institutional barriers, insufficient amount of financial, crediting and
investment provision), and subjective factors (incomprehension by the
head of the enterprises the expediency and economic necessity of cooper-
ation, insufficient amount of psychological stimuli to cooperation). The
cooperation development is also hindered by the insufficient informa-
tional support of development and promotion of its advantages, the un-
willingness of the entrepreneurs to take additional risks, lose part of
control over the business processes and the necessity to agree on the
adoption of management decisions.
Cooperative movement among the small and medium manufacturers
one of the most effective European tools of the steady development.
Through the cooperation system, the small producer may receive state
support, donor assistance and access to credit resources. In this regard,
it is worth adopting the methods on how to create the cooperatives from
the USA, Canada, China, Korea and countries of the EU. In particular,
it refers to the process of attracting the agricultural products of small
producers into the economic circulation. It is reasonable to start the sim-
ilar initiatives within the limits of the strategies of social and economic
development of mountainous areas of the region, as well as regional and
local programs of small and medium enterprises support;
Seventhly, unformed positive economic and legal environment for the
commercial economic activity.

135
 Weak policy effectiveness of regional and local authorities, as well as
self-government bodies oriented to the development of small and me-
dium enterprises, is to a considerable extent stipulated by a low level of
attraction of its representatives to the settlement of the territories de-
velopment issues.
The level of attracting funds from the International programs of tech-
nical assistance with the purpose of development of small and medium
enterprises is insignificant. At present, the local state administrations
and self-government bodies do not provide a system promotion of activity
in this direction that is why the implementation of the uncoordinated
projects and events within the limits of the entrepreneurship support
programs for a minor amount are unable to qualitatively improve the
situation regarding the development of small and medium enterprises.
Within the structure of the kinds of economic activity the highest po-
tential among the small and medium enterprises development has the
tourism (49,8% in the structure of respondents’ opinion), hotel and ca-
tering business (24,8%), agriculture and forest industry (8,2%), trade
(7,5%), services (6,0%) [1].
The most promising directions for the development and business ef-
fectiveness increase in mountainous areas of the region according to the
respondents are as follows:
- opening of new business objects (26,3%);
- starting new business including those at the expenses of the mi-
grant workers (19,2%);
- creation of clusters (other local integrated structures) (17,2%);
- start and extension the cooperation practice (15,1%);
- creation of new small and medium enterprises (11,1%);
- the increase of the amount of employed in small and medium busi-
ness sector (8,1%) [7].
In the rating of social and economic development of the districts of
Lviv regions, which is calculated by the regional state administration on
a monthly basis, the mountainous territories are constantly in the sec-
ond part except for Skole district, which due to attraction of big taxpay-
ers («ОККО») has strong financial performance – in 2017 the rating po-
sition of the district has significantly improved.
The industry, investment development and support of entrepreneur-
ial initiative in the mountainous territories remain problematic.
Mountainous areas of Lviv region are characterized by the lower level
of social and economic development in comparison with the center of the
region and more industrially developed territories of the region (Ta-
ble 4.4) [4].

136
Table 4.4. Comparative characteristics of separate indicators of social
and economic development of Lviv region, its mountainous and other dis-
tricts, 01.01.2017

Sold production of Retail sales vol- Main capital in- Number of en-
industry per unit ume per unit of vestments per terprises per
Territory
of population, population, unit of population, 1 thousand of
thousand, UAH thousand, UAH thousand, UAH people, units.
Lviv region 26,8 3,1 6,8 6,2
Mountainous
2,7 0,7 1,3 1,9
districts
Other districts
25,8 1,4 5,6 4,1
of the region

The objective reasons of such condition is the lower financial and

investment provision because of territorial remoteness from the center
of the region, specific feature of the economic structure, stipulated by
relief and natural-climatic peculiarities, lack of labour force (especially
those with blue-collar occupation) due to in immediate proximity to the
border and high level of labour migration of the population, incorrect use
of the territory development potential, including by implementation of
business projects by small and medium enterprises.
In order to receive the possibility of the investment project financing
and attraction of new investors, it is necessary to enlarge the investment
objects database. As of 01.07.2017 among over 700 investment objects of
Lviv region that are publicly available on the website of Lviv Regional
State Administration, only there were 109 objects that are placed imme-
diately in the mountainous districts. Drohobych district is the most ac-
tive among those promoting own investment opportunities, which pro-
vided the information that it has 35 objects, the least active is Skole dis-
trict (16 objects) [7].
In order to create favorable environment for the development of small
and medium enterprises and attraction of investments into the develop-
ment of mountainous areas of Lviv region it is necessary to take the fol-
lowing measures:
Towards the improvement of financial and resource provision:
- intensify efforts to attract enterprises to be financed within the
frameworks of the micro lending Program directed to the increase of
competitiveness of Lviv region;
- intensify activity to attract and implement EU grant programs on
the territory of the districts as the sources of financial assistance for
small and medium enterprises development (valid and potentially at-
tractive are as the following programs: Horizon2020 (financing of

137
research projects focused on the development of small and medium
enterprises), Competitiveness of Small and Medium Enterprises (pro-
gram aimed to increase the level of small and medium enterprises com-
petitiveness, access to new markets, preservation of the companies sta-
bility in the competitive business environment, development of entrepre-
neurial culture), LIFE (program in the sphere of protection of the envi-
ronment), Pericles 2020 (project of the experts exchange), Poland-Bela-
rus-Ukraine Programme, Hungary-Slovakia-Romania-Ukraine Pro-
gramme, Romania-Ukraine Programme, Black Sea Programme (trans-
border programs directed to the development of cooperation between the
joint borders of the member- countries);
- initiate the support of financial and leasing programs of small and
medium enterprises development in the districts for modernization of
material and technical, technical and technological base of the real econ-
omy sector objects – small and medium enterprises with the possibility
of partial compensation of cost of the purchased equipment and tools at
the expenses of regional and local budgets; development of agrarian and
food markets, creation of storage points, purchase and processing of the
agricultural products;
Towards the improvement of business environment:
- provision of economic stimuli formation for the creation of local
integral industrial system, horizontal and vertical cooperation of small
and medium enterprises by means of formation of the database of typi-
cal business plans for the formation of the cooperatives in different kinds
of economic activity; organization of the periodic consulting schools busi-
ness trainings on organization and carrying out of cooperation activity;
organization and conducting the periodical trainings for the heads of the
companies (regarding registration, administration, bookkeeping, taxa-
tion); promotion and advertising of the cooperative movement among the
rural population in order to favor the entering of own farms into vertical
production and selling economic systems, promotion of the process of for-
mation of agricultural horizontally and vertically- integrated clusters;
- provide the information and consulting support of the population
on how to start own business, on how to improve social and psychologic,
organizational and professional environment of the business activity
through the district employment centers, local consulting, studying and
training for the rural population, provision of financial and organiza-
tional assistance by the organizations that carry out educational activi-
ties in the business area.
The particular advantages of mountainous regions are in the recrea-
tion resources of the mountainous territories, which primarily includes,
different mountain landscapes, a wide variety of healing mineral water,

138
favorable natural and climatic conditions, availability of many unique
natural, historic and cultural monuments, favorable ecological environ-
ment. All the above-mentioned presents wide development prospects in
the mountainous territories of tourist and recreation sector and its in-
vestment attractiveness, allows forming the tourist and recreational de-
velopment direction of the mountainous territories, focused on both in-
ternal and external needs. This branch will have a positive influence on
accompanying and neighboring industries of the agro-industrial complex
and folk craft.
The development of the tourism in the region will stimulate economic
activity, development of small and medium enterprises will favor the
creation of new workplaces in different sectors of the economy.
The peculiarity of the mountainous territories of Lviv region include
practically infinite possibilities for recreation, health improvement, and
tourism. The region has the unique possibilities for the development of
different types of tourism and sanatorium-and-health-resort sector.
Especially attractive for the tourists are expressed mountain ranges:
Verkhovynskyi, Vododilnyi, Rozlutskyi, Sianskyi, Vysokyi Verkh.
One of the most popular tourist trails through the mountain pass
«Ruska Put» leads to Pikui Mount. It is designed for pedestrian tourism,
which will not be difficult to cover 33 km in two days. The pedestrian
tourists will have to climb up to 852 m.
The picks of these mountain ranges, except for marvelous landscapes
have been eyewitnesses of numerous historical events.
The region is rich in mineral water springs (like «Nafrusia», «Sodova»,
«Zalizna» and «Esentuky»).
The key measures for the development of tourist potential of moun-
tainous territories include the improvement of accessibility and territory
promotion. The peculiar feature for the implementation of these
measures has an inter-branch character – as long as the construction of
the road infrastructure, promotion of the region is carried out within the
framework of multiple regional and local programs.
The development of mountainous territories should be focused on the
development of their social and economic infrastructure, provision of eco-
logical and social safety of the local population.
It is necessary to form the understanding of the mountainous policy
as the instrument for a complete realization of social-economic problems
of the population living in the mountainous regions. The basis for this
policy is the definition of the notion that mountains are an exceptional
natural and cultural heritage that should be taken care and developed.
The key role in the process of preservation and development of this her-
itage plays constant presence (residence) of people in the mountainous

139
areas: firstly, as an integral part of this heritage; secondly as a necessary
condition for the provision of effective protection of landscapes and nat-
ural resources of mountains, as long as the specific feature of mountain-
ous areas (the inaccessibility, roughness of relief, remoteness of inhab-
ited localities etc.) complicates the provision of the basic needs of the
population.

References

1. Zmina obsiahiv valovoho vnutrishnoho produktu [Change of gross domes-

tic product extent]. (2017). www.ukrstat.gov.ua. Retrieved from http://www.ukr-
stat.gov.ua.
2. Indeksy promyslovoi produktsii za vydamy hospodarskoi diialnosti ]In-
dustrial products indices according to the types of business activity]. (2017).
www.ukrstat.gov.ua. Retrieved from http://www.ukrstat.gov.ua.
3. Komarnytska, H.O., & Melnyk, L.M. (2016). Vplyv formuvannia terytori-
alnykh hromad iak factor rozvytku dilovoho seredovyshcha [The influence of the
territorial communities formation as a factor of business environment develop-
ment]. – Naukovyi visnyk Ukrainskoho natsionalnoho lisotekhnichnoho uni-
varsytetu – Scientific Herald of the Ukrainian National Forestry University,
26(2), 108-126.
4. Naukovo-innovatsiina diialnist v Ukraini [Research and innovative activ-
ity of Ukraine]. (2016). Kyiv.
5. Komarnytska, H.О. (2015). Rehionalna uzbanizatsiia [Regional urbaniza-
tion]. Lviv: LSFA; Kamianets Podilskyi.
6. Statystyka naselennia Ukrainy [Statistics of the population of Ukraine].
(2017). database.ukrcensus.gov.ua. Retrieved from http://database.ukrcen-
sus.gov.ua/Mult/Database/Population/databasetree_uk.asp.
7. Sotsialno-ekomomichna pozytsiia Lvivskoi oblasti [Social and economic
position of Lviv region. (n.d.). (Monthly newsletter).

4.2. The development of grape growing and gardening

in Odessa region (logistic approach)

Nikishyna O.V., Bondarenko S.A., Liganenko I.V.

The last decade global trend has been a significant increase in the vol-
umes of production and sale of table grapes, fruits and berries, products
availability throughout the calendar year, the dynamic development of
post-harvest technology and logistics. The European market is character-
ized by a rather high demand for fruit-and-berry gardening and wine-
growing of table varieties, with the demand not only raw materials, but

140
also processed products. According to a review of FAO statistics, since
1961, fruit production in the world has increased by more than 3,3 times.
The average annual growth rate is 6,8% [1].
Ukraine occupies an insignificant volume in the vineyards, fruit-and-
berry crops area (about 0.4% of the world scale), with the tendency to
become a decline in the scale of the external market. To enter external
markets, it is necessary to meet the world trends and requirements for
product quality. It is important to ensure predicted production volumes,
control over the spread of varieties and planting material, guarantee the
safety and quality of products, as well as introduce higher and advanced
technology.
The main problems in the development of fruit-and-berry gardening
and viticulture in Ukraine are due to imbalances at each production and
logistics chain stages:
- selection and scientifically grounded sorting of planting material,
microzonal orchard and vineyards start;
- cultivating apples and grapes;
- storage, freezing, processing of the products;
- domestic and international sales.
These are the following issues:
- The plantation placement without taking into account agro-ecolog-
ical conditions of the territory, selection of assortment and planting
schemes;
- imperfection in existing technologies of apple and grapes laying and
production, insufficient level of innovations and advanced breeding devel-
opments;
- undeveloped regional logistics system, lack of links after harvesting
apples and grapes (sorting, packaging, prolonged storage, extension of the
implementation period);
- imbalances between the domestic supply volume and demand one,
the lack of high quality apples and table grapes for the needs of end-users
and processing enterprises, import products supply;
- unrealized production and export potential of horticulture and viti-
culture in the region, state tax and social losses.
During the investigated period from 1990 to 2016, a negative trend was
observed in reducing fruit-and-berry plantations areas from 39 thousand
hectares in 1990 to 10,700 hectares in 2016 (by 72,6%), grape plantations –
twice (from 62,9 to 31,6 thousand hectares, respectively) (Table 4.5).

141
Table 4.5. The dynamics of fruit-and-berry and vineyards areas in the
Odessa region

Years From
2016
Planted area
1990 2000 2010 2011 2012 2013 2014 2015 2016 % to
1990.
1. Planted of fruit-
and-berry area, 39,0 23,0 10,7 10,8 10,4 10,5 10,6 10,6 10,7 27,4
thousand hectares
in % to state areas 4,6 5,4 4,2 4,2 4,1 4,2 4,4 4,5 4,5 Х
2. Planted of fruit-
and-berry area in
the fructiferous pe- 30,5 21,1 9,1 9,0 8,5 8,8 8,7 8,0 8,1 26,6
riod, thousand hec-
tares, total
in % to the areas of
the region fruit- 78,2 91,7 85,0 83,3 81,7 83,8 82,1 75,5 75,7 Х
and-berry planting
in % to state areas 4,5 5,6 4,1 4,0 3,8 4,0 4,1 3,9 4,1 Х
2.1. including the
area of pip fruits, 18,8 10,8 3,2 3,2 2,8 2,8 2,6 2,3 2,2 11,7
thousand hectares
2.2. the area of dru-
paceous, thousand 8,0 9,1 4,7 4,7 4,6 4,8 4,9 4,5 4,6 57,5
hectares
3. Grape planta-
tions area, thousand 62,9 44,1 35,9 36,1 32,9 31,6 30,2 30,2 31,6 48,0
hectares
in % to state areas 35,7 40,1 41,3 43,0 42,2 42,1 61,6 67,1 66,9 Х
4. Planted of grape
area in the fructifer-
55,1 40,3 28,0 29,4 29,1 28,5 27,5 25,5 27,4 46,3
ous period, thou-
sand hectares
in % to the areas of
the region grape 87,6 91,4 78,0 81,4 88,4 90,2 91,1 84,4 86,8 Х
planting
in % to state areas 38,5 40,7 41,2 42,6 42,8 42,5 62,5 60,7 64,2 Х
Source: (compiled according to the State Statistics Service of Ukraine data [2, 3])

According to official statistics, the share of Odessa region in the pub-

lic areas of fruit-and-berry plantations is 4,5%, grapes – 67%.
The reason for a significant reduction in the fruit-and-berry planta-
tions area was the collective farms destruction and the negative experi-
ence of decomposing land when the gardens ceased to be processed and
uncontrolledly destroyed. Regarding the vineyard plantings area,

142
technical varieties landing of grapes (for the production of wine materi-
als and winemaking products) and table varieties (for direct consump-
tion by the population) were in different positions. Given the loss in re-
cent years of the usual markets, especially the Crimea winemaking en-
terprises, where the wine materials of the Odessa region were spilled,
small farms that grew grapes technical varieties were in a particularly
difficult situation. So, if the branded wine brands local manufacturers,
who formed the full production cycle on the principles of agro-industrial
integration from cultivating grapes to the finished products bottling,
close their needs at the expense of their own vineyards, then the farms
wine materials remain unclaimed. There are few companies with a full
cycle of growing grapes to produce winemaking finished products in
Odessa oblast, but they produce 70% of the wine total volume. For two
consecutive years, farms producing technical grapes have no place to sell
their produce. Therefore, it is advisable to develop the newest mecha-
nisms for the interaction of farms and large processing enterprises to
ensure the grapes implementation and processing of technical varieties.
Of course, solving the integration mechanisms of the industry is possible
only with the state participation, provided that the development of com-
pensatory mechanisms and the formation of cooperative unions, which
will form the basis for interaction on the vertical and horizontal integra-
tion bases of economic entities.
The reason for the area reduction of the table varieties vineyards
were the financial and economic factors (high capitalization of the vine-
yard and lack of state support) and infrastructure. Favorable natural
conditions in the Odessa region provide high yields of grapes and apples.
At the same time, the high profitability of the apple and grapes produc-
tion in the region is ensured by using the ampeloecological potential of
the region and the introduction of resource-saving technologies in plant-
ing, cultivating and storing produce. Despite the increase in the yield of
fruit-and-berry plantations in 3 times (from 36.4 c / ha in 1990 to 104.3
c / ha in 2016), grapes – in 1,5 times (from 61.2 to 84.5 centners per hec-
tare, respectively), we have a decrease in the output of fruits and berries
by 23.5% (from 111.2 thousand tons in 1990 to 85.1 thousand tons in
2016), grapes – by 31,5% (from 337.6 to 231.2 thousand tons, respec-
tively) (Table 4.6).
In the state production of fruits and berries, the Odessa region ac-
counted for 4.2%, grapes – 61.2%. In the regional structure of fruit pro-
duction in recent years dominated by drupaceous fruits (53.9% in 2016),
while in the state structure – pomiferous fruits (62.9%), among of which
55% are apples.

143
Table 4.6. Dynamics of fruits, berries and grapes production in the
Odessa region, ths. tons
Years From
2016 in
Criterion
1990 2000 2010 2011 2012 2013 2014 2015 2016 %
to1990
1. Fruits
and ber- 111,2 66,1 74,3 88,0 81,2 82,9 74,0 84,9 85,1 76,5
ries, total
in % of the
state pro- 3,8 4,6 4,3 4,6 4,0 3,6 3,7 3,9 4,2 Х
duction
1.1. Includ-
ing pomif- 79,9 28,0 28,3 30,6 30,5 28,8 24,9 26,9 29,6 37,0
erous fruits
in % of the
state pro- 3,6 3,4 2,7 2,7 2,4 2,1 2,0 2,0 2,3 Х
duction
1.2. Drupa-
24,3 31,7 37,1 47,2 41,8 45,2 40,7 48,5 45,9 188,9
ceous fruits
in % of the
state pro- 4,2 6,3 7,5 8,6 8,5 6,9 7,9 8,9 9,0 Х
duction
The pro-
duction of
fruit output 42 27 31 32 28 35 31 35 36 85,7
per one
person
2. Grape 337,6 201,4 175,1 229,1 212,3 256,6 263,7 238,7 231,2 68,5
in % of the
state pro- 40,4 39,2 42,9 43,9 46,6 44,6 60,5 61,8 61,2 Х
duction
The structure of regional fruit industry, % (+, -)
1. Pomif-
71,9 42,4 38,1 34,8 37,6 34,7 33,6 31,7 34,8 -37,1
erous fruits
2. Drupa-
21,9 48,0 49,9 53,6 51,5 54,5 55,0 57,1 53,9 +32,0
ceous fruits
Source: (compiled according to the State Statistics Service of Ukraine data [2, 3])

A significant volume share in the production of berries and grapes in

Ukraine is made by farms (42% – in viticulture, 96% – gardening), which
grow small batches of products (up to 10 tons, depending on culture),
limited in financial resources and do not set as a technological develop-
ment of its production. In addition, only about 5-6% of the crop is supplied
to the market, mainly the products are for domestic consumption. There-
fore, most fruits are produced by the domestic market.

144
 Regarding infrastructure facilities for the industry development, the
lack of high-quality fruit storage facilities is most acute, which can pro-
vide long-term storage of ripe berries until they are sold to the final con-
sumer. Under condition of the fruit storage facility use, the sales volumes
growth may be due to the reduction of domestic consumption in private
households (PH) and the growth of sales volumes on the market, pro-
cessing enterprises. Thus, a fruit storage facility, based on which the
functioning of the accumulation and distribution center is expected, be-
comes a platform for attracting households to market infrastructure. Its
main function is the efficient management of the fruit flow, the for-
mation of large lots from small consignments (coming from PH), their
sorting, redistribution to domestic consumption (through trade net-
works) or processing into juices. PHs can also get a set of services for
fruit harvesting (packaging), and independently sell them to retail
chains. Currently, there is no fruit storage in Odessa region, which, of
course, significantly impedes the development of market mechanisms in
the fruit and berry gardening and viticulture.
All these factors lead to a shortage of products in the domestic mar-
ket, the need for its supplies from abroad. In 2016, the volume of im-
ported table grapes doubled the volume of self-grown (Figure 4.1).

Self-grown table grapes Import of table grapes

Figure 4.1. The growing and import of table grapes to Ukraine,

thousand tons
Source: (compiled according to the State Statistics Service of Ukraine data [2, 3])

The growth rate of products export (in 3,7 times in 2015 compared to
2000) exceeds the growth rate of its imports (in 3,3 times). In 2015, the
volume of fruits, berries and grapes import (588 thousand tons) reached
23% of the volume of their state production, almost twice exceeding the
export rate (324 thousand tons, 13% respectively) (Table 4.7).

145
Table 4.7. Geographical structure of horticulture and viticulture
export-import in Ukraine, 2016

Import Export
UKT
Goods cost, Unit cost, Unit
ZED
item country thousand weight, country thousand weight,
code
dollars % dollars %
Turkey 15808 46,45 Moldova 40 63,49
Iran 6830 20,07 Georgia 13 20,63
806 Grape
India 6175 18,15 Panama 3 4,76
Others 5218 15,33 Others 7 11,12
Total Х 34031 100 Х 63 100
Poland 10484 86,67 Belarus 1721 54,72
Apples, the
782 6,46 Georgia 295 9,38
808 Pears and Netherlands
quince South Africa 167 1,38 Libya 253 8,04
Others 664 5,49 Others 876 27,86
Total Х 12097 100 Х 3145 100
Apricots, Greece 8510 43,07 Belarus 778 89,43
cherries, Spain 6016 30,45 Moldova 72 8,28
Bing
809 Turkey 2456 12,43 Poland 10 1,15
cherries,
peaches, Others 2777 14,05 Others 10 1,14
plums
Total Х 19759 100 Х 870 100
The
Turkey 11756 33,06 3554 40,23
Other Netherlands
810 fruits, Azerbaijan 5166 14,53 Poland 2861 32,39
fresh Spain 4853 13,65 Belarus 1285 14,55
Others 13784 38,76 Others 1134 12,83
Total Х 35559 100 Х 8834 100
Fruits Poland 3569 75,71 Poland 18873 37,1
and nuts, China 482 10,22 Italy 5598 11
811 raw or
boiled, Canada 125 2,65 Germany 4478 8,8
frozen Others 538 11,42 Others 21928 4,31
Total Х 4714 100 0 50877 61,21
Source: (compiled according to the State Statistics Service of Ukraine data [2, 3])

The capacity of the table grape market in Ukraine is 450-500 thou-

sand tons at a consumption rate of 12 kg per capita. In fact, in 2014,
1.4 kg was produced – that is, 8.5 times lower than normal. With due
regard to imports – this figure amounted to 2.15 kg, which is six times
lower than the consumption rate. The projected estimate of the growth
in domestic demand for fruits, berries and grapes in the Odessa region

146
and Ukraine indicates the potential for growth in domestic demand, pro-
vided that the needs of the population in apples and table grapes are met
according to rational consumption norms. According to the data of Table
4.8, the volume of this potential in the region is 71.23 thousand tons, in
the state – 1671.9 thousand tons.

Table 4.8. Forecast calculation of domestic demand growth for fruits,

berries and grapes in Odessa region and Ukraine

Rate Odessa Region Ukraine

1. Actual annual consumption in 2015, kg per person 60,2 50,9
2. Sustainable annual standard rate of consumption,
90 90
kg per person
3. Spread between sustainable and actual consump-
29,8 39,1
tion, kg per person
4. Population base, thousands person 2390,3 42760,5
5. Runup of internal request, thousand tons (3*4) 71,23 1671,94
In % to production level, 2015 22,01 65,85
Source: (compiled according to the State Statistics Service of Ukraine data [2, 3])

The primecost of fruit and grapes in the region is in 1.5 and 1.1 times
higher than the country’s average, the profitability of grapes in 2016
(37.4%) is much lower than the state indicator (74.6%), which indicates
a low-level intensity of production. In fact, the industry is characterized
by weak technological equipment, namely: material and technical base
depreciation, machinery shortage for mechanized harvesting, sorting
and calibration of products, prolonged storage and processing of fruits
and berries. Basically, the harvest is hand-picked and preliminary sort-
ing at the same time. All these facts influence over the product quality,
which, of course, does not suit the modern age of the world market, and
hence, and the product marketability is very low.
To develop the horticulture and viticulture in the Odessa region, it is
necessary to introduce a sequence of concrete actions of innovation-ori-
ented character at the selected stages of the production-logistic chain:
Stage 1. Selection and scientifically grounded sorting of planting ma-
terial, microzonal vineyard laying. Proposed:
- to use the proficient, high quality and certified seedlings;
- to innovate the planting allocation, to implement zoned varieties of
NNC «Institute of viticulture and winemaking named after V.E. Tairov»;
- intensive, resource-saving technologies in laying and nursing care
of planting;
- to increase the planting areas to 50%, to increase the yield due to
varietal structural adjustment (Table 4.9).

147
Table 4.9. The development parameters of apple gardening and grape
growing in Odessa region as the result of project implementation

Forecast period 6th year

Refer- in % to
ence pe- the refer-
Criterion
riod 1st 2nd 3d 4th 5th 6th ence pe-
(2016) year year year year year year riod,
times
1. Apple gardening
1. The area of new
plantation, thou- Х 0,31 0,31 0,47 0,16 Х Х Х
sand hectares
2. Disposal area,
Х 0,16 0,14 0,10 0,10 Х Х Х
thousand hectares
3. General area,
2,06 2,21 2,38 2,75 2,80 2,80 2,80 136,5
thousand hectares
Including planta-
tions in the fructifer- 1,56 1,56 1,56 1,77 1,98 2,45 2,61 167,4
ous period
4. Yield, thousand
12,8 13,4 13,9 15,2 15,8 16,3 17,0 133,1
hectares
5. Production, thou-
19,9 21,0 21,7 26,9 31,3 39,8 44,3 222,8
sand tons
2. Grape growing
1. The area of new
plantation, thou- Х 6,3 6,3 5,8 Х Х Х Х
sand hectares
2. Disposal area,
Х 2,8 2,8 2,6 Х Х Х Х
thousand hectares
3. General area,
31,6 35,1 38,6 41,7 41,7 41,7 41,7 132,1
thousand hectares
Including planta-
tions in the fructifer- 27,4 27,4 24,6 21,9 28,3 34,6 40,4 147,4
ous period
4. Yield, thousand
8,45 9,77 10,20 10,62 11,04 11,46 11,46 135,6
hectares
5. Production, thou-
231,2 267,7 250,5 233,1 312,1 396,4 462,8 200,2
sand tons
Source: (compiled according to the State Statistics Service of Ukraine data [2, 3])

Stage 2. Apples and grapes growing. Proposed:

- production conveyor of table grapes (very early afterripening -
22%, early – 17%, medium – 17%, middle and late – 22%, late – 22%) –
60-65% of area growth;
- special varieties of grapes for juice production – 40-35% of area
growth;

148
 - combination of intensive and organic apple production technolo-
gies, drip irrigation;
- double increase in the apples and grapes production (Table 4.10).
Expected effects:
- double growth of regional apples and grapes production (from
251.1 to 507.2 thousand tons);
- regional areas expansion of plantations in the fructiferous age for
6 years by 50%, incl. apples from 1,56 to 2,61 thousand hectares, grapes
from 27,4 to 40,4 thousand hectares;
- increase in the productivity of apples and grapes in 1,3 times;
- Income support of apples and grapes regional production, earnings
enlargement from products sales by 5,4 times, profit to 1 hectare of plan-
tations by 6,2 times, increase of products profitability from 36,7% to
83,6%;
- Increase of the employed number in the regional horticulture and
viticulture by 1,3 times;
- increase of tax revenues;
- Providing food security to the region and country.
Stage 3. Storage, processing of products. Proposed:
- construction of a fruit storage facility, equipped with adjustable
gas atmosphere;
- use of sorting lines for apples and grape varieties;
- to create a specialized direction of organic products provision (ap-
ples and grapes) for the production of baby food products on the basis of
PJSC «Odessa Cattery of Baby Food».
Stage 4. Implementation of products on the domestic and foreign mar-
kets. Proposed:
- sales of products throughout the year at prices higher than the
prices of the harvest period (the potential for growth of domestic demand
in the region is 71.23 thousand tons, in Ukraine – 1671.9 thousand tons);
- export of dried fruits, juice products (export prices of products pro-
cessed 3-4 times higher raw material prices);
- potential markets: EU countries, North America (USA and
Canada).

149
Table 4.10. Economic indicators of apple gardening and viticulture de-
velopment in the Odessa region as a result of project implementation

6th year in
Refer- Forecast period % to the
ence
Criterion 1st 2nd 3d 4th 5th 6th reference
period
year year year year year year period,
(2016)
times
1.Apple gardening
1. Volume of apple
3,98 6,29 8,69 13,43 18,79 23,88 26,60 6,7
sales, thousand tons
2. Sales revenues, mln
26,3 50,8 78,0 139,7 215,4 307,2 384,7 14,7
hrn
3. Profit, mln hrn 4,5 12,9 21,6 45,4 74,2 115,3 156,0 34,8
4. Profit to 1 ton, hrn 1127 2058 2482 3383 3950 4829 5864 5,2
5. Profit to 1 hectare,
2,88 8,29 13,82 25,66 37,45 47,08 59,88 20,8
thousand hrn.
6. The cost of market-
108,6 125,4 147,6
able output to 1 hec- 16,88 32,53 50,00 78,89 8,8
4 3 8
tare, thousand hrn
7. The level of profita-
20,6 34,2 38,2 48,2 52,6 60,1 68,2 3,3
bility, %
8. Volume of employ-
0,87 0,94 1,01 1,17 1,19 1,19 1,19 1,4
ment, thousands people
2. Grape growing
1. Volume of grape
136,3 160,6 150,3 139,8 218,4 277,4 324,0 2,4
sales, thousand tons
2. Sales revenues, mln
686 998 1056 1106 1918 2636 3461 5,0
hrn
3. Profit, mln hrn 187 351 402 448 820 1142 1595 8,5
4. Profit to 1 ton, hrn 1370 2184 2677 3206 3752 4117 4924 3,6
5. Profit to 1 hectare,
6,82 12,80 16,38 20,43 29,00 33,03 39,50 5,8
thousand hrn.
6. The cost of market-
able output to 1 hec- 25,04 36,43 43,02 50,38 67,87 76,20 85,69 3,4
tare, thousand hrn
7. The level of profita-
37,4 54,2 61,5 68,2 74,6 76,5 85,5 2,3
bility, %
8. Volume of employ-
13,43 14,91 16,38 17,74 17,74 17,74 17,74 1,3
ment, thousands people
Source: (compiled according to the State Statistics Service of Ukraine data [2, 3])

The proposed measures provide an opportunity for domestic market

saturation (import substitution), the annual provision for the population
by national fruit and grape production, supplying the infant food manu-
facture by domestic organic products (apples and grapes), expansion in the
export of fruits and derivative products (in particular, juice products).

150
 References

1. FAO Production Yearbook for 2015, Rome, 2015.

2. Sait derzhavnoi sluzhby statystyky Ukrainy [Site State Statistics Service
of Ukraine]. ukrstat.gov.ua. Retrieved from http://ukrstat.gov.ua.
3. Sait Holovnoho upravlinnia statystyky v Odeskii oblasti [The site of the
Central Statistical Office in the Odessa region]. od.ukrstat.gov.ua. Retrieved
from http://od.ukrstat.gov.ua.
4. Mytna statystyka. Derzhavna fiskalna sluzhba Ukrainy [Customs
statistics. The State Fiscal Service of Ukraine]. sfs.gov.ua/ms. Retrieved from
http://sfs.gov.ua/ms.

4.3. Innovative trends in management of the development

of Ukrainian port infrastructure

Kharichkov S.K., Volosiuk M.V., Lukianova Yu.O.

In the context of social, political and economic transformations cur-

rently happening in Ukraine, when all sectors of the national economy
undergo reforms, the reform of infrastructure becomes one of crucial,
high-priority problems. Of particular importance is the improvement in
management of its economic and organizational development. In this re-
gard, it is now relevant to study the issues of introducing advanced prac-
tices in management of the development of the Ukrainian port infra-
structure, which is the aim of this publication. The paper presents a
summary of the experience that the EU countries have had in this re-
spect and outlines possible vectors of its application in the realities of
the present-day Ukraine.
According to the Global Competitiveness Index for 2016-2017, Ukraine
ranks 96th in the world by the quality of port infrastructure [1], taking the
place between Cape Verde (95th) and the Czech Republic (97th).
Seaports play an important role in increasing the competitiveness of a
country or a region, as they serve as transport hubs that provide economic
links between the domestic and foreign markets. Therefore, it is not sur-
prising that the most influential rating of this kind, The Global Competi-
tiveness Index, contains the component Port Infrastructure Quality.
Countries with the highest-ranking port infrastructure (the Nether-
lands, Singapore, and the UAE) are continually increasing the quantity
of ports and enhancing their quality. For example, the largest and most
important harbor in Europe – the Port of Rotterdam – offers foreign com-
panies a perfect springboard to the European market, as goods can be
delivered from there to all major industrial and economic centers of

151
Western Europe in less than 24 hours. Meanwhile, the Dutch govern-
ment is continually improving its port infrastructure by spending
around €150 mln annually on maintenance and expansion of roads and
berths, safety and environmental upgrades, as well as other changes [2].
This indicates that port services go far beyond the port itself (its internal
and external water area) and cover a large number of coastal and other
business operations.
To address these issues, European countries are looking for new
forms of integration of their industrial, financial and intellectual capital
to boost the quality of port infrastructure. Nowadays, the European Net-
work of Maritime Clusters (ENMC) serves as such an integration tool; it
was established in Paris in November 2005. The Network aim is to or-
ganize the exchange of experience among its members, coordinate vari-
ous activities, as well as develop and strengthen marine clusters of the
member states and of Europe as a whole [3]. At present, the ENMC in-
cludes marine cluster organizations of such countries as such as Belgium
(Flanders Maritime Cluster), Bulgaria (Marine Cluster Bulgaria), Den-
mark (Maritime Development Center of Europe), Finland (Meriliitto),
France (French Maritime Cluster), Germany (Bundesministerium für
Wirtschaft und Technologie), Italy (Italian Maritime Cluster), Ireland
(Irish Maritime and Energy Resource Cluster), the UK (Maritime UK),
the Netherlands (Nederland Maritime Land), Sweden (Sjöfartsforum),
Spain (Spanish Maritime Cluster), Portugal (Forum Oceano), Poland
(Polski Klaster Morski), Norway (Maritimt Forum), and Iceland (Iceland
Ocean Cluster).
As for infrastructure of the Ukraine’s port industry, the 2000s
marked the start of its rigorous development and technical re-equip-
ment. However, the absence of special legislation had resulted in the
critical condition of ports. On June 13, 2013, the Law of Ukraine «On Sea
Ports of Ukraine» [4] came into force to regularize the legal, economic
and organizational foundations of the port industry functioning. An im-
portant opportunity provided by this Law was the privatization of port
infrastructure objects and development of private entrepreneurship in
this sphere. As noted in [5], the commercial activity of ports, which had
been historically state-regulated, became open to private entrepreneurs
not only for a particular production cooperation, but also for complete
privatization. The purpose of such transformations was to develop port
competition able to provide a greater economic efficiency and meet the
customers’ needs to a fuller extent than one state enterprise [5, p. 25].
After the Law’s adoption [4], the Ukrainian Sea Ports Authority
(USPA) was established with regional branches in the seaports of
Ukraine; it could be regarded as a state authority. The strategic property

152
of ports that is not subject to privatization has been transferred to the
USPA; it includes approach channels, water areas, berths, navigation
systems, and general communications. Meanwhile, other facilities with
average wear of 80% (warehouses, cranes, and other equipment) make
up the property of merchant seaports (one third) and private companies
(two thirds). Such an imbalanced division of state property, powers and
functions between the USPA and state-owned enterprises is subject to
criticism [6, 7]. Since 2016, the Ministry of Infrastructure has planned a
port industry reform which would «withdraw the state from all the
spheres that have an impact on business», a drastic USPA reform, and
creation of a maritime authority that will assume all the USPA respon-
sibilities [8].
The term «port infrastructure» first appears in the Ukrainian Sea-
ports Development Strategy until 2015 [9], which defines it as a special-
ized property complex including warehouses and storage yards, loading
and unloading mechanisms and other property [9].
The above-mentioned Law «On Sea Ports of Ukraine» [4] defines the
port infrastructure objects – mobile and immobile objects that ensure the
operation of a seaport. Besides, it is the first document to provide de-
scription of the following categories:
- general-purpose port infrastructure objects: water area, railway
and automobile approach roads (up to the first junction outside the port
territory), communication lines, means of heating, gas, water and elec-
tricity supply, engineering communications, and other objects that en-
sure operation of two or more business entities in the seaport;
- strategic state-owned port infrastructure objects: hydrotechnical
structures, general-purpose port infrastructure objects, navigation
equipment, other objects providing navigational and hydrographic sup-
port of sea routes, vessel tracking management systems [4].
The Ukrainian Seaports Development Strategy until 2038 [10] is
based on the principled understanding that competitiveness of the do-
mestic transport complex in the world market depends a number of fac-
tors. They include the efficiency of operation of seaports, the level of their
technological and technical equipment, and the compliance of the infra-
structure management and development system with the current inter-
national requirements.
According to [11], port infrastructure quality is a five-dimensional no-
tion consisting of the elements associated with resources, results, pro-
cess, management, and the image and social responsibility. It has been
established that this notion covers all aspects of port service provision.
Besides internal services within the port, external connections between
the port and its customers are also considered, social responsibility being

153
particularly significant with regard to the maritime sector [11]. There-
fore, it is critical to improve the port infrastructure quality with the help
of a comprehensive approach rather than merely focusing on port re-
sources. The quality of port services has a substantial positive impact on
customer satisfaction. It helps keeping the existing customers and at-
tracting the potential ones, so it is not surprising that analysts associate
the development of port infrastructure with investment of funds. When
planning an investment, the USPA bets on the ports with a certain cargo
traffic. At present, those are the highest-capacity ports in Odessa, Yuzhny,
Mykolaiv, and Chornomorsk (see Table 4.11).

Table 4.11. Cargo turnover at domestic ports, mln tons*

Total
Yuzhny Odessa Mykolaiv Chornomorsk
(13 ports)
2014 47.4 24.6 20.8 17.6 144.9
2015 48.5 25.3 22.2 17.3 144.6
2016 39.3 25.3 22.4 15.9 131.7
2017 (first half of year) 22.1 12.2 11.4 8.0 66.0
Share of grain cargoes
24% 42% 43% 50%
in total cargo turnover
* Compiled by the authors according to [12]

It should be noted that seaports are classified according to the major

cargo nomenclature (see [10]). Currently, most potential investors are
involved with the cargo traffic in the agricultural sector. According to the
forecasts of analysts, the volume of grain export is going to increase,
therefore, agribusiness holdings will invest in the growth of capacity of
grain terminals.
Another area for improvement in the quality and competitiveness of
port infrastructure is capital investment aimed at dredging channels or
specific water areas and maintaining their depth. This is the case with
the potential grain container port hub of Chornomorsk. The Ministry of
Infrastructure of Ukraine, the State Enterprise «Marine Trade Port of
Chornomorsk» and the USPA plan to invest in Terminal 2 over 2017-
2018 for the following purposes: dredging of the approach channel of the
port up to 16 m; dredging of the water area of the 1st basin of the Sukhyi
Estuary up to 15 m; dredging near berths 7, 8, 9, which will allow
accommodating vessels with up to 100000 tons of deadweight; recon-
struction of the power supply system at berths 8, 9, which will provide
for simultaneous operation of four or more cranes; continuation of two
railways from berth 9 to berth 7 and 8, which will increase their carrying
capacity [13]. By the way, the USPA has invested 887.2 mln UAH in the

154
infrastructure of the port of Yuzhny to dredge its water area from 15 m
to 19 m, which resulted in receiving an additional income of 877.97 mln
UAH due to the growth of cargo traffic and abolition of discounts [14].
The investment in the infrastructure project increased the port capacity,
which allowed for the entry of 351 large-tonnage ships of the Sapesize
class and their loading up to a complete draft at berths 5-6. During the
project implementation, the growth of cargo turnover in the water area
of the port of Yuzhny was 14.57 mln tons.
Particularly noteworthy is that the Seaports Development Strategy
[10] focuses on the specialization of seaports by the major cargo nomen-
clature:
- oil and petroleum products – seaports of Odessa and Feodosia;
- chemical liquid cargo – seaport of Yuzhny;
- metallurgical industry cargo (iron ore, coal, ferrous metals) – sea-
ports of Odessa, Mariupol, Chernomorsk, Kerch and Yuzhny;
- grain cargoes – seaports of Odessa, Chornomorsk, Mykolaiv and
Kherson;
- container cargo – seaports of Odessa and Chornomorsk [10].
Accordingly, the Minister of Infrastructure V. Omelyan has high-
lighted the necessity of forming a hub (centered) model of seaports [8].
By the term «hub port», we mean the main seaport strategically fea-
sible in terms of transport infrastructure and logistics functions that per-
forms the entire complex of port services determines by international
competition and development of new technologies. Thus, the task of
forming competitive hubs on the basis of the Ukrainian maritime com-
plex and their integration into the world’s port system is extremely ur-
gent nowadays. This fact sets the following priorities in improvement of
the seaport infrastructure quality in Ukraine [10]:
- increase of cargo handling rate, efficiency, and quality;
- modernization and development of general-purpose port infra-
structure objects, in particular, automobile and railway approach roads;
- effective state regulation of specialized seaport services provided
by natural monopolies and services covered by the port dues;
- improvement of the document management system, simplification
of permit procedures, reduction of cargo handling time;
- provision of equal, competitive conditions for conducting business
and receiving services at a seaport;
- coordination of actions on congestion and increase of load capacity
at seaports.
In our opinion, further development in this sphere (that is, creation
of a marine transport hub on the basis of a seaport) will create the nec-
essary prerequisites for its transformation into a marine cluster. In turn,

155
this will allow exploiting the potential of port infrastructure facilities to
a full extent, thus leading to an increase in the competitiveness of both
the port and the respective region.
Summarizing all the above, it can be concluded that elaboration of
basic directions for further development of the port infrastructure re-
quires a study of appropriate foreign experience. Let us consider the pre-
sent-day means of enhancement of the port infrastructure quality in
other countries (Table 4.12).
Thus, having studied the experience of EU countries, it should be
noted that the quality of the Ukrainian port infrastructure can be im-
proved through transition from centralized management, planning, and
instruction to their regional organization and local development tools.
This is proved by the fact that the territorial dimension is diversified
from geographical, economic, administrative and institutional points of
view. Port infrastructure at the local level at the same time can be an
integral part of the regional, national, European and international levels.

Table 4.12. Means of improving the port infrastructure quality in Euro-

pean countries*
Results
Name Aim
(as illustrated by some ports)
Cluster Pôle Establishment of Seaside region of France – Bretagne-Pays de la Loire
Mer Bretagne joint research Maintaining their identity and integrating into the
Atlantique projects and sup- human and geographical environment, port cities are
(established port for the truly laboratories of sustainable development in
in 2005 in growth of partici- densely populated urban areas. Port infrastructure
France) pating compa- should perform its functions for a long period of its op-
nies, particularly eration. Therefore, the main objective of the I-
through the MARECO project is high performance and life cycle of
placement of new the port infrastructure. I-MARECO aims at develop-
products, services ing a common expenditure strategy for the maritime
and processes re- infrastructure through the creation of surveillance
sulting from mar- systems (multisensory devices) that will eventually
ket research optimize management and performance, as well as fa-
cilitate feedback.
Other ongoing projects include:
AIMS – integrated noise monitoring of the marine en-
vironment;
COVASED – a platform for management of earth sed-
iments and development of their economic potential;
OPTIMISME – development of global energy flow
management in the port zone;
SEEWALL – monitoring of marine protection works
with the use of seismic listening;
WATCHDOG – an autonomous intelligent robot for
underwater diving

156
 Table 4.12. Continuation
Results
Name Aim
(as illustrated by some ports)
TEN-T Elimination of bottlenecks Recognition of the NAPA ports (five seaports
(Trans-Euro- and technical barriers in the northern part of the Adriatic Sea) as
pean among transport networks the main ports of the EU in the TEN-T, suc-
Transport of the EU member states; cessful cooperation within the framework of
Network) strengthening of the social, the Motorways of the Sea (MoS) projects and
(founded in economic and territorial IT support projects, such as customs clear-
January cohesion of the European ance of containers (Single Window and EDI
2014) Union; modernization of Center), and successful participation in sev-
existing infrastructures eral international exhibitions in Europe and
and platforms Asia
EcoPorts Net- Elimination of all negative Port of Vigo (Spain)
work environmental impacts re- Taking action against climate change, intro-
(launched by sulting from various activ- duction of LNG and OPS, reduction in carbon
a number of ities, such as shipyards, emissions, incorporation of marine renewa-
active ports fishing sector, maritime ble energy sources into the port activities,
in 1997; fully transport and the city as a creation of the National Park of the Islands
integrated whole Cíes. It is planned to develop an infrastruc-
into the Euro- ture for gas and electricity supply to vessels.
pean Sea Port of Dover (United Kingdom)
Ports Organi- Receiving CEEQUAL Award for the environ-
zation mental quality of the port infrastructure con-
(ESPO) since struction, reduction in carbon emissions, im-
2011) plementation of marine renewable energy
sources in the port activities, improvement of
the waste management system.
Port of Thessaloniki (Greece)
The relations with the city became more
transparent. Major environmental pressures
that arose due to the port operation have
identified relevant environmental programs
and indicators for improving the port’s envi-
ronmental efficiency. It is planned to perform
special works on optimization the bulk cargo
processing, which will sharply reduce air pol-
lution with dust
* Compiled by the authors according to [15, 16, 17]

Conclusion. Improvement of the port services quality constitutes a

promising direction of port infrastructure development, which is deter-
mined by international competition and state-of-art technologies form-
ing new requirements for the safety, rate and quality of cargo handling
at the port. Therefore, the following priorities of innovation management
at the development of domestic seaport infrastructure can be outlined.
1. Using both state subsidies/loans and private funds through attract-
ing substantial domestic and foreign investment. For several years, it
has been planned to conduct a concession in the Ukrainian ports, that is,
157
to transfer a part of their facilities for temporary use to private individ-
uals, enterprises, other countries, etc. This will promote restoration and
development of the infrastructure without allocating huge sums from the
state budget.
2. Besides infrastructure and equipment, an effective seaport re-
quires effective management. For domestic ports, the state administra-
tion reform, the transfer of centralized management to the regional level,
and the creation of regional maritime authorities to provide high-quality
port services all make up an urgent necessity. At that, involvement of
local authorities in the management of port enterprises is also essential.
3. Solving environmental problems of seaports. Some ports are highly
industrial; depending on cargo volume and placement, they can have an
impact on the water and air quality and, accordingly, on the health of
the population. This year, European countries celebrated the twelfth an-
niversary of the Green Port Policy, which requires an effective environ-
mental management system. Each domestic port can develop plans for
managing waste from ships and daily port operations or models for im-
plementing the Green Port concept. They will be aimed at achieving a
low level of natural resource consumption. However, this cannot be real-
ized without effective cooperation between public authorities and private
companies. It will ultimately lead to a boost in the quality of seaports
services, thus positioning them as competitive in international markets.

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159
 Section 5

Innovative marketing as a tool for economic growth

5.1. Factor model for assessing the effectiveness of innovation market

Kniazevych A.O.

The effectiveness of innovation market functioning is the main regu-

lator of innovation development of the country and of the formation of
its innovative infrastructure. The current state and prospects of the de-
velopment of the innovation market determine the possibilities of a fuller
use of the country’s scientific, technical and educational potential, and
the revival of its innovative infrastructure. Innovation potential of the
country is characterized by the willingness of the society and economy to
introduce new technological and social changes under the influence of
internal and external factors. The economy of the country is concerned
both with the negative effects of the global financial and economic crisis
and recent social and political problems. The stabilization and adapta-
tion of the national innovation system and its innovation market in
changing realities is of the highest scientific and practical significance.
The effectiveness of the market mechanisms for managing innovation
and the increase of the innovation activity of enterprises directly de-
pends on the activity of supply and demand in the market of innovative
products; therefore, ensuring the effective functioning of innovation in-
frastructure should begin with the development of the innovation mar-
ket itself.
A considerable number of scientific works have been devoted to the
research of the problems of formation and development of innovation in-
frastructure and its main component – the innovation market. These is-
sues were actively researched in the works of such foreign scholars as I.
Goriacheva [1], D. Dorzhiev [2], N. Ivanov [4], N. Kalenska [5], V. Tri-
bushna [11], R. Chobanova [13], T. Sherstobytova [14], J. Schumpeter
[16] and others. Different aspects of this issue were studied in the works
of a number of Ukrainian economists, such as S. Illiashenko [3], M.
Kanaieva [6], V. Soloviov [9], L. Fedulova [12], T. Shotik [15], I. Yanen-
kova [17] and many others.
Constant social and economic changes in the country and in the world
put to scientists and business representatives a number of issues related
to the need for adjustments, accounting of the dynamics of these changes

160
and their impact on the innovation infrastructure, the specificity of the
development of the domestic innovation market. The question of the
composition and formation of the modern market of innovations is com-
plex and multidimensional; therefore, despite a significant number of
scientific works, it requires further research.
The country’s exit from the crisis and economic growth are impossible
without a widespread use of the achievements of science and technology
and introduction into production fundamentally new ideas, technologies,
innovative products and services. Intellectual work is becoming more
and more important and operates as the main factor; it is the imperative
of realizing the concept of knowledge economy of postindustrial society.
Knowledge-oriented economy, as the most productive power of the pre-
sent day, needs to be stimulated and supported concerning both the di-
rect producers of this driving force – scientists, researchers, and inven-
tors of new ideas, proposals, innovation projects, and entrepreneurs who
directly transform these ideas into innovations products, goods, and ser-
vices.
As the results of a number of studies prove [14, p. 21], on average for
100 successful innovations about 75 appear in response to consumer
needs, and only 25 appear as a result of the introduction of new ideas
that arise in the course of the scientific research and development and
constructor works (SRDCW).
The results of research and creative activity act as an intellectual
product. Incorporated into an invention, discovery, scientific reports, pa-
tents, innovative projects, innovative proposals, intellectual product be-
comes a commodity in the market of innovations and acts as a part of the
country’s innovation infrastructure.
Innovative infrastructure is considered as a dynamic self-regulatory
system of markets and entities entering in these markets into certain
economic relations within the limits stipulated by laws and normative
and legal acts of Ukraine and providing the creation of the necessary
conditions for the expanded production of innovative products, technolo-
gies, and services [8, p. 56].
The main goal of the formation and functioning of the country’s inno-
vation infrastructure is the provision of comprehensive innovation activ-
ities, preservation and development of the country’s scientific and tech-
nological potential in the interests of the society, including overcoming
the decline of production, its structural adjustment, changing the no-
menclature of products, creating new products and new production pro-
cesses.
The innovation market creates demand and defines the supply of in-
tellectual property products. Commodity-money relations in the market

161
of innovations arise from the moment of fixing scientific and technical
ideas, proposals, know-how, SRDCW as objects of intellectual property,
patents, innovative projects, drawings, technologies, the use of which, in
accordance with the current legislation, is allowed only by committing a
market act of sale. As the seller in this market, the owner of the intellec-
tual product is officially registered, and the buyer is an enterprise inter-
ested in the practical implementation of this product as an innovative
product. Both the buyer and the seller act in order to obtain a certain
economic effect for themselves. An aggregate of regular sales relations
between manufacturers of innovative goods and their consumers deter-
mines the emergence of an innovation market.
The market of innovations, like any other market, is an economic sys-
tem, in which the coordination and realization of economic interests be-
tween sellers and buyers through the mechanism of market prices takes
place. It refers to one of the specialized types of markets.
The conditions for effective functioning of the market of innovations
are a mechanism of competition, which is provided by a wide range of
proposals of innovative ideas and projects, and the freedom to choose a
partner in economic affairs; the balance of supply and demand; the cre-
ation of the developed innovation-market infrastructure.
In addition, the specificity of the innovation market lies in the fact
that the value and price of innovations on it are formed under the influ-
ence of the economic resultant interaction of factors of particular produc-
tion, not only the magnitude of aggregate demand and supply [1]. That
is, the demand and supply in the market of innovations are not the main
price defining factors. Everything depends on the economic factors of a
particular production. This definition refers to the specifics of the inno-
vation market exclusively.
In the market of innovative services as an integral part of the inno-
vation infrastructure, there is a clear dependence due to the peculiarities
of the process of production of these services, as well as the specifics of
the object of purchase.
The peculiarity of the process of manufacturing innovative services is
the fact that it can be divided into two stages. The first stage is intellec-
tual and the second is material production. Then, the consideration of
innovation infrastructure as a market for innovative services implies its
delineation in the processes of providing intellectual and material ser-
vices.
The innovation market is the set of organizational and economic re-
lations that arise in the process of exchanging the results of innovation
activities and coordinating the interests of participants concerning
prices, terms and scales of this exchange.

162
 Therefore, the innovation market is the set of innovative types of
products and processes, legal entities and individuals who sell or pur-
chase scientific and technical science-intensive products. As a specific
sphere of sale, the market of innovations determines as the object of
trade technical and socio-economic innovations, rationalization pro-
posals, inventions, patents, technological innovations, and know-how. As
a system of economic relations, it is aimed at the development, imple-
mentation and diffusion of innovations at various levels.
At the stage of the gradual overcoming the economic crisis, the crea-
tion of favorable conditions for the fuller realization of the creative and
inventive potential of the Ukrainian society is gaining special signifi-
cance in the innovative market of the country. The susceptibility of the
national economy to innovation depends largely on the presence of de-
mand for innovative products from consumers in the market, the accel-
eration of the dissemination of advanced technologies, including the ex-
pansion of the range of innovative active firms in the medium business,
the creation of new innovative firms and the dynamic growth of their
scale.
Communication factors play a key role in the dissemination of new
scientific and technical products. The high level of information exchange
and close communication contribute to the rapid diffusion of innovations.
Active participation in scientific and technical seminars, symposiums,
exhibitions provides the acquaintance of the consumer with new prod-
ucts before they are brought to the market, thus forming an innovative
demand. In the absence of preliminary information about a new product,
the consumer can perceive its appearance on the market in the alerted
way and the process of formation of demand will be too long, which in turn
will affect the costs and financial results of the firm.
The current state of the markets for innovative services in Ukraine
and the peculiarities of their further development are determined by the
following factors:
1) the need to further expand the number of subjects and objects of
innovation infrastructure and to increase the volume and quality of their
services;
2) the problems of economic development and the scarcity of state and
local budgets make impossible the optimal financial support of subjects
and objects of innovation infrastructure;
3) the possibility of establishing effective functioning on a commercial
basis of service facilities in the structure of innovation infrastructure;
4) the formation of the innovation infrastructure is objectively condi-
tioned by the growth of the needs of the subjects of innovation in the
services provided and the level of the development of the national

163
scientific and technical sphere, the availability of scientific and technical
developments that can subsequently be commercialized;
5) further development of the country’s innovation infrastructure is
possible on the basis of the processes of softening and deepening the ser-
vice model of the actions of its subjects.
The model of innovation infrastructure functioning, consisting of a
certain number of innovation markets, is presented in Fig. 5.1.
In the process of studying the real state of the markets for innovation
infrastructure, we used the deterministic modeling and transformation
of factor systems. One of the tasks of factor analysis is modeling the re-
lationship between the performance indicators and factors that deter-
mine their magnitude. The results can be factorized into constituent el-
ements (factors) in different ways and presented in the form of various
types of deterministic models.
The state of the markets for innovation infrastructure is influenced
by both external and internal factors. To external influence, we refer the
crisis state of the economy, the development of the processes of technol-
ogies transfer and outsourcing, other factors of the international level.
Internal factors are represented by political, economic, scientific and
technical, production and financial peculiarities of the country’s devel-
opment (Fig. 5.1). Let us consider in more detail their purpose and prin-
ciples of formation. The market of intellectual property objects. In the
market economy of a post-industrial society, national wealth is deter-
mined not only by the total volume of material resources of the country,
but also by the knowledge, values obtained in the process of intellectual
work of scientists, inventors, researchers.
Intelligent labor is, without exaggeration, the highest form of human
activity associated with the knowledge of the surrounding reality, which
begins with the hypothesis or assumption and finishes with obtaining
the result in the form of ideas, inventions, discoveries, new knowledge,
etc. At the same time, receiving an innovative, useful intellectual prod-
uct is probabilistic and can be both positive and negative.
The most significant and promising inventions, innovative proposals,
know-how, results of intellectual work, which are officially legally regis-
tered as objects of intellectual property, become a market commodity.
Intellectual property is an intangible object and intangible resource.
Their author, which is a scientist, inventor, researcher, or even a whole
research organization is the creator of the intellectual property object
and receives the exclusive right to use it, and acts as a seller on the mar-
ket of intellectual property objects. On the other hand, natural and legal
persons, who wish to get the right to use these objects in their production
activities, act as buyers of intellectual property objects. Mutually beneficial

164
commercialization of intellectual products takes place in the process of sell-
ing patents, licenses and other objects of intellectual property to interested
persons, direct producers of innovative products, goods, and services.

Applied
Scientific
activity Fundamental (academic)

State Service for Intellectual Property Protection

Information, Banks, venture

expert, and funds, investment
consulting Intellectual institutions, insur-
centers property market ance companies

Universities, per-
sonnel training
centers

Information Technological parks,

services innovation and tech-
market nological centers,
Financial
business incubators,
services innovation industrial
market
complexes

Labor
market
Market of
production and
technological
services
supply

mand

supply
mand

de-

supply

mand

supply
mand
de-

de-

de-

Producers of innovation product

demand supply

Innovation
production
market

demand supply
Consumers of innovation product

Figure 5.1. The model of country’s innovation infrastructure functioning

Source: author’s development

165
 In the conditions of the globalization of the world economy, the
acquisition and commercial use of intellectual property objects becomes
an important factor for the successful use of innovative ideas and the
dissemination of new technologies. It facilitates the development of mar-
ket-based relationships between science and production, licensing trade,
technology transfer, and the formation of the market for intellectual
property objects. The greatest demand is the technology of manufacturing
new types of high-tech products (highly specialized technological installa-
tions, pharmaceuticals, newest technology and techniques, etc.)
On the effectiveness of the operation of the national market of intel-
lectual property objects, one can draw conclusions on the ratio of the in-
tellectual property represented in the sale of goods in the form of patents,
licenses, innovational offers, know-how and the number of similar goods
purchased and used by producers for the production of innovative prod-
ucts, goods, and services.
In order to increase the level of intellectual and innovative potential
of the country, it is necessary to intensify the activities of the intellectual
property market, to increase the prestige and payment of intellectual
labor.
The market of information services. Another market in innovative in-
frastructure, which works in close cooperation and in parallel with the
market of intellectual property, is the market for information and ex-
pert-consulting services. On this market, the information on the emer-
gence of new scientific and innovative ideas, proposals, developments op-
erates as a commodity; this market offers expert analysis services and the
search for the most promising ideas, as well as consulting services for in-
novative business planning. Communication in the information services
market is often interactive. The structure and content of the information
market products are varied and extremely changeable.
The essence of the information services market can be defined as the
set of economic, legal and social relations that arise in the process of
meeting the information needs of producers who wish to set up the pro-
duction of innovative products, new products, and services and are will-
ing to pay for this information an affordable price.
The rapid growth and expansion of the demand for scientific, tech-
nical, and economic information, as well as the increased requirements
for the content and forms of presentation of information, are the incen-
tives for the development of the market of information and consulting
services in the country’s innovation infrastructure.
Ukraine is taking the first steps towards entering the innovative ser-
vices market on the international level as an outsourcer for Western
countries. So, in 2015, the rating «The 2015 Global Outsourcing 100»

166
included four Ukrainian companies engaged in IT outsourcing: Eleks,
Miratech, Softengi and SoftServe. In addition, the rating noted foreign
companies, which have opened large offices in Ukraine: worldwide Luxoft,
Belarusian Intectics, American TEAM International Services and
Softjourn. All this has a positive effect on improving the image of Ukraine
on the global IT market and enhancing its information services.
The market of financial services. One of the most important problems
for the country’s leadership in the face of a sharp shortage of financial
resources is the question of how much and what funds should be allo-
cated for academic research, applied research and innovation. In addi-
tion, part of public funds need to be allocated among the subjects of in-
novation infrastructure to support and intensify their activities. The
main receivers, for which the innovation infrastructure of the country is
created, are innovative active production enterprises, which transform
scientific ideas into the benefit and material goods. The current financial
situation of most domestic enterprises does not allow allocating as much
funds as it is necessary for the purchase of new technologies, for upgrading
production equipment, and training highly skilled personnel. The volume
of the state budget is always limited. The difficulty in deciding on the fi-
nancing of innovation production is that, above all, that in most cases such
investments cannot give a quick return. In addition, investing in research
and development, and the organization of innovation production always
serve as long-term, strategic decisions that have to be taken considering
the overall innovation policy of the state.
The mandatory part of state financing of the subjects of innovation
infrastructure includes, first of all, financing of the development of fun-
damental (academic) science.
The costs of applied scientific and technical research and design work,
research and experimental development, technology and production and
technical development of the production of new products can be financed
both at the expense of the state budget and at the expense of other
sources. Such sources of funding may become:
- bank and innovation credits;
- the issue of securities;
- the use of venture capital;
- self-financing;
- financing of an innovative project from the income received in the
process of implementing short-term projects;
- leasing of temporarily free assets;
- provision of the property of the enterprise on the security of re-
ceived funds;
- sale of licenses for the use of innovative technologies and know-how;

167
 - outsourcing in innovation activity as a method of attracting for-
eign investment;
- state incentives, the creation of privileged conditions for external
and internal investment in innovation and new technologies.
The expansion and maximum possible use of all potential sources of
financing is a priority task for the development of the financial services
market.
The labor market in the structure of innovation infrastructure acts
as the regulator of social and economic and labor relations between the
state, the employer and employees on the issues of hiring, use, training
and retraining, and the improvement of the skills of the workforce in the
process of innovation production. Innovations in modern technology and
systematic updating of manufactured products raise the requirements to
the quality of labor resources training and cause the need for continuous
training and retraining of personnel. In many regions of the country,
there is a shortage of highly skilled specialists, especially managers who
have the experience in innovation entrepreneurship.
The labor market is entirely dependent on the state of the national
economy and the level of unemployment. In 2005-2007, Ukraine’s econ-
omy was growing, specialists were in deficit, and they dictated their em-
ployment conditions to the employers. The state of the labor market has
changed dramatically because of recent social, political, and military
events in Ukraine. The number of vacancies has decreased by almost
20%; the number of migrant workers (internally displaced) in the coun-
try is increasing constantly and the unemployment is rising.
The outsourcing of HR services from large international companies
can be promising for the national innovation system, as it will contribute
to the harmonization of the labor market and the social interests of
Ukrainian society.
The market for manufacturing and technological services includes
services and opportunities provided by innovative enterprises, techno-
logical parks, innovation technology centers, innovation and industrial
complexes, as well as the centers for the transfer of technologies, centers
for the collective use of high-tech equipment. The need to create a market
for industrial and technological services in the field of innovation pro-
duction is determined by the needs of the enterprises in obtaining tech-
nical and technological assistance, in providing them with production
space and equipment necessary for the successful implementation of in-
novative projects. Accompanying support may also be related to the pre-
liminary preparation of material resources, the implementation of re-
source and energy saving technologies, the provision of innovative prod-
ucts of complete market readiness.

168
 In Ukraine, over the past decades, there has been a decline in indus-
trial production. The fall of industrial production, and especially of high-
tech manufacturing industries, leads to the degradation and destruction
of the national economy and gradual de-industrialization of the national
economy. The main production facilities are worn out by 50-60%; new
equipment is not installed due to insufficient funding. Acquiring new
technologies and improving the quality of products are very slow, which
adversely affects the competitiveness of goods in the world market.
One of the ways to solve the problems of the manufacturing and tech-
nological sector can be the creation of outsourcing companies with large
foreign manufacturers of innovative products. Outsourcing of production
space, equipment, technology and labor is widely used in many countries
around the world. In modern conditions, it is a universally recognized
and one of the most effective methods for the development of innovative
entrepreneurial activity.
For Ukraine, outsourcing from leading global companies is an oppor-
tunity to attract foreign investors. Ukraine can become a wonderful plat-
form for the construction of buildings and production facilities of foreign
corporations, which produce cars, electronic high-tech equipment and
devices. All this, ultimately, will open up wide opportunities for restruc-
turing and innovation of the national industry.
The market of ready-made innovative products. The low demand for
ready-made innovative products inside and outside the country is the
main reason for the weak development of the market for innovative prod-
ucts. This is due to the low solvency of enterprises where this product
could be used, as well as the lack of information, the lack of advertising
about the opportunities and quality of new products, the lack of promot-
ing innovative products in the markets.
Of great importance for solving this problem is the optimization of the
combination of a market mechanism with state regulation. State regula-
tion of the market for innovative products can be carried out with both
direct and indirect methods, which include economic, informational, leg-
islative, and administrative components.
The factor model of the estimation of the external and internal envi-
ronment and the degree of its influence on the formation of the innova-
tion infrastructure in Ukraine is the matrix of evaluation criteria, which
indicates the actual state of the research object (Table 5.1).
It takes into account the weight and assessment of the current state
of Ukraine’s innovation infrastructure. The results are based on expert
judgment. As a result of the study of the environment for the formation
of innovation infrastructure, we have received the assessment of the

169
actual state of each of the operating factors – 38 points out of 270 possi-
ble, which is 14.08% of the maximum value.

Table 5.1. Factor model for assessing external and internal environment
and the degree of their influence on the formation of innovation infra-
structure in Ukraine

Innovation infrastructure mar-

The total
kets
actual
Factors and the degree of their posi-

Production and techno-

(maximum

Intellectual property

Information services

Innovation products
tive or negative influence:

Financial services
possible)

logical services
estimate of
№ 0 – no influence;
the impact

Labor
1 – weak influence;
of each of
2 – medium influence;
the operat-
3 – strong influence
ing factors
in grades

External factors
1. Crisis condition of world economy 0 -1 -2 +2 +1 -2 -2
2. Tensions in international relations 0 0 -1 +1 0 -1 -1
International transfer of technolo-
3. +2 +3 +3 +2 +3 +2 +15
gies and outsourcing
Membership in European Union and
4. +1 +3 +3 +2 +2 +3 +14
WTO
Internal factors
Unstable social and political situa-
5. -2 -2 -3 -2 -2 -3 -14
tion
6. Modern condition of economy -1 -2 -3 -1 -2 -2 -11
7. State innovation policy +3 +2 +2 +2 +3 +2 +14
8. Provision of state financing +1 0 +1 +1 0 0 +3
Scientific and technological potential
9. +3 +2 +1 +1 +2 +2 +11
of the country
10. Education and training of personnel +3 +2 0 +3 +2 +2 +12
11. Availability of material resources 0 +1 +1 0 +2 +3 +7
Availability of fuel and energy re-
12. -1 -2 -2 0 -2 -2 -9
sources
Modern condition of equipment and
13. -2 -2 0 -1 -2 -3 -10
technologies
Innovation potential of entrepre-
14. 0 +1 +1 +1 +1 +1 +5
neurship
The attitude of the society to the in-
15. +1 +1 0 +1 +1 0 +4
novations
Aggregate evaluation of all influencing
factors on each innovation infrastructure +8 +6 +1 +12 +9 +2 +38 (+270)
market in grades
Source: author’s development

170
 Determining the factors that influence the efficiency of the Ukrainian
innovation infrastructure has allowed us to form a system of criteria and
indicators for conducting correlation-regression analysis. We have sys-
tematized these indicators based on the principle of complex character-
istics of all components of the innovation market as part of the innova-
tion infrastructure of the country (Tables 5.2-5.3). The statistical data
was systematized according to the selected groups; correlation-regres-
sion analysis was carried out and correlation coefficients were calcu-
lated – paired and general. The calculation of correlation indicators was
carried out using the analytical package Microsoft Excel [7, p. 219].
Among the obtained indicators, we conduct the selection based on the
principle of the highest correlation with the result indicator – the volume
of the implemented innovative products and a minimum correlation with
each other. The most important results of the assessment of the factors
of the country’s innovation infrastructure are:
N5 – the number of executed scientific and technical researches;
I2 – the number of the received security documents on the results of
fundamental research;
I3 – the number of the received security documents on the results of
applied research;
K1 – the capacity of the consulting services market;
F1 – total amount of innovation activity financing;
G1 – the number of enterprises that were mastering the production
of the innovative types of products.
With the selected indicators (Table 5.2), we perform regression anal-
ysis and determine the coefficients of the equation (formula 5.1):

𝑦 = 1,957636 · 𝑥1 + 60,48499 · 𝑥2 – 26,1292 · 𝑥3 + 0 · 𝑥4 –

− 0,23786 · 𝑥5 + 0 · 𝑥6 = 1,957636 · 𝑥1 + 60,48499 · 𝑥2 – (5.1)
− 26,1292 · 𝑥3 – 0,23786 · 𝑥5 ,

where у – the volume of the realized innovative products, million

UAH; x1 – the number of executed scientific and technical researches,
thousand units; x2 – the number of the received security documents on
the results of fundamental research, units; x3 – the number of the re-
ceived security documents on the results of applied research, units;
x4 – the capacity of the consulting services market, million USD;
x5 – total amount of innovation activity financing, million UAH;
x6 – the number of enterprises that were mastering the production of the
innovative types of products, units.

The values of the number of the received security documents based

on the results of fundamental research have the highest level of

171
influence on the resulting indicator. That is, with an increase in the
number of the received security documents based on the results of fun-
damental researches by one unit, the volume of the realized innovative
products will increase on average by 60.485 million UAH. With an in-
crease in the number of the received security documents on the results
of applied research by one unit, the volume of the realized innovative
products increases by 1.958 million UAH. The constructed model pro-
vides an opportunity to predict the state of innovation infrastructure in
the future, for this, it is necessary to identify the trends of its factors
development.

Table 5.2. Indicators for assessing the effectiveness of the country’s

innovation infrastructure
Innovation markets
The market of inno- Infor-
Financial
vation scientific and Intellectual prop- mation ser- The market of ready
services
technical proposals, erty market vices mar- innovation product
market
concepts ket
The capac- Total
Number of enter-
Number of organiza- Number of re- ity of the amount of
prises that were
tions carrying out ceived security consulting innovation
mastering the pro-
scientific and tech- documents for in- services activity fi-
duction of innovative
nical activity (N1) ventions (I1) market nancing
products (G1)
(K1) (F1)
The number of em- Number of re-
ployees of the organi- ceived security Number of new tech-
zations that carry documents based nologies, which were
out scientific and on the results of bought by industrial
technical activities fundamental re- enterprises (G2)
(N2) search (I2)
Financing of the sci- Number of re-
entific sphere (N3) ceived security
Innovation produc-
documents based
Budget financing of tion
on the results of
research and devel- (G3)
applied research
opment activities
(I3)
(N4)
The number of exe- Total amount of in-
cuted scientific and novation expenses in
technical researches industry (G4)
(N5)
Budget financing of
fundamental re-
search (N6)
Budget financing of
applied research (N7)
Source: author’s development

172
Table 5.3. The system of indicators for finding the dependence of the
volume of the realized innovative products on the efficiency of innovation
market functioning within the innovation infrastructure of Ukraine

Sym- Years
Indicators
bols 2010 2011 2012 2013 2014
The volume of the realized
innovation product, million Y 33697,6 42386,7 36157,7 35891,6 25669,0
UAH
The market of innovation scientific and technical proposals, concepts (SRDCW)
Number of organizations
carrying out scientific and N1 1303 1255 1208 1143 999
technical activity, units
The number of employees of
the organizations that carry
N2 141,1 134,7 129,9 123,2 109,6
out scientific and technical
activities, thousand people
Financing of the scientific
N3 4640,57 5126,81 6126,87 5962,16 5278,52
sphere, million UAH
Budget financing of research
and development activities, N4 4223,05 4594,07 5450,56 5347,79 4728,91
million UAH
The number of executed sci-
entific and technical re- N5 52,0 52,3 52,3 47,9 43,0
searches, thousand units
Budget financing of funda-
mental research, million N6 2403,80 2564,03 3020,84 3023,83 2795,13
UAH
Budget financing of applied
N7 1595,62 1746,40 2126,37 2065,82 1823,69
research, million UAH
Intellectual property market
Number of received security
documents for inventions, I1 1991 2703 2743 2786 2270
units
Number of received security
documents based on the re-
I2 1280 1948 2220 1715 1721
sults of fundamental re-
search, units
Number of received security
documents based on the re-
I3 2546 3725 4619 3148 3203
sults of applied research,
units
Information services market
The capacity of the consult-
ing services market, million К1 300 337 392 445 490
USD
Financial services market
Total amount of innovation
activity financing, million F1 8045,5 14334 11481 9562,6 7695,9
UAH

173
 Table 5.3. Continuation
Sym- Years
Indicators
bols 2010 2011 2012 2013 2014
The volume of the realized inno- 25669,
Y 33697,6 42386,7 36157,7 35891,6
vation product, million UAH 0
The market of ready innovation product
Number of enterprises that were
mastering the production of in- G1 615 731 704 683 600
novative products, units
Number of new technologies,
which were bought by industrial G2 707 872 739 651 543
enterprises, units
Innovation production, number
G3 2408 3238 3403 3138 3661
of positions
Total amount of innovation ex-
G4 8045,5 14333,9 11480,6 9562,6 7695,9
penses in industry, million UAH
Source: developed by the author based on statistic data [10]

At the stage of the gradual overcoming the economic crisis, the crea-
tion of favorable conditions for the fuller realization of the creative and
inventive potential of the Ukrainian society is gaining special signifi-
cance in the innovative market of the country. The susceptibility of the
national economy to innovation depends largely on the presence of demand
for innovative products from consumers in the market, the acceleration of
the dissemination of advanced technologies, including the expansion of the
range of innovative active firms in the medium business, the creation of new
innovative firms and the dynamic growth of their scale.
The strategy of innovation development is aimed at the formation and
functioning of a specific infrastructure to increase the acceptability of
the business environment to innovation. Significant activation of the
market of innovations cannot be carried out without addressing, as nec-
essary, certain markets for innovative services operating in the innova-
tion infrastructure of the country, the economy, etc.
The formation of self-sufficient and well-functioning innovative
Ukrainian infrastructure, which is self-organized, is necessary not only
for the harmonization of the functioning of the innovation system and
national economy, but also for the survival of the country. Despite the
complexity and ambiguity of the influence of external and internal fac-
tors on the establishment and development of innovation infrastructure,
the overall positive assessment suggests that, with certain efforts on the
part of the state and business, Ukraine’s innovative infrastructure can
effectively develop and carry out its functions.

174
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5.2. The problems of development of an effective management system

of internal communications and ways to overcome them

Melnyk Yu.M., Sager L.Yu., Niño-Amézquita J.

The communication process at each of its stages can undergo certain

distortions that negatively affect the overall effectiveness of information
exchange, which, in its turn, leads to a decrease in the management ef-
fectiveness of the enterprise activity as a whole. Thus, according to the
research [5], more than 80% of errors in business processes are due to
the absence of necessary information in necessary place.
So, at all stages of the enterprise activity there are many obstacles on
the way of effective communications. They can be of interpersonal nature
(individual perception and interpretation of the message content, limited
information capacity of perception (short-term memory); inability to lis-
ten to another person, etc.), as well as various organizational, technical
and other barriers (message distortion, information overload of the ex-
isting communication system, etc.) (Table 5.4) of different degrees of
complexity for overcoming.
Many researchers distinguish different causes of inefficient commu-
nication. So, for a detailed consideration of communication problems
M.Kh. Meskon, F. Albert and М. Khedoury [4] proposed a cyclic model

176
that allowed investigating of various types of problems in communica-
tions, based on the structure of models and the connections between its
elements.
Based on the elemental composition of the model, we can distinguish
the following groups of obstacles:
1) groups related to communicator or communicant. The authors dis-
tinguish three main types of communication problems: biological, psy-
chological, sociological;
2) groups related to message: problem of message style, its language
dictionary and the possibility of unambiguous interpretation;
3) encoding (decoding) the message and response (problems of iden-
tity searching);
4) direct communication channel and feedback.
According to Osovska G.V. [6], the significant obstacles to effective
communications establishing include: the authoritarian attitude of the
administration towards subordinates, the vagueness or reluctance of
managers to perform their duties, the lack of healthy atmosphere in the
development of business policy and motivation for communication
among employees, incorrect determining of rights and responsibilities,
the fear of managers and subordinates for the consequences of the trans-
fer of forthright information, etc., as well as a number of subjective fac-
tors that reduce the effectiveness of contacts between individual employ-
ees: different interpretations of concepts, different level of knowledge,
different emotional state, etc.
As a result, the author determines the following main types of com-
munication obstacles:
1) competition between messages (in situations when the recipient is
simultaneously impacted by several sources of information, the recipient
prefers the message, which is the most important for him at the mo-
ment);
2) perception of the message by the recipient;
3) language, logic, abstraction;
4) the status of the person sending the message;
5) resistance to change.

177
Table 5.4. Obstacles to effective communication

Sub- Obstacles
Subsys-
sys-
tem ele- Uncon-
tem Controlled Partially controlled
ment trolled
of IC
 problem of the message ad-
dress targeting;
 the absence of healthy at-
mosphere in the development of
 authoritarian attitude of
business policy and motivation
Mana- the administration towards
for communication between em-
gerial subordinates;
ployees;
technol-  discrepancy between the
 analysis by the recipient of
ogies way of information transfer
the message from other perspec-
and its perception
tive than the sender, as a result
of the replacement of some con-
cepts by others because of their
fuzzy definition
Organizational

 inefficiency of the organiza-

tional structure;
Organi-
 increasing the probability of
zational
distortion of information with
struc-
the growth of the vertical power  conflicts between units
ture of
structure; and between individuals
man-
 inefficient way of work organi-
age-
zation and task distribution;
ment
 incorrect determining of
rights and responsibilities
 inaccurate performance
or reluctance of managers to
 incompetence of workers;
perform their duties;
Person-  communicative, professional
 fear of managers and
nel and methodological incompe-
subordinates for the conse-
tence of personnel
quences of the transfer of
forthright information
 the in-
 psychological incompatibil-
 inability to listen to an- stinctive
ity of persons participating in
other person; feeling of
Social the communication process;
 propensity to correlate protest
interac-  inaccuracy in the interpreta-
one’s reaction to messages against im-
Social and psychological

tion tion of the meaning of words,

with the reaction of other in- posing
gestures, intonation, facial ex-
dividuals somebody’s
pressions, etc.
will
 different needs, inter-
ests, gathered experience
 prejudiced attitude of both
Roles in  the recipient desire that con-
contractors of communication
man- sists in fact that a message
to the discussion topic and
age- should be received by someone
given arguments;
ment else
 psychological state of
system  obstacles to adaption
mind of the information
sender about the recipient
and vice versa

178
 Table 5.4. Continuation
Sub- Obstacles
Subsys-
sys-
tem ele-
tem of Controlled Partially controlled Uncontrolled
ment
IC
Social and psycho-

 the inherent
 individual percep- qualities of a
Psycho- tion and interpretation person to exag-
logical

 limitedness of information
logical of the message content; gerate what con-
capacity of perception
features  different emotional cerns himself
state and reduce what
concerns others
Com-
munica-  a large number of direc-
 distortion of the
tion tions for information obtain-
message content;
chan- ing;
nels
Information

 competition between mes-

sages (simultaneous impact  information over-
on the recipient by several in- load;
formation sources); codifica-  the excess of the real
Net-
tion – the loss of part of the information processing
works
message while encoding and capabilities of the com-
decoding of the message; munication system and
 difficulties in receiving people, who belong to it;
the feedback;
Soft-  the obsolete software of in-  vulnerability of com-  high cost of
ware formation and communica- munication systems; modern infor-
Technical and technological

tion systems; mation and

 incomplete use of the func- communica-
tions of information and com- tion systems
munication systems;
Hard-  the obsolete systems of  failures in the
ware data-storage and data trans- equipment operation;
fer;
Infor-  simplifying of information  imperfect pro-
mation that reduces the number of cessing algorithms re-
pro- meaningful ideas, reduces garding unstructured
cessing the connection with the mes- problems;
system sage context;

Frolov S.S. [9] determines two groups of communication problems in

the organization:
1) problems of structural communications connected with the barri-
ers that arise in the process of information transfer, when the functions
of each unit are not clearly and unambiguously defined;
2) problems of interpersonal communication connected with behav-
ioral aspects of the organization activity.

179
 At the same time, the author does not take into account that there
are barriers connected with the process of information transfer as well
as with interpersonal communications (the excess of the real information
processing capabilities of the communication system and people, who be-
long to it; difficulties in feedback receiving; simplified information; com-
petition between messages; a large number of directions for information
obtaining, etc.)
Syrotyna K.V. [8] suggests a similar approach, adding the problems
connected with a lack of understanding between employees of different
units to the structural and interpersonal communication problems. The
author also gives the causes for these obstacles.
Shepel V.M. [3] distinguishes six types of communication problems:
1) discomfort of the physical environment, where the message is per-
ceived;
2) concern of the listener with other problems;
3) antipathy to other people’s opinions, stereotyping of conscious-
ness, ambitiousness;
4) language barrier;
5) professional rejection: incompetent intrusion of the communicator
into the professional sphere of the communicant;
6) rejection of the communicator’s image.
Lazarev S.V. [3] also talks about filtration (conscious manipulation of
information by the sender), selective perception, information overload
and gender differences that hinder the communication process.
Kurbatov V.І. [2] grouped the errors that arise in the communication
process in way as follows:
1. Sending a message (the message is poorly worded and stated, the
message is incomplete and insufficient, the message codes are badly se-
lected, erroneous data are transmitted).
2. Receiving messages (the message is incomprehensible; the mes-
sage is understood incorrectly; the recipient’s prejudicial attitude to the
sender’s message; the message is not received at all; the message is not
acknowledged).
3. Personal attitudes (inattention while sending and receiving mes-
sages; lack of interest; incompetence; haste; irritability; extreme emo-
tionality; aggressiveness; non-compliance with communication rules).
4. Collective action (absence of a common goal; the struggle for leader-
ship in the group substitutes the common goal; very strong dependence on
the leader; excessive authoritarianism; the absence of a leader).
5. Organization (poor organization of the group, absence of distribu-
tion of functions among the participants; absence of a method of work;
lack of control, insufficiently developed communication structure; a

180
structure of communication doesn’t correspond the problem being solved;
the structure of communication is too tough; there are several communi-
cation structures that are not coordinated with each other) [6, p. 43-44].
According to Fysun A.V. [9], the effective functioning of the internal
communications system is impeded by such factors as: lack of corporate
identity, controlled reputation; the problem of cognitive dissonance (the
situation when a person receives conflicting judgments of approximately
the same status about the same subject from different sources); the grow-
ing amount of information and the lack of time for its consideration; lim-
ited information capacity of perception (limitedness of short-term
memory); poor structuring of the message; discrepancy between “text”
and “pictures”; irrelevance (inconsistency of the way of the information
presentation to its perception); the problem of targeting of channels and
content; ignoring of audience information requests. The author calls the
absence of a real marketing approach to the development of the system
of intracorporate information distribution as an integral problem that
prevents the effective functioning of internal communications funds.
Russian researcher Rybkin A. [7] determines four main groups of
communication barriers: problems connected with goal-setting, enter-
prise structure, technical and personal problems.
Thus, within the first group, the author identifies following key ob-
stacles: the absence of common goals or their misunderstanding, incon-
sistency of goals and actions, incorrect goal wording, convergence (cross-
ing) of goals, incorrect wording of tasks within a clear goal.
Another group of possible problems is connected with the structure of
the enterprise and contains the following obstacles:
- non-optimal structure;
- poorly organized business processes and distribution of documen-
tary and information flows;
- unclear distribution of responsibilities and spheres of responsibility;
- the lack of information among employees concerning the func-
tional responsibilities of the employees of the enterprise and to whom
and concerning which issues one can address;
- limited access to information;
- absence of the procedures of information exchange, decision mak-
ing, etc.
Technical problems can negate all efforts, even if there is a desire to
convey their point of view to the personnel of other departments or or-
ganize the exchange of views, primarily due to the following reasons:
- slow speed of information transfer;
- wrong choice of information sources;
- incompleteness and inaccuracy of information transfer;

181
 - insufficient information literacy of personnel;
- inadequacy of information transfer, «noise» distortion.
Accordingly, the personal component includes informal relationships
between employees and groups, clashes of ambitions, personal charac-
teristics, inconsistency of joint projects to interests, inevitability during
the interaction of time expenditures that provide additional load, incon-
sistency of the existing «balance of power», feedback neglecting.
Pushkar R.М., Tarnavska N.P. [2] consider that the main barriers of
communication are as follows: competition between messages; percep-
tion of the message by the recipient; language, logic, abstraction, i.e.
sender must adapt his messages to the level of the audience, skillfully
select a dictionary, design of his messages; the status of the person send-
ing the message; resistance to change.
In general, regardless the approach of one author or another, the con-
sidered obstacles worsen the condition of the internal communications
and the state of the communication processes management at enter-
prises as a whole. At the same time, ineffective management of commu-
nications can manifest itself in many negative consequences for the enter-
prise –from insignificant, concerning individuals, to large-scale ones,
which significantly affect the activity of the whole enterprise.
Thus, the examples of ineffective management of internal communi-
cations can be as follows: duplication of functions, loss of time with sim-
ultaneous use of various communication channels, providing of unneces-
sary information, etc. Let us consider them in more detail.
Therefore, during simultaneous use of different communication chan-
nels for the same information transfer (Figure 5.2), there is a loss of time
and the information load on the department or on its employees in-
creases which have to analyze all received information and compare its
identity.
Thus, in Figure 5.2 we presented a typical elementary scheme, which
shows the transfer of identical information through various communica-
tion channels with use of various communication media. At the same
time, there may be a situation when messages are transferred via differ-
ent channels by one type of information transfer means (for example,
within the technological one: by phone, e-mail, Skype, etc.), that can be
complicated by obtaining a number of similar messages from some de-
partments or some people. In practice, it is an array of information. As a
result duplication of messages leads to their accumulation, an increase
in processing time and the appearance of errors in the interpretation of
their content and the decision making.

182
 official note
Top management
e-mail

meeting

Department 1 Department 2 …. Department n

Employees

Technological means Increase in the

amount of the
Document flow information load
Personal communication

Figure 5.2. Scheme of simultaneous use of various communication chan-

nels for the transfer of identical messages (hypothetical example)

The duplication of functions (Figure 5.3) is considered as the fulfill-

ment of the same work at different hierarchical levels of management by
different structural units and different persons.

Top management

Department 1 Department 2 …. Department n

1.1 1.2 1.2

1.2 1.5 2.1
1.3 2.1 2.2
Functions

Functions
Functions

1.4 2.2 n.1

1.5 2.3 n.2
2.1 2.4 n.3
2.3 2.5 n.4
n.4 n.5 n.5

*Shading shows the functions that are duplicated

Figure 5.3. The duplication of functions as one of the forms

of manifestation of ineffective management of internal communications
of the enterprise (hypothetical example)

183
 First of all, it should be noted that there is a minimum acceptable
(necessary) number of duplicating functions (as a rule, they are of check-
ing and controlling nature) at each enterprise. However, in situations
when actually all functions, which according to the job descriptions,
management instructions, project needs, etc., must be assigned to one
person/one unit, are duplicated by several persons/units, it, above all,
leads to an increase in the load on the employees, reduce of attention to
the basic functions, possible performance degradation, loss of time on
unnecessary functions performing, the lack of clear distribution of re-
sponsibility for the result of a specific person and a decrease in the effec-
tiveness of the performed functions.
The emergence of communicative gaps in business processes is the
next variant of the consequences of ineffective management of internal
communications (Figure 5.4). These gaps are formed under the influence
of many factors, including the factors of social, organizational, techno-
logical and informational nature (Table 5.4). Accordingly, the presence
of such gaps leads to the distortion of the message content, to partial or
complete loss of information as a result of the interruption of the com-
munication process, which, in turn, leads to the delayed performance or
failure to perform tasks (for example, unfulfilled orders, expired dead-
lines), loss of information relevance, inconsistency of the information to
the situation at the enterprise, etc.

Top management

Department 1 Department 2 Department 3

...

Department n

Communication gap

Figure 5.4. Communication gaps in communication process

(hypothetical example)

184
 Providing of unnecessary information (Figure 5.5) from one depart-
ment/person to other departments/persons is also one of the forms of
manifestation of ineffective management of internal communications.
The problem is that the existing practice of enterprises to do mass,
rather than purposeful dispatch of information messages leads to the re-
ceiving of unnecessary, superfluous information by the functional units
of the enterprise. The results are:
- loss of time for analysis of received information;
- reducing the degree of responsibility of the person who must per-
form the tasks;
- loss of well-established feedback;
- reduction in the degree of controllability of the collective;
- duplicating of functions;
- emergence of additional communication channels, etc.
All this causes the complication of communication system at the en-
terprise and increases the duration of business processes.

Top managment

Production Planning Logistic Finance

department department department department

Marketing
... Sales department
department

Information about marketing budget

Figure 5.5. Providing of unnecessary information as one of the forms of

manifestation of ineffective management of internal communications
(hypothetical example)

Unclear wording of goal (tasks) (Figure 5.6) provides, accordingly, dif-

ferent understanding of the goals (tasks) by different units /individuals
and as a result – the use of various methods and means to achieve them.
The process of actions coordination on achieving the result is compli-
cated. The essence of result everyone understands in his own way. All
this leads to a shortage of the planned results within the set period and
in certain volumes.

185
 Department 1 Top managment Department n

Department 2 ….

, , , - different understanding of the goal due to its unclear wording

Figure 5.6. Scheme of unclear setting of goal by management

(hypothetical example)

In general, the researchers identify a large number of problems with

narrowed directions: only social, psychological and other types of obsta-
cles are taken into account. There is no integrated approach that allows
an enterprise to systematize the existing barriers with purpose to carry
out thorough analysis (availability, preconditions and degree of occur-
rence probability) and to make appropriate management decisions to
minimize the impact of barriers or eliminate them completely. Obstacles
are not distinguished by the elements of the communication system, alt-
hough the problems of unsatisfactory information exchange named by
different authors are well integrated into the proposed concept of the
determining of technological, socio-psychological, organizational and in-
formation subsystem. At the same time, we suggest to distinguish the
economic direction of the causes of ineffectiveness of internal communi-
cations and separation of the barrier types discussed above by deter-
mined directions (Figure 5.7). We also consider it appropriate to deter-
mine the consequences caused by inefficient communications under the
impact of organizational, socio-psychological, technological, information,
economic groups of communication obstacles and possible solutions in
case of necessity (Figures 5.8-5.9).

186
 As to economic nature:
• miscalculations in the system of logistics;
• physical and moral depreciation of fixed assets;
• long period of depreciation of fixed assets;
• increase of tax pressure on the enterprise;
• inefficient use of production capacities and areas;
• low level of marketing activity;
• lack of effective innovation and investment policy;
• etc
Causes of inefficiency

As to information As to technological As to social and As to organizational

nature: nature: psychological nature: nature:

• suppression of information; • an excessive number of

• uncertainty of data; • erroneous interpretation of levels of management;
• unreliability of • overload of the messages; • weakness of horizontal
information; communication • uncontrolled informal communications;
• inconsistency of the channels; communications; • unequal distribution of
way of data transfer to • imperfect software; • distrust of the author of the authority;
the communication
goals; • insufficient level of messages; • overload of managers;
• inconsistency of
technical equipment of • bias in the messages • bad wording of messages;
the enterprise; assessment;
information in different •
departments; • inconsistency of • increased level of conflict; address targeting problems;
• use of obsolete
hardware;
• emotional excitement of the • lack of clarification;
information, ambiguity • poor performance of employees; • incorrectly calculated time
of messages; technical services; for messages response;
• ignoring the personal
• excess of information; • weakness of internal characteristics, emotional • incompetence of employees
local network; state, level of knowledge; (lack of qualification);
• imperfection of the
information coding • low level of technical • disrespect for the opinion of • ineffective way of work
system; education of the communication organization and tasks
personnel; participants; distribution (including the
• competition between
messages; • etc. • carelessness and lack of absence of job
desire for communication; descriptions);
• etc. • etc.
• etc

Figure 5.7. Types of causes of internal communications inefficiency

• mismatching of duplication of
performed functions and targets;
• deterioration of the • accumulation of unfulfilled tasks;
psychological climate;
• loss during the • reduce of manageability of
transfer and • disinterest in the end
personnel, responsibility level of
storage of result of work;
• frequent failures authorities;
information; in the technical • conflict of interests, • violation of labor discipline;
• information disto support system; motives;
rtion • excessive time of • deterioration of • disclosure of confidential
information;
• during transfer; servicing; relations with
• etc. contractors; • increase the level of employee
• information turnover;
overload; • lack of loyalty of
personnel to the • low level of working capacity;
•
Consequences

etc. enterprise; • no use of labor capacity;

• etc. • loss of skills;
• etc.

As to information As to technological As to social and As to organizational nature

nature nature psychological nature

• sales volume decrease

• loss of customers/sales markets
• loss (shortfall) of profits
• decrease of competitiveness level
• loss of positions in the market
• slowdown of the enterprise activity, bankruptcy, liquidation
• etc
As to economic nature

Figure 5.8. Consequences of internal communications inefficiency

187
 Decisions

• development of the system of primary control of information

As to
information • implementation of measures and means of information protection, information, As to economic
security control nature
component
• etc

As to technical
and • increasing the level of technical education of personnel
technological • software update, upgrades or replacement of equipment, etc. • search and
component support for
innovation
• diversification of
• change of type of management production
As to social
• selection of personnel taking into account the psychological type of job • change the
applicant strategy of the
and enterprise activity
• measures to strengthen the team spirit
psychological
• development and implementation of corporate norms, rules, principles of • enterprise
component reorganization
internal communications, systems of communications quality
• etc. • market exit
• etc.
• development and implementation of corporate norms, rules, principles of
internal communications, systems of communications quality
As to
• advanced training and personnel training
organizational • change the organizational structure of management
component • change of type of management
• staff turnover
• etc.

Figure 5.9. Possible variants of managerial decisions depending

on the types of causes of the internal communications inefficiency
and their consequences

It should be noted that most of the solutions presented in Figure 5.9,

carry the fundamental changes and are accompanied by considerable
time and money losses. To prevent them, it is necessary, first of all, to
build a mechanism for assessing the negative impact of factors of the
internal and external environment on the communication process, with
an emphasis on the analysis of the preconditions for occurrence and the
likelihood of communication obstacles. It is also appropriate to imple-
ment the measures on prevention or minimization of the risk level of
communication obstacles occurrence.
The effectiveness of any communications depends on several elements,
in particular: the source of the message; the essence of the message; audi-
ence (level of preparedness, quality (self-respect, dogmatism, authoritarian-
ism); channels and means of communication (verbal and non-verbal).
If the degree of development of the current communication system is
insufficient to ensure the operation of the enterprise, then it is necessary
to identify the weaknesses of the system and to formulate the measures
on communications improving [10]. The conducted researches prove that
the communication is hampered by the causes connected with imperfec-
tion of separate components of the communication system.
Accordingly, to minimize the impact or overcome each of these barri-
ers, there are certain measures, the application of which should be

188
comprehensive and take into account the specifics of all participants in
this communication process [11]:
1) implementation, replacement or modernization of the enterprise
management information system or its individual elements;
2) improvement and modernization of the technical infrastructure of
communications and software;
3) improvement of informational support of the enterprise activity;
4) development or improvement of external and internal communi-
cation strategy;
5) increase of the communicative literacy of employees;
6) improvement of the organizational structure of enterprise man-
agement and ensuring its communication flexibility;
7) compliance with the principles of forming the system of internal
communications at the enterprise.
Therefore, in order to increase the effectiveness of communications, it
is necessary to explain clearly the messages, demonstrate the understand-
ing, openness in conversation, watch the behavior and the respondent’s
response; coordinate the information flows of the organization, simplify
the information exchange schemes, pay attention to the intonation of mes-
sage and its unambiguous interpretation, use modern technologies for ac-
curate and fast data exchange, use various IC tools with taking into ac-
count the different aspects of perception by the target groups. But, first of
all, the effective construction of a communication system should be based
on the principle of feedback. Only in such case, the main goal of using the
formation will be achieved by increasing the level of loyalty and motiva-
tion of the personnel of a healthy corporative culture that supports the
business development strategy and helps to achieve the enterprise’s goal.

References

1. Balabaniuk, Zh.M. (2011). Mekhanizm upravlinnia orhanizatsiieiu: sutnist

poniattia ta propozytsii shchodo otsinky yoho efektyvnosti [Organization
management mechanism: the essence of the concept and proposals for evaluating
its effectiveness]. Visnyk Khmelnytskoho natsionalnoho universytetu – Herald of
Khmelnytskyi national university, 5, 190-194.
2. Bosak, A.O. (2007). Prychyny neefektyvnosti komunikatsii u systemi
ekolohichnoho menedzhmentu [Reasons of communications ineffectiveness in
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systemi upravlinnia – Ecological management in the general management system:
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kommunikatsyy [Overcoming obstacles to effective communication]. Upravlenie
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 4. Meskon, M.Kh., Khedoury, M., & Albert, F. Osnovy menedzhmenta
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naladit-effektivnuyu-kommunikaciyu-v-kompanii.
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Economics Review, 6(1), 25-46.

5.3. Activity of electric power engineering enterprises

on the basis of socially responsible marketing

Samoylenko I.О., Gnatenko M.K.

In the context of the country’s economic development globalization, it

is extremely important to revise the entire socio-economic system on the
basis of ensuring such standards as responsibility, corporate community,
dynamism, tolerance, high transparency, etc. Due to a number of objec-
tive factors, the issue of social restructuring and modernization of power
industry enterprises management is of vital importance by integrating
social standards into the corporate policy of electric power companies
that would meet the requirements of the modern civilization world, high
social standards of life, promote the development of electricity companies
and would have a positive social influence.
Numerous programs, projects, and memoranda aimed at creating the
conditions for sustainable development achieving, e.g. the International
Standard ISO 26000: 2010 «Guidance on social responsibility» [1], the

190
Standards of the social and ethical accounting, auditing and reporting
AA1000 (AccountAbility 1000), the International Standard to assess the
social aspects of management systems SA 8000 (Social Accountability
8000), the UN Global Compact in Ukraine (serves as the translator of
the Sustainable Development Goals) [2], the Memorandum on Corporate
Social Responsibility (CSR) in Ukraine [3], «about the CSR Community»
[4], and a whole range of scientific researches [5-10], are for the benefit
of this problem and show both global and domestic interest in integrat-
ing socially responsible marketing in business activity and corporate
structures.
Since the 1970s, the term social responsibility is used in international
practice to identify a company’s voluntary commitment to improve the
quality of life and work of its employees, as well as society and the envi-
ronment as a whole. This term does not replace the notion of «charity»
and «public activity», through which a company confidently deserves the
trust of employees and consumers – social responsibility is a deeper con-
cept, through which the company provides itself, first of all, stable and
reliable conditions for its own business development.
We consider CSR as an activity aimed primarily at: consumers, em-
ployees, the state and society as a whole; as an organization’s activity,
which is responsible for its decisions and actions influence on the stand-
ard of Ukrainian society living and environment improvement; as an or-
ganization’s activity, which, through the implementation of transparent,
honest, open and ethical behavior, promotes sustainable development,
including health and well-being of people; takes into account the society
interests and the stakeholders expectations; implements programs of so-
cial responsibility, that are related to the support of vulnerable groups
of the population and work for the long term in accordance with the re-
quirements of active legislation and international standards of conduct.
According to the UN [11, p. 9] 75.8% of corporate entities in Ukraine
are engaged in the implementation of social responsibility programs. In
this regard, it is extremely important to develop new, effective mecha-
nisms for implementing the concept of socially responsible marketing
into the activities of electric power companies, which not declaratively,
but at the real cases would prove the Ukrainian citizens the benefits of
building a civil society that takes into account the society expectations
and complies with active legislation and international standards of con-
duct. «The modern consumer is no longer attracted to the formal decla-
ration of values. Today, the consumers seek for a sincere interest in
solving their problems, and the company’s desire not only to become bet-
ter, but also to change the world around itself. In the era of society

191
informatization it is important for the domestic enterprises to substan-
tiate its affiliation with the sustainable development supporters» [10].
Taking into consideration mentioned above, following the main prin-
ciples and guidelines of responsible marketing proposed by Patrick
Byers [12], based on the postulates of the Global Reporting Initiative
(GRI), that define as essential for business the issues and indicators
which reflect significant social, economic and the environmental impact of
companies, that may have a significant influence on the behavior of stake-
holders or on the company itself [13], let’s consider the ways to increase
the level of consumers’ interests protection by Legislative consolidation of
service quality standards as well as liability measures for non-compliance.
In general, the practical implementation of the socially responsible
marketing principles in the activities of electric power companies is car-
ried out through five key aspirations for social responsibility: a company
for its consumers; a company for its employees; a company for the commu-
nity; a company for the environment (eco-company); reliable and safe com-
pany. The philosophy of these five aspirations is given in Table 5.5.

Table 5.5. Five key aspirations for social responsibility

Essential content Goals and Indicators

a company for its consumers
The modern concept of busi- 1. Improvement of company business processes proceeding
ness management has set a from the client’s expectations;
new philosophy of B2C in- 2. Increasing and improving the main communication chan-
teractions – the formation of nels with the consumer: work of the call center, SMS-inform-
a transparent environment ing, web-chat development; operative service of all consum-
between the company and ers’ phone calls;
the consumer, trustful and 3. Opening of Customer Service Centers. The key – is the
productive relationships. principle of a «single window»;
The increasing company at- 4. Implementation of customer-friendly payment methods, in
tention to the customer ser- particular, the work of the Personal Cabinet – a separate sec-
vice requires the introduc- tion on the Company’s website for each electricity consumer.
tion of high standards of ser- 5. Introduction of the Customer Service Standard - a clear
vice, the establishment of set of rules and instructions on how to make enjoyable, effi-
new approaches to the qual- cient and non-conflict communication with the client;
ity of traditional functions 6. Improving the quality of electricity transmission and ensur-
performance by each em- ing energy supply reliability; shortening scheduled shutdowns;
ployee, the understanding increasing the operational and repair personnel efficiency;
by each specialist his proac- 7. Providing consumers with prompt and accurate infor-
tive behavior in managing mation on power outage. The key – is to adapt the company’s
the process of interaction services to the customer needs, to provide quick and efficient
with the consumer responses to all consumer requests;
8. Admission of citizens to energy company XOs: establishing
communication between the energy company leadership and
consumers

192
 Table 5.5. Continuation
Essential content Goals and Indicators
a company for its employees
In its activities the com- 1. Implementation of the contractual relations terms (the
pany is guided not only by purpose - is not to worsen the conditions of the current Col-
the task of effective imple- lective agreement and to fulfill the obligations entered into);
mentation of human re- 2. Preventive and information program of medical direction;
sources management pro- 3. Provision of decent wages;
cesses, but also creates an 4. Promotion of employees’ professional development;
environment that opens 5. Development and maintenance of a favorable microclimate
up new opportunities for in the team (ensuring comfortable and safe working condi-
employees development, tions, attention to the life and health of each employee and
stimulates new initiatives his family is crucial for the company’s activities);
and achievements, is in- 6. Employment of people with disabilities;
teresting for daily activi- 7. Increase of competencies in project management;
ties 8. Active inner life
a company for the community
The support of cultural 1. Sports support;
traditions is one of the key 2. Cooperation with local communities;
elements of the company’s 3. Development of charity;
social investment. It pro- 4. Assistance in implementation of the barrier-free environ-
motes the promotion of the ment program (unimpeded access to public facilities for the
enterprise not only at the disabled) through the introduction of volunteering
regional and national
level, but also worldwide
a company for the environment (eco-company)
An important characteris- 1. To promote the energy and resource efficiency improve-
tic of social responsibility ment (accounting for consumption and rational use of all re-
is the desire to integrate sources: water, electricity, paper, stationery, cartridges; pro-
social and environmental curement considering environmental properties and labeling
issues into their decision- of goods; reducing transport impacts on the environment by
making process and be ac- both the company and its employees, etc.;
countable for the impacts 2. Systematization of environmental protection (gradually re-
of these decisions and ac- placing environmentally harmful fluorescent and energy sav-
tions on society and the ing lamps with more environment-friendly and energy effi-
environment cient LED bulbs; attracting (on a voluntary basis) company
employees to ecological actions (local, regional, national),
etc.);
3. Improvement of the process of waste utilization from the
company’s activities (for example, to implement separate col-
lection of waste for further utilization (plastic, glass, paper,
solid household waste));
4. Promoting environmentally conscious behavior through
the development of a system for managing ecological
knowledge aimed at increasing the ecological awareness of
employees;
5. Implementation of the environmental management system
in accordance with ISO 14001.
6. Implementation of the energy management system based
on the requirements of the international standard ISO
50001.

193
 Table 5.5. Continuation

Essential content Goals and Indicators

reliable and safe company
The specifics of the 1. Ensure compliance with the International Standard OHSAS 18001
activities of the (conducting internal audits to detect non-conformities of the labor
electric power in- protection management system to the standard, its operational anal-
dustry enterprises ysis and elaboration of corrective actions to eliminate identified non-
are connected to conformities);
the work with a 2. Popularization of «safe» behavior in a team;
dangerous prod- 3. Reducing the electric traumatism by raising awareness of the pop-
uct, which is why ulation;
the reduction of 4. Replacement of equipment that does not meet safety requirements;
risks is a priority 5. Expansion of informing children about safe behavior near the com-
for the enterprise pany’s energy equipment through the development of corporate vol-
activity unteering (excursions to the museum for school pupils, actions in
child camps);
6. Regulation of electrical equipment

It should be noted that in the liberalized electricity market the cus-

tomer rights are protected taking into account the mutual influence of
three factors:
- market competition that forces suppliers to offer the best prices
and quality of services to the consumers;
- regulatory control of energy companies to ensure the reliability
and quality of electricity supply for all consumers at affordable prices;
- the influence of consumer associations representing and protect-
ing consumer interests, on regulators and suppliers.
In this regard, the regulation of the quality of services in the domestic
market of electricity companies can be carried out with the following
measures:
- establishing requirements for the publication of information on
the energy supply company (ESC) performance indicators, which ena-
ble to create external pressure and stimulate ESC to address quality
issues;
- conflicts resolving measures: organization of quality of service
hotlines, appointment of the Commissioner for Consumer Rights, par-
ticipation of consumers in the consulting or supervisory boards of com-
panies;
- establishment of minimum standards of activity: the definition of
minimum limits on certain aspects of activity, the violation of which in-
volves imposing fines and reducing tariffs;
- the use of incentive measures: the establishment of target quality
indicators, the failure to achieve which imposes fines, and the excess - a
financial reward.

194
 In accordance with the international standards, assessment of the re-
liability and quality of ESC services is determined by its effect for end
users. For many consumers ESC is the «only window» in the electric
power industry. It is in terms of quality of services that the consumer
values the transformations in the industry, the efficiency of energy sec-
tor functioning, the fairness of tariffs, and often the work of the author-
ities. In this regard, regulation should focus on those service quality in-
dicators that are, firstly, important to the consumer, and secondly, can
be controlled by the ESC and, thirdly, can be quantified by the regulator.
The assessment relates primarily to service quality aspects such as
continuity or reliability of electricity supply (number and frequency of
power outages); technical quality (physical characteristics of electricity
supply, for example, voltage variations); commercial quality (the quality
of relations between the companies and consumers, for example, com-
plaints from consumers, time of consumer complaints response, etc.).
Taking into account that the indicators of commercial quality of services
are the time and quality of service of consumers, the quality of informing
consumers and indicators of consumer satisfaction, the generalized indi-
cator is integrated and consists of indicators of the quality of services
provided, determined in points (maximum - 3 points) and calculated ac-
cording to such formula:

𝑦К𝐶𝑂𝑀 = 𝑘і.× Іінф. + 𝑘в.× Івідпов. + 𝑘рез.× Ірез., (5.2)

where Іinf. – the quality of informing indicator; Іresp. – the quality of

responsibility indicator; Іperf. – the feedback performance indicator;
kі., kr., kp. – weight coefficients of the corresponding quality indicators for
which the following values are recommended: ki. = 0,1; k r. = 0,6; kp. = 0,3.

The value of each indicator of the quality of services provided is de-

termined by the assessment of the relevant quality indicator as the
arithmetic mean of all the estimates of the parameters characterizing
the corresponding quality indicator.
The quality of informing indicator Іinf. characterizes the complete-
ness, authenticity, relevance and accessibility for consumers of infor-
mation on the volume, order of provision and cost of the services pro-
vided, and is determined by the following formula:

1 𝐼𝑖𝑛𝑓
𝐼𝑖𝑛𝑓 = ∑6𝑗=1 𝑂𝑗 (5.3)
6

195
 𝐼𝑖𝑛𝑓
where 𝑂𝑗 – the value of the estimated point of the j-th parameter of
the quality of informing indicator.

The quality of responsibility indicator Іresp. characterizes the degree

of ESC obligations to customers fulfillment in due time, regulated by the
relevant documents, and is determined by the following formula:

1 𝐼
𝐼𝑟𝑒𝑠𝑝. = ∑7𝑗=1 𝑂𝑗 𝑟𝑒𝑠𝑝 (5.4)
7

𝐼
where 𝑂𝑗 𝑟𝑒𝑠𝑝 – the value of the estimated point of the j-th parameter
of the quality of responsibility indicator.

As a variable that influences the value of the quality of responsibility

indicator, advocates the assessment of compliance with regulatory and
legal acts on the electricity quality and compliance with legal norms on
the protection of consumers personal data.
The feedback performance indicator Іperf. characterizes the availa-
bility of effective feedback to customers, which enables to adequately ad-
dress the issues arising in the course of their activities, in particular
those related to the quality and cost of the services provided, and is de-
termined by the following formula:

1 𝐼
𝐼𝑝𝑒𝑟𝑓. = ∑5𝑗=1 𝑂𝑗 𝑝𝑒𝑟𝑓 (5.5)
5

𝐼
where 𝑂𝑗 𝑝𝑒𝑟𝑓 – the value of the estimated point of the j-th parameter
of the feedback performance indicator.

It is worth noting that the international method of data collection on

the reliability and quality of energy supply obliges the companies to shift
the emphasis on assessing consumer satisfaction with the quality of
their services. It is possible to receive and parameterize this estimation
only through the feedback performance indicator Іperf.
Summing up, it should be noted that the strength of the introduction
of socially responsible marketing into the electricity companies’
activities is the harmonization of relations and the establishment of
partnerships between power companies, consumers, government agen-
cies and the public. Electric power companies receive: increasing level of
consumer confidence in the company activities, its products and services;
compliance with international norms, principles and standards; the

196
trust of foreign investors and their loyalty; improvement of business rep-
utation and image of the company, provision of public reputation; im-
proving energy infrastructure as well as financial and economic perfor-
mance, obtaining from stakeholders information that can help improve
business processes; stability and sustainable existence of the company
in the long run. In addition, the security of the energy infrastructure is
strengthened and the guarantees of infrastructure provision of the nec-
essary volumes of services emerge to maintain the tariff at an acceptable
level.
Consumers receive: affordable, reliable, efficient, high-quality, envi-
ronmentally safe, properly regulated and socially-accepted energy ser-
vices, as well as reasonable tariff policies that provide for the availability
of electricity to all population segments.
Society and the state: improvement and development of the institute
of consumer rights protection; development and legal consolidation of
mechanisms of legal behavior according to legislative and contractual
norms and corporate values; ensuring social welfare, transparency and
accessibility of information about the state of the energy infrastructure
(EI) subjects, strengthening the relations of the EI subjects with the pub-
lic and cooperation between the key participants of the process; ensuring
the balance of consumer, society and state interests and their mutual
responsibility; stimulation of innovation activity and the possibility of
supporting investment projects and innovation projects of the EI enti-
ties; responsible corporate governance and new opportunities for eco-
nomic, social and cultural prosperity of the country.
The weak point is that socially responsible marketing within the frame-
work of our society is more of a scientific research and discussion subject
than the norm and regulator of public life. In addition, the other obstacle is
the lack of legislative regulation and information closure of the majority of
Ukrainian electric power companies to the general public (detailed infor-
mation on the company’s internal and external activities is closed).
The opportunities include relying on international experience on:
What minimum standards should be set for energy companies’ customer
services? How modern technologies within the framework of socially re-
sponsible marketing affect the organization of work with consumers (col-
lection of payments, notification, and organization of commercial ac-
counting)? What are the best international practices in customer
service? What are the international standards for social responsibility
and normative and legal acts in the sphere of consumer interests protec-
tion and vulnerable population groups?
Among the threats and obstacles to the successful implementation of
such projects there are such factors:

197
 - there are no incentives to improve the quality of services (the reg-
ulatory company is mainly focused on the requirements of the regulator
and not on consumers);
- there are no mechanisms for stimulating the ei to optimize invest-
ment activity (the existing tariff policy «cost plus» for transmission and
supply of electric energy is ineffective because it does not create incen-
tives for reducing operating costs and losses of power companies, does
not form investment attractiveness of the industry, does not stimulate the
development of the economy and social sphere. it should be noted that the
justified tariff policy envisages the availability of electricity to all popula-
tion segments and is a guarantor for the population);
- there are no institutional instruments (lack of a body that could
introduce mechanisms of public control with the consumers participa-
tion).
Taking into account the above-stated analysis of the principles of so-
cially responsible marketing in the power industry, it can be argued that
social responsibility nowadays is a prerequisite, leading to a financially
profitable business and sustainable development of both the company
and the state as a whole. Implementation of corporate social responsibil-
ity should be carried out in four directions: (1) corporate management
standards; (2) employees; (3) society; (4) the environment, which in turn
indicates a strategic approach to social responsibility and its implementa-
tion. In addition, it should be noted that the policy and strategy of corpo-
rate social responsibility should be closely linked to the development strat-
egy of the enterprise, as the electricity industry is a part of society in gen-
eral and of the territorial community in particular.
Due to the fact that electricity companies are part of society in general
and of the territorial community in particular, they must react system-
atically to social needs, provide the right example, ensure the rule of law,
humanity and responsibility in their territory and outside their own lo-
cation. And the term corporate social responsibility for electricity com-
panies is manifested in the social, economic and cultural life of citizens
and is based on the principles of honesty, openness, transparency and
responsibility.
In order to ensure the interests of consumers, increase the level of
electric power companies corporate consciousness and develop a socially-
oriented system of energy infrastructure, it is necessary to add to a list
of strategic priorities such key issues as increasing the reliability of elec-
tricity supply and ensuring the quality of services provided with the
transition to the world standards. An integral part of these measures
implementation is the construction on the basis of international stand-
ards of reliable measurement and control system for reliability and

198
quality of services, as well as increasing the responsibility of network
organizations management for their failure to comply.
The phased introduction of socially responsible marketing into the
activities of electric power companies can become a source of strong
growth in the energy sector and significantly increase the level of con-
sumer well-being.

References

1. ISO 26 000: 2010. Retrieved from http://znaimo.com.ua/ISO_26000.

2. UN Global Compact. Retrieved from http://www.globalcom-
pact.org.ua/ua/about/inukraine.
3. Zinchenko, A.H. & Saprykina, M.A. (2010). Korpoiratyvna sotsialna vidpovi-
dalnist [Corporate social responsibility]. Kyiv: «Farbovanyi lyst».
4. Pro spilnotu SVB [About socially responsible business community]. Re-
trieved from http://svb.ua/about.
5. WBCSD – World Business Council for Sustainable Development. Retrieved
from http://www.wbcsd.org.
6. Sotsialna vidpovidalnist biznesu: rozuminnia ta vprovadzhennia [Social
responsibility of business: understanding and implementation]. Retrieved from
http://www.un.org.ua/files/Concept_Paper.pdf.
7. Chatterji, A., Levine, D. How Well Do Social Ratings Actually Measure
Corporate Social Responsibility? Retrieved from http://www.hbs.edu/fac-
ulty/Publication%20Files/07-051.pdf.
8. CSR indices worldwide. Retrieved from http://www.odpowiedzi-
alni.gpw.pl/csr_indices_worldwide.
9. Socially-Responsible Investing. Retrieved from http://www.odpowiedzi-
alni.gpw.pl/socially_responsible_investing.
10. Vidpovidalnyi marketynh. Haid dlia kompanii [Responsible marketing.
Guide for companies] (2012). Kyiv: Vidavnychiy dim «ADE-F Ukraina».
11. Lazorenko, O. & Kolyshko, R. (2008). Posibnyk iz KSV. Bazova infor-
matsiia z corporatyvnoi sotsialnoi vidpovidalnosti [CSR Guide. Basic infor-
mation on corporate social responsibility]. Nadra bank: broshura [Nadra Bank:
brochure]. Kyiv: «Enerhiia».
12. Patrick Byers – The Responsible Marketing Blog. Retrieved from
http://responsiblemarketing.com/blog/about-patrick-byers.
13. GRI Implementation manual. Retrieved from https://www.globalreport-
ing.org.

199
 5.4. Methodical principles for the definition of market knowledge
perspectives of a machine-building enterprise

Illiashenko S.M., Shipulina Y.S., Rot-Sierov Ye.V., Strielkowski W.

The current economic development is characterized by the growing

role of non-material factors, knowledge in particular, enabling formation
and development of enterprises’ competitive advantages. Hence, a vital
issue of enterprises’ knowledge management system formation and im-
plementation occurs. Its main tasks include: definition of promising ar-
eas of production and application of knowledge; management of
knowledge production or adoption processes; selection of most effective
ways of knowledge application, etc. This problem is urgent for machine-
building enterprises, since they greatly contribute to development of ba-
sically all branches of the national economy.
An analysis of literary sources [1-8] showed that domestic machine-
building enterprises use their scientific potential and material basis in-
efficiently. The most successful enterprises use an effective knowledge
management. This allows them to determine promising directions (con-
sidering the whole complex of internal and external conditions) of mar-
ket opportunities, and to form, strengthen and effectively use relative
competitive advantages, etc.
The experience of successful Ukrainian enterprises, as well as foreign
manufacturers, the achievements of domestic and foreign scholars
should form the basis for the development of a knowledge management
system of Ukrainian machine-building enterprise. Its practical imple-
mentation will strengthen positions of domestic machine-building enter-
prises in the national and foreign markets.
The works of T. Davenport [9], L. Prusak [9], K.-E. Sveiby [10],
B. Milner [11] and others are devoted to development of conceptual foun-
dations of knowledge management at enterprises, in particular
knowledge generation, accumulation, application, etc.
Works of T. Davenport [9], A. Simard [12], T. Stewart [13], B. Bishop
[14], S. Illiashenko [15, 16], etc. highlight issues of marketing of
knowledge, in particular approaches to determining promising direc-
tions of their production, promotion and sale.
However, despite significant developments, insufficient research has
been devoted to assessment the market prospects (commercialization op-
portunities) of knowledge of machine-building enterprises. Existing do-
mestic developments address separate aspects of selecting directions for
knowledge commercialization and technology transfer. Foreign

200
developments however disregard specifics of Ukraine’s economy, espe-
cially its current state.
The purpose of the research is to develop and substantiate theoretical
and methodological principles for determining market perspectives of
the machine-building enterprise’s knowledge.
In general, according to [15], the following areas of knowledge appli-
cation of industrial (including machine-building) enterprises are distin-
guished:
1. Management of the enterprise: improvement of the organizational
structure of management; optimization of production and marketing
process in time and space; optimization of types and directions of
activity; reengineering business processes; strengthening innovative de-
velopment and adjusting it to external conditions, etc.
2. Contribution to the authorized capital (knowledge as objects of in-
tellectual property).
3. Creation and commercialization of new (improved) products on the
basis of knowledge, improvement of their production technologies.
4. Direct commercialization: the sale of copyrights to use knowledge
as objects of intellectual property (licenses, franchises, leases, etc.); di-
rect sale of property rights for knowledge.
5. Improve existing or select new areas of production and application
of knowledge.
According to [16-18], development directions enabling internal capa-
bilities of a knowledge-oriented enterprise match external conditions,
generated by the market should be prior to all other alternatives. In
other words, directions of knowledge application that ensure existing
and prospective market opportunities and counteract market threats
most should be selected.
A modified SWOT-analysis, based on the approach of one of the au-
thors [19] is most suitable to determine promising directions of market
opportunities development on the basis of enterprise’s knowledge. Let’s
consider the analysis of market prospects of knowledge-oriented devel-
opment for Ukrainian machine-building enterprises.
According to results of the analysis of scientific papers [1-8] concern-
ing the state of development of the domestic industry, in particular, the
machine-building complex, as well as the analysis of statistical data [20],
the authors highlighted its strengths and weaknesses.
The strengths (S) include:
(S1) – Specific structure of the machine-building complex enterprises,
in particular, the research and development (R&D) divisions;

201
 (S2) – Positive reputation of Ukrainian machine-building enterprises
on the markets of the CIS, China, etc. formed as a result of previous
cooperation;
(S3) – Competitive (in certain markets) products;
(S4) – Personnel potential of the industry: highly skilled engineers-de-
signers and auxiliary personnel due to the specific education inherited from
the USSR, in particular, a considerable number of technical specialties.
The following weaknesses (W) are defined:
(W1) – Low level of innovative potential of the majority of enterprises;
(W2) – Poor introduction of technologies ensuring profits or optimiz-
ing the activity of enterprises;
(W3) – Poor product quality, price discrepancy;
(W4) – Low application of intangible assets, which leads to the sale of
products as the «raw materials», low ability to produce products with a
high value added;
(W5) – Weak technologies commercialization and obtaining profits
from intangible assets (licenses sale, receiving interest from technologies
use, etc.);
(W6) – Maintaining old market interconnections and cooperation
with the same partners;
(СЛС7) – Reluctance to, in most cases, breaking the system of old
inter-branch relations;
(W8) – The incommensurability of the nomenclature of products and
production areas – the inability to optimize production areas;
(W9) – Exploitation of outdated equipment;
(W10) – Concealing the real economic indicators, the so-called «shad-
owing», leading to a lack of investment and innovative climate in the
industry.
Market opportunities and threats for enterprises of the machine-
building complex developing on the basis of knowledge are highlighted
by authors’ research [21].
Market Opportunities (MO):
(MO1) – Reorientation to the EU market, which directly affects prod-
uct quality (requirements to meet standards and market quality);
(MO2) – Potential opportunity of European investments;
(MO3) – Potential opportunity of participation of European compa-
nies and specialists in the re-equipment of enterprises in accordance
with European technical requirements and standards;
(MO4) – Possible favorable market prospects and trends in the EU
sectors.
Market Threats (MT):
(MT1) – Low effectiveness of converting ideas into innovative products;

202
 (MT2) – Formed market relations within the framework of the EU.
«Climate» of the established intra-European partnership;
(MT3) – High-quality analogues of products presented on the EU
market;
(MT4) – Unstable political situation in Ukraine (revolutions, poor or
non-constructive reforms, etc.);
(MT5) – Rapid economic downturn (constantly progressing inflation,
unstable currency);
(MT6) – Loss of CIS markets as a permanent reserve fund raising;
(MT7) – Lack of a mechanism for protection and support of foreign
capital.
Basing of these data, the authors formed the SWOT analysis matrix,
presented in table 5.6, using the method of expert analysis (experts were
leading specialists of enterprises of the Sumy region, as well as SSU sci-
entists).

Table 5.6. SWOT analysis of the development possibilities of the ma-

chine-building complex of Ukraine (developed by the authors)

Internal environment
External
environ- Strengths Weaknesses
Total Relative
ment
S1 S2 S3 S4 W1 W2 W3 W4 W5 W6 W7 W8 W9 W10 score mark
MO1 8 8 7 10 10 10 10 5 4 10 5 6 6 10 109 0,78
opportunities

MO2 3 10 10 8 6 8 8 4 3 9 4 5 5 10 93 0,66
MO3 5 8 7 8 6 6 6 6 5 9 5 7 6 10 94 0,67
MO4 2 2 6 4 3 5 5 7 3 8 6 4 5 10 70 0,50
MT1 3 3 5 9 10 10 4 10 4 4 4 5 10 5 86 0,16
MT2 4 5 5 2 9 6 8 8 5 4 6 6 5 5 78 0,18
MT3 3 5 8 9 10 4 8 8 6 4 5 4 2 4 80 0,18
Threats

MT4 1 8 6 6 8 4 6 6 5 3 4 3 3 10 73 0,19
MT5 1 8 6 6 8 3 6 6 4 5 3 4 2 10 72 0,19
MT6 2 6 8 5 7 2 8 6 3 5 2 4 4 8 70 0,20
MT7 1 1 1 1 1 1 1 1 1 1 1 1 1 10 23 0,61
Total
33 64 69 68 78 58 70 67 42 61 45 49 48 91
score
Х
Relative
0,30 0,58 0,63 0,62 0,14 0,19 0,16 0,16 0,26 0,18 0,24 0,22 0,23 0,12
mark

The matrix is constructed to analyze possibilities of implementation of

one of the directions of knowledge-oriented development of the

203
enterprise – creation on the basis of knowledge and commercialization of
new (modified) types of products, improvement of production technologies.
Marks in Table 5.6 cells (on a scale from 1 to 10 points) characterize
the degree of influence of the strengths and weaknesses of enterprises of
the machine-building complex of Ukraine on the prospects of implemen-
tation of existing market opportunities and counteracting market
threats. Estimates are presented in accordance with the scale given in
Table 5.7.
Marks in table 5.6 cells (on a scale from 1 to 10 points) characterize the
degree of influence of the strengths and weaknesses of enterprises of the
machine-building complex of Ukraine on the prospects of implementa-
tion of existing market opportunities and counteracting market threats.
Estimates are presented in accordance with the scale given in Table. 5.7.

Table 5.7. Scale of estimation the degree of influence of the strengths and
weaknesses of the enterprise’s activity on realization of market opportu-
nities and counteraction to market threats (developed by the authors)

Order scale score Point scale (B)

Insignificant affect B=1
Low affect 1<B≤5
Medium affect 5<B≤8
Great affect 8 < B ≤ 10

The authors calculated the sums of marks in table 5.6 marks (in
lines – for opportunities and threats, in columns – for the strengths and
weaknesses of the enterprise). At the same time, the largest sum value
on the line (for opportunities) indicates the best market opportunities,
the smallest value (for threats) corresponds the strongest threats, the
largest value in the column (for the strengths) – indicates the strongest
aspects of the activity, the smallest value in the column (for the weak-
nesses) - indicates the weakest activity.
According to [19] a relative assessment will show a complete picture
of the importance of market opportunities and threats, as well as the
strengths and weaknesses of the organization. It is proposed to calculate
it as the ratio of the actual value of the corresponding line or column to
the maximum possible value (for opportunities and strengths), or the
minimum possible value (for threats or weaknesses) to the actual one.
The best option is with a higher relative value.
In this way, it is possible to select the most promising directions of
knowledge application of the industrial enterprise with the correspond-
ence of internal and external conditions.

204
 According to the results of the analysis (see Table 5.6), the strongest
aspects of the activity of the enterprises of the machine-building complex
of Ukraine are: S3 and S4 with the relative estimations of 0,63 and 0,62
respectively.
The weakest: W5, W7, W9, W8 with relative estimates of 0,26, 0,24,
0,23 and 0,22, respectively.
The best market opportunities are: MO1 and MO3 with relative esti-
mates of 0,78 and 0,67, respectively.
The biggest threats are: MT7, MT6, MT5, MT4 with relative estima-
tions 0,61, 0,20, 0,19 and 0,19 respectively.
Thus, in order to restore the competitiveness of the machine-building
industry of Ukraine in the framework of its knowledge-oriented develop-
ment strategy, it is necessary: to take into account the potential oppor-
tunities of the European market; to improve the quality of products via
personnel potential of the industry, as well as to re-equip production ca-
pacities involving European companies and professionals. This is possi-
ble only in case of transparent economy and supporting the investment
climate in Ukraine.
According to the mentioned methodology, an analysis was carried out
for LLC «Technohim» – one of the leading Ukrainian manufacturers of
vibrating granulators. Prior to the analysis, the leading experts and
management of the company as well as the teaching staff of the Depart-
ment of Marketing and Management of Innovation Activities of the SSU
were involved as experts. The results of the analysis are presented in
Table 3, its purpose is similar to Table 5.6.
Strengths (S) include:
(S1) – Specific structure of the enterprise – scientific production (mate-
rial and technical base, design departments and R&D departments);
(S2) – Significant share on the market of vibratory granulators (40-
50% of the market);
(S3) – Positive reputation due to long-lasting operating in the mar-
kets of Southeast Asia, Latin America, Egypt, Israel, etc.);
(S4) – Competitive products (LLC «Technohim» is one of the four larg-
est manufacturers of vibrating granulators worldwide);
(S5) – Technical characteristics of production:
a) granulation quality (98%) and homogeneity of granules;
b) decrease in the temperature of the granules at the exit from the
«tower» of the vibrating granulator (up to 45-60 degrees Celsius);
(c) Dust emissions;
(S6) – Certification of production and manufacturing (UkrSEPRO,
TU, ISO9001).

205
Table 5.8. SWOT analysis of development opportunities of Technohim
LLC (developed by the authors)

Opportuni- Strengths Weaknesses

Total Relative
ties and
S1 S2 S3 S4 S5 S6 W1 W2 W3 W4 W5 score mark
Threats
MO1 8 8 10 10 6 9 7 3 8 8 3 80 0,73
Opportuni-

MO2 8 8 10 10 6 8 6 1 8 6 4 75 0,68
ties

MO3 8 9 10 10 5 9 7 1 7 7 5 78 0,71
MO4 1 9 1 8 1 2 6 1 2 2 2 35 0,32
MT1 5 7 10 9 2 10 4 2 2 2 2 55 0,20
MT2 1 3 3 3 1 1 1 1 1 1 1 17 0,65
Threats

MT3 1 3 3 4 1 1 1 1 1 1 1 18 0,61
MT4 1 2 3 2 1 1 1 1 1 1 1 15 0,73
MT5 1 3 1 1 1 1 1 1 1 1 1 13 0,85

Total score 34 52 51 57 24 42 34 12 31 29 20
Х
Relative
0,38 0,58 0,57 0,63 0,27 0,47 0,26 0,75 0,29 0,31 0,45
mark

Weaknesses (W) include:

(W1) – Lack of skilled personnel (mass departure of highly skilled
personnel to other countries);
(W2) – Incomplete use of production capacities potential (develop-
ment and implementation of only 2-3 projects per year);
(W3) – Lack of a powerful advertising campaign;
(W4) – Insufficient number of marketers, specialists of the interna-
tional department to enter new markets;
(W5) – Lack of opportunities for commercialization of technologies
and receiving profits from intangible assets (licensing, receiving interest
from technologies use, etc.).
Market Opportunities (MO):
(MO1) – Reorientation to the EU market, which directly affects prod-
uct quality (requirements to meet standards and market quality);
(MO2) – Potential opportunity of European investments;
(MO3) – Potential opportunity of participation of European compa-
nies and specialists in the re-equipping enterprises in accordance with
European technical requirements and standards;

206
 (MO4) – Possibly favorable market prospects and trends in the EU
sectors.
Market Threats (MT):
(MT1) – Difficulties with entering the EU markets due to established
market interconnections within the EU. «Climate» of the established in-
tra-European partnership;
(MT2) – Unstable political situation in Ukraine (revolutions, poor and
non-constructive reforms, etc.);
(MT3) – Rapid economic downturn of Ukraine (constantly progressing
inflation, unstable currency rate);
(MT4) – Loss of CIS markets as a permanent reserve fund raising;
(MT5) – Lack of a mechanism of protection and support of foreign
capital.
According to the results of the analysis (see Table 3), the strongest
aspects of the activity of «Technohim» LLC are: S4, S2 and S3 with the
relative estimations of 0,63, 0,58 and 0,57, respectively.
The weakest: W2 and W5 with relative estimates of 0.75 and 0.45
respectively.
The best market opportunities are: MO1, MO3 and MO2 with relative
estimates of 0.73, 0.71 and 0.68, respectively.
The biggest threats are: MT5, MT4 and MT2 with relative estima-
tions 0,85, 0,73 and 0,65, respectively.
Thus, the company should solve the personnel problems, perhaps by
attracting foreign specialists and changing its advertising policy. Such
changes, together with the existing strengths (market share, reputation
and product quality), will allow the possibility of entering the EU market
and attracting European investments.
The proposed methodological approach (its practical implementation
is given in Tables 5.6-5.8) allows to quantify the market opportunities
and threats for a particular knowledge-oriented direction of enterprise’s
development, and accordingly, its success. In addition, it allows to deter-
mine characteristics of the enterprise requiring special attention to in-
crease its potential, and accordingly, the chances of market success.
A similar analysis is performed for each of the possible directions of
knowledge application. The best options from a number of alternatives
are selected according to the criteria: favorable market opportunities,
which have high relative estimates; strengths in the enterprise’s activity
(with high estimates), which enables implementation of the analyzed op-
tion; insignificant market threats; weaknesses of the enterprise do not
affect the implementation of the analyzed option.
It is necessary to determine boundary (critical) values of relative as-
sessments indicating the level (strength of affect) of the strengths or

207
weaknesses of the enterprise, as well as the adequacy of market oppor-
tunities and threats for implementation (non-implementation) of the de-
velopment option.
According to [19], the critical values of relative estimates (Oi) should
be determined by a scale based on the Pareto (20/80) principle and the
scale used in the ABC analysis (50/80/100):
- Оі = 0,0-0,5 (insufficient level – the project cannot be imple-
mented);
- Оi = 0,51-0,80 (average level allowing to consider the project and
launch its first stages);
- Оі = 0,81-1,0 (sufficient level).
However, the situation with the maximum estimates of market
opportunities and strengths of the enterprise in line with a minimum
of market threats and weaknesses is rather an exception. Possible cor-
relation of evaluation criteria and corresponding actions are given in the
author’s table of decisions (Table 5.9). For convenience, let’s convert the
specified valuation ranges into normalized values: 0.0-0.5 = 1;
0.51-0.80 = 2; 0.81-1.0 = 3.
This table of decisions (Table 5.9) is recommended for the evaluation
of alternative projects, as well as the selection of actions to ensure a
greater compliance of internal capabilities of knowledge-oriented develop-
ment of enterprises to external conditions, generated by the market.
Summarizing the data of the table 5.9 the following conclusions
should be made:
1) projects with the maximum S and MO estimations and the minimal
W and MT estimations have high chances for implementation;
2) projects with the S and MO estimates exceeding one level the W
and MT assessment have averages chances for implementation
3) projects with the S estimates exceeding W estimates more than one
or two levels, with the same MO and MT estimates have chances for im-
plementation below average;
4) Problem projects have the same S and W estimates, while MO esti-
mates exceed MT estimates at one or two levels. They should be rejected, or
the possibility of increasing S or (or) reducing W should be analyzed;
5) projects with the same values of all evaluations (S, W, MO, MT)
have a high degree of uncertainty, they require deep analysis;
6) projects with minimal estimations of S, W, MO and MT should be
rejected;
7) projects with a correlation of estimates different from those dis-
cussed in 1-6 sections should also be rejected.

208
Table 5.9. Table of decisions on the selection of directions of knowledge-
oriented development (fragment)
Option Assessment criteria
Decision
number S W MO MT
High chances for implementa-
1 3 1 3 1
tion
2 3 2 3 2
3 3 2 3 1
4 3 2 2 1 averages chances for implemen-
5 2 1 3 2 tation
6 2 1 3 1
7 2 1 2 1
8 3 2 2 2 chances for implementation be-
9 3 1 1 1 low average
10 3 3 3 3
Needs further analysis
11 2 2 2 2
12 1 1 1 1 Reject
13 3 3 3 2
14 3 3 2 2
15 3 3 2 1
16 3 2 3 3
17 2 2 3 2
18 2 2 3 3
Invalid options
19 3 3 1 1
20 2 2 1 1
21 2 2 2 1
22 3 3 3 1
23 2 2 2 1
24 2 2 3 1

The final selection of options of knowledge-oriented development

should be carried out according to different criteria in order to compre-
hensively and objectively evaluate innovative projects and choose the
best.
In particular, such criteria can be:
- financial value (NPV, IRR);
- payback (RR, IRR, MIRR);
- Strategic cost, characterizing the profitability of the project in fu-
ture. The strategic cost is difficult to assess by cost indicators; the as-
sessment, as a rule, has a probabilistic nature, due to a significant level
of uncertainty and, accordingly, risk. To estimate the strategic cost,
probabilistic forecasts of future events should be drawn up and the de-
gree of their impact on the project’s effectiveness assessed. For example,
entering foreign markets in future, resulting in the expansion of consum-
ers and growth of consumption, and, consequently, in increase of profits;

209
 - satisfaction of economic counteragents and contact audiences of
the analyzed enterprise interests;
- project risks;
- motivation for owners and personnel of the enterprise to develop
in a knowledge oriented way (managers, engineering and technical staff,
workers, etc.).
It should be noted that evaluation by given criteria (groups of criteria)
is performed by different scales and can be both quantitative (according
to some criteria) and qualitative, with the criteria having different sig-
nificance. Since it concerns mainly innovative projects, there may not be
a comparison bases. In this case, it is advisable to apply approaches of
integrated assessment that determine the degree of compliance of a par-
ticular project to selected criteria (mentioned above) of the chosen scale.
At the same time, the critical value of the degree of compliance is deter-
mined (calculated) according to separate criteria, and to the whole crite-
ria set.
Summarizing mentioned above we can make following conclusions:
- the methodical approach to definition of market perspectives of the
machine-building enterprise knowledge was proposed. It is based on the
author’s interpretation of SWOT-analysis and allows to quantify projects
of knowledge-oriented development;
- a table of decisions was proposed. Recommendations for selection
the best options and projects of knowledge-oriented development on its
basis were developed;
- practical testing of the developed methodical approach for perspec-
tive directions of the knowledge-oriented development of the machine-
building complex of Ukraine was carried out. The analysis of one of the
enterprises of Sumy region, LLC «Technohim», which manufactures ma-
chinery and equipment for the chemical industry, was carried out;
- a methodical approach to the refined multicriteria assessment of
selected projects of knowledge oriented development was proposed;
- the proposed methodological approaches provide the opportunity
of quantitative assessment of market opportunities and threats, as well
as the chances of market success of a specific project of enterprise’s
knowledge-oriented development. They also assist to determine activity
aspects of the analyzed company requiring attention to increase their
chances to market success.
The obtained results deepen theoretical and methodical principles of
knowledge management of machine-building enterprises in terms of quan-
titative assessment of their market prospects. Further research should be
aimed at forming the fundamentals of the organizational and economic
mechanism of knowledge management of machine-building enterprises.

210
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 5.5. Management of marketing activities of enterprises
on the internet: planning and organization of processes

Boychuk I.V.

Active development of the Internet has led to the wide introduction

of the global network as an effective marketing tool in the activities of
enterprises. Owing to modern information and computer networks, ex-
perts exchange information between firms, receive data about buyers
and competitors, and find the necessary data for making managerial de-
cisions.
The expediency of using the Internet in marketing activities is due to
the need to take into account the specific features and conditions of use
of modern technologies in implementing marketing approaches to prod-
uct promotion, finding the necessary information, potential customers
and business partners, expanding markets and sales channels, ensuring
the effectiveness of advertising campaigns, organizing an effective sys-
tem of feedback from consumers.
Significant contributions to the theoretical aspects of online market-
ing activities have been made by many well-known scholars, including
L. Weber [3], Ph. Kotler [7], T. Kegler, P. Douling, B. Taylor, D. Tester-
man [9], B. Halligan [10] and others. Research on applied aspects of mar-
keting in the network is reflected in the writings of such scholars as
V. Aleksunin [1], T. Burenin [2], F. Gurov [4], V. Karasev [5],
R. Kostiaiev [6], and I. Lytovchenko [8]. However, the issues of ensuring
the effective use of the Internet in the marketing activities of enterprises
remain unresolved; no due attention is paid to such components of mar-
keting management in the network as planning and organization of pro-
cesses.
The process of planning enterprise’s marketing activities on the In-
ternet begins with the formation of the basic idea of its website. To
achieve this, one needs to create a unique idea of the site, of its design
or sales model so that users should be able to identify it among other
sites on the network. The idea proposed at this stage is the starting point
for other activities and can be substantially modified further on. But, the
experience of the enterprise on the Internet becomes important, in the
absence of which it is expedient to spend time on its acquisition.
One of the initial stages is conducting marketing researches aimed at
preparing an analysis of competitors and suitability of the company’s
products for sale on the network. Traditional marketing researches are
the common practice, including analysis of the product and brand struc-
ture of the market, study of the demographic structure of consumers and

213
the specific features of their buying behavior, which allows to expand the
enterprise through the use of the Internet. However, it is assumed that
the firm already occupies a certain market niche, has a certain set of
goods or services, and a clear idea of its target consumer.
When starting an Internet marketing activity, an enterprise should
conduct a research in the network itself, when the prime task is to mon-
itor competitors. Search engines or directories, «yellow pages» and the-
matic servers can be used as search tools. The study results in collecting,
at least, information about the competitor’s website: its name, URL,
main region of activity, strengths and weaknesses of the online repre-
sentation, methods used to attract visitors. This information will allow
a new look at the previously developed idea of implementing the com-
pany’s website, perhaps even leading to reconsider it [3].
Researching competitors in the network also allows to conclude
whether the enterprise’s products are suitable for sale through the net-
work. In addition, it is worthwhile to devote some time to studying the
technical capabilities of the Internet and the existing technologies in or-
der to implement the site in general.
When defining the target consumer segment, it is necessary to make
a description of the target audience, which, in the first place, will be the
target of the website. It should be taken into account the level of repre-
sentation of the target segment of consumers on the Internet. The next
step can be making up a plan of the enterprise’s advertising campaign
in the network, which should be directed to users’ reports about the com-
pany’s presence on the Internet.
The traditional promotional activities for a website of an enterprise
are as follows:
- registration in search engines of the Internet;
- placing free links to the website in directories;
- placing links on the yellow pages of the network;
- registration on thematic Jump Stations;
- placing links on other sites;
- placing advertisements on well-visited sites;
- publication on other sites of materials containing a link to the com-
pany’s website;
- periodic e-mail notification of the site to all interested persons;
- participation of the enterprise in teleconferences on related topics;
- active use of mailing lists;
- wide representation of the company’s website in social networks;
- use of traditional types of advertising, as well as the name of the
website in all types of advertising products of the enterprise [9].

214
 An important stage in the process of organizing the marketing activ-
ities of enterprises on the Internet is the creation of a budget, which al-
lows to evaluate the opportunities and costs of various types of activities.
In assessing costs and planning a profit, it must be taken into account
that the presence of an enterprise in the network through its website can
give a profit in the form of increasing brand image, product promotion,
attracting new consumers, emergence of a new sales channel, improving the
service for existing and potential customers, possible reduction of expenses
for delivery and goods sale, packing materials or document circulation.
Developing the company’s marketing system based on a website re-
quires significant investment, i.e. funding sources should be found. One
of the ways to solve the problem is to use borrowed funds with a prelim-
inary requirement of making up a business plan for the enterprise’s ac-
tivities on the Internet. It should give a clear idea of the type and scope
of activities, the problems that the firm may encounter during its manage-
ment, as well as the expected results of activities on the network.
The business plan is designed to convince potential investors to invest
in the proposed interactive project. This plan reveals the contents of tra-
ditional sections and should be based on the unique nature and proper-
ties of the network environment (Table 5.10).
Since the business plan relates to the direct business of the enterprise
on the Internet, firstly it is appropriate to focus on the features of the
network, and then, on the way the product (service) and the Internet are
connected to each other or complement each other. When writing a busi-
ness plan, it is important to know the target audience, because if the
investor does not have a special training, then along with the technical
terminology it is necessary to place the corresponding definitions.
The following points should also be important components of devel-
oping an enterprise’s marketing plan on the Internet [6]:
1) consumers – it is necessary to determine their target segment and
to find out how many people actually enter the network. There are or-
ganizations that conduct specialized demographic research and can be
useful for answering such questions;
2) competitors – using search engines of the network enables to find
well-known competitors or products that are similar to those proposed
by the enterprise. After defining competitors, one should return to the
search engines every few weeks or months, as new companies connect to
the Internet. In addition, it is extremely interesting for potential inves-
tors to learn from the business plan how the enterprise plans to fight
competition;
3) advertising – it is advisable to describe in detail how the enterprise
intends to promote its own products or services on the Internet;

215
 4) prices – it is worth determining the pricing policy for the enter-
prise’s products or services. If the information about its products is dis-
seminated through the network, then it is appropriate to try to create a
pricing system to justify one’s own prices or start by studying how simi-
lar products were valued by others;
5) delivery and payment – it is necessary to choose a certain system
of delivery of products to customers and receive from them the corre-
sponding payment.

Table 5.10. Structure of a business plan for organizing enterprise’s

marketing activities on the Internet
№ Section title Description of the content of each section
Brief de- Provides a brief description of all business plan items.
1
scription Partially reflects data on the potential of the Internet for the company
Description Contains a description of company’s products / services.
2
of activities Provides detailed information about the industry as a whole
Description of the target market and major competitors.
Marketing Presentation of an online advertising campaign plan.
3
plan Choice of mechanism of delivery of products / services to the customer.
Determining the payment system and payment details
Specification of certain technical details of the business project:
- At what stage of development is the project?
Research
- What is needed for its successful completion?
4 and devel-
- What is the approximate cost estimate for it?
opment
- What are the future plans for conducting marketing research and
taking into account the prospects of network development?
Characteristics of organisational aspects of the business, determining
Operations
the employees responsible for the implementation of the project and
5 and produc-
performing work to ensure the functioning of the website.
tion
Predicted estimate of the total value of expected costs
Manage- Who manages the business and what is their experience of dealing
6
ment with the company’s products on the Internet
Analysis of the main risks in the implementation of the business pro-
7 Risks
ject, taking into account the specific conditions of the network
Justification of the profitability of the project through the definition
8 Finance of financial aspects in comparison with other types of activities and
costs associated with the work of the enterprise on the Internet
Chronological description of all the steps appropriate to implement
9 Periodicity
the business project
References List of business references, Internet services and links for more infor-
10 and attach- mation about the specific features of marketing and business activi-
ments ties in the network

Considerable attention needs to be given to preparing a business plan

section called «Operations and Production», which describes the organi-
zational aspects of online activities, including day-to-day operations and
location; it is also necessary to determine what equipment is needed for

216
the enterprise to work on the network, to indicate if the enterprise’s own
website will be used or a site will be leased on another enterprise’s web-
site. It is also worthwhile to find out who will be responsible for the web-
site and perform the relevant work (hire experts with work experience
or train one’s own employees). Besides, detailed information about the
expected costs should be provided.
When defining the risks associated with the implementation of the
interactive project, it is recommended to describe those that can really
be encountered by the enterprise. Along with the usual business risks,
such as deteriorating situation in the industry or sphere, cost increases,
unforeseen actions of competitors, specific risks should be described, es-
pecially those related to the Internet (for example, probability of com-
puter viruses, hackers’ «invasion», unexpected adverse changes in policy
or legislation, etc.).
The financial section of the business plan is important for potential
investors as it should prove the profitability of the interactive project. It
needs to include all the essential financial aspects, not forgetting the in-
significant ones, compared with other types of activities, as well as the
costs associated with the work of the enterprise on the Internet. In addi-
tion, the project implementers should be identified in advance [2].
It is known that the Internet is a high-tech area, therefore, one spe-
cialist or even a few specialists with a high level of qualification are
needed to complete all the work. Since the Internet requires constant
attention to itself to improve the company’s website, it is therefore nec-
essary to consider hiring several employees. For short-term work, third-
party firms (outsourced) can be engaged to assist in web marketing and
sales promotion. Spending relatively not much money can bring useful
knowledge and advice from their part and still real help in realization of
the planned stages of marketing activity in the network.
When creating the enterprise’s website, it is advisable to go through
organizational stages, starting with the research of competitors’ sites for
obtaining the full information and practical skills on the part of the con-
sumer, identifying the advantages and disadvantages of the enterprise
and using this information when creating one’s own website
(Figure 5.10).
To successfully implement the enterprise’s website, the priority task
is to select marketing objectives before it is placed on the network. Even
after a brief acquaintance with different types of the existing sites, one
can highlight the basic concepts of their construction on the basis of
which one’s own concept can be developed in order to meet the needs of
the enterprise as fully as possible [8].

217
 In general, in terms of firms’ marketing activities, hosting Internet
sites may provide for the following main goals:
- advertising, promotion of the trademark of the enterprise and / or
its products;
- expansion of the system of public relations;
- providing consumers, partners, shareholders and advertising
agents with complete and reliable information about the enterprise and
its products;
- organization of information before and after sales support of con-
sumers;
- providing direct sales or sales from one firm to another;
- organization of the promotion channel for its own products (if it is
possible to distribute it via Internet channels).

Marketing system based on the enterprise’s website

Stage 1. Defining marketing objectives of the website,

Defining goals and conducting marketing researches,
ways to achieve them development of a plan of necessary measures

Stage 2. Choice of location and Internet provider; development

Implementation of the of the website design and structure.
company’s website Uniting the website functions with the business sys-
tem of the enterprise. Testing of the website

Stage 3. Use of all types of Internet advertising to influence current

Attracting visitors to and potential clients: from placement of banners to the use
the site of distribution lists and participation in teleconferences

Stage 4. Comparison of the obtained results with the planned

Conclusions indicators according to previously established criteria

Figure 5.10. Process of creating a marketing system

based on the enterprise’s website
(developed on the basis [1, 5, 7])

After defining the goals of enterprise’s presence on the Internet, it is

worthwhile to select the criteria by which an assessment of goals
achievement will be made. These criteria can be the number of visitors
to the website for a certain period of time if its purpose is, for example,
the development of the image of the enterprise; increasing profits over a
period of time by expanding the marketing system through the Internet

218
and attracting more customers; increasing sales owing to the use of the
Internet as a new channel for the sale of goods or services [10].
At the next stage it is necessary to determine the purpose of the web-
site, the purpose of its creation and functioning, and to select its target
audience, i.e. the existing potential customers and buyers of the com-
pany’s products. If the former is more interested in support and new of-
fers, then the second (among them those who have not yet bought the
company’s products) had better be told in detail what are the company’s
activities and what it can offer to the visitors of the website. It is also
worth considering whether the website is the most effective way to
achieve the company’s marketing goals, since it is not expedient to im-
mediately put too much hopes on its performance.
The next stage involves preparing information for placing on the web-
site. To do this, the firm needs to adapt the materials of promotional
leaflets, databases, press releases, product specifications. When develop-
ing a website, visitors are given the opportunity to look for information
in a large database, which takes time and money. Therefore, before pro-
ceeding to the next stage, it is necessary to determine the possible ac-
tions of the target audience on the website, ways of measuring the effec-
tiveness and information to be placed on it. It is advisable to make up an
appropriate action plan to this purpose.
The next step presupposes calculation of the amount of costs and de-
limiting responsibilities between employees of the enterprise and other
firms, as well as making the decision on whose computer the website will
be located. The best solution to this is to place it on the provider’s, which
will be cheaper and faster, also with possibilities of technical support.
An important organizational step is the compilation of a script for the
website that involves determining the quantity and quality of communi-
cation, the location of text, pictures, figures, and interactive blocks. Par-
ticular attention is paid to the first webpage that contributes to the vis-
itors’ first impression about the company’s site. The logical conclusion of
this phase is the preparation of the final version of the text (content) and
testing on the target audience.
At the next stage it is recommended to test the entire website of the
enterprise in a dialogue mode. When all the pages on the site are in-
stalled, it’s worth checking out each of them and determining the time
to download one page. Besides, one should check whether all the sent
messages are received by the visitors of the site and whether it functions
well for its own staff.
In addition, maintaining and improving the site play a significant
role. After the website has started functioning, it’s time to advertise it,
to study visitors’ reaction and to improve it on this basis. If the enterprise

219
wants the visitor to return to the site, they need to maintain interest to
the site by regularly updating its content, making changes and add-ons,
which involves additional costs for editing its structure and content [4].
Practice shows that two-level product display is more typical for web-
sites. First of all, it is the placement of simple information (logo, contact
information, basic information about the company, its goods and ser-
vices). For most firms, marketing at such a level does not bring the de-
sired level of profit. Secondly, it is the presentation on the enterprise’s
website of specific and entertaining information. The consumer is
pleased with visiting such a site, which is an important stage in interac-
tive marketing, especially if the firm intends to turn the visitors of the
website into its regular customers.
With the qualitative organization of work on the development of a
marketing system on the Internet, it has to improve and expand. Once
completed the first results, one needs to adjust the overall goals of the
website using the network resources, that is, to review the tasks of the
first stage. In case of insufficient performance of the website due to un-
successful design or small number of visitors it is necessary to return to
the second and third stage for making corrections. Significant changes
in the initial plans can be imposed by the very Internet environment, the
high dynamics of which requires continuous improvement of methods
and means of interaction with it on the part of the enterprise.
Thus, planning and organization of marketing activities on the Inter-
net is the basis for developing an interactive system for managing the
marketing of the enterprises in the network and passing the relevant
stages of the implementation of various types of work. The result of all
stages of this process is the creation, placement and promotion of the
enterprise’s website on the Internet as one of the effective tools for im-
plementing the entire marketing programme.

References

1. Aleksunin, V.A. (2007), Elektronnaia kommertsiia i marketinh v Inter-

nete [E-commerce and online marketing]. Moscow: Dashkov & Co.
2. Burenina, T.A. (2005). Marketing na baze internet-tekhnolohii [Market-
ing based on the Internet technologies]. Moscow: Blagovest-V.
3. Veber, L. (2010), Effektivnyi marketinh v Internete [Effective marketing
in the Internet]. Moscow: Mann, Ivanov i Ferber.
4. Hurov, F.N. (2009). Prodvizhenie biznesa v Internet: vse o PR i reklame v
seti [Promoting of business in the Internet: all about PR and advertising in the
network]. Moscow.

220
 5. Karaseva, V. (2008), Kompleks marketinha v Internet-biznese [Market-
ing complex in the Internet business]. Marketinh – Marketing, 2(99).
6. Kostiaev, R.A. (2002). Biznes v Internete: finansy, marketinh, plani-
rovanie [Business on the Internet: finance, marketing, planning]. Saint Peters-
burg: BHV-Petersburg.
7. Kotler, F. (2009), Marketinh-menedzhment [Marketing management].
Moscow: ID «Vilyams».
8. Litovchenko, I.L. (2009) Metodolohichni aspekty Internet-marketynhu
[Methodological aspects of online marketing]. Kyiv: Naukova dumka.
9. Kehler, T., Daulinh, P., Teilor, B., & Testerman, D. (2003), Reklama i
marketinh v Internete [Advertising and marketing in the Internet]. Moscow: Al-
pina Pablisher.
10. Hallihan, B. (2010). Marketinh v Internete: kak privlech klientov s
pomoshchiu Google, sotsialnykh setei i blohov [Marketing on the Internet: how
to attract customers through the Google, social networks and blogs]. Moscow:
Dialectics.

221
 Section 6

Logistic support of enterprises

innovative development
Transport, transit and personnel potentials in logistic support
of innovative distribution system: essence and evaluation3

Bilovodska O.A., Niño-Amézquita J., Zielińska A.

To form an economically reasonable marketing policy for the distribu-

tion of industrial enterprises, we consider it compulsory to take into ac-
count not only the level of marketing resources’ development at the enter-
prises in the region, but also the level of its logistic support, since this will
allow an enterprise to further integrate successfully in the regional supply
chain. These resources provide the identification of their security level by
means of any types that allow to form an effective system of ideas and
goods (services) creation, their pricing, promotion, distribution, which pro-
mote the image and loyalty of consumers (proposed by the author in [32]).
In our opinion, the logistic potential of the region is a combination of
existing and potentially possible elements and factors of logistic infra-
structure that are involved in the formation and distribution of material
and related accompanying flows. At the same time, the formation and
use of such potential is intended to ensure the timely and efficient trans-
fer of logistic resources at a minimum cost.
Taking into account an international experience [33] and based on
the approach proposed by O.A. Freidman [31], in our opinion, the struc-
ture of logistic potential, which influences the validity of the decision
when forming the enterprise distribution system, within the analyzed
region contains:
- transport potential;
- personnel potential;
- transit potential;
- consumer and sales potential;
- service potential;
- potential of the attractiveness of economic-geographical position,
or spatial potential.

3
The publication contains the results of studies conducted by President’s of Ukraine grant
for competitive projects F70 of the State Fund for Fundamental Research («Formation of
the management mechanism of products’ distribution at the industrial enterprises on the
innovative basis», № SR 0117U001682)

222
 We will consider in detail transport, personel and transit component
of the structure of the logistic potential in the region and, based on the
statistical data of each Ukrainian region on the results of 2010-2015, we
will analyze their level.
In our opinion, transport potential is the capacity of the transport system
in the region, which reflects the availability and number of rolling stock of
the different means of transport, the length of the transport network, the
number of the infrastructure objects to provide various types of transporta-
tion, etc. We will analyze the dynamics of the transport potential indicators
of the regions of Ukraine for 2010-2015 (Figure 6.1-9, Table 6.1).
As you can see, not all regions of Ukraine have tram transport. Tram
carriages are provided in Vinnytsia, Dnipropetrovsk, Donetsk, Zhyto-
myr, Luhansk, Lviv, Mykolaiv, Odessa, Sumy, Kharkiv regions and in
Kyiv. At the same time, the largest number is in the Dnipropetrovsk re-
gion and in Kyiv, and the smallest – in Sumy, Luhansk and Zhytomyr
regions, and from 2010 to 2015 there is a general tendency towards their
insignificant decrease (Figure 6.1).

500
400
300
200
100
0
Chernivetska
Zhytomyrska

Kirovohradska

Lvivska

Odeska

Khersonska
Khmelnytska
Poltavska
Volynska
Dnipropetrovska
Donetska

Zakarpatska

Kharkivska
Vinnytska

Zaporizka

Kyiv
Luhanska

Sumska
Ivano-Frankivska
Kyivska

Mykolaivska

Rivnenska

Ternopilska

Cherkaska

Chernihivska

2010 2011 2012 2013 2014 2015

Figure 6.1. The number of tram сars in Ukrainian regions,

units, 2010-2015 (based on [29])

An analysis of the provision of Ukrainian regions by trolleybuses in

2010-2015 (Figure 6.2) demonstrates different trends: in Vinnytsya, Zhy-
tomyr, Mykolaiv and Ternopil regions there is their increase; in the re-
gions of Dnipropetrovsk, Donetsk, Zaporizhia, Kyiv, Luhansk, Poltava,
Kharkiv, Kherson, Khmelnytskyi, Cherkasy, Chernivtsi, Chernihiv re-
gions and Kyiv, there is a decrease, in other regions it is more or less
constant, and Zakarpattia region does not have trolleybus connections.

223
224
0
100
200
300
400
500

200
400
600
800
1000
1200
1400
1600

0
250
500
750

0
Vinnytska
Vinnytska Volynska
Volynska Dnipropetrovska

2010
Dnipropetrovska Donetska
Donetska
Zhytomyrska
Zhytomyrska

2011
Zakarpatska

2010
Zakarpatska

2010
Zaporizka
Zaporizka
Ivano-Frankivska
Ivano-Frankivska

2012
Kyivska

2011
2011
Kyivska
Kirovohradska
Kirovohradska
Luhanska

2013
Luhanska
Lvivska
2012

2012
Lvivska
Mykolaivska Mykolaivska

2014
Odeska Odeska
2013

2013
Poltavska Poltavska
Rivnenska Rivnenska

2015
Sumska Sumska
2014

units, 2010-2015 (based on [29])

units, 2010-2015 (based on [29])

2014
Ternopilska Ternopilska

kilometers, 2010-2015 (based on [29])

Kharkivska Kharkivska
Khersonska
2015

Khersonska
Kyiv

2015
Khmelnytska Khmelnytska
Cherkaska Cherkaska
Kharkivska

Chernivetska Chernivetska
Figure 6.2. The number of trolleybus cars in Ukrainian regions,

Chernihivska Chernihivska
Dnipropetrovska

Figure 6.4. The operational length of railways in Ukrainian regions,

Kyiv Kyiv
Figure 6.3. The number of underground carriages in Ukrainian regions,
 The number of underground carriages (Figure 6.3) in the Dniprope-
trovsk region from year to year is unchanged at 45 units, in Kharkiv region
from 2010 to 2014 – 321 units, and in 2015 – 326 units, in Kyiv, this the
figure is increasing: in 2010 – 753 units, in 2011 – 762 units, in 2012 – 770
units, in 2013 – 794 units, in 2014 – 824 units, in 2015 – 824 units [29].
As we see from Figures 6.4-8 all regions of Ukraine have more or less
stable indicators of length for all modes of transport.

8000
6000
4000
2000
0
Kirovohradska
Volynska

Donetska

Poltavska
Zaporizka

Kyivska
Zhytomyrska

Odeska

Sumska
Ternopilska
Kharkivska
Vinnytska

Dnipropetrovska

Zakarpatska

Khersonska

Cherkaska
Chernivetska

Kyiv
Chernihivska
Luhanska
Lvivska

Rivnenska

Khmelnytska
Ivano-Frankivska

Mykolaivska

2010 2011 2012 2013 2014 2015

Figure 6.5. The length of highways in Ukrainian regions,

kilometers, 2010-2015 (based on [29])

600
500
400
300
200
100
0
Donetska
Volynska

Poltavska
Zaporizka

Kyivska
Kirovohradska

Odeska

Sumska
Dnipropetrovska

Zhytomyrska

Ternopilska
Kharkivska

Kyiv
Vinnytska

Zakarpatska

Luhanska
Lvivska

Rivnenska

Khersonska

Cherkaska
Chernivetska
Chernihivska
Khmelnytska
Mykolaivska
Ivano-Frankivska

2010 2011 2012 2013 2014 2015

Figure 6.6. The operational length of trolleybus lines in Ukrainian

regions, kilometers, 2010-2015 (based on [29])

225
500
450
400
350
300
250
200
150
100
50
0

Cherkaska
Zaporizka

Mykolaivska

Sumska
Donetska

Kyiv
Volynska

Chernivetska
Kyivska

Poltavska
Zhytomyrska
Zakarpatska

Luhanska

Rivnenska

Kharkivska
Khersonska
Khmelnytska
Ivano-Frankivska

Chernihivska
Vinnytska

Lvivska

Odeska

Ternopilska
Dnipropetrovska

Kirovohradska

2010 2011 2012 2013 2014 2015

Figure 6.7. The operational length of tram rails in Ukrainian regions,

kilometers, 2010-2015 (based on [29])

80

60
Dnipropetrovska
40
Kharkivska
20 Kyiv
0
2010 2011 2012 2013 2014 2015

Figure 6.8. The operational length of underground tracks in Ukrainian

regions, kilometers, 2010-2015 (based on [29])

Thus, there are no significant changes from year to year in 2010-2015

for each component of the transport potential in the regions of Ukraine.
At the same time, the tendency towards a decrease is demonstrated by
the number of trams, while an indicator of the number of petrol stations
is showing an increase.

226
600
500
400
300
200
100
0

Chernivetska
Volynska

Donetska

Zaporizka

Poltavska
Lvivska
Kyivska

Sumska
Dnipropetrovska

Ternopilska
Kharkivska
Kirovohradska

Odeska

Kyiv
Vinnytska

Zhytomyrska
Zakarpatska

Khersonska

Cherkaska

Chernihivska
Luhanska

Rivnenska
Ivano-Frankivska

Mykolaivska

Khmelnytska
2010 2011 2012 2013 2014 2015

Figure 6.9. The number of petrol stations in Ukrainian regions, units,

2010-2015 (based on [29])

The leaders in the number of trams are the Dnipropetrovsk region,

the city of Kyiv and the Donetsk region, trolleybuses – Kyiv, Donetsk,
Kharkiv and Dnipropetrovsk regions, petrol stations – Donetsk,
Kharkiv, Kyiv and Dnipropetrovsk regions, according to the indicator of
the operational length of railways – Donetsk , Dnipropetrovsk and
Kharkiv regions, highways – Kharkiv, Vinnitsa, Dnipropetrovsk and
Poltava regions, trolleybus lines – Kyiv, Donetsk and Dnipropetrovsk re-
gions, tram tracks – Donetsk and Dnipropetrovsk regions, the city of
Kyiv, Kharkiv and Odessa regions.
We propose to determine the ranking of Ukrainian regions in terms
of transport potential by the average values for the analyzed period of
each of its components (Table 6.1).
Summing up, it should be noted that according to the results of the
integrated rating of the regions of Ukraine according to the level of de-
velopment of transport potential, Dnipropetrovsk, Kharkiv and Donetsk
regions are the leading ones (highlighted in the table 1 in the bold cell
borders), while Ivano-Frankivsk, Zakarpattia, Chernivtsi and Ternopil
regions are outsiders (highlighted by shading in the Table 6.1).

227
 Table 6.1. Average values of transport potential indicators in Ukrainian
regions for 2010-2015 and their ranking* (developed by the author)

underground tracks, km
Number of tram cars,

Operational length of

Operational length of

Operational length of
Number of trolleybus

Length of highways,

trolleybus lines, km

Operational length of

General гanking**
Number of under-
ground carriages,

Number of petrol

Integral ranking
carriages, units

tram reails, km

stations, units
railways, km
Ranking

Ranking

Ranking

Ranking

Ranking

Ranking

Ranking

Ranking

Ranking
Regions of
units

units

km
Ukraine

4- 4- 67-
Vinnytska 127 7 143 7 0
25
1074 6 9500 2 86,8 18 41,3 10 0
25
307 9
109
7-8
13- 4- 13- 4- 120- 18-
Volynska 0
25
66 19 0
25
595,7 18 6200 15 109 11 0
25
0
25
163 23
186 19
Dniprope- 1556,
471 1 213 4 45 3 2 9167 3 455,3 3 375 2 7 3 444 4 25 1
trovska 7
4- 1579, 4- 27-
Donetska 337 3 412 2 0
25 7
1 8100 9 484,5 2 408,8 1 0
25
533 1
69
3

Zhyto- 4- 4- 87-
31 11 134 8 0 1016 8 8500 6 96 16 18 12 0 211 18 11
myrska 25 25 129
13- 4- 13- 4- 135-
Zakarpatska 0 25
0 25 0
25
603,3 17 3300 23 0 25 0
25
0
25
245 11
201
24
4- 4- 67-
Zaporizka 149 6 127 10 0
25
989,2 9 7000 13 188 6 101 7 0
25
309 8
109
7-8
Ivano-Frank- 13- 4- 13- 4- 138-
0 46 21 0 494,2 22 4150 22 61,2 20 0 0 182 19 25
ivska 25 25 25 25 204
Kyiv 417 2 494 1 788 1 - 25 1617 25 497,0
3 66,0 1 322 7 1 245,3 66 5
13- 4- 13- 4- 103- 13-
Kyivska 0
25
24 24 0
25
797,0 13 8583 5 44,0 24 0
25
0
25
447 3
169 14
Kiro- 13- 4- 13- 4- 120- 18-
0 27 23 0 892,3 10 6300 14 52,2 23 0 0 225 16
vohradska 25 25 25 25 186 19
4- 1092, 4- 12- 68-
Luhanska 37 10 149 6 0
25 0
5 5900 17 269,4 4 105,5 6 0
25
240
13 111
9
4- 1266, 4- 66-
Lvivska 124 8 87 14 0
25 2
4 8400 7 120,5 10 70,5 9 0
25
382 6
108
6
Myko- 4- 4- 120-
66 9 39 22 0 711,0 16 4800 21 58,0 22 71,2 8 0 230 14 17
laivska 25 25 162
4- 1050, 4- 50-
Odeska 226 5 166 5 0
25 8
7 8300 8 150,0 7 197,7 5 0
25
388 5
92
4
13- 4- 13- 4- 78-
Poltavska 0
25
133 9 0
25
849,2 12 8900 4 123,2 9 0
25
0
25
276 10
144
10
13- 4- 13- 4- 131-
Rivnenska 0
25
77 17 0
25
577,8 20 5083 18 61,0 21 0
25
0
25
173 21
197
21
4- 4- 113-
Sumska 16 12 68 18 0
25
720,7 15 7200 11 98,0 13 28,0 11 0
25
147 25
155
16
13- 19- 13- 4- 22- 4- 133-
Ternopilska 0 60 20 0 564,0 21 5000
25 20
72,8 19 0
25
0 179 20
25 23 25 200
1516,
Kharkivska 276 4 245 3 322 2
3
3 9600 1 265,3 5 222,3 4 37,8 2 493 2 26 2
13- 4- 19- 14- 13- 4- 121-
Khersonska 0 25 82 16 0 25 452,3 23 5000 20 97,0 15 0
25
0
25
228 15
189
20

Khmelny- 13- 4- 14- 13- 4- 102-

0 117 11 0 737,7 14 7200 12 97,0 0 0 223 17 12
tska 25 25 15 25 25 169
13- 4- 13- 4- 12- 104-
Cherkaska 0 25 83 15 0 25 588,0 19 6100 16 127,0 8 0
25
0
25
240
13 171
15
Cher- 13- 4- 13- 4- 134- 22-
0 87 13 0 413,0 24 2900 24 87,0 17 0 0 171 22
nivetska 25 25 25 25 200 23
Cher- 13- 4- 13- 4- 103- 13-
0 104 12 0 852,7 11 7700 10 106,3 12 0 0 158 24
nihivska 25 25 25 25 169 14
* – the cell’s bold boundaries highlighted the best integral values of the region’s
indicators, and shading is the worst;
** – calculated as the sum of the values of ratings for each indicator

228
 Transit potential is the volume of freight traffic and passenger traffic
passing through the territory by different means of transport, as well as
the amount of transit cargo transported on the territory in accordance
with the terms of the contract, etc. The dynamics of indicators of this po-
tential by regions of Ukraine in 2010-2015 is shown in Figures 6.10-6.13.

160,0
140,0
120,0
100,0
80,0
60,0
40,0
20,0
0,0

Cherkaska
Donetska

Poltavska
Volynska
Dnipropetrovska

Zaporizka

Kyivska
Zhytomyrska

Ternopilska
Kharkivska
Kirovohradska

Odeska

Sumska
Vinnytska

Kyiv
Chernivetska
Zakarpatska

Luhanska
Lvivska

Rivnenska

Khersonska

Chernihivska
Ivano-Frankivska

Mykolaivska

Khmelnytska
2010 2011 2012 2013 2014 2015

Figure 6.10. Transported (shipped) cargoes by all types of transport in

Ukrainian regions, million tons, 2010-2015 (based on [1-26, 29, 30])

70000,0
60000,0
50000,0
40000,0
30000,0
20000,0
10000,0
0,0
Ternopilska
Vinnytska
Volynska

Donetska

Poltavska
Zaporizka

Kyivska
Kirovohradska
Dnipropetrovska

Odeska

Sumska

Kharkivska
Zhytomyrska

Khersonska

Kyiv
Cherkaska
Zakarpatska

Chernihivska
Luhanska
Lvivska

Rivnenska
Mykolaivska

Khmelnytska

Chernivetska
Ivano-Frankivska

2010 2011 2012 2013 2014 2015

Figure 6.11. Cargo turnover by all types of transport in Ukrainian

regions, million tkm, 2010-2015 (based on [1-26, 29, 30])

229
1500,0
1300,0
1100,0
900,0
700,0
500,0
300,0
100,0
-100,0

Luhanska

Rivnenska
Volynska

Donetska

Poltavska
Zaporizka

Kyivska
Dnipropetrovska

Kirovohradska

Sumska
Ternopilska
Kharkivska

Kyiv
Vinnytska

Odeska

Cherkaska
Zhytomyrska
Zakarpatska

Lvivska

Khersonska

Chernihivska
Chernivetska
Ivano-Frankivska

Mykolaivska

Khmelnytska
2010 2011 2012 2013 2014 2015

Figure 6.12. Transported (departed) passengers by all types of transport

in Ukrainian regions, million pass., 2010-2015 (based on [1-26, 29, 30])

35000,0
30000,0
25000,0
20000,0
15000,0
10000,0
5000,0
0,0
Mykolaivska
Volynska

Donetska

Poltavska
Zaporizka

Kyivska
Kirovohradska

Kharkivska
Dnipropetrovska

Odeska

Sumska
Ternopilska
Vinnytska

Zhytomyrska

Kyiv
Cherkaska
Zakarpatska

Luhanska
Lvivska

Rivnenska

Khersonska

Chernihivska
Ivano-Frankivska

Khmelnytska

Chernivetska

2010 2011 2012 2013 2014 2015

Figure 6.13. Passenger traffic by all types of transport in Ukrainian

regions, million pas. Km, 2010-2015 (based on [1-26, 29, 30])

Thus, the leaders in the carriage of cargo goods are Donetsk,

Dnipropetrovsk and Kharkiv regions, of the cargo turnover – Odessa re-
gion, Kyiv and Dnipropetrovsk region, of transportation of passengers –
Kyiv, Donetsk and Kharkiv regions, of the passenger traffic – Kyiv,
Odesa and Donetsk regions.
We propose to determine the rating of the regions of Ukraine for the
transit potential according to the average values for the analyzed period
of each of its components (Table 6.2).

230
Table 6.2. Average values of transit potential indicators in Ukrainian
regions for 2010-2015 and their rating* (developed by the author)

Integral rank-
General rank-
Cargo Turno-
ver, mln tkm
Transported

Transported
passengers,

traffic, mln
Passenger
Ranking

Ranking

Ranking

Ranking
cargo,
mln t

ing**
Regions of

mln

ing
Ukraine

Vinnytska 18,1 10 24737,9 6 257,1 7 8122,0 6 29 6

Volynska 3,8 23 1352,8 22 116,4 14 2415,6 16 75 20
Dnipropetrovska 106,4 2 33911,5 3 530,9 4 8781,9 5 14 3-4
Donetska 134,6 1 26539,6 5 749,3 2 10024,7 3 11 2
Zhytomyrska 21,8 9 4029,6 17 128,6 13 2501,6 14 53 13
Zakarpatska 4,9 22 6398,9 14 53,2 25 1370,1 21 82 23
Zaporizka 18,0 11 7847,7 12 162,7 10 3457,6 10 43 9
Ivano-Frankivska 7,9 17 1618,5 21 101,7 20 1297,0 22 80 22
Kyiv 42,2 5 44311,9 2 1313,1 1 31380,8 1 9 1
Kyivska 43,7 4 1862,9 19 223,0 8 5152,3 8 39 8
Kirovohradska 11,0 15 28326,8 4 77,3 24 1132,0 24 67 17
Luhanska 34,6 7 4680,9 16 111,9 17 2415,3 17 57 15
Lvivska 13,5 13 10030,9 10 278,8 6 5634,6 7 36 7
Mykolaivska 5,5 20 890,5 24 162,7 9 1813,1 19 72 18
Odeska 37,5 6 65609,8 1 338,7 5 11241,3 2 14 3-4
Poltavska 26,0 8 7355,9 13 115,0 15 2759,2 13 49 10-11
Rivnenska 14,2 12 9422,4 11 134,2 11 2451,9 15 49 10-11
Sumska 5,3 21 12132,0 8 111,5 18 3597,1 9 56 14
Ternopilska 6,4 19 2127,2 18 91,3 22 2025,5 18 77 21
Kharkivska 58,6 3 23880,4 7 609,7 3 9256,5 4 17 5
Khersonska 9,1 16 5311,1 15 101,6 21 2835,7 12 64 16
Khmelnytska 7,4 18 1831,5 20 133,6 12 1229,6 23 73 19
Cherkaska 11,2 14 10344 9 112,4 16 3143,2 11 50 12
Chernivetska 1,9 24 965,6 23 80,9 23 1479,7 20 90 24
Chernihivska 1,8 25 749,8 25 109,3 19 931,1 25 94 25
* – the cell’s bold boundaries highlighted the best integral values of the region’s
indicators, and shading is the worst;
** – calculated as the sum of the values of ratings for each indicator

Thus, according to the results of ranking of the regions of Ukraine in

terms of the level of development of transit potential, the cities of Kyiv,
Donetsk, Dnipropetrovsk and Odessa regions are leaders (highlighted in
the bold cell borders in Table 6.2), while Chernihiv, Chernivtsi and
Zakarpattia regions are outsiders (highlighted by shading in Table 6.2).
Personnel potential – reflects the ability to provide logistics infrastruc-
ture by its own specialists of different levels and profile, as well as to ex-
plore and analyze logistics systems and processes, develop programs for
their improvement, etc. The list of indicators in the structure of human
resources includes the number of Doctors and Ph.Ds in economy (Figures
6.14-15), the number and level of the employed and the unemployed, incl.
the registered population (Figures 6.16-21), the demand for labor and the

231
load on one vacancy (Figures 6.22-23), as well as the employment of regis-
tered unemployed persons (Figure 6.24) and the average number of full-
time employees of transport and warehousing enterprises (Figure 6.25).
Analyzing the number of Doctors and Ph.Ds in economy (Figures
6.14-15), we observe relative stability with a tendency to increase in this
indicator, except Donetsk and Luhansk regions, where there is a de-
crease due to the events in the ATO territory.

6000
5000
4000
3000
2000
1000
0
Dnipropetrovska

Ivano-Frankivska
Donetska

Poltavska
Volynska

Zaporizka

Kyivska

Sumska
Ternopilska
Kirovohradska
Vinnytska

Odeska

Kharkivska
Zhytomyrska

Kyiv
Zakarpatska

Khersonska

Cherkaska

Chernihivska
Luhanska
Lvivska

Rivnenska
Mykolaivska

Khmelnytska

Chernivetska
2010 2011 2012 2013 2014 2015

Figure 6.14. The number of Doctors of Science in economy in Ukrainian

regions, persons, 2010-2015 (based on [28])

25000
20000
15000
10000
5000
0
Volynska

Donetska

Poltavska
Zaporizka

Kyivska

Ternopilska
Kirovohradska

Odeska

Sumska

Kharkivska

Cherkaska
Vinnytska

Dnipropetrovska

Kyiv
Zhytomyrska
Zakarpatska

Khersonska

Chernihivska
Lvivska

Chernivetska
Luhanska

Rivnenska
Ivano-Frankivska

Mykolaivska

Khmelnytska

2010 2011 2012 2013 2014 2015

Figure 6.15. The number of Ph.Ds in economy in Ukrainian regions,

persons, 2010-2015 (based on [28])

232
2000
1800
1600
1400
1200
1000
800
600
400
200
0
Donetska

Kyivska
Vinnytska
Volynska

Poltavska

Ternopilska
Zaporizka

Kirovohradska

Odeska

Sumska

Kharkivska
Dnipropetrovska

Zhytomyrska
Zakarpatska

Chernihivska
Lvivska

Kyiv
Luhanska

Rivnenska

Khersonska

Cherkaska
Chernivetska
Mykolaivska

Khmelnytska
Ivano-Frankivska

2010 2011 2012 2013 2014 2015

Figure 6.16. The number of employed people in Ukrainian regions,

thousand people, 2010-2015 (based on [27])

70
60
50
40
30
20
10
0
Donetska

Poltavska
Volynska

Zaporizka

Kyivska

Sumska
Dnipropetrovska

Ternopilska
Kharkivska
Kirovohradska
Vinnytska

Odeska

Cherkaska
Zhytomyrska
Zakarpatska

Kyiv
Lvivska

Khersonska

Chernihivska
Ivano-Frankivska

Luhanska

Rivnenska
Mykolaivska

Khmelnytska

Chernivetska

2010 2011 2012 2013 2014 2015

Figure 6.17. The employment rate in Ukrainian regions, %, 2010-2015

(based on [27])

Analyzing the indicators of employment and unemployment (Fig-

ures 6.16-6.21), we observe the opposite tendencies to a slight decrease
in the number of employed population and the growth of unemployment
in all regions of Ukraine, except for Vinnytsia, Dnipropetrovsk, Ivano-
Frankivsk, Kyiv, Lviv, Mykolaiv, Odesa, Rivne, Kharkiv regions, where

233
in 2015 there is an improvement in the indicators. At the same time, in
Volyn, Zhytomyr, Zakarpattia, Cherkasy, Chernihiv regions, all indica-
tors of both employment and unemployment are reduced, while in Ivano-
Frankivsk, on the contrary, the increase of registered unemployment oc-
curs only in Volyn and Zhytomyr regions.

250
200
150
100
50
0
Vinnytska
Volynska

Donetska

Poltavska
Zaporizka

Kyivska

Ternopilska
Kirovohradska

Odeska

Sumska

Kharkivska
Dnipropetrovska

Zhytomyrska

Lvivska

Kyiv
Zakarpatska

Luhanska

Rivnenska

Khersonska

Cherkaska

Chernihivska
Mykolaivska

Khmelnytska

Chernivetska
Ivano-Frankivska

2010 2011 2012 2013 2014 2015

Figure 6.18. The number of unemployed people in Ukrainian regions,

thousand people, 2010-2015 (based on [27])

18
16
14
12
10
8
6
4
2
0
Kirovohradska
Zhytomyrska

Odeska
Volynska

Donetska

Poltavska
Zaporizka

Kyivska

Sumska
Dnipropetrovska

Ternopilska
Kharkivska

Kyiv
Vinnytska

Lvivska
Zakarpatska

Luhanska

Rivnenska

Khersonska

Cherkaska

Chernihivska
Ivano-Frankivska

Khmelnytska

Chernivetska
Mykolaivska

2010 2011 2012 2013 2014 2015

Figure 6.19. The unemployment rate in Ukrainian regions, %, 2010-2015

(based on [27])

234
40
35
30
25
20
15
10
5
0

Cherkaska
Donetska

Poltavska
Volynska

Ternopilska
Zaporizka

Kyivska

Sumska
Dnipropetrovska

Kirovohradska

Odeska

Kharkivska
Vinnytska

Zhytomyrska

Kyiv
Zakarpatska

Luhanska
Lvivska

Rivnenska

Khersonska

Chernihivska
Chernivetska
Ivano-Frankivska

Mykolaivska

Khmelnytska
2010 2011 2012 2013 2014 2015

Figure 6.20. The number of registered unemployed people in Ukrainian

regions, thousand people, 2010-2015 (based on [27])

4
3,5
3
2,5
2
1,5
1
0,5
0
Donetska

Poltavska
Volynska

Zaporizka

Kyivska
Dnipropetrovska

Kirovohradska

Sumska
Ternopilska
Kharkivska
Vinnytska

Odeska

Cherkaska
Zhytomyrska

Kyiv
Zakarpatska

Luhanska
Lvivska

Rivnenska

Khersonska

Chernihivska
Ivano-Frankivska

Mykolaivska

Khmelnytska

Chernivetska

2010 2011 2012 2013 2014 2015

Figure 6.21. The level of registered unemployed in Ukrainian regions, %,

2010-2015 (based on [27])

The demand for workers is increasing in Volyn, Ivano-Frankivsk,

Khmelnytskyi and Cherkasy regions, and is almost stable in Kirovohrad,
Mykolaiv, Sumy and Ternopil regions, when in others it is decreasing,
while it is very significant in Kyiv, Dnipropetrovsk, Donetsk, Kyiv, Lviv,
Luhansk, Odessa, Kharkiv and Kherson regions (Figure 6.22).

235
25
20
15
10
5
0 Zakarpatska
Donetska

Poltavska
Volynska

Zaporizka

Kyivska

Sumska
Ternopilska
Kharkivska
Vinnytska

Dnipropetrovska

Kirovohradska

Odeska

Cherkaska
Zhytomyrska

Lvivska

Kyiv
Ivano-Frankivska

Luhanska

Rivnenska

Khersonska

Chernihivska
Mykolaivska

Khmelnytska

Chernivetska
2010 2011 2012 2013 2014 2015

Figure 6.22. The demand for labor in Ukrainian regions,

thousand people, 2010-2015 (based on [27])

The load on one vacancy in the regions of Ukraine is rapidly fluctuat-

ing from year to year, and only in Kyiv, Zhytomyr, Mykolaiv, Odesa, and
Kharkiv regions shows some stability (Figure 6.23).

200

150

100

50

0
Chernivetska
Volynska

Donetska

Poltavska
Zaporizka

Lvivska
Kyivska

Sumska
Ternopilska
Kharkivska
Vinnytska

Dnipropetrovska

Kirovohradska

Odeska

Kyiv
Zhytomyrska
Zakarpatska

Khersonska

Cherkaska

Chernihivska
Ivano-Frankivska

Luhanska

Rivnenska
Mykolaivska

Khmelnytska

2010 2011 2012 2013 2014 2015

Figure 6.23. The load on one vacancy (vacant position) (average per year)
in Ukrainian regions, persons, 2010-2015 (based on [27])

The employment of registered unemployed (on average per year) in

the regions of Ukraine from 2010 to 2012 is increasing, with the

236
exception of Donetsk, Luhansk, Ternopil, Khmelnytskyi, Cherkasy,
Chernivtsi regions, where the decrease begins already in 2012. This in-
dicator is growing somewhat in 2014 in Vinnytsia, Volyn, Kirovohrad,
Lviv, Poltava and Kharkiv regions and in Kyiv, and in 2015 - in the
Dnipropetrovsk and Chernihiv regions, and positive dynamics are main-
tained only in Kyiv (Figure 6.24).

60
50
40
30
20
10
0
Luhanska

Rivnenska
Volynska

Donetska

Poltavska
Zaporizka

Kyivska

Ternopilska
Dnipropetrovska

Kirovohradska

Odeska

Sumska

Kharkivska

Kyiv
Vinnytska

Zhytomyrska
Zakarpatska

Khersonska

Cherkaska

Chernihivska
Lvivska

Chernivetska
Ivano-Frankivska

Mykolaivska

Khmelnytska
2010 2011 2012 2013 2014 2015

Figure 6.24. The employment of registered unemployed (on average per

year) in Ukrainian regions, thousand people, 2010-2015 (based on [27])

The analysis of the number of full-time employees of transport and

warehousing enterprises for the analyzed period shows an average de-
crease, but in Dnipropetrovsk and Poltava regions we observe growth
(Figure 6.25).
Thus, the leaders in the number of Doctors and Ph.Ds in Economics
are Kyiv, Kharkiv and Lviv regions, the employed population – Donetsk,
Dnipropetrovsk regions and Kyiv, by the level of employment – Kyiv,
Dnipropetrovsk and Kharkiv regions, by the number of indicators the
unemployed – Chernivtsi, Volyn and Kirovohrad regions, according to
the unemployment rate – Kyiv, Odesa and Kyiv regions, by the number
of registered unemployed – Chernivtsi region, Kyiv and Zakarpattya re-
gion, the level of registered unemployed – Kyiv, Donetsk and Odesa re-
gions, for the demand for labor force and load for one job – Kyiv,
Dnipropetrovsk and Kharkiv regions, for employment of registered un-
employed – Dnipropetrovsk, Donetsk and Vinnitsa regions, according to

237
the number of full-time employees of transport and warehousing enter-
prises – Kiev, Donetsk and Odessa regions.

100
90
80
70
60
50
40
30
20
10
0
Volynska

Donetska

Zaporizka

Poltavska
Kyivska

Odeska

Sumska
Ternopilska
Kharkivska
Vinnytska

Dnipropetrovska

Kirovohradska

Kyiv
Zhytomyrska
Zakarpatska

Khersonska

Cherkaska

Chernihivska
Luhanska
Lvivska

Rivnenska

Chernivetska
Ivano-Frankivska

Mykolaivska

Khmelnytska
2010 2011 2012 2013 2014 2015

Figure 6.25. The average number of employees of enterprises

of transport and storage facilities in Ukrainian regions, thousand people,
2010-2015 (based on [27])

We propose to determine the ranking of regions of Ukraine for per-

sonnel potential by the average values for the analyzed period of each of
its components (table 6.3).
Thus, according to the results of rating of the regions in Ukraine in
terms of the level of personnel potential development, Kyiv, Odesa and
Dnipropetrovsk regions are leaders (highlighted in bold cell borders in
the table 3), while Kirovohrad, Cherkasy and Rivne regions are outsiders
(highlighted by shading in the Table 6.3).
The total result of the conducted research is to determine the ranking
of the regions in Ukraine by the level of all potentials, which is given in
the Table 6.4.

238
 Table 6.3. Average values of personnel potential indicators in Ukrainian
regions for 2010-2015 and their ranking* (developed by the author)

Employment of registered un-

Load on one vacancy, persons
Registered unemployed, thsd

storage facilities, thsd people

Demand for labor force, thsd

Employees of transport and

Level of registered unem-
Unemployed, thsd people

Unemployment rate, %
Employed, thsd people

employed, thsd people

Employment rate, %

General ranking**
Integral ranking
Re-

ployed, %
Ranking

Ranking

Ranking

Ranking

Ranking

Ranking

Ranking

Ranking

Ranking

Ranking

Ranking

Ranking
gions
Doctors

people

people
PhDs

of
Ukrain
e

180
Vinny- 23 16 689 58, 11- 71, 17- 27, 59, 32, 23,
12 12 10 19 9,4 21 2,9 22 0,5 22 22 3 9 - 17
tska 6 10 ,2 1 12 3 18 9 2 0 8
182
175
23- 10 428 57, 16- 40, 11, 11- 15- 16, 10- 18, 16-
Volynska90 24 14 23 ,3 22 4 17 9 2 8,7 11
9
4 1,9
12
0,8
16 8 11 7 17
9,3 22 - 16
181
Dniprope96 52 151 60, 11 34, 43, 59, 82-
4 4 2 2 24 7,0 4 25 1,7 7-9 6,5 2 6,3 3 1 4 3
trovska 6 98 4,2 9 4,9 6 2 3 84
127
Do- 86 51 174 57, 17 19- 28, 21, 37, 73,
6 6 1 20 25 9,5 23 1,1 2 2,3 5 16 2 2 - 7
netska 6 41 0,2 1 2,6 20 7 3 9 1
128
186
Zhyto- 10 10 539 58, 8- 61, 10, 22- 21, 12, 21, 11,
22 22 15 15 17 2,8 21 1,8 8 6 12 18 - 20
myrska 6 20 ,6 3 10 5 3 24 3 2 8 7
190
167
Zakarpat16 92 527 57, 51, 12- 11, 17- 18, 15, 13,
16 16 16 19 9 8,9 3 1,5 6 0,7 15 22 16 - 13
ska 2 7 ,9 2 2 14 3 20 3 3 6
172
138
Za- 38 26 802 59, 67, 25, 17- 31, 22,
7 7 8 4 16 7,7 6 20 2,3 15 0,7 67 24 4 10 - 8
porizka 8 13 ,5 4 0 9 20 6 9
141
Ivano- 162
24 16 546 53, 48, 16, 11- 23- 46, 22, 11,
Frank- 9 10 60 10 ,2 14 8 25 0 6 8,1 8 1 6 1,9 12 0,4 24 2 20 7 10 4 19 - 12
ivska 164
56 240 138 63, 88, 10, 10, 14, 80,
Kyiv 72 1 89 1 7,9 3 7 1 0 21 6,0 1 7 2 0,6 1 0 1 1,6 1 1 23 9 1 57 1
113
18 12 748 58, 54, 17, 17, 29,
Kyivska 1 14 52 14 ,7 9 5 7 6 12 6,8 3 6 10 1,7 7-9 2,2 6 8,3 5 6 19 6 7 - 6
115
Kiro- 218
76 418 56, 43, 17- 19, 24- 17- 31, 21, 17,
vohradsk61 25 9 25 ,3 24 8 22 2 3 9,4 18 9 16 3,3 25 0,7 20 0 19 2 14 9 12 - 25
a 223
145
Luhansk29 21 870 56, 75, 12- 18, 10- 52, 25, 22,
8 8 7 23 20 8,9 13 1,3 4 1,1 21 8 11 - 9
a 9 15 ,4 5 5 14 2 13 7 5 6
150
110
10 64 107 57, 16- 91, 25, 16, 10- 30, 41,
Lvivska 64 3 10 3 9,9 5 4 17 5 22 7,8 7 2 19 1,4 5 1,6 9 8 11 8 5 3 6 - 5
112
157
Myko- 16 10 525 59, 47, 19, 19- 10- 17, 13- 20, 16,
18 18 17 5 4-5 8,3 9 15 2,6 1,1 15 14 - 11
laivska 0 93 ,4 2 4 3 20 13 3 14 6 1
163
86 48 104 58, 11- 67, 17, 22, 69, 80-
Odeska 8 5 11 5 0,6 6 1 12 1 17 6,1 2 4
9 1,2 3 2,5 4 7,0 4
5
11
4
3
81
2

Pol- 25 17 631 57, 68, 28, 15, 30, 25,

9 9 11 15 18 9,9 21 22 3,1 23 2,0 7 7 6 8 156 10
tavska 7 92 ,1 5 9 3 0 4 7
198
Rivnen- 10 11 476 58, 8- 55, 10, 22- 18, 17- 15- 22, 21, 10,
21 21 19 13 11 2,5 0,8 17 13 21 - 23
ska 7 14 ,3 3 10 5 3 24 0 18 16 0 6 4
204
185
17 14 500 57, 51, 18, 19- 17- 25, 18, 16,
Sumska 4 15 10 15 ,6 18 9 14 1 8 9,3 16 3 14 2,6 20 0,7 20 3 18 3 18 3 13 - 19
189

239
 Table 6.3. Continuation

Employment of registered un-

Load on one vacancy, persons

storage facilities, thsd people

Registered unemployed, thsd

Demand for labor force, thsd

Employees of transport and

Level of registered unem-
Unemployed, thsd people

Unemployment rate, %
Employed, thsd people

employed, thsd people

Employment rate, %

General ranking**

Integral ranking
ployed, %
Regions
Ranking

Ranking

Ranking

Ranking

Ranking

Ranking

Ranking

Ranking

Ranking

Ranking

Ranking

Ranking
Doctors

people

people
PhDs

of
Ukraine

182
Ter- 24 18 42 54, 50, 10, 16, 10- 15, 18, 16-
11 11 23 24 7 25 7-8 2,4 16 1,1 8 8,1 24 - 18
nopilska 3 05 8,2 2 4 5 2 13 2 7 17
187
12 12 104
Kharkiv 21 60, 95, 30, 10, 43,
2 16 2 61, 4 3 23 7,1 5 24 1,7 7-9 3,1 3 3,1 2 24 5 - 4
ska 71 7 0
2 3 0 2 7
106
176
Kherson- 13 10 47 58, 47, 13, 17, 13- 16, 11,
19 19 20 13 4-5 9,2 15 5 2,0 13 1,0 14 21 20 - 15
ska 8 11 0,6 0 4 4 3 14 3 2
178
193
Khmel- 13 14 55 57, 54, 12- 18, 65, 25, 11,
20 20 12 18 11 8,9 12 2,2 14 0,3 25 23 9 17 - 21
nytska 6 36 3,4 3 1 14 1 3 1 9
195
200
Cher- 16 12 55 58, 8- 57, 19- 25, 24- 23- 90, 29, 15,
17 17 13 14 9,5 18 3,3 0,4 25 7 15 - 24
kaska 1 87 0,7 3 10 9 20 0 25 24 8 8 2
205
Cher- 23 13 38 57, 34, 10, 17,
13 13 25 21 1 8,4 10 1 1,8 10 0,6 21 12 8,3 25 4,9 25 177 14
nivetska 3 84 0,7 0 9 2 0
192
Cher- 23- 90 46 58, 53, 10, 22- 16, 17- 10- 15, 17,
90 24 21 6 10 7-8 2,5 1,1 9 20 8,6 23 - 22
nihivska 24 6 2,7 7 0 3 24 2 18 13 7 0
200
* – the cell’s bold boundaries highlighted the best integral values of the region’s
indicators, and shading is the worst;
** – calculated as the sum of the values of ratings for each indicator

Table 6.4. Rating of Ukrainian regions by the level of transport, transit

and personnel potentials
General rank- Integral rank-
Regions of Ukraine transport transit personnel
ing* ing
Vinnytska 7-8 6 17 30-31 9-10
Volynska 18-19 20 16 54-55 18-19
Dnipropetrovska 1 3-4 3 7-8 2
Donetska 3 2 7 12 5
Zhytomyrska 11 13 20 44 12
Zakarpatska 24 23 13 60 21
Zaporizka 7-8 9 8 24-25 7
Ivano-Frankivska 25 22 12 59 20
Kyiv 5 1 1 7 1
Kyivska 13-14 8 6 27-28 8
Kirovohradska 18-19 17 25 60-61 22-23
Luhanska 9 15 9 33 11
Lvivska 6 7 5 18 6
Mykolaivska 17 18 11 46 13
Odeska 4 3-4 2 9-10 3
Poltavska 10 10-11 10 30-31 9-10
Rivnenska 21 10-11 23 54-55 18-19

240
 Table 6.4. Continuation

Regions of Ukraine transport transit personnel General ranking* Integral ranking

Sumska 16 14 19 49 14
Ternopilska 22 21 18 61 24-25
Kharkivska 2 5 4 11 4
Khersonska 20 16 15 51 15-16
Khmelnytska 12 19 21 52 17
Cherkaska 15 12 24 51 15-16
Chernivetska 23 24 14 61 24-25
Chernihivska 13-14 25 22 60-61 22-23
*- calculated as the sum of rankings for each indicator.

According to the results of the research, we see that the city of Kyiv,
Dnipropetrovsk and Odesa regions have the highest level of transport,
transit and personnel potentials (highlighted in the bold cell borders in
table 4), which in our opinion will contribute to more effective planning,
organization, regulation and control of product delivery and services pro-
vided by manufacturers to consumers in these regions, the formation and
implementation of economically feasible marketing logistics measures
for enterprises that shape or extend the distribution system and, in the
end, will help manufacturers of innovative or existing products to estab-
lish long-term, mutually beneficial and reliable connections in the dis-
tribution channels. These findings are in accord with those from other
countries [34, 35]. Unfortunately, Ternopil, Chernivtsi and Chernihiv re-
gions (highlighted by shading in table 4) have the lowest level of
transport, transit and personnel potentials that needs to be increased,
for example, due to the development of the personnel potential in Ter-
nopil and Chernivtsi regions, because they occupy 18 and 14 positions
respectively in the ranking or growth the transport potential in Cher-
nihiv region, because it takes 13-14 positions.

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 6.2. Criterion basis of marketing channels suitability
for innovative products distribution4

Syhyda L.О., Jankurová A., Masár D.

Today the role of marketing channels in the world economy and spe-
cifically for manufactures and costumers increases. Scientist S. I. Kiri-
ukov says that only efficiently build and managed marketing channels
system can deliver goods to the end users in the best way and convince
that these products are the best comparing to analogous in the market.
According this statement we summarize that the choice of marketing
channels for product distribution must be diligent and careful. Such
statement explains that right chosen marketing channels, other words,
optimal marketing channels increase innovation product chances to be
successful on the consumer market. It also contributes to delivering even
insufficiently effective innovative products to the target market. Oppo-
site situation also possible in case when wrong marketing channels are
chosen for innovation product distribution, in such case perspective in-
novation can be failure.
The choice of the marketing channels in the formation of the distri-
bution system depends on the scope of its activities, the markets, the
specifics of the produced products, the management strategy, and the
level of innovation activity. The process of marketing channels choice for
innovation product distribution at the enterprises which are engaged in
innovative development becomes especially important.
Recently, one of the most discussed issues between scientists in econ-
omy field stay issues concerning the products distribution and their ef-
fective delivering to consumers. Channel researches offer numbers ap-
proaches and strategies to «build» an effective and efficient marketing
channels for product delivering to the end users. In just the past decade,
the number of publications focused on marketing channels has grown by
more than 150%. So, the issues that reveal the essence, significance and
structure of distribution policy are disclosed in the publications of such
academics as Bilovodska O.A. [1], Pavlenko A.F. [12], Petrunia Yu.Ye.
[13], Prymak T.O. [14] etc. Accordingly, there are numbers of academics
who provide analysis of the role and structure of marketing distribution
policy. The issues of distribution marketing channels management have

4
The publication contains the results of studies conducted by President’s of Ukraine grant
for competitive projects F70 of the State Fund for Fundamental Research (“Formation of
the management mechanism of products’ distribution at the industrial enterprises on the
innovative basis”, № SR 0117U001682)

245
been reflected in the scientific works of such individuals as Hladun P.P.
[3], Horčels L., Marijen E., Uest Č. [4, 5], Krykavskyi Ye.V. [9],
Naumov V. M. [11], Skliar O. M. [17], Elʹ-Ansari A.I., Koflan E.T., Štern
L.V. [18]. Theories related to the marketing channels choice are pre-
sented in the publications of such scholars as Gercyk V.A. [2], Duplenko
N.G., Kharichkova Ye.V. [6], Korolchuk O.P., Syvanenko G.P., To-
ropkov V.M. [8], Lugunova D.O., Kotova M.V. [10], Samorodov V.B., Tiuti-
unnykova I.A. [15].
Based on analyze of extant marketing channel literature we provide
a visual representation of the algorithm of marketing channels choice for
innovation product. Summarizing the foregoing, we have developed a
block diagram of the algorithm of marketing channels choice for the in-
novative products distribution, which has this form (Figure 6.26).

Diagnosis of the enterprise marketing distribution policy

Identification of the set of the enterprise’s

K-marketing channels

k = 1, K, 1

Setting indicators to define the economic and marketing states Choosing the best marketing channel for
of the k-th existing channel at the enterprise and their calculation. the innovative products distribution
Determination of the validity of estimated indicators
Control over the effective using the
selected marketing channel based on
Calculation of integral indicators of economic and marketing states constant economic indicator NPV
evaluation of k-th existing channel and construction of (net present value)
corresponding matrix

Exclusion of k-th No Does the k-th marketing channel

channel from further ? belong to zone I or II on the
consideration matrix?
Yes

Determination of verification criteria of marketing channels

conformity to innovative products

Checking the k-th channel according to the verification criteria

Figure 6.26. Block diagram of the algorithm of marketing channels

choice for the innovative products distribution

246
 So, we identify that the choice of marketing channels for the innova-
tive products distribution at an industrial enterprise consists of 4 steps
[16]:
1) diagnostics of the actual conditions of the marketing distribution
policy at the enterprise;
2) evaluation of existing marketing channels of the enterprise;
3) checking existing marketing channels conformity to innovative
products according to criterion base, and their final choice;
4) monitoring and control over the effective use chosen marketing
channels through the time.
Each of these steps is basement for further steps, all steps are con-
nected. Thus, the evaluation of existing marketing channels of an enter-
prise allows not only to determine their state (according to the results of
the enterprise marketing channels evaluation they may occupy one of
the positions: leader, challenger, follower, collector, eliminator [16]), but
also to find out feasibility of their hold and use at the enterprise in sub-
sequent periods. Also, such evaluation has another goal – identifying
among the existing marketing channels, those that are the most appro-
priate for the distribution of innovative products. Other words, this eval-
uation helps to choose appropriate marketing channels for distribution
of the proposed innovation. Important to check all marketing channels
and complains with the specifics of innovative products.
So, it is important to develop an approach to marketing channels
checking on their conformity to the innovative products specifics of the
enterprise and to determine suitability of the channels to innovative
products distribution.
A generalized block diagram of the algorithm for channels checking,
based on the pre-made evaluation of channels conformity to the specific-
ity of innovative products, is given in Figure 6.27. According to the block
diagram, it is important to compare product characteristics with the con-
ditions provided by the channels according to the group of criteria:
1) conformity of the products novelty level to the complex characteristics
of the marketing channel; 2) the target market for innovative products
and the market on which the channel operates; 3) conformity of innova-
tive product to assortment distributed through the channel; 4) actions to
promote innovative products; 5) readiness of channel participants for the
innovative products distribution; 6) the risk of innovative products dis-
tribution through the marketing channel.
The transition between blocks of the algorithm is carried out using
the «yes» and «no» queries. Specialists of the analyzed company who are
engaged in the innovative products development, specialists in sales and

247
marketing, and direct participants in the channels must be involved in
the checking process.

Alternative marketing channels for the innovative

products distribution

Does the complex channel no

characteristics correspond ? Checking the
to the level of products next channel
novelty?
yes Accepting decision to use
yes an existing channel for the
1. Does channel cover all segments of the target market, innovative products
which is targeted to innovative products? distribution
no
Accepting decision to
1.1. Is it possible to increase the number of segments yes
modify the channel for
of the target market on which the channel is active?
the innovative products
no distribution
2. Does innovative products correspond to the assortment yes
of products distributed through the channel?

no
2.1. Is it possible to diversify the product yes
portfolio of the channel?

no
3. Is it possible to use already used in marketing channels yes
methods for innovative product promotion?

no
3.1. Is it possible to diversify product promotion yes
methods inside the channel?

no
4. Are channel participants ready to distribute innovative yes
products?

no
4.1. Can the channel participants be prepared yes
for the innovative products distribution?

no
5. Is the risk of innovative products distribution through yes
the channel acceptable?

no
5.1. Is it possible to reduce the risk of innovative yes
products distribution through the channel?

no
Accepting decision to build a new
channel for the innovative products
distribution

Checking the next no

Are all marketing
channel ? channels alternatives reverse mechanism
checked?
yes

Decision of possibility of the alternative marketing

channels using for the innovative products
distribution

Figure 6.27. Block diagram of the algorithm for checking marketing

channels conformity to the specificity of innovative products

248
 Before accepting any decision connected with production and distri-
bution of innovative products, verification of marketing channels accord-
ing to the specified criteria must always be done. The fulfillment of all
verification criteria (Fig. 6.27) indicates the high suitability of existing
marketing channels for the innovations distribution and determines the
possibility of their use without changes and, accordingly, requires least
costs and efforts. Middle suitability is possible in case of channels dis-
crepancy to individual verification criteria but with opportunity to im-
prove them. Lack of such capabilities indicates a low suitability and de-
termines needs of channels modification and/or their replacing with new
specially designed channels.
Choice of appropriate marketing channels for the distribution of in-
novative products is determined, first of all, by the type of innovative
products (radical, ordinary, improving – modifying and replacing). Op-
tions for selecting best type of marketing channel depending on the level
of product innovation is shown in Figure 6.28. Diameter size of the circle
depends on the acceptability of using marketing channel: larger circle
means more appropriate type of marketing channel.
Level of product novelty/
Types of innovation
max

Highest novelty /
Radical innovation

High or significant
novelty /
Ordinary innovation

Sufficient novelty /
Modifying innovation

Insignificant or false
novelty / Replacing Types of
innovation marketing
channels

min leader-channel challenger-channel follower-channel collector-channel eliminator-channel

Figure 6.28. Intensity of marketing channels use depending

on the level of products novelty

Types of marketing channels that can operate at an enterprise, and

innovations (in terms of novelty) that are expediently distributed
through the appropriate types of marketing channels are presented in
Table. 6.5.

249
Table 6.5. Characteristics of marketing channels
Chan
The level of in-
nel Characteristics of marketing channel
novation novelty
type
Leading (dominant) position. A significant part of the enterprise’s Radical, ordi-
production is distributed through the channel. «Leader» is profita- nary, improving
Leader

ble. Marketing activities at are at a high level. It is possible to dis- (modifying, re-
tribute products with a different level of novelty through the chan- placing) innova-
nel. At the same time, such channel requires additional financial tions
investments for maintaining achieved positions
Strong position. Channel has a stable economic and marketing Ordinary and
state. Such channel has a rapid pace of development. The chan- improving (mod-
nel can become a leader after additional investments in its de- ified, replaced)
Challenger

velopment. Inclusion of innovation to portfolio of marketing innovations, also

channel products is considered as way to improve its function- radical innova-
ing and achieve or advance the level of leader channel. «Chal- tions after their
lenger» can be used in the distribution of ordinary and improv- testing through
ing innovations, and radical innovations can be distributed af- leaders-channels
ter its testing through leader-channels
Favorable position. Marketing and economic state of the chan- Improving inno-
nel indicates that the channel has a stable position. Channel’s vations, also rad-
participants are not always ready to take risks arising from the ical and ordinary
inclusion of innovative products in the portfolio. To keep exist- innovations after
Follower

ing consumers and receive stable profits is the most important their testing
task for channel participants. It is expedient to use «Followers» through leaders-
for distribution of improving innovations, also for distribution channels
of radical and ordinary innovations after their testing through
leader-channels and based on their strategies. Using of leader-
channels’ strategies reduce the risk of failure and help to avoid
losses
Satisfactory position. Channel has a low economic and mediocre Replaced innova-
marketing state, or mediocre economic and low marketing tions
state. «Collector» can operate on a small segment of the market
with well-defined consumer needs. Collector-channels get profit
Collector

in the short term. After «harvesting» collector-channels must be

eliminated gradually. However, such channels have the poten-
tial for development in the presence of favorable conditions. It
is advisable to use collector-channels for traditional products
distribution. In some cases, it is possible to use such channel for
innovative products distribution, chiefly stare, to improving in-
novation
Unsatisfactory position. Channel’s economic and marketing Traditional
Eliminator

state is low. The channel does not develop and does not have products
any capacity to improve its status. «Eliminator» needs to be
eliminated or radical reorganized. Eliminator-channels can be
used for traditional products distribution during «harvesting»

For innovative products distribution, first of all, channels that are

ready to distribute such products without changes are chosen. In case of

250
existing only alternatives that require channels modification or they re-
placement for new ones, it is important to specify solutions for existing
channels modifications and options for new channels developing.
Modification of existing marketing channels according to innovative
products requirements or creation of new channels require additional fi-
nancial investments. Such investments are related to the formation/in-
crease of channels suitability for innovative products distribution. There
is correlation between costs and benefits of channel modification. The
higher costs are incurred on the formation of marketing channels suita-
bility for innovative products distribution, the lower costs will be con-
nected with innovative products move through channels and at the same
time higher level of customer service will be guaranteed. However, it is
important to find such an interrelation between the costs on the for-
mation of marketing channels suitability for innovative products distri-
bution and results incurred with channels use in which these costs are
justified.
Interrelation between the costs and level of marketing channels suit-
ability for innovative products distribution is presented in Figure 6.29.
According to it there is a certain level of marketing channels suitability,
in which aggregate costs are minimal, and therefore, it is optimal.

3 Total costs
Costs,
UAH
1 2 Costs of forming/increasing suitability of
marketing channels for innovative products
distribution

Distribution costs of innovative products

in marketing channels

Suitability of marketing
channels
0
min Сopt. max

Figure 6.29. Interrelation between the costs and level of marketing

channels suitability for innovative products distribution

251
 Necessary, periodically, to do some additional costs in the process of
forming/increasing marketing channels suitability for innovative prod-
ucts distribution. The volume of these costs has an inverse character to
the level of channel’s suitability: high level of suitability fitness fewer
costs (Figure 6.29). Curve 1 in Figure 6.29 has the form of hyperbole and
approaches the axis of absis. The reason of such tendency explains that
there is no ideal marketing channel and channels for innovative products
distribution throughout their life cycle require costs to improve or at
least maintain the current state.
In the case of transition to the «Decision to modify the marketing
channel» block (Figure 6.27) for each criterion, according to which the
marketing channel does not suit to innovative products, measures are
determined. Implementation of measures allows to lead the channel in
accordance with innovative products specificity, other words, to improve
the suitability of the channel. An indicative list of additional costs for
increasing channels suitability for innovative products distribution by
channels modifying, and results from their use is given in Table 6.6.

Table 6.6. Indicative list of costs and outcomes benefits connected with
marketing channels suitability improving through their modification
Criterion re-
quiring modifi- Decision Costs Result
cation
expanding mar- costs for analysis of the expanding scope of the
keting channel market segment, where marketing channel;
scope within the it is planned to distrib- raising of consumers
target market by ute products; awareness about inno-
targeting new expenses for new partners vative products and en-
Market of inno- segments; searching and conducting terprises;
vative products finding and at- negotiations with them; increasing of consum-
tracting consum- costs for preparing con- ers;
ers of new prod- sumers to new products; increasing of orders
ucts expenses for maintenance number;
of several segments in the consumer loyalty in-
target market creasing
defining place of costs for analysis of en- assortment diversifica-
innovative prod- terprise products’ assort- tion and, accordingly,
uct in the exist- ment; strengthening market-
Correspondence
ing products’ as- costs on diversification of ing channel position on
of innovative
sortment; products assortment (ex- the market;
product to the
innovative prod- tension, deepening or increasing of consum-
channel’s as-
uct embedding in harmonization of assort- ers
sortment
the existing as- ment);
sortment maintenance and assort-
ment management costs

252
 Table 6.6. Continuation

Criterion requir-
Decision Costs Result
ing modification
new measures se- marketing costs; raising consumers
lection for inno- cost of new communica- awareness about a
vative products tion promotions new product and its
Methods of inno- promotion; manufacturer;
vative product adaptation of ex- increasing of consum-
promotion isting measures ers;
to new product increasing of orders
specifics and re-purchases
number
participants costs for channel partici- reduction of expenses
preparation to in- pants valuation, and re- for partners and con-
novative products searching of their activi- sumers searching in
distribution ties’ effectiveness; the market of new
Readiness of
expenses for participants goods;
channel’s partic-
training; improving the quality
ipants for inno-
costs for channel partici- of customer service
vative products
pants training according
distribution
to innovative products
distribution;
costs for service improv-
ing within the channel
risk’s reduction, expenses for risk situa- reducing of product
prevention, liqui- tions overcome and/or distribution risk;
Risk of innova-
dation, diversifi- conditions creation for reduction of losses due
tive product dis-
cation, risk insur- risks prevention to risk situations;
tribution
ance increasing of consumer
confidence

Transition to the «Decision to build a new channel» block (Fig-

ure 6.27) means that the use of existing marketing channels or their
modification will not provide sufficient suitability for innovative prod-
ucts distribution, therefore the development of new ones is the most de-
sirable.
First, there is the question of choosing the type of a new channel –
direct or indirect, such choice depends on industry, conditions of innova-
tive products usie etc. An indicative list of costs and results connected
with development of new channels for innovative products distribution
is presented in Table. 6.7.

253
Table 6.7. Indicative list of costs and outcomes results connected with
new marketing channels development
Channel type Terms of use Costs Result
Highly specialized inno-  costs for research-  direct target con-
vation requires high- ing of conditions where sumers achieve-
quality service. Sufficient new channel operates; ment;
capacity of the manufac-  costs for developing  increasing con-
Direct chan-
turer (experience in inno- and evaluating alter- sumers number;
nel
vation distribution field, native channel options  strengthening of
availability of necessary the enterprise mar-
infrastructure, sufficient keting channels
resources, etc.) portfolio;
It is possible to involve  costs for research-  diversification of
participants who have ex- ing of conditions where the enterprise’ chan-
perience in innovative new channel operates; nels activities;
products distribution and  costs for developing  increasing effec-
familiar with the target and evaluating alter- tiveness of product
Indirect
market. Moderate costs of native channel op- distribution
channel
attracting and retaining tions;
marketing channels  costs for evaluating
members potential participants
and their involvement
in the channel

Each version of the marketing channel modification or development

of a new one is connected with a certain level of results (R) and costs (C).
Considering that the financial capabilities of the enterprise are limited,
simultaneous modification and/or development of new marketing chan-
nels at the enterprise is not always appropriate. Therefore, it is neces-
sary to choose a variant of existing marketing channels modification or
a new channels development from the whole set of alternatives. Costs
for improving/forming existing channels’ suitability or new channels’ de-
veloping must be the lowest, and results – the best:

𝑅
𝐸𝑀𝐶 = 𝐶 → 𝑚𝑎𝑥, (6.1)

where EMC – coefficient of effectiveness of existing marketing chan-

nels’ modification or development of new marketing channels; R – re-
sults from existing marketing channels’ modification or new marketing
channels’ developing, money units; C – costs for existing marketing
channels’ modification or new marketing channels’ developing, money
units.

254
 Additional profit is an overall result of modified channels or newly
developed channels use. Additional profit is defined as the difference be-
tween profit received in the marketing channel after innovative products
distribution and profit received before.
Costs for modification include:

n
CM   Cі  CTM  C As  CPr  CP  CR , (6.2)
i 1

where CTM – potential costs for marketing channel withdrawal to an-

other segment of the target market according to products specifics,
money units; CAs – potential costs for innovative products inclusion in
the existing products’ assortment, money units; CPr – potential costs for
additional marketing methods of innovative product promotion within
the marketing channel, money units; CP – potential costs for channel
participants additional preparation to new products distribution, money
units; CR – potential expenses for reduction of risks of innovative product
distribution, money units.

Costs of a new marketing channel development include:

m
CN   C j  CMR  C A  CE  CPC , (6.3)
j 1

where CMR – potential cost for marketing research for determination

conditions of the marketing channel functioning, money units; CA – po-
tential costs for identifying alternatives of a new channel development,
money units; CE – potential costs for marketing channel’s alternatives
evaluation and choice of the best one, money units; CPC – potential ex-
penses for new channel’s participants searching, money units.

Apparently, maximum effectiveness will be in case if formula denom-

inator that represents costs amount for existing marketing channel mod-
ification or new marketing channel development (C), seeks to minimum,
and the results of modified or new channel use, located in the numerator
of the formula seeks to maximum. Effective will be those variants of mar-
keting channels where effectiveness exceeds 1 (EMC > 1).
Consequently, based on the passage of the steps of the algorithm, given
in Figure 6.26, the enterprise for innovative products distribution can

255
choose existing marketing channel without changes, existing marketing
channel after its modification or a new specially designed channel.
Taking into consideration dynamics of the external environment
changes, that can be caused by the competitors’ activities, changes in con-
sumer inquiries, there is the need of periodically audit of marketing chan-
nels involved in the innovative products distribution. For this purpose, a
generally accepted criterion for determining the effectiveness of invest-
ments in innovative project – net present value (NPV) – can be applied.
While checking the marketing channels (modified channels, and new
specially designed channels) it is necessary to consider the factor of mar-
keting channels suitability for innovative products distribution. This fac-
tor can be considered by including in the cash flows’ table costs for main-
taining and forming of marketing channels suitability for innovative
products distribution. Formulas for calculating of net present value with
factor including are presented in Table 6.8.

Table 6.8. Effectiveness checking of selected marketing channels use

Chan-
Formula Legend
nel
CFk+ – the net cash
flow generated by
the distribution of
1. Exist-  innovative products
ing mar-
Т CFkt through the k-th
keting
NPVk    CFk marketing channel
t 0 ( 1  rt )
t
channel in t-year, money
units;
CFk- – the project
costs on the devel-
opment and imple-
mentation of inno-
vative products,
distributed through
2. Modi- 
fied mar-
Т CFkkt  CTMkt  C Askt  C Pr kt  C Pkt  C Rkt the k-th marketing
keting
NPVk    CFk channel, money
channel
t 0 ( 1  rt ) t
units;
t – year of marketing
channel use for inno-
vative products dis-
tribution, t = 1, ... T;
Т – period of mar-
3. New keting channel use

market-
Т CFkkt  C MRkt  C Akt  C Ekt  COPCkt for innovative prod-
ing chan-
NPVk    CFk ucts distribution,
nel
t 0 ( 1  rt ) t
years;
r – annual discount
rate

256
 So, there is always a set of alternative marketing channel options
that can be used for innovative products distribution [19, 20, 21]. It is
important to choose such marketing channel that is the most relevant to
the innovative products specifics, needs the lowest costs and at the same
time brings the best results. Therefore, we propose a list of criteria based
on possibility to determine the best marketing channel for innovative
products distribution among existing ones. It is proposed to evaluate cho-
sen marketing channels during their use for innovative products distri-
bution. Also evaluation based on the calculation of net present value al-
lows to make a decision for appropriate changes or channel replacing
with new one.

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258
 6.3. An analysis of logistic service particularities and outsourcer’s
impact on it’s quality on industrial market5

Gaidabrus N.V., Ruban D.A., Zielińska A.

The modern economy is characterized by permanent changes in the

state of external micro and macro environment, acceleration of the pace
of technological progress (PTP); reduction in product life cycle; increas-
ing the competition between domestic and foreign producers; changes in
consumer tastes and preferences. World experience shows that such con-
ditions are for competitive enterprises, which provide higher level of ser-
vice in delivering products. But the quality of logistics services in the
distribution system lets enterprises increase the chances of successful
long-term development of the market, enhance their own image as a re-
liable partner and thereby consolidate and develop competitive position.
At the same time there is a tendency to be concentrated on the main
types of activities of enterprises and more and more often the question
of transferring the certain functions to outsourcing arises. Analyzing the
market of outsourcing it can be said that it is rapidly developing in the
world and in Ukraine. There is a growing number of companies that pro-
vide outsourcing services and the number of companies that attract out-
sourcers. [2]
Logistics processes and logistics service in particular is not an excep-
tion. But at the same time there is always an open question: how will the
quality of the logistics service change during outsourcing logistics transmis-
sion? From the other side the success of the manufacturer in the market
also depends on correct understanding of the role of logistics and logistics
services at each of these stages and, accordingly, the chosen strategy.
There are many studies that help to get closer to the answer on this
question, but they are very individual for different countries and differ-
ent types of activities. For example, Hrušecká Denisa, Macurová Lucie
Juřičková Eva Kozáková Leona [14] conducted a study of Czech Manu-
facturing Companies, and determined that the statistical testing showed
just an average dependence between the areas of logistics outsourcing
and the main reasons for outsourcing logistic activities. Therefore, it is
not possible to say strictly that some logistic activities should be out-
sourced and the other ones not. It depends on many other factors.

5
The paper was written according to budget money from the Ministry of Education and
Science in Ukraine, given to develop research topics № SR 0117U003928 «The mechanism
of management of the formation of strategies of outstripping innovative development of
industrial enterprises»

259
 But it remains unclear which set of indicators should be used and how
the quality of the logistics service will change. Mariusz Szuster suggests
in his work that in many cases manufacturers purchased transport ser-
vices only and did not consider outsourcing a wider range of logistical
functions [15]. That is why he considers this question from the side of
transport logistics.
These studies are not the only ones and they do not give a full answer
to the main question. So, we propose our own version of revealing the
level of impact of logistics outsourcing on the quality of logistics services
using the example of SUMY ENGINEERING WORKS Ltd.
Planning the development of the supply chain is very important. An
enterprise must meet the needs of the product strategically and ensure
the integration of all its elements. Regardless of the industry or technol-
ogy of production, the form of organization of the enterprise, etc., the
logistics service is characterized by the peculiarities of the various stages
of the existence of the product. Its tasks are not static - they vary de-
pending on the urgent requirements of the period of existence of the
goods.
Speaking about the peculiarities of the logistic service for the goods
of industrial enterprises, we have defined their characteristics that in-
fluence the process of transportation, transfer and delivery (Fig. 6.30),
which are determined by the main tasks of each stage of the product life
cycle.
This is primarily due to the fact that logistics at each stage plays a
different role and is influenced by various factors of external and inter-
nal circumstances.
1. Product launching. At this stage, the main requirement for logistics
is an auxiliary role in the process of consolidation in the market. This is
explained by the fact that in the first stages all business processes are
not yet practically tested.
This situation results in the fact that a number of factors, such as
human error, outdated data for calculating the analyzed indicators
taken into account in planning, etc., may even negatively affect the
planned result, even due to a slight margin of error. Consequently, the
main challenge and challenge facing logistics is the flexibility and adapt-
ability in unforeseen situations.
It has been investigated that the innovation of goods, as a rule, cre-
ates additional risks in the implementation of logistics operations.
Speaking about such risks, one should note the following: Innovative
goods are not known to carriers of logistics practices. That is, in the pres-
ence of general rules of transportation, loading and packaging, there is no
experience of the carriers themselves for a particular type of goods.

260
 Figure 6.30. Features of logistic service during the life cycle
of an industrial product

This creates additional risks of damaging the product or reducing its

qualitative characteristics. The reason is lack of understanding of the
peculiarities of the transportation of this innovative product. Typically,
such a practice is formed over a period of time.
In the modern world, technical information (for example: patents,
know-how, etc.) is one of the most important assets of companies en-
gaged in innovation activity, and therefore requires additional levels of
protection not only at the stage of production, but also when moving in-
novation, the goods to the final consumer.

261
 It has also been established that innovation involves not only the in-
troduction of a number of innovations into production, but sometimes
also the creation of a fundamentally new packaging and the use of new
transportation methods. This is explained by the fact that innovative
products may have certain specific features (form, size, weight, rules of
transportation and packaging, storage in warehouses, temperature re-
gime, etc.), which creates additional complications when moving the fi-
nal product from the manufacturer to the consumer.
Consequently, the logistics service of innovative goods of industrial
enterprises may not always be able to sustain a level of supply that could
satisfy the existing demand. One of the reasons is a number of additional
requirements, which must be met by carriers for the direct delivery of
the goods, while preserving all its useful properties.
So, summing up the role of logistics at the entry stage, we can say the
following - logistics service is the basis that is not as noticeable as other
components of the marketing mix, but without which the product has no
chance of success.
2. Growth of sales. This stage is characterized by stability, compared
with the stage of entering the product on the market. This can be ex-
plained mainly by the fact that the logistics system has already passed
the test, and if the production and sale of the goods were not terminated
due to fatal errors of the first stage, then during the growth stage, as a
rule, the already tested system of decision-making, including and the
stability of the logistics service.
This stage can be called the stage of securing success. If the first stage
is primarily characterized by the need for prompt response and correc-
tion of planning errors, then in the second stage accents are shifted from
solving operational tasks under any conditions to balancing between pre-
serving the quality, timing and costs that ensure the operation of the
logistics service at the enterprise.
This stage is transitional - from sharp jumps to a stable growth in
order to achieve the goals of break-even sales and increase the presence
in the market in the chosen field.
At the present stage, a system has already been formed, unreliable
suppliers and carriers have been rejected, practical advice has been
gained through practical experience with the logistics process methodol-
ogy, the original plan has been corrected and tested, and the growth rate
of demand is not already unknown and can be predicted on the basis of
obtained statistical data.
The main objective of logistics at this stage is to optimize processes -
reduce transportation costs, review the list of partners with the exclusion

262
of inefficient units of the logistics chain, search for and sign contracts with
new suppliers, helping to reduce the accompanying costs, etc.
The goal of the logistics service is changing – tasks connected with
the rapid entry into the market are gradually replaced by consolidation
of results and increase in sales volumes. At this stage, logistics should
be transformed into a tool for optimizing costs and increasing profits.
Consequently, after the rapid development phase, which requires sig-
nificant organizational and financial costs, the logistics service has been
transformed from an application tool for adaptation to a source of ana-
lytical data on sales levels, as well as a basis for optimizing costs when
delivering goods to the market.
Despite the comparable stability of this phase, the main task is to
control stocks and to quickly adjust the supply and demand levers by
filling the market with goods.
3. The stage of maturity. Characterized by the aggravation of compe-
tition, and therefore from the usual tool for filling the market goods, lo-
gistics service is transformed into a means to meet specific customer re-
quirements.
At this stage, the qualitative characteristics of the goods have been suc-
cessfully brought to the attention of buyers and to consolidate the posi-
tions there are requirements for the provision of additional services.
On the one hand, the goal is to strengthen consumer loyalty and to
continue to create a positive image, and on the other – to create an addi-
tional value of goods by offering new options, expedited delivery time,
new packaging of goods, etc.
At the stage of maturity, the necessity of optimizing the costs of lo-
gistic support for production and sales is becoming even more important
as it is a component of the price of the product, and in a competitive
struggle, cost optimization leads, on the one hand, to an increase in prof-
its, which, in turn, can be used for modernization production, investment
in the scientific and technological process, on the other hand - to reduce
the price, which can create an additional competitive advantage in the
market.
This stage is characterized by stability at a rate of growth and does
not require extreme efficiency in decision-making. More important are
the analytical components of the logistics service, which are dominated
by the following analysis of available indicators: the ineffective elements
and how to optimize them, the timing of each phase of the logistics ser-
vice, the unnecessary elements and the main directions of reorganization
to release resources that can be redirected to improve business pro-
cesses.

263
 At the same time, the search for new sales channels, which is charac-
terized by a larger volume, with a lower cost, continues. The attraction
of new channels is the cause of the complication of organizational pro-
cesses and, consequently, the creation of a multi-level logistics process
management system.
This stage should also be prepared for the next stage of the exit from
the market. A manufacturer who organizes a logistics service that en-
sures its activity must timely identify the situation of lowering demand
and redirect resources, both production and transport, and accompany-
ing marketing support for a new or more successful product, which will
minimize losses from inefficient cost of resources.
4. The stage of exit from the market. The Dani stage is primarily due
to the active sale of the remainder of the goods, as well as the gradual
suspension of the goods. Logistics at this stage plays the role of a risk
minimization tool and helps to reduce the cost of maintaining the prod-
uct, and also preserves the potential profit from unsold goods, which will
need to be stored and disposed of, which in turn will lead to additional
costs.
On the other hand, the reduction of entrepreneurial activity should
not be considered final and final, the more correct term will be the tem-
porary suspension or canning, rather than the complete withdrawal from
the market.
This can be explained by the fact that at each moment of time it is
necessary to be ready to return to the market. This may be due to the
renewal of interest in the product, the emergence of a new investor or a
major customer who is interested in this product.
This means that one of the main tasks at the exit of the product from
the market is the documentation and thorough description of all pro-
cesses at the stages passed before the release of the product on the mar-
ket for the purpose of operational renewal and re-deployment of produc-
tion provided that this is required by the market.
Summarizing the above, we can note that at all stages the logistics
service plays different roles, but always in the main positions and en-
sures stable operation of the enterprise, process of optimization of ex-
penses, attraction of new distributors and consumers, and also allows to
minimize expenses at the stage of withdrawal of the goods from the mar-
ket. It is determined that one of the opportunities for increasing the level
of logistics service is to study the relevance of its features for innovative
and traditional industrial goods.
The valuation of logistics services in the supply chain industry was
spent in researching by using four groups of indicators discussed in de-
tails in previous works [3, 4], the quality and the execution time,

264
flexibility of service and information provision. Each of these groups con-
tains elements of logistics services which are selected depending on the
specifics of the company.
The above mentioned elements are proposed to be estimated using
quantitative and qualitative indicators. Data for calculation of quantita-
tive indicators are contained in the internal statements, which include a
specially shaped figures and general statistics that can be used to carry
out an objective assessment of logistics services.
We mean the complex of services as logistics service supply chain. It
accompanies marketing, commercial, logistics and sales activities in
moving products to the final consumer in accordance with the strategy
of the entity most appropriate in terms of cost manner.
The overall rating of indicators of the enterprise, analytics counter-
parties about the terms for the prices of logistics services, market re-
search is related to the common documents containing information on
the effectiveness of logistics services.
The conclusions of experts in logistics and specialists of the analyzed
company which were involved to analyze logistics services in the enter-
prise can be a source of quality indicators.
It is important to consider that only customers can evaluate the ser-
vice level objectively, so you must maintain contacts with them using all
possible channels.
These channels include a direct survey by questionnaire, targeted
phone calls, other methods of receiving complaints and suggestions, and
by gathering information through analysis of dynamics of economic ac-
tivity.
Besides the validity of indicators, experts determine the gain and re-
ducing the action of each of the indicators, that is caused by synergy ef-
fect which will be discussed below.
The weighted average value of indicators in different conditions of
delivery, i.e. for each performance evaluation, is the only logistics service
index (Ei) as follows:
𝐸𝑜.𝑓.𝑖 ∗𝑁𝑜.𝑓.𝑖 𝐸𝑙.𝑜.𝑖 ∗𝑁𝑙.𝑜.𝑖
𝐸𝑖 = + , (6.4)
𝑁 𝑁

where No.f.i − the number of orders in the accounting period is

brought by own forces of producer; Nl.o.i − the number of orders in the
accounting period delivered by logistics operator; Eo.f.i − the total values
of the indicator of logistic service in conditions of delivery by its own
forces; El.o.i − the total values of the logistic service in conditions of

265
delivery by logistics operator; N − the total number of ordered products
within the accounting period, units.

The total value of indicators in conditions of delivery of its own prod-

ucts (Eo.f.) and logistics operator (El.o.) is calculated as the product of
corresponding component and its importance:

𝐸𝑜.𝑓. = ∑𝑛𝑖=1 𝐸𝑜.𝑓.𝑖 ∗ 𝑊𝑜.𝑓.𝑖 , (6.5)

𝐸𝑙.𝑜. = ∑𝑛𝑖=1 𝐸𝑙.𝑜.𝑖 ∗ 𝑊𝑙.𝑜.𝑖 , (6.6)

where Wo.f.i and Wl.o.i − the weight of i-element of the logistics ser-
vice at delivery by its own forces of producer and logistics operator re-
spectively.

The idea of a synergistic effect is a foundation for the basis of calcu-

lation of integral index of logistics services. Synergy is an advantage
which cannot be repeated by any competitor. Correctly used the benefits
of synergy can increase economic enterprise profit in the supply chain.
It is expressed in a complex impact on all items of service to the general
impression of user and differs from simply adding the values of each el-
ement separately (adapted from [12]):

𝑆в. = 𝑓(𝐸1 , … , 𝐸𝑛 ) (6.7)

where Se − the effect from the impact of elements of logistics services;

f (E1,..., En) − applying the effects of the influents the elements to logis-
tics services; E1,..., En – the elements of logistics services.

However, a synergistic effect may have a directly opposite results [1]:

- be negative (f (E1, ..., En) < E, where E − the total effect) in case of
weakening (neutralize) the impact of various factors;
- be positive (f (E1, ..., En) > E) if they gain swashbuckling action
depending on the combination of elements for strengthening the impact
of various factors.
A result of analysis of works by Hadzhynsky A. [2] Krykavsky E. [8]
Mykolaichuk V., Kuznetsov V. [11] shows an exponential dependence
service costs and, consequently, the level of customer satisfaction and
logistics services provided by the enterprise, from about 70%. It means
that interaction between two or more components of the logistics service

266
gives a result greater than what could be obtained under the conditions
of impact of each of these factors separately.
On the basis of proposed approaches and division of the scale at in-
tervals [6, 9, 13]: 0-0,33; 0,34-0,66; 0,67-1, a graph of the level of satis-
faction of the execution order from LS enterprises was constructed where
the point of intersection with the axis of logistics services is 67%
(Fig. 6.31). Built schedule looks like cubic parabola with equation
y = (x – 67)3.

Figure 6.31. The dependence of the level of consumer

to satisfaction execution of orders from logistics services company

Thus, the integral index is the sum of the partial integrated assess-
ment of logistics services, the level of customer satisfaction elements of
which is less than 67% (not inclusive) and partially integrated assess-
ment of logistics services, the level of customer satisfaction elements of
which is from 67% to 100% (Fig. 6.32).

267
 Integrated index of logistics services (LS)
− +
LS = E + E

– +
E E
partial integrated assessment of logistics partial integrated assessment of logistics
services services
– +
(Е < 67%) (67% ≤ E < 100%)

де Ei – i-th element of logistics services, де Ek – k- th element of logistics

Ei ≥ 0,9; services, Ek < 0,67;
Wi – weight of the i-th element of the Wk – weight of the k- th element of the
logistics service; logistics service;
n – quantity Ei; K – quantity Ek;
Ki–– correction factor in case of Kk+–– The correction factor in case of
weakening the influence of the i-th strengthening the influence of the k-th
element of the logistics service element of the logistics service

Figure 6.32. Calculation of the integral parameter

of logistic service company

To analyze the degree of control of the manufacturer above the logis-

tics service we offer to use the elasticity of logistic service on the volume
of supplies to measure the degree of impact of changes in scope of supply,
which is controlled by the manufacturer for the given level of logistics
services. The given indicator is calculated as follows:

∆𝐿𝑆𝑖
∑𝑛
𝑖=1
𝐸𝑉𝐿𝑆 =
∆𝑉𝑖
, (6.8)
𝑛−1

where 𝐸𝑉𝐿𝑆 – the elasticity of individual indicators of logistic service

from the volume of supply; ∆𝐿𝑆𝑖 – changing the values of the of logistic
service in comparison with previous year; ∆𝑉𝑖 – changing in volume of
deliveries in comparison with previous year; n – number of years in the
analyzing period.

If the index is more than 1, it can be concluded that the logistics ser-
vice is flexible, that is small change in volume of deliveries carried out
by the manufacturer causes significant changes in the quality of service

268
in the supply chain. And otherwise - if the index is from 0 to 1, the service
is inelastic.
The inverse index is the degree of impact of an enterprise on logistics
service:
∆𝑉𝑖
∑𝑛
𝑖=1
𝐸𝑉𝐿𝑆 =
∆𝐿𝑆𝑖 (6.9)
𝑛−1

Thus, depending on the resulting value of this indicator, all elements

of logistics services are offered to be divided into three groups based on
their values: high (5%), medium (5 to 20%) and the lowest (20%) level of
control. The indicators which were in the low control segment have the
highest priority in terms of attention from the producer enterprise to-
wards the support and implementation of appropriate measures. The in-
dicators from the middle segment of control are the next. Thus, the ele-
ments of logistics services are different by high stability, they are located
in the respective segment.
SUMY ENGINEERING WORKS Ltd is a private industrial-engineer-
ing enterprise. The main core is the development, design, manufactur-
ing, testing and implementation of the pumping equipment. It is a high-
tech certificated enterprise, which was working well at many facilities of
countries near and far abroad during 10 years.
Indicators of logistic service are calculated separately for delivery of
their own products and outsourcing of logistics services. The main re-
sults of the calculations are presented in Table 6.9.
The graph (Fig. 6.33) demonstrates that the company SUMY ENGI-
NEERING WORKS Ltd has gradually reduced the volume of supply by
their own forces since 2012 in favor of delivery outsourcer, which caused
reduction of logistics services. It is confirmed by the calculated correla-
tion coefficient (r) between the level of logistics services and the number
of orders that were delivered by themselves (r = 0.9686) and the level of
logistic service and the number of orders which were delivered by logis-
tics operator (r = -0.9686). Values of the coefficients are close to 1, indi-
cating a high strength link between analyzed indicators.

269
 Table 6.9. Indexes of logistic service of SUMY ENGINEERING WORKS
Ltd in 2012-2016 years
2012 2013 2014 2015 2016
value in- value in- value in- value in- value in- Total
dex for the dex for the dex for the dex for the dex for the value
conditions Total conditions Total conditions Total conditions Total conditions of the
Index of LS of delivery: value of delivery: value of delivery: value of delivery: value of delivery: index
logis- of the logis- of the logis- of the logis- of the logis-
on on on on on
tics index tics index tics index tics index tics
their their their their their
pro- pro- pro- pro- pro-
own own own own own
vider vider vider vider vider
Accuracy in
Time of the order Quality of the order

carrying out 0.98 0.86 0.92 0.96 0.86 0.91 0.96 0.84 0.90 0.99 0.86 0.93 0.95 0.93 0.93
orders
absence of
damage dur-
0.92 0.60 0.76 0.91 0.60 0.75 0.91 0.58 0.74 0.94 0.60 0.77 0.87 0.90 0.89
ing transpor-
tation
Average de-
0.96 0.80 0.88 0.95 0.80 0.88 0.95 0.78 0.86 0.97 0.80 0.88 0.91 0.95 0.94
livery time
variability of
0.98 0.99 0.98 0.96 0.99 0.98 0.96 0.96 0.96 0.98 0.99 0.98 0.89 0.95 0.94
delivery time
Convenience
of warehouse 1.00 1.00 1.00 0.99 1.00 0.99 0.99 0.98 0.98 1.01 1.00 1.00 1.00 1.00 1.00
location
Maintenance
unusual re- 0.86 0.39 0.63 0.85 0.39 0.62 0.88 0.36 0.62 0.87 0.39 0.63 0.47 0.18 0.24
quests
Availability
of minimum
Flexible service

1.00 1.00 1.00 0.99 1.00 0.99 1.01 0.98 1.00 1.01 1.00 1.00 1.00 1.00 1.00
volume of or-
ders
Availability
of additional 0.95 0.32 0.64 0.94 0.32 0.63 0.96 0.30 0.63 0.96 0.32 0.64 0.90 0.50 0.59
services
Possibility of
an acceler-
0.96 0.88 0.92 0.95 0.88 0.91 0.97 0.85 0.91 0.97 0.88 0.92 0.60 0.64 0.63
ated delivery
of goods
Availability
of accurate
and timely 0.78 0.33 0.55 0.77 0.33 0.55 0.79 0.30 0.55 0.80 0.33 0.56 0.83 0.19 0.32
Information support

information
about orders
Addressing
complaints 0.86 0.65 0.76 0.85 0.65 0.75 0.87 0.63 0.75 0288 0.65 0.77 0.90 0.45 0.55
or bug fixes
Effectiveness
of communi- 0.90 0.65 0.78 0.88 0.66 0.77 0.91 0.63 0.77 0.91 0.66 0.78 0.78 0.38 0.47
cations
Competence
0.99 0.97 0.98 0.97 0.97 0.97 1.00 0.95 0.97 1.00 0.97 0.99 0.89 0.90 0.90
of staff
Integral value
0.93 0.73 0.93 0.92 0.76 0.88 0.94 0.70 0.79 0.94 0.69 0.77 0.90 0.63 0.68
of the index

270
 Figure 6.33. The volume of contracts of SUMY ENGINEERING
WORKS Ltd in 2012-2016 years

So, according to the calculations, we can make a conclusion that in

case of their own delivery, logistics service level is higher – 0.899 than
in case of logistics outsourcing – 0.63. It may be related to the fact that
in the first case at the company higher level of control over the process
and the capacity for flexible and rapid response to various demands of
consumers, which is very important for competitiveness.
According to the analysis of elasticity of indicators of logistics services
depending on the volume of supply on their own (tab. 6.10), it defined
the most sensitive components:
- the effectiveness of communication;
- the possibility of rapid delivery of goods;
- no damage during transportation;
- availability of reliable and timely information about demand;
- resolution of complaints and bug fixes.

271
Table 6.10. Indexes of logistic service of SUMY ENGINEERING WORKS
Ltd in 2012-2016 years

Year 2012 2013 2014 2015 2016 Total flexi-

bility of lo-
The volume of deliveries performed by the
80 64 39 27 21 gistics ser-
manufacturer, % vices
Accuracy in carrying out orders 0.26 0.2 0.15 0.07 0.71 0.28
Flexibility index of logistics services (relative to the

Absence damage during transporta-

0.4 0.54 0.44 0.57 3.63
tion 1.12
Average delivery time 0.36 0.23 0.2 0.01 1.72 0.50
Variability of delivery time 0.09 0.07 0.04 0.23 0.9 0.27
Convenience of warehouse location 0.07 0.04 0.04 0.15 0.05 0.07
Maintenance unusual requests 0.3 0.51 0.49 1.63 0.74
previous year)

0.73
Availability of minimum order
0.06 0.04 0.01 0.09 0.05
quantity 0.05
Availability of additional services 0.77 0.67 0.64 0.54 1.67 0.86
Possibility of an accelerated deliv-
0.21 0.12 0.11 0.06 4.9
ery of goods 1.08
Availability of accurate and timely
0.58 0.49 0.48 0.29 2.33
information about orders 0.83
Addressing complaints and bug
0.79 0.25 0.22 0.1 2.98
fixes 0.87
Effectiveness of communications 0.78 0.39 0.25 0.1 4.71 1.25
Competence of staff 0.3 0.17 0 0.07 1.44 0.40

The obtained data make it possible to determine the degree of

impact on values of logistic service delivery under the different condi-
tions. Considering that the company may have its fleet or use the ser-
vices of logistics operators, change rates on which it can impact. By using
index, you can see the percentage change in value of an individual pa-
rameter logistic service by changing the control entity 1% of supply. The
low value of the index indicates a high degree of control over his com-
pany. And vice versa – the higher the rate – the less it is subject to con-
trol by the manufacturer.
So, we propose to allocate all of the elements of logistics services into
three groups based on their values: high (5%), medium (5 to 20%) and
the lowest (20%) level of control.

272
Table 6.11. Degree of impact of the enterprise on logistics service
Degree of The overall de-
impact on gree of impact
control
Level

Index logistic service individual on the level of

indicators logistics ser-
LS, % vices, %
Availability of additional services 1.38
Maintenance unusual requests 1.5
Availability of accurate and timely information
high

2.01
about orders
Absence damage during transportation 3.21
Effectiveness of communications 4.4
Addressing complaints and bug fixes 4.81
Accuracy in carrying out orders 7.02 23.22
average

Possibility of an accelerated delivery of goods 8.5

Variability of delivery time 10.75
Ease warehouse location 19.58
Minimum order size 46.55
low

Average delivery time 51.52

Competence of staff 140.64

So, tab. 6.11 illustrates that in the case of outsourcing of logistics ser-
vices manufacturer completely loses its control over a group of indicators
of competence of staff, the average delivery time and availability mini-
mum order size, because there is a high impact on these figures enter-
prises outsourcer.
However, despite this the share control of the following parameters
is high:
- the presence of extra services and service unusual requests – is
largely dependent on the willingness of the manufacturer to offer and
provide an additional package of services that can precede or accompany
the delivery of the goods or satisfy specific needs of customers;
- availability of accurate and timely information on demand - due to
the fact that the company-manufacturer has the opportunity to provide
the ability to track the order status during delivery or in the process of
solving problems;
- no damage during transportation is provided for producers to or-
ganize suitable type of packaging that reduces the amount of damage
during transportation;
- effectiveness of communication and availability of information
about orders depends on the capabilities of the logistics operator to per-
form data transfer to the producer in case of status updates product and
its willingness to meet;

273
 - resolving of complaints and bug fixes - producer is more interested
in solving the conflict, as its share in this process is overwhelming.
Summarizing, it is worth saying that we have analyzed the values of
logistic service in conditions of delivering by its own forces and out-
sourcers supply chain in dynamics by years and determined that in case
of their own delivery, logistics service level is higher - 0.899 than in case
of logistics outsourcing - 0.63. It may be related to the fact that in the
first case at the SUMY ENGINEERING WORKS Ltd higher level of con-
trol over the process and the capacity for flexible and rapid response to
various demands of consumers, which is very important for competitive-
ness.
It was determined how the value of each individual index varies with
the change in the supply control volume. The low value of the index in-
dicates a high degree of control over his company. And vice versa – the
higher the rate – the less it is subject to control by the manufacturer.

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275
 Section 7

Innovations in the regulation of economic

and legal relations

7.1. International sanctions in the modern conditions

Teletov A.S., Teletov D.A.

Sanctions (from the Latin sanctio – the strictest regulation) [1,

p. 716] – measures of influence on individuals, organizations or states
directed against deviations from those or other norms are manifested in
the approval of certain interested parties and are called to force a viola-
tor to carry out the states’, organizations’, and persons’ will who have
imposed sanctions. Otherwise, these are unilateral or collective actions
against a country considered to be a violation of international law aimed
to compel that state to comply with the law. Sanctions are something
between a diplomatic actions and more intense measures that can in-
clude military actions and hidden operations, help to end diplomatic re-
lations, boycott sporting and cultural events, sequestration (from Latin
sequestro – to separate) [1, 722] property of a foreign state and its citi-
zens. However, restrictions of international trade, financial transactions
and people movements are the most common sanctions forms [2].
There are military, financial, economic sanctions. Thus, Germany
and Japan, being defeated in the World War II, do not have the right to
have full-fledged armies, the former Prime Minister of Ukraine P.
Lazorenko and the former President V. Yanukovych are not allowed to
use the money deposits invested in the foreign banks, Russia is not al-
lowed to receive from the EU countries goods, etc. Sanctions may include
ceasing of diplomatic relations, sports and cultural events boycotting,
blocking of foreign state and its citizens property. Restrictions on inter-
national trade, financial transactions and people movements are the
most common form of sanctions.
Sanctions are an attractive instrument of foreign policy, since, unlike
the war, they are used to resolve international conflicts and disagree-
ments with less cost and human sacrifice. Therefore, they are used quite
often: in the period from 1970 to 1998, for example, sanctions in the
world were applied 117 times [3].
The intensity of sanctions is determined by the damage degree that
they may cause a) the country economy as a whole; b) the political regime

276
or the private interests of politicians’ being in power; c) the interests and
competitiveness of the individual sectors economy and industry; d) the
interests of individual financial and industrial groups, companies,
clans [4].
The first sanctions were used at the time of the final world transition
to the capitalist development way. In the nineteenth century, sanctions
basically took the form of naval blockades. The term «naval blockade»
was introduced in 1850 to describe the trade blockade, conducted with-
out war declaration. As a rule, the blockades were carried out by power-
ful military and economic states and their actions were often considered
as international police actions.
Between 1827 and the outbreak of World War I, 21 naval blockades
were carried out in the world. The countries that were most often the
blockade subjects are presented on the Figure 7.1. As a rule, the great
states preferred to act alone, and only 7 times out of 21 acted in the coa-
lition [5].

14%
14% Great Britain (12 times)
9,50%

9,50% France (11 times)

4,75%
Germany (3 times)

Italy (3 times)
52%
Russia (2 times)

Austria (2 times)
57%
Chile (1 time)

Figure 7.1. Subjects of sanctions in the XIX-early XX century (as some

countries participated in the sanctions themselves, and in the coalition,
the total sum is more than 100%).

The League of Nations approved the application of collective sanc-

tions in four cases: against Yugoslavia, Greece, Bolivia-Paraguay, and
the UK sanctions against Italy in response to Abyssinia capture. The
latter case is considered a classic example of the collective sanctions

277
failure and is often cited as an argument for the economic sanctions
weakness as a foreign policy instrument in general.
The practice of applying economic sanctions became much more com-
mon after the World War II. The number of cases of imposing sanctions
during this period is presented on the Figure 7.2. In the period between
1946 and 1990, The United Nations imposed sanctions only five times:
against the DPRK, South Africa, Portugal, Rhodesia and Iraq. During
this period, the UN began to apply sanctions more actively, especially to
African states [6].

Figure 7.2. The dynamics of the sanctions introduction in the second

half of the XX century

Most sanctions were declared unilaterally by the United States, in

recent years, Western European countries have become more involved in
sanctions, although most often the United States organize coalition for
imposing sanctions. As a rule, this country can choose the pressure de-
gree on certain world countries, based solely on their interests. This is
because all countries of the world can be divided into three groups; 1)
countries, which are relatively independent from the USA – Russia,
China, India, France, Italy, Belarus, Sweden and some others; 2) de-
pendent on the USA – the countries of Latin America, Great Britain,
Mexico, Poland, the Baltic countries (the real list is larger), now Ukraine

278
is as well; 3) the countries occupied by the USA – Germany, Japan, Af-
ghanistan, Iraq, Libya.
The political objectives of applying sanctions are presented in the Ta-
ble 7.1.

Table 7.1. Political objectives of the sanctions application

Target name Number of cases Success per-
cent
Policy moderate modification 43 51
Regime change or democratization 80 31
Cessation of hostilities 19 21
Military potential destruction 29 31
Other significant policy changes 33 30

Nowadays within the globalization the country economy is becoming

more and more interdependent. In addition to the United States, the So-
viet Union had the relative independence those days, which, together
with the countries of the social community, had a powerful Council for
Mutual Economic Assistance (CMEA) market that could exist inde-
pendently. More or less independently, countries can feel either with a
powerful raw (necessary for everyone) product – oil, gas, ore, cotton, etc.,
or with a huge amount of consumer goods (China), or countries using
high technologies.
The ratio of the economies capacity of the country-subject and the
country-object is of great importance in forming the political goal for the
country, which imposed sanctions. As it is suggested, trade sanctions are
imposed by a country with a larger economy against a country with a
smaller economy, thereby making retaliatory measures meaningless.
Some parameters and results economic sanctions applying for politi-
cal purposes are summarized in the Table 7.2 [7]. The success index is
determined by a numerical value from 1 to 16, what is more 16 is the
maximum efficiency index. The economic damage to the subject of sanc-
tions is determined by an index in the range from 1 to 4: 1 means the
total entity profit of the entity; 2 – a small effect on its economy; 3 –
moderate economic losses; 4 – serious losses.
The state very rarely imposes economic sanctions against someone if
its own population suffers from them. An exception to this rule were, for
example, the allied sanctions against Germany during World Wars, the
sanctions of the Arab League against Israel, the US and UN sanctions
against Iraq in the 1990s.

279
Table 7.2. The main economic sanctions imposed for political purposes
(until 1990)
The ratio of
Damage to
Index the sub- Damage to
Sanctions Subject the object
Years of suc- ject’s and the subject
and object (in% of
cess object’s (index)
GDP)
GDP
Great Britain 1918-
1 4.1 1 3
against Russia 20
League of Arab coun- 1946-to
4 4.1 2 4
tries against Israel present
USA, Great Britain 1951-
12 14,5 235 1
against Iran 53
USA against Cuba 1960-to
1 4.4 173 3
present
Great Britain and
1965-
the United Nations 12 13.0 1388 3
79
against Rhodesia
USA against Kam- 1975-
1 6.8 2523 1
puchea 79
South Africa against 1982-
16 5.1 103 2
Lesoto 86
USA, United Na- 1990-
- 48.0 242 4
tions against Iraq 2003

The effectiveness of sanctions increases in conditions when sanctions

are implemented not by one state, but by the states coalition. Interna-
tional cooperation in the sanctions implementation reduces the political
costs for the country-object for their implementation, that is, makes the
imposed sanctions somehow more legitimate in the world community
and reduces the damage to the political reputation of the sanctions coun-
try-initiator.
It is necessary to distinguish the sanctions price for the country-sub-
ject and the country-object. Firstly, for the subject country, direct econ-
omy losses for the country-initiator should be taken into account, which
consist of the decrease in sales and the decrease in revenues, the reduc-
tion in the cost of assets in the country-object of sanctions belonging to
the companies of the country-subject sanctions and also the losses from
the decrease in employment in the country carring out sanctions. Sec-
ondly, indirect losses are created to the economy of the country-subject
sanctions.
Today, more and more specialists are inclined to the opinion that the
sanctions effectiveness is low in principle. Despite this, sanctions are
still politicians’ favourite tool and the number of sanctions imposed in
the world is not decreasing. There are only a few cases, when sanctions

280
have managed to inflict hard economic losses for the countries-subject of
sanctions, and in fewer cases sanctions have forced the country-object to
change its policy.
A classic example of sanctions unsuccessful introduction is the Amer-
ican grain embargo against the Soviet Union in response to the invasion
of the USSR into Afghanistan. The embargo raised the USSR’s spending
on imports by $225 million, but did not compel the USSR to leave Af-
ghanistan. Direct losses to the USA of these sanctions amounted to more
than $2 billion. American farmers lost this grain market, as the USSR
did not longer place orders at the USA market. The data given in the
Table 7.3, point to the average effectiveness of sanctions in the XX cen-
tury, about 30% [7]. It is also clear that the sanctions effectiveness be-
tween 1945 and 1970 was higher than after 1970.

Table 7.3. Average data on the economic sanctions effect in the XX century
Annual The sanc- Damage to Ratio of econ- Damage to
Periods
number of tions success the object omies subject the subject
(years)
sanctions (index) % GDP and object (index)
1914-1918 0.60 5.67 4.00 5.00 3.00
1919-1923 1.00 16.00 n.d. 37.00 2.00
1924-1928 1.00 16.00 n.d. 56.00 2.00
1929-1933 2.00 9.00 1.50 112.50 2.00
1934-1938 2.00 5.00 0.95 40.50 2.50
1939-1943 2.00 6.50 1.25 6.50 3.50
1944-1948 7.00 6.29 0.70 26.06 2.29
1949-1953 3.00 5.00 5.33 208.67 2.00
1954-1958 11.00 6.64 1.31 480.04 1.82
1959-1963 14.00 7.36 1.37 170.14 2.07
1964-1968 8.00 10.00 3.91 251.38 1.88
1969-1973 6.00 7.50 1.18 207.17 1.17
1974-1978 26.00 5.69 0.49 281.27 1.65
1979-1983 17.00 6.53 1.42 2270.43 1.94
1984-1990 1.86 01.05.58 5.56 610.54 1.85

The reason for the gradually decreasing economic effectiveness of

sanctions should be found in the nature of the modern globalized econ-
omy. The world is gradually becoming a single market and the relative
dominance of the american economy and economies of political allies in
the world is weakening, and since historically most economic sanctions
were implemented by them, the sanctions application effectiveness as a
whole was declined. Another reason for the limited sanctions effective-
ness is that the economic effect of the sanctions application affects the

281
population of the country-object, rather than its political decision-maker
elite. Another aspect is that sanctions tend to be more effective if they are
directed against allies. The ally country is less willing to yield the pres-
sure. The ally country, on the contrary, supports broad trade and economic
ties, and their limitation will be very painful for it [8].
The USSR economy was tightly linked between the republics by a
planning system. After the Soviet Union collapse in 1991, some countries
remain more or less economically connected (Russia, Belarus, Kazakh-
stan, Armenia), others try to reorient themselves in their economic de-
velopment (the Baltic countries), the third (Moldova, Turkmenistan)
want to choose their so-called way, although they do not fully understand
what it promises them. Ukraine also belongs to such countries as well.
Due to the notorious events of 2013-2014, Ukraine failed to maintain a
neutral status and partner relations with the neighboring countries on
one hand, and with the European Union and the United States on the
other. Hopes that international sanctions application against Russia in
2014 would negatively affects its economic situation and, on the con-
trary, contribute to the Ukraine economic prosperity were not justified.
There was a paradoxical situation: the international sanctions were im-
posed against Russia, Ukraine reduced goods export-import and transit
cargo traffic from Russia, passenger transport flows have decreased sig-
nificantly, and in the Ukrainian international balance, the trade with Rus-
sia increased from one-third to more than half. This is explained simply:
the economic balance with the European countries, the United States and
others has decreased much more than with Russia, which increased the
trade balance of Ukraine with Russia in comparison with 2014. So it turns
out that the country, which suggested sanctions imposion, is in the worse
situation, Table 7.4 than before sanctions introduction.

Table 7.4. Some socio-economic indicators of Ukraine in 2014 and 2017

Comparable Years
№ Indicator name
2014 2017
1 Total gross product (in dollars) 183 93
2 External debt 300 1233
3 The price of electricity per kilowatt-hour (in kopecks) 29 90
4 Number of citizens below the poverty line (in percent) 12 60
5 The price of hot water (in UAH / cubic meter) 25,1 83,1
6 The price of gas (in UAH / cubic meter) 1,1 6,8
The average bill for housing and communal services
7 1000 3500
for a square of 72 sq.m (in UAH)
8 Valokordin for 20 ml (in UAH) 12 46

282
 Apparently, Ukraine’s desire to enter the European Union was not
enough. Ukraine wants to trade with Europe, residents want to go there
and eventually live, like, for example, in France or Germany. Though
everything was not so simple. Despite the relative rapprochement with
the European Union and the United States, none of them are eager to
buy AN aircrafts, ships of Nikolaev plant, tractor or tanks of Kharkov
plants, or gas pumping stations of Sumy machine-building plant (former
named after M.V. Frunze).
Undoubtedly, as a result of sanctions introduction, Russia economic
state has not improved since 2014: it urgently has to restore enterprises
that produce products that were previously received from Ukraine and
some European countries, as well as agricultural products. Whether
Russia will be able to complete the import substitution in industry dur-
ing several years is not yet clear, but in the southern regions of Russia,
in particular in Krasnodar Territory, is a real boom in increasing the
vegetables and fruits cultivation. In addition, Russia wants to organize
oil and gas transportation bypassing Ukraine. In response, Ukraine, in-
tending to increase the gas extraction, buys not quite suitable coal in
Africa and North America.
The effectiveness criteria of the economic sanctions application
should be correlated with the political goals of applying sanctions
(Ukrainian closest partners – the United States hoped that Russia would
not be economically able to exist under these conditions and would make
political concessions, for example, stop supporting Donbass and would
return the Crimea; in response Ukraine would create on its territory a
system of NATO military bases, something similar has already been be-
ing created on the Black Sea coast near Ochakov), and in this issue there
is the greatest confusion: as the result many companies have suffered in
The Europe, Ukraine, Russia. If there is the deterioration, then in an-
other place – improvement: the USA, China, some Asian countries are
benefiting from the anti-Russian sanctions introduction. Former USA
ambassador in The Russia Federation D. Tefft believes that interna-
tional sanctions against Russia have not lead to drastic changes in the
situation in Ukraine, that was the reason of sanctions introduction.
If it is understood the territories returning, sanctions for the whole
history have not yet decided anything. For example, sanctions against
the DPRK for more than 60 years have not improved the situation in the
region, and North Korea in general has only mobilized, becoming a nu-
clear power (the conflict in the Korean Peninsula area in 2017 is a vivid
confirmation). Any territorial conflicts, as a rule, are resolved either by
military means, or by independent withdrawal from a certain region, or
under external military pressure.

283
 To avoid this, it should be mentioned that: firstly, the sanctions ap-
plication can lead to hard currency reduction of the country-subject of
sanctions; isolation of the country-object of sanctions from international
trade flows. Though, these results are not the goals of foreign policy. Sec-
ondly, the sanctions effectiveness is assessed in a static manner. Third,
in assessing the economic sanctions effectiveness, many experts are
tempted to use the publicly stated objectives of sanctions as success cri-
teria. In practice, the sanctions application often pursues more foreign
policy goals than officially announced. That is, assessing the effective-
ness of the sanctions application for solving foreign policy problems re-
mains as a problem and is solved primarily on an intuitive level.
The only quantitative criteria for assessing the trade sanctions effec-
tiveness is the change in the volume of country goods turnover under
sanctions, as well as the dynamics of gold and currency reserves changes.
Although such statistics are not comprehensive. Here should be agreed
with [4] that, firstly, countries under sanctions often distort or do not
fully provide foreign trade statistics to international organizations (for
example, Iran during the Iran-Iraq war and Iraq during the time of S.
Hussein, when these countries were selling their oil illegally, and any
real information on the volume of trade and foreign exchange reserves
was available only to the intelligence services of the countries concerned
and was not available to the general public). Secondly, sanctions apply
to different kinds of movements and unrecognized states, in relation to
which international statistics are not conducted and to assess the effec-
tiveness of sanctions using open sources, it is usually not possible.
To sum up, it can be pointed out that the imposition of trade and eco-
nomic sanctions is not always an ideal political solution and has better
chances in achieving results if: the political task of a relatively small
adjustment of the country-object policy of sanctions is put; country-object
of sanctions does not have the political support of the third party; there
is an international coalition – formal or informal in support of sanctions;
the country-subject economy of sanctions significantly (by no less than
an order) exceeds the economy size of the country-object; the country-
object of sanctions is weak politically and economically; both trade and
financial sanctions are used simultaneously. In addition, it should be
considered that the policy of sanctions, based on the idea of causing as
much suffering as possible to the people of the country-object, which im-
posed sanctions so that the people protest against their government, is
quite vulnerable from the humanitarian point of view. As a rule, sanc-
tions, influencing not politicians who make decisions and bear responsi-
bility for them, but non-decision-making civilians, and lead only to a
drop in the population living standard, social sphere degradation and

284
other losses, not compensating them in the future. Often, economic sanc-
tions are declared without preparation, before the elections with the aim
of obtaining the voters support at any price [9], which does not always
correctly reflect the country-subject interests to the sanctions introduc-
tion in general.

References
1. Sanktsii. Noveishii slovar inostrannykh slov i vyrazhenii [Sanctions. The
newest dictionary of foreign words and expressions]. (2003). Minsk: Sovremennyi
literator.
2. Daoudi, M.S., & Dajani, M.S. (1983). Economic Sanctions: Ideals and
Experience. London.
3. Elliott, R.A., & Hufbauer, G.C. (1999). Same Song, Same Refrain?
Economic Sanctions in the 1990s. American Economic Review.
4. Braterskii, M.V. (n.d.). Torhovo-ekonomicheskie sanktsii: effektivnost,
tsena, problem ispolzovaniia. www.hse.ru. Retrieved from
https://www.hse.ru/pubs/share/direct/ document/72243652.
5. Ziring, L., Plano J.C., & Olton, R. (1995). International Relations: A
Political Dictionary. Santa Barbara.
6. Doxey, M.P. (1997). International Sanctions in Contemporary
Perspective. Basingstoke.
7. Davis L., & Engerman, S. (2003). Sanctions: Neither War nor Peace.
Journal of Economic Perspectives, 17(2), 192.
8. Drezner, D.W. (1999). The Sanctions Paradox: Economic Statecraft and
International Relations. Cambridge.
9. Whaples, R., & Heckelman, J. (2005). Public Choice Economists: Where is
the True Consensus? American Economist, 49(1), 66-78.

7.2. Innovative compliance of technology to combat corruption

Pererva P.G., Kosenko A.V., Tkachev M.М, Kobieliev V.M.

The term «compliance» appeared in our country with the arrival of sub-
sidiaries of Western financial structures on the Ukrainian market, for
which this function is legislatively necessary and, therefore, well-formed
[1-3]. The compliance program is an integral part of the activities of West-
ern industrial corporations, and its main goal is to minimize legal and rep-
utational risks arising from violations of professional and ethical stand-
ards. Despite the fact that the term «compliance» is practically absent in
the Ukrainian legislation, in the professional environment this concept
has long been settled (primarily in the stock market, as well as in banks).
In addition, the central bank of Ukraine, without introducing compliance

285
in business turnover, gradually acquaints the banking community with its
elements. Currently, he continues the positive practice of disseminating
recommendations based on documents developed by the Basel Committee
on Banking Supervision [1].
Questions that are in the sphere of compliance were considered by
many scientists, among them Belyaev Y.K. [2], Bondarenko Yu. [3], Kiril-
lov R.A. [4], Malykhin D.V. [5], Shalimova M.A. [6], Khramkin A.A. [7]
and others [8-10]. At the same time, the questions of adaptation of the
main provisions of compliance to practice of domestic industrial enter-
prises remain practically undeveloped. This provision determines the im-
portance and urgency of conducting such studies.
Compliance is the correspondence of the concrete actions of the enter-
prise (organization) as a whole, of a separate collective or employee of any
rank to any internal or external requirements (laws, standards, norms,
regulations, etc.). Compliance refers to the part of the management / con-
trol system in the organization that is associated with the risks of non-
compliance, non-compliance with the requirements of legislation, regula-
tory documents, rules and standards of supervisory bodies, industry asso-
ciations and self-regulatory organizations, codes of conduct, etc. Such risks
can ultimately result in the application of legal sanctions or regulatory
sanctions, financial or reputational losses as a result of non-compliance
with laws, generally accepted rules and standards.
Compliance with laws, regulations and standards in the field of com-
pliance usually refers to issues such as compliance with appropriate
standards of market conduct, management of conflicts of interest, fair
treatment of clients and ensuring a fair approach in advising clients. Com-
pliance also includes specific areas, such as: counteraction to criminal pro-
ceeds and the financing of terrorism; compliance of the company’s activi-
ties with the current legislation; protection of information flows; counter-
ing fraud and corruption; establishing ethical standards of behavior, etc.
The emergence of compliance is associated with globalization and the
internationalization of the world financial system. Given the international
and transnational nature of many financial transactions, it can be said
that the level of non-financial risks has grown significantly over the past
ten years. The ideology of compliance calls to comply with the company’s
internal policies and procedures and is implemented by creating condi-
tions in which persons representing the organization will act in accord-
ance with high professional and ethical standards.
The Compliance System of an industrial enterprise is a universal rec-
ognized international system of counteraction to threats and risk manage-
ment that ensures compliance of the company’s activities with the require-
ments of state bodies, self-regulating public and other organizations,

286
compliance with the rules of law, rules, recommendations and standards
governing the company’s activities.
The purpose of implementing the compliance program of an industrial
enterprise is the establishment of effective mechanisms at the enterprise
to establish and analyze especially corrupt activities, assess and manage
corruption risks, provide comprehensive protection from crisis threats, vi-
olations of exclusive rights, corporate ethics.
Implementation of compliance at Ukrainian industrial enterprises
opens new opportunities for business development, eliminating or reduc-
ing risks, improving the quality of corporate governance in general. Ta-
ble 7.5 lists the main advantages of the compliance program in industrial
enterprises and the consequences for enterprises that do not implement
and do not use compliance.

Table 7.5. Advantages of the compliance program of an industrial

enterprise

Main advantages of compliance Lack of compliance

1. Prevention and minimization of financial 1. Greater likelihood of the use of
losses, bankruptcy and sanctions in relation sanctions by regulators / law enforce-
to companies from Ukrainian and foreign ment agencies
regulators
2. A well-established system for detecting 2. Costs for consultations and viola-
and preventing fraud, corruption and other tion of activities in the investigation
types of threats to business
3. Preservation and development of business 3. The presence of reputational risks
reputation of the enterprise affecting the loss (decrease) in the
competitiveness (image) of the enter-
prise
4. Increasing the efficiency of activities, in- 4. Decrease in capitalization opportu-
creasing competitiveness, investment at- nities, worsening financial perfor-
tractiveness and enterprise value mance, enterprise bankruptcy is not
ruled out

In addition to the advantages indicated in Table 7.5, compliance pro-

grams allow you to obtain broad additional benefits, the essence of which
can be reduced to the following achievements:
- loyalty and consumer confidence, expressed in the stability of con-
sumption of the enterprise’s products, expansion of its use and consump-
tion volumes, due to the observance of their interests, protection of
rights, honest and fair attitude, clean reputation, long-term profitability
and quality of services, taking into account effective compliance risk
management;

287
 - trust and interest of the shareholder, investor (partner), expressed
in financing the development of the enterprise, due to compliance with
their interests and protection of rights (in accordance with the require-
ments of legislation and internal procedures), corporate governance,
clean reputation, good operating results and profit;
- the trust and interest of suppliers, expressed in the provision of dis-
counts and the quality of services (goods), due to the reliability of the com-
pany and the professional work of its employees, honest attitude to coun-
terparty obligations, compliance with contractual conditions;
- the trust of employees and society as a whole, expressed in the em-
ployees ‘loyalty to the enterprise and good reputation, thanks to the ob-
servance of employees’ rights, fair motivational programs and compensation
schemes and activities in the field of corporate social responsibility.
Currently, within the framework of the general concept of compli-
ance, there is a significant number of more specific types of it, reflecting
a particular area of the enterprise’s activities within the overall compli-
ance program (Table 7.6).
In all civilized business community, compliance is actively introduced
into the life of business - the anti-corruption policy of the enterprise. This
is the development of measures aimed at reducing these or other internal
risks, the implementation of which will allow entrepreneurs to manage
their business more efficiently, reduce or eliminate costs associated with
the negative consequences of "incorrect" behavior of employees, and,
most importantly, prevent the occurrence of corruption. The Law of
Ukraine "On the Prevention of Corruption", aimed in particular at im-
proving the situation in the field of ethical conduct in small and medium-
sized business, introduced as a mandatory norm the participation of le-
gal entities in preventive anti-corruption measures. Even now it can be
assumed that Ukrainian legal entities, not having sufficient experience
in this matter, face serious difficulties in fulfilling this obligation.
Given the Ukrainian realities, it should be noted that the most popu-
lar for this country is quite a new direction - anti-corruption compliance.
Ukrainian anti-corruption legislation is in the making, so this kind of
compliance is more developed for Western companies that are guided by
US or European legislation. In addition, the existence of an anti-corrup-
tion program is mandatory for companies participating in state tenders.
Another procedure is connected with procurement procedures - compli-
ance of the public sector. And here it is important not just compliance
with the law, but compliance with the principles that are laid down in
the law.

288
Table 7.6. Types of Compliance in Compliance with Compliance Risk
Type of Com-
Compliance risks
pliance
Getting bribes by business decision-makers. Bribery of decision-mak- Anticorruption
ers at consumer product enterprises. Provision of classified infor-
mation to third parties for cash consideration or its equivalent Use of
the organization’s material resources for personal gain or enrichment
Crimes against the company, involving the company in criminal activ- Anti-criminal
ities, personal criminal responsibility of managers and members of the
board of directors
The personal interest of the employee affects (or may affect) the objec- Conflict
tive performance of his official duties, and in which there is or may
arise a contradiction between the employee’s personal interest and the
legitimate interests of others, capable of causing harm to such legiti-
mate interests.
Damage to business reputation, sanctions of state bodies due to viola- Reputational
tion of the rights of consumers and customers (consumer)
Regulations and sanctions of state bodies in connection with violations Corporate
in the field of corporate governance
Violations of antimonopoly legislation Antitrust
Sanctions for violation of international rules and foreign legislation International
Tax deductions, financial sanctions and litigation Tax
Damage to business reputation in the industry business community Industry
Financial losses and damage to business reputation due to violations Treaty
of the company in relations with suppliers and partners
Prescriptions and sanctions of regional state bodies Regional
Regulations and sanctions of regulatory bodies Regulatory
Damage to business reputation due to negative public reaction to the Social
company’s activities
Financial losses due to violations of the company in the framework of Labor
labor relations with employees of the company

Citizens of Ukraine have to resort to corrupt practices, even to exer-

cise their legitimate rights. According to statistics, 60.5% of Ukrainians
know about cases when bribes were given to make a lawful decision,
47.5% of Ukrainians are aware of cases of bribery for making an unlaw-
ful decision [9].
The Ukrainian Institute for Global Development and Adaptation
Strategies, based on the data of the study of the level of corruption in
Ukraine by the companies Transparency International and the
Razumkov Center, summarized the views of Ukrainians on assessing the
level of corruption in various sectors and spheres of activity of our coun-
try. The dynamics of the values of this indicator for the period 2013-2016.
is presented in Table 7.7.

289
Table 7.7. The level of corruption in various sectors and spheres of
activity [9]

Corruption rate indicator, %%

Sphere (branch) of activity
2013 year 2016 year Change rate
47,3 66,0 + 18,7 %
Shipboard system 45,4 64,0 + 18,6
Law enforcement authorities 44,9 56,0 + 11,1%
State power of the country 40,6 54,0 + 13,4
Medicine 43,4 53 + 9,6
The political sphere as a whole 38,3 45,0 + 6,7%
Political parties 31,5 43,0 + 11,5
Education 30,2 36 + 5,8%
The economic sphere of activity
19,6 28 + 8,4 %
of industrial enterprises
Armed forces 15,8 20,0 + 4,2 %

In the meantime, in Ukraine, it was precisely large-scale pervasive

corruption that led to disastrous economic consequences and destabili-
zation of the socio-political situation. According to the study of Trans-
parency International, the most corrupt institutions in Ukraine are the
courts, law enforcement agencies, civil servants, the parliament.
According to the research, 68% of Ukrainians are ready to protest
against corruption today. About readiness to go out on the street with
the protest declare 36% of the respondents. 43% of respondents believe
that the level of corruption in Ukraine has increased significantly over
the past two years, 74% believe that the public sector is corrupt, and 80%
have characterized the government’s actions in the fight against corrup-
tion as not effective. Only 4% of respondents believe that the state anti-
corruption fight has at least some result. At the same time, 83% noted
that it is important to have personal contact when dealing with issues in
the public sector, and 84% – that the government of the country is run
by organizations acting in their own interests.
The paradox is that the most corrupt Ukrainians named exactly those
institutions that are essentially called upon to fight corruption, namely:
courts (66%), law enforcement bodies (64%), public service (56%),
healthcare (54 (53%), political parties (45%), the educational system
(43%), business (36%), the military (28%), the media (22%), religious in-
stitutions (21%) and public organization (20%).
The growth of mistrust in these areas is provoked by the trend of a
sharp increase in bribery, experts say. A significant number of respond-
ents admitted that they paid a bribe when they received services from
law enforcement agencies (49%), medical institutions (41%), educational

290
institutions (33%), land services (25%), registration and permits (22%),
courts (21%), tax (18%), utilities (6%). Commenting on the results of the
study in Ukraine, the executive director of Transparency International
Ukraine stated that the citizens of the country showed the authorities a
«yellow card»: «Studies of past years have established that the trust to
the church is twice higher than trust in the courts. The current poll re-
vealed that popular moods are deteriorating – 80% think that the actions
of the authorities are not effective at all and are sure that several people
are controlling the country with an eye on their own interests. Against
the background of these disappointing figures, as well as the growing
mass discontent of Ukrainians with the actions of law enforcement and
judicial bodies, a very serious alarm is the willingness of every third per-
son to go out on the street to defend his rights. The figures show that
compliance is an effective measure of combating corruption within each
organization and a reliable defense of its interests. The main thing is not
to stop there. The card is at risk of becoming red» [10]
At the moment, the methods of countering corruption are only begin-
ning to be actively introduced by Ukrainian companies, however, the or-
ganization of the document on the construction of the compliance system
never ends. This is a dynamic process: risks change with a change in the
scale of the business, with the advent of new types of transactions, with
changes in legislation and a competitive environment. And the task of
the compliance service is to take these changes into account, restoring
its methods of work, reviewing risks and working on ways to enhance
the company’s corporate culture to a new level.
The technology of anticorruption compliance presupposes the exist-
ence of restrictive conditions for certain categories of managers and spe-
cialists, as well as individuals to implement the functions of customers
and suppliers [7]. The following characteristics are the signs and indica-
tors of the «ideal» anticorruption compliance model.
From the position of socio-psychological factors:
1. Employees of the organization do not have individual socio-psycho-
logical signs of «predisposition to offenses».
2. The employees of the organization have a clear and unambiguous
negative attitude to corruption.
3. Employee motivation system makes the benefits of corrupt prac-
tices incomparably small compared to the benefits received from the or-
ganization (in monetary and non-monetary form) in the long-term and
short-term perspective.
From the standpoint of technical factors:
1. Modern technical (hardware) and technological means of counter-
ing corruption are introduced into the system.

291
 2. The employees are sufficiently competent and professionally
trained to effectively apply the available technical (hardware) and tech-
nological means of countering corruption.
From a position of regulatory factors:
1. All potentially corruptly dangerous processes of the procurement
system are clearly, unequivocally and in detail regulated.
2. The regulations are generally accessible and binding.
3. The staff are sufficiently competent and professional to effectively
apply the existing regulations.
From the position of control-repressive factors:
1. All actions related to corruption (misdemeanors and crimes) are
clearly and unambiguously identified, their definitions and signs are
spelled out in the normative documents. Normally, the responsibility for
corruption is fixed.
2. The organization has established and effectively operates a moni-
toring system and ensures the principle of «inevitability of punishment».
3. Employees know the «anti-corruption» normative acts and there is
a system of their regular information about the detected violations.
The dynamics of compliance in various jurisdictions testifies to the
consistency and ubiquity of its persecution in various geographic regions,
which, on the one hand, contributes to the implementation of the main
principle of legal responsibility - the principle of the inevitability of pun-
ishment. On the other hand, this shows the consistent formation of a
special branch of law, due to the special seriousness and complexity of
the nature of the problem, which uses the full range of legal means and,
in addition, complicated by the application of specific measures of fiscal,
financial and other forms of control. This requires from managers
around the world a broad knowledge of national and international law,
as well as continuous improvement of the skills of conducting appropri-
ate legal analysis and application of law.
In our opinion, in Ukraine there is no need at the level of legislative
regulation to disseminate the experience of credit institutions in build-
ing the compliance function for industrial enterprises. This function can
be built at Ukrainian enterprises on a voluntary basis, as it is an effec-
tive tool for managing legal and reputational risks that arise due to vio-
lation of professional and ethical standards, increases the financial sta-
bility of the company and the prospects for its presence on the market.
All stakeholders are interested in this, including owners, top managers
and the state.
Today, compliance throughout the world, and in Ukraine in particu-
lar, is becoming more important day by day. In the development and im-
plementation of compliance programs, both owners and top managers

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are interested, because usually a violation of mandatory requirements
leads to both financial losses of the organization, and sometimes to the
liquidation of the organization, to the criminal responsibility of manag-
ers.
Working on the creation of a compliance program in an organization
must certainly lead to an understanding of its development strategy and
success, as it makes it necessary to answer strategically important ques-
tions, such as identifying external and internal factors that affect risks,
legal restrictions and regulations, judicial decisions, voluntary follow the
relevant industry standards. Based on the analysis, compliance policy is
being built, a strategic plan and tactics of its implementation are devel-
oped, aimed at detailing and addressing compliance risks and achieving
compliance goals.

References

1. Basel Committee on Banking Supervision: Compliance and the compliance

function in banks (2005). www.bis.org. Retrived from
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2. Beliayev, Yu.K. (2013). Primenenie instrumentov komplaens-kontrolia
dlia optimizatsii korporativnoho upravleniia farmatsevticheskimi kompaniiami
[Application of compliance tools to optimize the corporate governance of pharma-
ceutical companies]. Izvestiia UrHEU – News of UrHEU, 1 (45). 45-50.
3. Bondarenko, Yu. (2008). Effektivnoe upravlenie compliance-riskami: sis-
temnyi podkhod i kriticheskii analiz [Effective compliance-risk management: a
systematic approach and critical analysis]. Korporativnyi yurist – Corporate
lawyer, 6, 31-34.
4. Kirillov, R.A. (2014). Teoreticheskie osnovy upravleniia rehuliatornym
riskom v sisteme vnutrenneho kontrolia banka [Theoretical bases of manage-
ment of regulatory risk in the bank’s internal control system]. Izv. Sarat. un-ta –
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5. Malykhin, D.V. (2009). Osobennosti orhanizatsii komplaens-kontrolia v
rossiiskikh bankakh [Features of compliance control in Russian banks]. Vnu-
trennii kontrol v kreditnoi orhanizatsii – Internal control in a credit institution,
2, 32-36.
6. Shalimova, M.A. (2011). Upravlenie komplaensom: postroenie vzai-
modeistviia podrazdelenii [Compliance management: building partition interac-
tions]. Vnutrenniy kontrol v kreditnoi orhanizatsii – Internal control in a credit
institution, 1, 33-36.
7. Khramkin, A.A. (2009). Upravlenie protsessom protivodeistviia korruptsii
v sisteme hosudarstvennykh i munitsipalnykh zakupok [Management of the pro-
cess of combating corruption in the system of state and municipal pur-
chases:avtoref]. Candidate’s thesis. Moscow.

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 8. Pererva, P.H. (2017). Komplaens-programma promyshlennoho predpri-
iatiia: sushchnost i zadachi [Compliance program of an industrial enterprise: the
nature and tasks]. Visnyk Natsionalnoho tekhnichnoho universytetu «KhPI» –
Bulletin of the National Technical University «KhPI», 24 (1246), 153-159.
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koruptsieiu [Compliance for small and medium-sized businesses: how to
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 POSTFACE

This monograph continues the book series stemming from the annual
international conference «Marketing of innovations and innovations in
marketing» that are conducted by the Department of Marketing and In-
novation Activity of Sumy State University (Sumy, Ukraine).
Contributions of our authors, as well as their conclusions and recom-
mendations deepen the theory of innovative management and marketing
of innovations via the development and scientific substantiation of new
approaches to improving the organizational and economic mechanism of
innovative development management of economic entities at different
levels. These improvements take into account the peculiarities of tech-
nological changes associated with the completion of the 5th and the be-
ginning of the transition to the 6th, as well as the actual beginning of the
4th industrial revolution. Changes initiated by these factors enable both
individual organizations and national economies to move to the path of
advanced innovation development. It would be unwise not to use them.
The contributions in this monograph are based on the practically-ori-
ented approaches and techniques that can be directly applied for the
management of innovative development of economic entities at the state,
branch, regional levels, as well as the level of individual enterprises and
institutions. Their practical implementation will enable to identify per-
spective directions of innovation development allowing to outstrip com-
petitors through the effect of «innovative advancement»; to allocate most
suitable features for concrete enterprises and institutions using relative
competitive advantages or the ability to form them; purposefully manage
the development and implementation of innovative strategies that ena-
ble the full implementation and strengthening of competitive ad-
vantages, to take the position of a market leader, etc. This, in turn, will
increase efficiency and reduce the risk of innovation, reasonably develop
strategies for the advance of innovative development of economic actors
of different levels, ensure their high competitiveness at the domestic and
foreign markets and contribute to the economic growth of the country as
a whole.
The authors of this monograph focused on a large pool of potential
readers represented by scientists, specialists of enterprises and institu-
tions, as well as a wide range of stakeholders interested in the issues of
management of innovation development. The authors will be grateful for
any critical comments and suggestions that would potentially contribute
to deepening and enlarging further research on these topics.

Illiashenko S.M., Strielkowski W.

295
 INNOVATIVE MANAGEMENT:
THEORETICAL, METHODICAL, AND APPLIED
GROUNDS

Illiashenko S.M., Strielkowski W. (eds.)

Published by Prague Institute for Qualification Enhancement

Pražský Insitut zvyšování kvalifikace

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152 00 Praha 5
Prague, Czech Republic
IČ: 04265611, DIČ: CZ04265611

ISBN 978-80-906210-1-5

1st edition

296 pages

Prague 2018