Achieving Quality and Sustainability in the Czech Business Environment [1 ed.] 9781527509443, 9781527505452

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Achieving Quality and Sustainability in the Czech Business Environment

Achieving Quality and Sustainability in the Czech Business Environment By

Sylvie Formánková, Ida Rašovská, Kateřina Ryglová, Helena Chládková, Hana Stojanová and Ivan Andráško

Achieving Quality and Sustainability in the Czech Business Environment By Sylvie Formánková, Ida Rašovská, Kateřina Ryglová, Helena Chládková, Hana Stojanová and Ivan Andráško Reviewers: Assoc. Prof. Vanda Maráková, PhD, Faculty of Economics, Matej Bel University in Banská Bystrica, Slovak Republic Prof. Dra. Adriana Takahashi, PhD, Department of Management, Federal University of Parana, Brazil Prof. Iveta Ubrežiová, PhD, Faculty of Economics and Management, Slovak University of Agriculture, Nitra, Slovak Republic Editor-in-chief: Sylvie Formánková; Co-editor Tomáš Klusák The factual correctness, professional level, language correctness and graphics are the responsibility of the authors. This book first published 2018 Cambridge Scholars Publishing Lady Stephenson Library, Newcastle upon Tyne, NE6 2PA, UK British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Copyright © 2018 by Sylvie Formánková, Ida Rašovská, Kateřina Ryglová, Helena Chládková, Hana Stojanová and Ivan Andráško All rights for this book reserved. No part of this book may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the copyright owner. ISBN (10): 1-5275-0545-6 ISBN (13): 978-1-5275-0545-2 The results presented in this monograph are part of Project no. 1521179S, ‘The Quality Evaluation of Tourism Destination’, which is conducted with the support of the Grant Agency of the Czech Republic.

CONTENTS

About the Authors ..................................................................................... vii Preface ........................................................................................................ xi List of Abbreviations ................................................................................ xiii Chapter One ................................................................................................. 1 Quality and Sustainability Management 1.1 Sustainable Development ................................................................. 2 1.2 Quality ............................................................................................. 6 Chapter Two .............................................................................................. 11 Specifics of the Czech Business Environment, with a Focus on SME and the Unemployment Rate Impacts on Local Remuneration Chapter Three ............................................................................................ 41 Case Study: Responsibility in the Gambling and Betting Industry as a Tool for Sustainable Development 3.1 Gambling and Betting in the Czech Republic ................................ 42 3.2 The Current CSR Situation in the Czech Gambling and Betting Industry .......................................................................................... 45 3.3 Quantitative Research – Methodology ........................................... 45 3.4 Main Conclusions and Results of the Questionnaire Research ...... 46 3.5 Current Key Quality and Sustainability Factors ............................ 51 3.6 Future Potential Key Quality and Sustainability Factors ............... 53 3.7 Conclusion ..................................................................................... 56 Chapter Four .............................................................................................. 59 Case Study: The Evaluation of Destination Quality – A Visitor-Oriented Approach, South Moravian Region, Czech Republic 4.1 The Tourism Industry in the Czech Republic ................................ 59 4.2 Destination, Service Quality, Destination Quality, Customer Satisfaction ..................................................................................... 60 4.3 Research Design and Methodology ............................................... 66

vi

Contents

4.4 Research Results ............................................................................ 68 4.5 Discussion and Identification of Key Destination Quality Factors ............................................................................................ 78 4.6 Conclusions .................................................................................... 84 Chapter Five .............................................................................................. 87 Conclusions Summary ................................................................................................... 89 References ................................................................................................. 93

ABOUT THE AUTHORS

Sylvie Formánková, PhD, is an assistant professor at Mendel University, Czech Republic, where she teaches courses in both Czech and English on management, corporate social responsibility (CSR), managerial skills, and European cultures and civilizations. Her research focuses on CSR and analysis of the wine industry. She is currently comparing different higher education institutions in terms of social responsibility, cooperating with several institutions in the Czech Republic and abroad.

Ida Rašovská, PhD, is an associate professor and head of the Department of Management at Mendel University, Czech Republic. She is the author of a number of scientific articles dedicated to the quality of tourism

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About the Authors

services, the evaluation of the quality and attractiveness of destinations, and destination management.

KateĜina Ryglová, PhD, works as an associate professor at the Department of Marketing and Trade at Mendel University, Czech Republic. In the years 2009–2010 and 2015, she was a member of the expert working group for the preparation and evaluation of the ‘Programme of Tourism Development in Brno’ organized by Brno City Municipality. She is a member of the Society of Scientific Experts in Tourism (SVECR), and acts as a member of the editorial boards of the journals European Countryside and Czech Journal of Tourism.

Helena Chládková, PhD, is an associate professor at Mendel University, Czech Republic, where she teaches courses in both Czech and English on management, business management and integrated management. Her research focuses on SMEs and analysis of the wine industry.

Achievinng Quality and Sustainability in i the Czech Buusiness Environ nment

ix

Hana Stojaanová, PhD, is an assistan nt professor aat Mendel University, U Czech Repuublic, where shhe teaches courses in both Czech and English on human resouurces manageement and straategic manageement. Her reesearch is oriented tow wards humann resources, and a the businness environm ment and strategic peerspectives. Shhe also sits on the editorrial boards of various scientific jouurnals and sciientific commiittees of confeerences.

Ivan Andráško, PhD, is i an assistan nt professor at the Deparrtment of Geography at Masaryk University, U Czech C Republlic. His main research interests aree the concept of o the quality y of life, issuees of local and d regional developmennt, and the history of geograaphy. He is thhe author of Quality Q of Life: An Inttroduction to the Concept (2013) and Q Quality of Urban Life: Foundationss, Approachess and Knowled dge Base (20116).

PREFACE

According to Eric Nooteboom (in Ethical Corporation, 2017), acting director of investment and company reporting for the European Commission: the European Union was the first institution globally to think about putting a legal framework in place in the principle that companies are not only accountable to their investors, but to society as a whole. In this latest directive, some 6000 companies will need to report from the financial year 2017 not how you make profits, but how you deliver your responsibilities to society. To a large extent it is up to companies to develop their model for which elements of non-financial policies are crucial and on which audiences in society should have information. In brief, the directive asks for a non-financial statement covering policies, due diligence and risk management of issues around environment, social and employee matters, respect for human rights and anti-bribery measures, and for reporting on their effectiveness.

Non-binding guidelines for companies are likely to be published in early 2017. It is obvious that without a future vision of sustainability in the current business environment, many companies will not be able to survive. Nevertheless, how does one achieve quality and sustainability in the very specific Czech business environment? The Czech business environment has gone through many different changes since the onset of capitalism. According to the Association for Foreign Investment (2017), these are the Czech Republic’s current key competitive advantages: x Location at the centre of Europe, gateway to both eastern and western markets, less than two hours by air from most European destinations x Creative, experienced and internationalized professionals at lower costs x High degree of entrepreneurship and good conditions for doing business (above average within EU27) x Regulatory and patent environment in accordance with EU standards x One of the world’s most attractive places to live

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About the Authors

x Highest GDP per person by purchasing-power parity in Central and Eastern Europe x Well-developed infrastructure. These factors should be taken into account when deciding about a company’s future existence in this environment. This book introduces the Czech business environment from different points of view. It focuses on the quality and sustainability factors that influence Czech industries. Quality and sustainability are two parts of corporate social responsibility (CSR), which is ‘the voluntary actions that a corporation implements as it pursues its mission and fulfils its perceived obligations to stakeholders, including employees, communities, the environment, and society as a whole’ (Coombs and Holladay, 2012). Sustainability and its importance in business are presented in the first part of the book. The practical application is then provided in the form of case studies from two different industries – the first of them very controversial from the point of view of responsibility (the gambling and betting industry) and the second very important for many Czech business units (tourism industry). The outputs of each chapter are based on the analysis of primary and secondary data using quantitative and qualitative research. Information provided in this monograph may be beneficial to all researchers and academic staff dealing with the business environment in their lectures or papers, as a tool for comparative analysis or case studies. This book can also help potential investors starting a business in this country, or customers, to understand the Czech business environment.

LIST OF ABBREVIATIONS

Anova = analysis of variance BRO = Brno and its surroundings C2S = Committed to Sustainability CEO = chief executive officer CPI = Corruption Perception Index CSO = Central Statistical Office CSR = corporate social responsibility DQM = Destination Quality Management EC = European Commission ECSI = European Customer Satisfaction Index EFQM = The European Foundation for Quality Management EGD = electronic gaming devices EMAS = Eco Management and Audit Scheme EU = European Union GDP = gross domestic product GRI = Global Reporting Initiative HR = human resources IDA = Index of Destination Attractiveness ILO = International Labour Organization IPA = importance-performance analysis ISO = International Organization for Standardization MedEM = medium-sized enterprise managers MicEM = micro-sized enterprise managers OECD = Organisation for Economic Co-operation and Development PCA = principal component analysis PFI = priority for improvement PLVA = Palava and Lednice-Valtice Area PR = public relations QEHS-MS = Quality-Environment-Health-Safety-Management System QMI = Quality Management Indicators QPCI = Quality Perception Condition Indicators QPI = Quality Performance Indicators SA 8000 = Social Accountability 8000 SEM = small-sized enterprise managers SMEs = small and medium-sized enterprises

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List of Abbreviations

STEPE analysis = social, technological, economic, political and ecological analysis SVECR = Society of Scientific Experts in Tourism TI = Transparency International TQM = Total Quality Management UNCTAD = United Nations Conference on Trade and Development UNESCO = United Nations Educational, Scientific and Cultural Organization UNWTO = The United Nations World Tourism Organization ZP = Znojemsko and Podyji

CHAPTER ONE QUALITY AND SUSTAINABILITY MANAGEMENT

Quality management and sustainable development are two separate, extensive issues, with the principles applicable to them reaching into all fields of human activity. These modern approaches are a privilege of advanced and strong economies, and successful businesses consider that their application is what gives them their strong competitive edge. Knowledge of the principles, assumptions and methods of evaluation of the applied concepts reveals that the two have a lot in common, and especially that modern approaches to quality management hide many features of sustainable development. According to Nenadál et. al. (2008) the principle of corporate social responsibility (CSR) is defined as one of the basic principles of modern quality management. The basic principles of quality management include: • • • • • • • • • • •

Customer focus Leadership Engagement of all Learning Flexibility Process approach Systemic approach of management Continuous improvement Fact-based decision-making Mutually beneficial relations with suppliers CSR

The aim of the authors of the present volume is the presentation of case studies of two different industries (the gambling and betting industry, and tourism) in the Czech environment under the common title Achieving

2

Chapter One

Quality and Sustainability in the Czech Business Environment. This action was inspired, inter alia, by the Quality Council of the Czech Republic, which since 2016 has presented an innovative model for quality assessment called the National Prize of the Czech Republic for CSR and Sustainable Development. The model is based on the concept of the EFQM Model of Excellence, together with the principles of the UN Global Compact initiative, i.e. a combination of principles of quality management and CSR. The evaluation model (Committed to Sustainability – C2S) applied by the National Prize of the Czech Republic for CSR and Sustainable Development is the model of independent external evaluation of business and public sector organizations. The evaluation focuses on four different areas – People, Planet, Profit and Products. Applicants receive independent information and feedback on the level of CSR and sustainable development in their organization. Success is recognised with C2S certificates issued by the Quality Council of the Czech Republic and the EFQM (Ryšánek, 2016).

1.1 Sustainable Development To understand the issue better it is necessary to define the term ‘sustainable development’. Development is sustainable if it assures that the current needs of society are met without reducing the possibility of meeting the needs of future generations (World Commission on Environment and Development, 1987). This classical definition sprang from the necessity to respond to rapid economic progress accompanied by destructive impact on the environment. Sustainable development in the broad sense is currently seen as part of corporate social responsibility. The origin of this concept of socially responsible business dates back to the latter half of the 20th century. The concept was first elaborated in the book Social Responsibilities of the Business, by H.R. Bowen, and since then awareness of CSR, its importance and its popularity have continuously increased. There are as many definitions of CSR as there are authors writing about it, which broadens the spectrum of its meaning and content. Although the definitions are not fully coherent with each other, their authors share one common idea represented by the fact that companies, whether in the public or the private sectors, are responsible for and towards society and their activities have an impact on it. The impact may be both positive and negative. Coombs and Holladay (2012) describe socially responsible business as the willingness of organizations to fulfil their commitments towards all

Quality and Sustainability Management

3

stakeholders and society as a whole. The CSR concept and its relevance have undergone significant development since its establishment, reaching a level where companies and organizations are prepared to adapt their strategies and mission statements to it. As the CSR concept is universal, it can be applicable in different types of organizations and in different ways, subject to the activities and specializations of organizations and the scope of their activities. Despite extensive discussions and the lack of unanimity, the relevance of the concept has been proven by several researchers. The basic principle of the ‘triple bottom line’, created by John Elkington in 1996 (see Elkington 2004), suggests that the company should prepare three different ‘bottom lines’ measuring three Ps: profit, people, planet. The ‘profit’ component measures the economic activity of the organization, the ‘people’ part the level of social responsibility of the organization and the ‘planet’ part the organization’s environmental responsibility. In other words, the main purposes of the triple-bottom-line concept are the evaluation and measurement of the economic, social and environmental performance of organizations, which coincides with the three basic pillars of CSR (see Figure 1.1). The author of the triplebottom-line concept studied its growth trend in 1999 through inquiry of experts in the areas of CSR and sustainable development.

Figure 1.1 Triple-bottom-line principles Source: elaborated according to Elkington, 1996

Chapter One

4

In 2000 the European Council adopted the Lisbon Strategy, aimed at the increased competitiveness and sustainability of economic growth. Thus the CSR concept became one of the partial strategies for fulfilment of the defined objective. The next step in CSR concept development was the issuing of the Green Book of 2001 under the title Promoting a European Framework for Corporate Social Responsibility, in which the triplebottom-line principle was clarified. The literature mentions different activities within the framework of the individual CSR pillars. They are summarized below: The economic area includes, for example, the struggle against corruption; corporate transparency and reporting to stakeholders; maintaining good relations within the supplier chain; eliminating bribery and money laundering; payment morals; commitment fulfilment; struggle against cartel agreements and abuse of dominant market position; and industrial rights protection. The social area focuses on employees, customers and the public, and includes corporate volunteering; philanthropy; sponsoring; gender equality; occupational health protection; investment in human capital development; work standards; corporate ethics; requalification of terminated employees; support of the community; and work–life balance. The environmental area focuses on corporate responsibility towards the environment, involving reduced CO2 emissions; waste minimization; and recycling. Although the division of CSR into the three pillars (economic, social and environmental) is generally accepted, it is not a necessity. If attention is focused not on the content of activities but on their impact, then CSR may be divided into external and internal activities (Putnová and Sekniþka, 2007). The following are included in the external environment of an organization: x x x x x x

New options offered by CSR Intra-community relations Customer relations Supplier relations Environment relations Relations with stakeholders.

Quality and Sustainability Management

5

The internal corporate environment includes: • • • • • •

Physical environment Working conditions Minorities Organizational structure and management style Communication and transparency Education and training.

Currently, there are already a large number of standards and initiatives on offer that address this area. The most popular ones relate to quality and sustainability. The models of implementation of the concept of CSR that are put into practice might include the Model of Excellence (EFQM); the Deming PDCA cycle, adapted to PDCI (Plan-Do-Check-Improve); and ISO 9001:2009 (quality management), 14001:2004 (environmental management) and 26000 (guidance on social responsibility). The role of the ISO 26000 standard is to integrate social responsibility into practice (STN ISO 26000:2011). This standard is not a certification, but provides guidance on the application of the principles of social responsibility in practice, including the main related areas of problems and methods. In terms of the tourism experience, it is important that the standard can be applied in all types of organization, whatever their size or location, including profit and non-profit, governmental and non-governmental organizations – because each has an impact on society and the environment (Marková et al., 2014). An important initiative implemented on a voluntary basis is the UN Global Compact. According to Formánková et al. (2017), the UN Global Compact helps all types of organizations to implement: (1) principled rules of business – 10 principles of corporate responsibility; (2) strengthening society – to go beyond the borders of their society: it is not possible to prosper if it collapses around the business; (3) changes in the management of society – the aim is to increase employees’ motivation; (4) reporting on development – the main objective is to improve the measurement of sustainability impacts; and (5) local events – bringing global principles and outcomes to the local level. The UN Global Compact is a coordinating mechanism for companies that have decided to unite their socially responsible activities with other entities in the market using 10 general principles of social responsibility: Human Rights: Businesses should (1) support and respect the protection of internationally proclaimed human rights; (2) make sure that they are not complicit in human rights abuses.

6

Chapter One

Labour: Businesses should uphold (3) the freedom of association and the effective recognition of the right to collective bargaining; (4) the elimination of all forms of forced and compulsory labour; (5) the effective abolition of child labour; (6) the elimination of discrimination in respect of employment and occupation. Environment: Businesses should (7) support a precautionary approach to environmental challenges; (8) undertake initiatives to promote greater environmental responsibility; (9) encourage the development and diffusion of environmentally friendly technologies. Anti-Corruption: (10) Businesses should work against corruption in all its forms, including extortion and bribery. (Guide to Corporate Sustainability, 2015, in Formánková et al., 2017) Thus, it is comprehensive from the point of view of the content. The National Network Global Compact Czech Republic, which spreads the principles of international initiatives in the Czech environment, has existed in the Czech Republic since 2015. The host organization of the Czech National Network is the Association of Corporate Responsibility (Formánková et al., 2017). The Global Compact is further developed by the Global Reporting Initiative (GRI), a non-profit organization supporting economic, environmental and social sustainability. Thus the GRI contributes to the sustainability of the global economy. The GRI represents the principle of interconnection of long-term profitability, corporate social responsibility and environment care. The initiative helps companies measure and report their sustainable performance (Skýpalová, 2014). Other standards include, for example, the ILO (International Labour Organization) Convention, the OECD (Organisation for Economic Co-operation and Development) guidelines for multinational enterprises, ýSN EN ISO 9001:2009, ýSN EN ISO 1401:2005, ýSN 01 0391, the EMAS, Account Ability series 1000 (series AA1000), ISO 26000, and the Global Sullivan Principles and Social Accountability 8000 (SA 8000).

1.2 Quality Quality is understood as the ability of a product or service to satisfy the needs, requirements and expectations of the customer. Thus the perceived quality is a tool of competitiveness and market-position assertion. There

Quality and Sustainability Management

7

are many definitions of quality but quality control is in principle always seen as an effort focused on continuous improvement towards more effective processes and, in effect, reduced costs and increased productivity. This is a very wide theme covering nearly all corporate processes. Quality is the decisive factor in the stable economic performance of enterprises, and firms with modern quality management systems achieve better market results in the long run with positive effects on their environment. Quality is at the same time a factor that can limit permanently sustainable development. If corporate governance is to be successful in the long run and if the business is to be competitive it must not only offer quality products but also behave responsibly towards its employees, partners and the public, and create harmonious relations with its social and natural environment. The Czech standard ISO 9000/2000 defines quality as: ‘The ability of a set of product, system or process features to meet customer and other stakeholder requirements’. The Czech standard uses two different expressions for quality, meaning the same but with different application contexts. While one of them is appropriate in the context of product quality, this one cannot be used in certain other quality-relevant areas, such as people, environment, services, concepts, processes or educational programmes (Zelený, 2006). The concept of quality management is based on ISO standards of the 9000 series. One of the latest, ISO 26000 Guidance on Social Responsibility, springs from the period requirement for the application of the CSR concept in modern organizations. ISO 26000 is part of the family of international standards issued by ISO, the International Organization for Standardization. ISO 26000 is a standard for corporate social responsibility in the private and public sectors, regardless of company size or location. The purpose of ISO 26000 is to enhance the responsibility of organizations for their behaviour and business, and thus to increase their share in sustainable development. This means, in practice, the involvement of all stakeholders and the integration of CSR into corporate culture and all corporate processes. Through the adoption of the requirements of the ISO 26000 standard, an organization agrees to observe the rules of CSR. The standard also includes methodological instructions for improvement in the three basic areas of responsibility (the triple bottom line) – social responsibility, economic responsibility and environmental impact. ISO 26000 helps organizations improve their reputation, culture, engagement and productivity. The top

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Chapter One

management and company owners take responsibility for the implementation of ISO 26000 and thus the introduction of the approach of social responsibility (Management Mania, 2017). In addition to ISO and professional standards, another governing principle of quality management is the Total Quality Management (TQM) system. The TQM concept was formulated in the latter half of the 20th century in Japan and subsequently swept America and Europe. It is a way of thinking about corporate objectives, processes and people, including ethical conduct and corporate culture. The main principles of TQM include the involvement of all parts of the organization, the key role of management, the use of quality tools and systems, and working with facts. TQM takes into consideration not only employees and customers but also the external impact of corporate activities on society as a whole. To support the practical application of this philosophy several support concepts have been developed, the most widely spread one in Europe being the European Foundation for Quality Management (EFQM) Model of Excellence. In the early 1990s the EFQM introduced this model, which serves as a recommendation framework for corporate governance in business and public service areas. The model may be used as a methodological instrument for the improvement of managerial practices as well as a set of criteria for their evaluation. In the context of the EFQM model, the CSR concept may be viewed as a process of organizational innovation leading towards a change of the standards and inner structure of the company, or as institutional innovation leading towards a change of social rules (see Figure 1.2). Modern corporate governance is currently based on the typical integration of individual management systems. The mutual interconnection of the originally separately built systems of quality management, environmental management, and occupational safety and health protection management forms an integrated management of quality, environment, health and safety, or QEHS-MS (Quality-Environment-Health-Safety Management System). This integrated management generally expresses the relationship of the company to its customers, employees and other stakeholders in the areas of quality, environment protection and occupational health and safety. Companies now also integrate CSR into this integrated system (Nenadál et al., 2008).

Quality and Sustainability Management

Figure 1.2 EFQM Model of Excellence Source: DHI, n.d.

9

CHAPTER TWO SPECIFICS OF THE CZECH BUSINESS ENVIRONMENT, WITH A FOCUS ON SME AND THE UNEMPLOYMENT RATE IMPACTS ON LOCAL REMUNERATION

The ‘business environment’ is a very broad term that also benefits from a wide range of synonyms, analogies and related expressions that are commonly used. The term ‘business environment’ is used by UNCTAD (United Nations Conference on Trade and Development), the World Bank in relation to small and medium-sized enterprises (SMEs), and the World Economic Forum. The term ‘business climate’ has been used by some governments, e.g. in Denmark and Holland. The OECD uses the term ‘enabling environment’. In some institutions, the business environment is considered to be a summary of the external factors that affect the growth, efficiency and competitiveness of businesses. In other cases, the business environment is defined as the sum of all external factors affecting the company. Within the literature on competitiveness, the concept of the business environment includes the total external conditions in which the company conducts its activities. The business environment is composed of a wide range of business conditions in the areas of legislation, institutional infrastructure and the functioning of markets. Improving the business environment is a goal of governments in all countries of the world. When there are successful entrepreneurs and businesses, the economy grows, unemployment falls and the standard of living increases. To rate the overall level of the business environment is almost impossible, because many of its constituents may be evaluated only subjectively, e.g. by using a questionnaire. As described in Grublová (2001), the business environment must be perceived as a set of external factors having an impact on the economic position of a company, motivation and behaviour of individual entrepreneurial subjects. The business environment is made up of a wide spectrum of conditions for doing business in the area of legislation, institutional infrastructure and market operations. The business environment is usually divided into the internal and external business

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Chapter Two

environment. The external business environment consists of all the external factors that influence the development and implementation of the vision, goals and strategies of companies, regardless of their size. The internal business environment consists of all the internal factors that affect the fulfilment of the vision, goals and strategies of the company. Many authors use the concept of environment management in the context of the business environment. The management environment, according to PošváĜ and Chládková (2011), can be compared to the environment in which every person, family, group, business, organization and society exist. The business environment is indicated firstly by a country’s legislative and economic aspects, which fundamentally affect all businesses. We can generally say that small and medium-sized enterprises are the most sensitive to the quality of the business environment. The entry of the Czech Republic into the EU deepened the level of openness of the economy, yet representatives of the state (government and parliament) are criticized by entrepreneurs to the effect that their interventions in the economy are still too great. In terms of the economy, the government is also criticized for its lack of capacity to promote and defend the interests of the Czech business sector in EU institutions. The Czech legislative environment is characterized by the relatively low efficiency of law enforcement and high levels of bureaucracy, even though the national legislation is harmonized with EU legislation. The incidence of corrupt behaviour reinforces the mistrust of politicians among the general public (including the business sector). The administration associated with employing and retaining employees in a company imposes a large burden on small businesses. The labour market is also criticized by entrepreneursemployers because of the high degree of protection for employees when terminating employment, which limits companies’ flexibility to react to market developments. The tax system in the Czech Republic is, in its main characteristics, similar to the systems in most developed countries, especially European ones; for entrepreneurs it is complicated and lacks transparency, and moreover, is subject to frequent changes, further contributing to a deterioration in its clarity. SMEs are particularly sensitive to the quality of the business environment. Therefore, managers of SMEs need to perform strategic analysis of the external business environment for their strategic management. The external business environment can be examined by focusing on its parts (using STEPE analysis), on the scope of its impact (international, national, regional and sectoral), on its controllability by management (controllable, uncontrollable) and on its relationship to the company (threats, opportunities).

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Threats and opportunities change with time and location. One type of situation can be perceived as an opportunity at one time while it can become a threat three or five years later, for instance. In addition, a situation that is an opportunity in some regions can act as a threat in others at the same time. These analyses provide vital information to a company’s owners and management about the position of the company in the external environment, the opportunities that can be exploited and the threats which impact on the very existence of the business. Small and medium-sized enterprises are exposed to strong competition on the one hand but also to a great number of new opportunities on the other. The aim of this chapter is to evaluate conditions and any changes in them in the Czech business environment based primarily upon the views of SME managers and owners, and, in addition, to evaluate data held by the World Bank and Transparency International for the purposes of international comparison. The chapter uses the terms ‘micro-‘, ‘small’ and ‘medium-sized enterprise’ as specified in Article 1, Commission Regulation (EC) No. 800/2008. The views of SME managers were used to evaluate the business environment in the Czech Republic. Seventy SME SWOT analyses were implemented in order to acquire respondents’ views on the quality of the business environment. These were conducted by part-time students working in middle or basic managerial positions. Additionally, 226 SME SWOT analyses were performed by the students of the Faculty of Business and Economics at Mendel University Brno in 2010. In 2015, 127 SME SWOT analyses were conducted: 56 with managers of micro-sized enterprises, 43 with managers of small enterprises and 28 with managers of medium-sized enterprises. The sectoral structure of these enterprises in 2015 (and the number of SMEs) was as follows: manufacturing, 39; accommodation and food services, 23; retailing business, motor vehicles and consumer goods repair, 16; professional, scientific and technical activities, 15; education, 10; information and communication, 9; arts, entertainment and recreation activities, 8; civil engineering, 3; agriculture, 1; transport and storage, 1; health and social care, 1; real estate activities, 1. Statistical methods were applied in order to assess links between individual qualitative traits. Mainly, contingency tables, square contingency and contingency coefficients were implemented in order to test relations between variables. The contingency coefficients are constructed in such a way that their value is dependent only on the intensity of correlation.

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Chapter Two

Pearson’s coefficient of contingency: This coefficient scales the chi-square statistic to a value between 0 (no association) and 1 (maximum association). Cramér’s coefficient of contingency: The value of this coefficient falls between two nominal variables, giving a value between 0 and 1. The value is established by taking the smaller number created by lowering the number of rows and/or columns by 1 (Budíková et al., 2010). Data was processed using Microsoft Excel and Unistat for Excel. The Czech business environment and changes in its quality were evaluated based upon analyses conducted by SME managers. SME managers and owners identified threats and opportunities for their businesses. In 2010, 226 SME managers defined 1,036 opportunities in total (average 4.6 opportunities per manager), of which 405 were identified by microenterprise managers, 370 by small enterprise managers and 261 by medium-sized enterprise managers. This means that the managers of micro-sized enterprises defined 4.6 opportunities on average for their business while the managers of small and medium-sized enterprises identified 4.5 and 4.8 opportunities on average per manager, respectively. Therefore, there is not a significant difference between the number of identified opportunities dependant on the size of company. Table 2.1 presents the most frequently defined opportunities in 2010. As a matter of interest, the table also shows the results from business environment evaluation performed by SME managers in 2004 after the Czech Republic had joined the EU (Kuþerová and PošváĜ, 2005). The most important opportunity identified by SME managers in 2004 was ‘integration of the Czech Republic into the EU’, which facilitated its entrance into European markets. This answer was given by 77% of respondents. This answer ended up as the only the third most important opportunity in 2010. The most significant opportunity of this year was ‘Technical and technological development and increase in demand for innovated products made by new technologies’ (82%). ‘Economic progress and higher standard of living’ (followed by ‘increase in demand’) scored as the second most important in both years: 69% and 67% of SME managers recognized its importance in 2004 and 2010, respectively. Particular opportunities (that emerged in greater frequency) came into the picture in 2010 (there was almost no such occurrence in 2004); these were related to the positive development of the Czech business environment.

Specifics of the Czech Business Environment

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Table 2.1 The most frequently defined opportunities in 2004 and 2010

Opportunities 1. Integration into the EU, international cooperation, cancellation of customs duties, globalization 2. Economic progress, increase in demand and the standard of living 3. Technical and technological development, increase in demand for innovated products 4. Subsidies for SMEs 5. Change of lifestyle and its impact on demand, pressure to protect the environment 6. Free/unoccupied areas in the market, weak competition in the area, attractiveness of industry/field 7. Legislation and regulations 8. Unemployment, graduates, qualified labour supply 9. Organizing trade shows, expositions, contests, conferences and other social events 10. Tourism development, traditions

Answer frequency ( %) 2004

2010

77

46

69

67

53

82

40

45

34

39

17

38

-

27

-

26

-

24

-

14

Sources: SWOT analyses conducted by SME managers (2004, 2010) and authors’ own work

The most significant opportunity, ‘Technical and technological development, increase in demand for innovated products’, was defined as such by SME managers regardless of the size of their company (83% of micro-sized enterprise managers, 84% of small enterprise managers and 78% of medium-sized enterprise managers). It should be noted that it was the medium-sized enterprise managers who most frequently found Czech integration into the EU, lifestyle changes influencing demand, legislation and regulations, and qualified labour supply to be the most important opportunities. The small enterprise managers named subsidies for SMEs and free/unoccupied markets and attractiveness of the industry/field as the most significant opportunities. The micro-sized enterprise managers, on the other hand, found the following opportunities the most important:

16

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economic progress, higher living standards and demand, organizing various events and tourism. Correlation between ‘opportunities’ and the size of SME in 2010 Statistics: Chi-Square Test = 47.0042 Degrees of Freedom = 34 Cumulative Probability = 0.0681 Fí = 0.2130 Cramér’s V = 0.1506 Pearson’s Contingency Coefficient = 0.2083 Considering that the level of significance is almost 7%, it should be noted that the data could often be obtained even in the case of zero hypothesis validity. Therefore we cannot exclude the possibility that the zero hypothesis is true, meaning that we cannot prove any correlation between the identified opportunities and the size of SME. Thus, SME managers perceive opportunities relating to the external environment similarly, irrespective of their company’s size. In 2015, 56 managers of micro-sized enterprises, 43 managers of small enterprises and 28 managers of medium-sized enterprises were questioned: 127 SME managers defined 662 opportunities in total in 2015 (average 5.2 opportunities per manager). Of these, 293 (5.2%) opportunities were identified by micro-sized enterprise managers, 217 (5.0%) by small enterprise managers and 152 (5.4%) by medium-sized enterprise managers; Table 2.2 provides further detail. Table 2.2 The most frequently defined opportunities in 2015

Opportunities

Answer frequency amount

1. Growth in demand (for quality, innovation, 101 domestic production) 2. Development of the Internet and social networks, 80 technical and technological development

% 79.5 63.0

3. Subsidies for SMEs

54

42.5

4. Organizing trade shows, expositions, contests, conferences and other social events

42

33.1

5. Easy entry into foreign markets

36

28.3

Specifics of the Czech Business Environment

17

6. Healthy lifestyle

34

26.8

7. Interest in innovative products and specialties

33

26.0

8. Weak competition in the area

27

21.2

9. Attractive surroundings

18

14.2

10. New possibilities and forms of promotion

10

7.9

Sources: SWOT analyses conducted by SME managers (2015) and authors’ own work

As in previous investigations, in 2015 managers identified ‘Growth in demand’ as the main opportunity (79.5%). The second most important opportunity was identified as ‘Development of the Internet and social networks, technical and technological development’ (63.0%). The third most significant opportunity was ‘subsidies for SMEs’ (42.5%). Table 2.3 The most frequently identified opportunities by SME managers, 2015

Opportunities

MicEM amount %

SEM amount %

MedEM amount %

1. Growth in demand (for 44 quality, innovation, domestic production) 2. Development of the 34 Internet and social networks, technical and technological development 22 3. Subsidies for SMEs

78.6 35

81.4 22

78.6

60.7 34

79.1 28

42.9

39.3 18

41.9 14

50.0

4. Organizing trade shows, 21 expositions, contests, conferences and other social events 11 5. Easy entry into foreign markets 16 6. Healthy lifestyle

37.5 13

30.2 8

28.6

19.6 16

37.2 9

32.1

28.6 12

27.9 6

21.4

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Chapter Two

7. Interest in innovative products and specialties 8. Weak competition in the area 9. Attractive surroundings

9

16.1 11

25.6 13

46.4

14

25.0 10

23.3 3

10.7

18

32.1 6

14.0 1

3.6

10. New possibilities and forms of promotion

10

17.9 5

11.6 6

21.4

Source: SWOT analyses conducted by SME managers (2015) and authors’ own work Note: MicEM = micro-sized enterprise managers, SEM = small enterprise managers, MedEM = medium-sized enterprise managers

Table 2.3 shows the most significant opportunities identified by micro-, small and medium-sized enterprise managers in 2015. The most significant opportunity, ‘Growth in demand’, was defined by all SME managers regardless of the size of their company (78.6% of micro-sized enterprise managers, 81.4% of small enterprise managers and 78.6% of mediumsized enterprise managers). It should be noted that it was the small enterprise managers who more frequently found growth in demand to be the next most important opportunity. The micro-sized and small enterprise managers preferred as second most significant opportunity the development of the Internet and social networks and technical and technological development. On the other hand, medium-sized enterprise managers identified as the second most significant opportunity subsidies for SMEs. In total, 1,091 threats were defined by SME managers in 2010. Each SME manager identified 4.8 threats on average. It should be noted that the most significant threat (most frequently identified by SME managers) in both years (2004 and 2010) was the threat of ‘Competition and rivalry in the industry’. In 2004 64% of SME managers identified this threat, and the number further increased to 92% in 2010. Another frequent threat in 2004 was ‘EU laws and regulations, EU competition’, while in 2010 ‘Financial and economic crisis’ and ‘Government interventions, legislation’ were greater concerns: see Table 2.4.

Specifics of the Czech Business Environment

19

Table 2.4 The most frequently defined threats in 2004 and 2010

Threats 1. Competition and rivalry in the industry 2. EU laws and regulations, EU competition 3. Government interventions, legislation 4. Increase in input costs and greater difficulties in obtaining loans 5. Bargaining power of customers and increase in customers’ requirements, financial indiscipline and insolvency 6. Technical and technological development, substitutes 7. Financial and economic crisis 8. Decrease in demand, changes in customers’ preferences 9. Insufficient supply of qualified labour 10. Demand for ecological production, pressure to protect the environment

Answer (%)

frequency

2004 64 54 46

2010 92 27 66

46

55

31

39

27

12

-

67

-

34

-

14

-

12

Sources: SWOT analyses conducted by SME managers (2004, 2010) and authors’ own work

‘Competition and rivalry in the industry’ was the most frequently identified threat in the industry, especially for medium-sized enterprises (96%) and micro-sized enterprises (92%). ‘Government interventions, legislation’ was most frequently defined as a threat by micro-sized enterprises (69%). ‘Financial and economic crisis’ was perceived, on the other hand, as a significant threat by small enterprise managers (78%). ‘Decrease in demand, changes in customer preferences’ was most frequently identified by medium-sized enterprise managers. Correlation between ‘threats’ and the size of SME in 2010 Statistics: Chi-Square Test = 35.9018 Degrees of Freedom = 44 Cumulative Probability = 0.8025 Fí = 0.1814 Cramér’s V = 0.1283 Pearson’s Contingency Coefficient = 0.1785

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Considering that the level of significance is 8%, it should be noted that the data could often be obtained even in the case of zero hypothesis validity. Therefore, we cannot exclude the possibility that the zero hypothesis is true, meaning that we cannot prove any correlation between the identified threats and the size of the SME. Thus, SME managers perceive threats similarly; there are no threats that would threaten micro-sized enterprises more than medium-sized ones, for instance. In total, 627 threats were defined by SME managers in 2015. Each SME manager identified 4.9 threats on average: see Table 2.5. Table 2.5 The threats most frequently identified by SME managers in 2015 Answer frequency Threats 1. Competition and rivalry in the industry

amount

%

120

94.5

71

55.9

32

24.4

27

21.3

27

21.3

24

18.9

22

17.3

20

15.7

20 18

14.9 11.0

2. Increase in input prices 3. Government interventions, legislation 4. Decrease in demand 5. Changes in customers’ preferences 6. The height of taxes 7. Decrease in the number of skilled workers in the labour market 8. Substitutes 9. The impact of weather 10. Import of cheap goods from abroad

Source: SWOT analyses conducted by SME managers (2015) and authors’ own work

The most significant threat as perceived by SME managers in 2015 was ‘Competition and rivalry in the industry’ (94.5%), just as in the years 2004 and 2010. As the second most significant threat, growth in input prices

Specifics of the Czech Business Environment

21

(55.9% of respondents) was identified. Table 2.6 The threats most frequently identified by SME managers by company size in 2015 Threats 1. Competition and rivalry in the industry 2. Increase in input prices 3. Government interventions, legislation 4. Decrease in demand 5. Changes in customer preferences 6. The height of taxes 7. Decrease in the number of skilled workers in the labour market 8. Substitutes 9. The impact of weather 10. Import of cheap goods from abroad

MicEM SEM amount % amount % 51 91.1 42 97.7

MedEM amount % 27 96.4

32

57.1 26

60.5

13

46.2

16

28.6 12

27.9

4

14.3

9 14

16.1 8 25.0 7

18.6 16.3

10 6

35.7 21.4

9 3

16.1 6 5.4 12

13.9 27.9

9 7

32.1 25.0

8 8

14.3 6 14.3 10

13.9 23.3

6 2

21.4 7.1

6

10.7 9

20.9

3

10.7

Source: SWOT analyses conducted by SME managers (2015) and authors’ own work Note: MicEM = micro-sized enterprise managers, SEM = small enterprise managers, MedEM = medium-sized enterprise managers

The most significant threat for SME managers, regardless of company size, was ‘Competition and rivalry in the industry’ (91.1%, 97.7%, 96.4%) in 2015. The second most significant threat was identified for all types of company as growth in input prices. ‘Government interventions, legislation’ was the third most frequently mentioned threat for micro- and small companies, while for medium-sized enterprise managers the third most important threat was the decline in demand (see Table 2.6). For evaluation of the conditions of the business environment for the purpose of international comparison, the Corruption Perception Index and

22

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the World Bank’s ‘Doing Business 2016’ report were used. The most popular indicator worldwide for assessing the quality of the business environment is the Corruption Perception Index (CPI). The German company Transparency International (TI) has been publishing its findings regarding the index every year since 1995. TI identifies corruption as the misuse of public authority for personal gains, such as bribing officials, paying commissions for winning public tenders or embezzlement of public resources; these are considered negative factors of economic efficiency (Lambsdorff, 2000). A country or territory’s score indicates the perceived level of public sector corruption on a scale of 0 (highly corrupt) to 100 (very clean). A country’s ranking indicates its position relative to the other countries in the index. In 2014 and 2015 the index included 168 countries and territories. In less than 50 was there a serious corruption problem, but the 2015 CPI nevertheless clearly shows that corruption remains a problem around the world, including in Europe. The EU and Western Europe had an average score of 69 in 2015. Denmark, with 91, was top and Bulgaria, with 41, was bottom. Countries, of those monitored, that had improved include Greece, Portugal, Belgium, the Czech Republic, Poland and Slovakia. Nordic countries scored highly in 2015, as in previous years: Denmark (91), Finland (90), Sweden (89), the Netherlands (87) and Norway (87). Table 2.7 shows the development of the Corruption Perception Index in 2015–2010. The table compares six countries of the EU that in 2015 had a similar number of inhabitants to the Czech Republic (in millions of inhabitants: Greece 11.2, Portugal 10.4, Belgium 11.2, Czech Republic 10.5, Hungary 9.9, Sweden 9.7, Austria 8.5) at first. It also displays the results of all the V4 countries – the Visegrád Group (Poland, Slovakia, Czech Republic and Hungary). Among the V4 countries Hungary and Slovakia had the worst results, each with a score of 51, and Poland the best with 63. Greece had the worst result of all with a score of 46. Table 2.7 clearly shows that perceptions of corruption in the Czech Republic are improving.

The World Bank evaluates business conditions worldwide every year. Economies are ranked on the ease of doing business in the country, from 1 to 189. A high ranking for ease of doing business means that the

Specifics of the Czech Business Environment

23

regulatory environment is more conducive to the starting and operation of a local firm. The rankings are determined by sorting the aggregate distance to frontier scores on 10 topics, each consisting of several indicators, giving equal weight to each topic. The rankings for all economies are benchmarked to June 2015. Table 2.7 Corruption Perception Index in various countries in 2010– 2015 Country

2010 [177]

Greece (58) Portugal (28) Hungary (50) Belgium (15) Czech R. (37) Sweden (3) Austria (16) Poland (30) Slovakia (50)

35 60 47 71 46 92 79 53 43

2011 [176] 34 61 46 75 44 93 78 55 40

2012 [176] 36 63 55 75 49 88 85 58 46

2013 [177] 40 62 55 75 48 89 81 60 47

2014 [168] 43 63 54 76 51 87 80 61 50

2015 [168] 46 63 51 77 56 89 76 62 51

Sources: Transparency International, 2015 Note: Numbers in round brackets indicate country rank in 2015; numbers in square brackets indicate how many countries were involved in the survey that particular year

Figure 2.1 shows a summary of the ‘Doing Business 2016’ report’s conclusions for the Czech Republic and the country’s ranking for each topic.

24

Chapter Two

Figure 2.1. R Rankings on ‘D Doing Business’ topics – Czecch Republic (raank out of 189 countriess) Source: Worlld Bank, 2016

Compared too the assessm ment in 2011, th he Czech Reppublic had imp proved its position by 27 places. The T ranking is i especially important fo or foreign investors. T The first placce for the teenth time in a row was taken by Singapore. IIt was followed by New Zealand Z and D Denmark. Soutth Korea, Hong Kongg, the Unitedd Kingdom, the USA, aand the Scan ndinavian countries Sw weden, Norwaay and Finlan nd were all inn the top ten. Slovakia remained in 29th place. Even though some posittive changes have contribuuted to impro oving the Czech businness environm ment, its qualitty still remainns a problem. This may include a positive new Civil C Code an nd the Businness Corporatiions Act, which simpllify the creatiion of compan nies, in force since 2014. Improved I digitization techniques, and a related do ocumentation for the estab blishment and functionning of data booxes, have red duced adminisstrative barrierrs. Table 2.8 shhows compariison of key indicators in thee Czech Repu ublic with eight other countries off the EU thatt either have a similar nu umber of inhabitants tto the Czech Republic R or arre countries off the V4.

Specifics of the Czech Business Environment

25

Table 2.8 Evaluation of key indicators in chosen countries Country

Sweden

Doing Starting Business business rank 8 16

Austria

21

106

26

59

74

6

Portugal Czech Rep.

23

13

27

97

65

20

36

93

37

28

122

72

Hungary

42

55

29

19

95

23

Belgium

43

20

132

97

90

53

Greece

60

54

144

79

66

132

Poland

25

85

41

19

58

55

5

42

73

63

Slovakia 29 68 Source: World Bank, 2016

Property registration

Obtaining Paying credit taxes

Enforcing contracts

11

70

37

24

As Table 2.8 shows, the worst conditions for doing business can be encountered in Greece. The second-worst position for doing business is taken by Belgium. The best conditions for doing business are found in Sweden and Austria. The Czech Republic suffers from the worst business conditions when it comes to paying taxes, but it is also a country where difficulties are experienced in starting a business and in the area of enforcing contracts. The Czech business environment was evaluated based upon analyses conducted by SME managers, in which SME managers and owners identified threats and opportunities for their businesses. The analyses were performed within situational analyses of the external environment in the Czech Republic. This chapter contains the views of managers identified in 2015 and compares them with the results obtained in 2010, and in 2004 after the Czech Republic had joined the EU. It is interesting that managers reported more opportunities than threats in all the years. The chapter also includes results and conclusions from the assessment of the external environment performed by the World Bank (‘Doing Business 2016’) and draws on the CPI, which can also be used to assess the quality of the business environment. According to the World Bank data, the Czech business environment has improved. The CPI (Transparency International 2015) also showed improvement. The economic situation of small and medium-sized enterprises is stabilizing in the Czech Republic. Over 87%

26

Chapter Two

of SMEs rated the overall development of their businesses in the last halfyear positively or neutrally in the latest survey (in 2015) by the Chamber of Commerce. This is the highest value since the beginning of the investigation in September 2008 (BusinessInfo.cz, 2016). In addition, in 2015 almost a quarter of the entrepreneurs plan to recruit new staff. The survey results are not surprising. The Czech GDP increased by about 4.3% in 2015, according to the latest CSO data, which was more than twice the rate of the EU as a whole. The Czech economy prospered very well between 2010 and 2016, thanks to extraordinary factors such as low oil prices and accelerated drawing of money from European funds, as the president of the Chamber of Commerce Vladimír Dlouhý has stated. But a good economic situation does not mean that all companies will succeed. Problems in enterprises can be connected to an unprofessional approach by the owners and managers who run the company. In the segment of small and medium-sized companies the most frequent shortcomings mentioned are too-passive trade, poor work organization and processes, and inconsistency in the management of the company’s capital. This is what the CEO of JIP, JiĜí Jemelka, says of companies operating in the field of business consultancy focused on corporate revitalization. In the coming years there will be a problem of shortage of skilled labour. Companies have, for some time, been troubled by an enormous shortage of staff. Among other reasons that SMEs do not achieve the best results include the congestion, fatigue or burnout of owners or key employees of the company, lack of motivation among employees, high staff turnover, lack of knowledge and experience in managing people, and chaos in the management of meetings and people. The differences between companies that grow and those that stagnate can also be affected by how they work with modern technologies. Work with modern technologies is viewed as an opportunity by SME owners and managers, as evidenced by our own survey. The economic performance of enterprises is also affected by the security and transparency of the tax environment. Many innovations have been introduced in this area, yet domestic enterprises do not complain about the introduction of such changes. As stated in the previous part of this chapter, the economic situation of small and medium-sized enterprises can be described as stable in the Czech Republic, but there is a much wider business environment across the EU which influences the local situation. In order to understand the position and quality of the Czech business environment among the EU states, in the following case study we have focused on the synoptic comparison of the unemployment rate and

Specifics of the Czech Business Environment

27

differences in remuneration as means of comparing the national economic capabilities of the labour markets of selected countries: the Czech Republic, Germany, Ireland, Italy, Austria and the United Kingdom. In 1957 the European Economic Community was established through the Treaty of Rome, with its main goal, the common market, characterized by the free movement of goods, services, people and money (European Commission, 2016). Today, after many decades of European integration, the enlargement of the European Union has reached almost the whole of Europe. However, there are still economic differences among the states (Barro, 2008; Ehrenberg and Smith, 2011; Bohlander and Snell, 2012). European labour markets have tended to have problems since the 1970s. Compared with other developed countries such as the USA, the situation of the European labour market has not improved that significantly, especially due to excessive regulations and high real and nominal wages, which have reduced the creation of employment and increased the rate of natural unemployment. The European labour market is perceived as less flexible than the labour market of the United States, where the high unemployment rate is caused by many company regulations imposed by the state, impeding immediate adaptation to market changes and trends (OECD, 2016; Hopkins, 2007; di Domenico and Spattini, 2008; Hall and Lieberman, 2012). A large proportion of the US labour force belongs to labour unions, which manage to push the gross wage above the market equilibrium level, causing a higher unemployment rate (Mankiw, 2012; Carbaugh, 2011; Baumol and Blinder, 2012; Arnold, 2013). Beside labour market issues, the European Union is also considered to be less active in the field of development, research and innovations, which can slow down its economy (McEachern, 2012; DvoĜáková et al., 2012; Potužáková, 2013). The Lisbon Treaty set up a strategy that is helping to improve the economic growth of European Union countries, increase employment and improve working conditions. Initially, economic growth and employment increased, but only until 2008, when the world economic crisis arose. Other important facts are the differences between the individual countries of the European Union. Some countries such as Norway, Sweden and Finland maintained a high employment rate even before the strategy of the Lisbon Treaty, and some countries such as the Czech Republic, Slovakia and Hungary maintained a lower rate of employment. The overall situation was worsened by the economic crisis in 2008. The European Union started to focus on each particular country separately in order to be able to monitor all consequences, and began cooperating in this matter throughout the whole European Union (European Commission, 2016; Treger, 2008). The main objective of this case study is to provide information about

28

Chapter Two

unemployment as a national economic factor and its dependence on the remuneration of employees in selected countries; a minor goal is to characterize the difference in remuneration in the selected countries. Secondary data was received from the ýSU and Eurostat for the period 2002–2013. The factor of the unemployment rate and its dependency and influence on remuneration within the selected countries is tested and examined by White’s test of heteroscedasticity, model significance is tested by the F-test, and the dependence of two variables is expressed by correlation coefficients. Wages are expressed by mean gross hourly earnings. The remuneration of employees is expressed in mean gross hourly earnings in Euros within the selected countries of the European Union. Data regarding remuneration was not available for all years as median gross hourly earnings; therefore mean gross hourly earnings were used instead. The countries were chosen according to the year of their acceptance into the European Union and with respect to where Czech workers migrate most frequently because of work. As per the Czech Statistical Office, these countries are Germany, Austria, the United Kingdom (despite the recent Brexit vote), the Republic of Ireland and Italy (ýSU, 2014, OECD, 2016). To find out the dependency of the economic factor of unemployment on mean gross hourly earnings, we chose a variable for the measurement of remuneration of mean gross hourly earnings. As shown in Figure 2.2, the Czech Republic has the lowest level of earnings of all the selected countries, despite the world economic crisis, with a continual increasing trend. Germany, Austria and Italy have experienced stable increasing growth of mean gross hourly earnings. Compared with Ireland and the United Kingdom, the decline in gross hourly earnings during the years 2008–2011 was somewhat weak. However, the decline in average remuneration in Ireland and the UK was very significant and although the mean gross hourly earnings have risen again they are still above the potential level of the previous years (European Commission, 2013).

Specifics of the Czech Business B Enviroonment

29

Figure 2.2 Meean gross hourlly earnings in Euros E per hour, 22002–2013 Source: authoors’ own elaborration based on n European Com mmission, 2013 3

Several econnomic theoriees about finan ncial remunerration have arrisen in a range of souurces. The labbour theory off value originnates from Karrl Marx’s statement thhat the markket does not determine thee price of go oods and services, buut rather the value v of goodss and servicess is determineed by the amount of llabour neededd for the prod duction of thesse goods and services. Therefore, tthe content off work determ mines the pricce of this wo ork. Most economists hhave never acccepted this laabour theory oof value and raather lean towards thee demand-and-supply marrket theory (Nielsen, 2002). The Armstrong labour markeet theory is based on buuyers (employ yers) and sellers (empployees) of goods g (labourr). The pricee of the good ds is the remuneratioon level needded to attractt and keep tthe employeees in the organizationn. In such a laabour market there also exiist demand an nd supply factors and inflation facttors (Armstro ong, 2010). T The classical economic e theory, also known as thee theory of baalancing of diffferences, pressented by Adam Smithh, states that thhe remuneratiion of employyees is fully deetermined by labour deemand and labbour supply. When W the laboour demand iss equal to the labour supply, wagges will stay y at the eqquilibrium lev vel. This mechanism has the abillity of immediate market clearing (Arrmstrong, 2007). ‘Thee whole of the advantages and disadvanntages of the different employmentts of labour and a stock mu ust, in the sam me neighbourrhood, be either perfeectly equal orr continually tending to eequality’ (Smith, 2007 [1776]). Huuman capital theory t describ bed labourers as possessing g a set of skills, whicch can be reented to employers. All kknowledge, skills s and

30

Chapter Two

experience create the certain stock of productive capital. For employees the expected return from investment in human capital is a higher standard of remuneration, a higher level of satisfaction from work and the certainty of future employment. For employers the expected return from investment in human capital is higher productivity, flexibility, innovation skills and an increasing level of skills among employees (Ehrenberg and Smith, 2011). The efficiency wage theory, also known as the theory of high wages, says that firms will pay higher remuneration to their employees than the actual market remuneration, with the aim of increasing productivity. Productivity will be increased by motivated employees with great performance. Higher remuneration above average market remuneration will attract better applicants, decrease staff turnover and show the loyalty of the company to its workers (Mankiw, 2009). The agency theory describes the different goals of owners-employers and agents-managers, which can result in managers acting differently to how owners wish them to act. This phenomenon is called transaction cost by economists – the difference between earnings in the case of owners that are also managers and earnings in the case of managers reaching their own goals (Bowie and Freeman, 1992). In bargaining power theory, negotiations about fair remuneration and the amount of the work lead to consideration of the correct amount of remuneration that has to be offered to employees, meaning that all employees assume the role of negotiators regarding financial remuneration (Baumol and Blinder, 2012). According to the book Minimum Wages, by Neumark and Wascher, the first countries where minimum wages were established were Australia and New Zealand in the 1890s, the United Kingdom in 1909 and the USA in 1938. In many countries, the minimum wage was established as a protection for employees, to prevent companies from misusing their economic power and position with the aim of determining wages at a very low level (Neumark and Wascher, 2008). According to The Fundaments of Minimum Wage Fixing, by Eyraud and Saget, the minimum wage is pay protection for employees. It can negatively influence unemployment if it is wrongly defined above the equilibrium wage. Employees with low qualifications are not able to find a new job and they become part of the long-term unemployed group (Eyraud and Saget, 2005). In this part of the case study the hypothesis about the relationship and dependency of the unemployment rate and mean gross hourly earnings was tested – specifically, the assumption that a high unemployment rate decreases the average hourly earnings of employees. The hypothesis for White’s test of heteroscedasticity is as follows:

Specifics of the Czech Business Environment

31

H0: Errors are homoscedastic H1: Errors are heteroscedastic Table 2.9 Heteroscedasticity for six selected EU countries Heteroscedasticity p-value > Į=0.05 Cze 0.362044 Ger 0.163774 Irl 0.074231 IT 0.264134 AU 0.659781 UK 0.316814

Do not reject H0 Do not reject H0 Do not reject H0 Do not reject H0 Do not reject H0 Do not reject H0

Source: authors’ own elaboration based on data from Eurostat (European Commission, 2013)

All data concerning the unemployment rate and mean gross earnings for the six chosen countries was tested for heteroscedasticity of error terms (see Table 2.9). According to p-values, the null hypothesis was not rejected – the errors are homoscedastic. The F-test was elaborated as per Anova table processed for each hypothesis and each country (see Table 2.10). The F-test hypothesis for model significance is as follows: H0: Model is not statistically significant H1: Model is statistically significant Table 2.10 F-test for six selected EU countries F-test F-emp > 4.3009 Cze 224.0478 Ger 169.3282 Irl 70.0805 IT 31.1263 AU 1590.6756 UK 224.0478

Reject H0 Reject H0 Reject H0 Reject H0 Reject H0 Reject H0

Source: authors’ own elaboration based on data from Eurostat (European Commission, 2013)

32

Chapter Two

According to values obtained from the F-test, the null hypothesis of the Ftest was rejected and it was proven that the model is statistically significant. Correlation coefficients in Table 2.11 show the common dependence and determination of the two variables, unemployment rate and the dependent variable average gross hourly earnings. Table 2.11 Correlation coefficients for six selected EU countries Correlation coefficient Cze í0.34181 Ger 0.08705 Irl í0.01409 IT 0.38917 AU 0.05933 UK í0.82219 Source: authors’ own elaboration based on data from Eurostat (European Commission, 2013)

As per the correlation coefficients, the relationship and dependency of the two variables, the unemployment rate and mean gross hourly earnings, can be observed. For the Czech Republic the dependency of mean gross hourly earnings was indirect; this indicates that the lower the unemployment rate is, the higher the mean gross average earnings are. However, as the size of the correlation coefficient indicates, this dependency is not significantly strong. In Germany, the size of the coefficient indicates direct but very low dependence of the unemployment rate on mean gross hourly earnings. Germany managed continually to decrease its unemployment rate over the period, and German gross hourly earnings rose at a stable level, though with a small decline in hourly earnings during the year 2010. The correlation coefficient for Austria implies the same situation as in Germany. There is a direct dependence of the unemployment rate average and gross hourly earnings, however with almost no dependence of these two variables. In the case of Ireland, the dependence is indirect with no significance or importance. The correlation coefficient in Italy is higher than in the case of Germany, Austria and Ireland; however, this coefficient still does not reach the maximum value, and demonstrates direct dependency of the unemployment rate and average gross hourly earnings in Italy. The United Kingdom has the strongest correlation coefficient between the unemployment rate and average gross hourly earnings, with indirect dependency. From the data obtained from Eurostat it can be observed that the unemployment rate has increased over the last decade in

Specifics of the Czech Business Environment

33

the UK and its average gross hourly earnings have declined, especially after the world economic crisis. Figures 2.3–2.8 provide further detail for each country.

Figure 2.3 Czech Republic Source: authors’ own elaboration based on data from Eurostat (European Commission, 2013)

Figure 2.4 Germany Source: authors’ own elaboration based on data from Eurostat (European Commission, 2013)

34

Chapter Two

Figure 2.5 Ireland Source: authors’ own elaboration based on data from Eurostat (European Commission, 2013)

Figure 2.6 Italy Source: authors’ own elaboration based on data from Eurostat (European Commission, 2013)

Specifics of the Czech Business Environment

35

Figure 2.7 Austria Source: authors’ own elaboration based on data from Eurostat (European Commission, 2013)

Figure 2.8 United Kingdom Source: authors’ own elaboration based on data from Eurostat (European Commission, 2013)

Not only has the unemployment rate on the local labour market played a role in the level of remuneration. Differences between earnings according to the level of education reached can also be observed, with this factor having a substantial impact on employment in every EU labour market (see Figure 2.9).

36

Chapter Two

Figure 2.9 M Mean hourly earrnings in Euross according to level of educaation, 2002 and 2013 n Eurostat dataa (European Co ommission, Source: authoors’ own elaborration based on 2013)

A low levvel of educaation includes workers w with only ellementary education, a medium level of educatio on includes w workers with secondary s school qualifications andd a high leveel of educatioon includes em mployees who are uniiversity graduates. Universiity graduates are not furtheer divided into degree llevels (bachellor, master or postgraduate)). As can be oobserved from m Figure 2.9, in i 2002 the C Czech Republic had the least significcant differencce in earningss according too education. Especially E between eleementary andd secondary education, thhe difference in gross hourly earniings is minim mal and neglig gible. By 201 3 the situatio on for the Czech Repuublic regardingg the differencces had slighttly improved; however, gross hourlyy earnings were still not significantly s ssorted by thee level of education acchieved as thhey are, for ex xample, in thhe United Kin ngdom or Germany. IIn Germany and the United Kingdom m, the differrences in earnings acccording to the t level of education arre probably the most significant oof the six selected countriess. The Republlic of Ireland has close earnings forr those with elementary e an nd those withh secondary education, e similarly too the Czech Republic; however, h the Irish averag ge hourly earnings forr employees with w elementary education are far higherr than for the rest of thhe selected Euuropean countrries.

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In the cases of Italy and Austria, it can be observed that they have a very similar structure of gross mean hourly earnings according to education and very similar development. Further detailed information about gross average earnings and their development is provided in Table 2.12. Table 2.12 Mean gross hourly earnings in Euros according to level of education, 2002 and 2013 Low

Medium

High

Low

Medium

High

Cze

2.63

3.43

5.30

3.20

4.25

6.59

Ger

11.13

14.74

23.02

9.83

15.12

24.96

Irl

13.77

14.73

21.11

15.00

16.48

22.89

IT

9.40

11.25

20.13

9.95

12.69

19.45

AU

9.20

11.75

17.43

9.77

13.04

19.21

UK

10.27

12.73

22.68

9.86

10.49

16.44

Source: authors’ own elaboration based on data from Eurostat (European Commission, 2013)

Regarding the development of hourly earnings, the United Kingdom registered a decline in average gross hourly earnings in 2013 due to the financial crisis in preceding years. This decline affected employees at all levels of education. In 2013, the difference in earnings between secondary school graduates and employees with a university degree was less significant than it had been in 2002. In the Czech Republic in 2002, the difference between medium level and low level of education was negligible. By 2013, the differences in remuneration between all three levels of education had become more significant. However, compared to Germany, in the Czech Republic there do not exist three significantly different bands of hourly earnings according to education. This could result in more serious issues in the future, as the average earnings of the middle class are very close to those of the class without education. In the case of Germany, the functional structure of gross hourly earnings and the division of the labour force according to the level of education can be clearly observed. In 2002 Germany displayed clear differences in earnings according to the level of education achieved; however, the difference between those with elementary and those with secondary education was not as large as that between those with secondary education and university graduates. Despite the world economic crisis and the financial and political crisis in Ireland, the mean gross hourly earnings were still among the highest in the six selected countries. Although the structure of earnings

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according to education is similar to that of the Czech Republic, the difference between secondary school graduates and people with elementary school education is not that significant. In the case of Austria and Italy, it can be seen that both countries have a very similar structure and overall trends in average gross hourly earnings. Considering the development in Italy between 2002 and 2013, it can be concluded that the differences in hourly earnings were broadly sorted according to level of educational attainment. By 2013, the difference in earnings between employees with elementary education and secondary school graduates had widened and the difference between employees with a university degree and secondary school graduates had diminished. Exactly the same widening and diminishment can also be observed in Austria between 2002 and 2013. As per data received from Eurostat, the hypothesis that a high unemployment rate decreases mean gross hourly earnings was proven by the correlation coefficient to be the most significant in the United Kingdom. It can be observed that in the United Kingdom between the years 2002 and 2013 the unemployment rate was increasing and the mean gross hourly wage, with a few fluctuations, showed a decreasing trend. The second-highest correlation coefficient for indirect dependency was obtained for the Czech Republic. Between the years 2002 and 2008 the unemployment rate showed a decreasing trend, while mean gross hourly earnings were rising. Since 2008 in the Czech Republic mean gross hourly wages have been rising, despite the fact the unemployment rate has also been rising. According to the correlation coefficient, it can be observed in Germany, Ireland, Italy and Austria that there is almost no dependence of the unemployment rate on mean gross hourly wages. In the case of indirect dependency of these two variables, this was proven only for Ireland, but with an insignificant coefficient. Therefore it can be concluded that a high unemployment rate does not influence mean gross hourly earnings in Germany, Ireland, Italy and Austria. An important factor affecting the level of wages in these countries is the minimum wage (Eyraud and Saget, 2005; de Grauwe, 2009). However, the minimum wage and its impact cannot be analysed here due to the fact that there is no Eurostat data available for Germany, Austria and Italy. These countries did not have the minimum wage set up by law at the time that data collection was carried out for this study (World Bank, 2011; Treger, 2008). However, in April 2014, a minimum wage was established in Germany at 8.50 Euros per hour, effective from 1 January 2015. Until 2014 the minimum wage had been established through collective bargaining for each industry separately. Despite Germany not having a minimum wage set up prior to

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2015, the average gross hourly earnings were still among the highest from the selected countries (International Labour Office, 2008; Statistiches Bundesamt, 2014). According to data received from Eurostat it can be observed that employees with elementary education receive the highest mean gross hourly earnings in Ireland. The highest gross average hourly wage in Ireland is almost twice as high as in other selected countries. Except for the Czech Republic, the mean average gross earnings are at very similar level for all of the selected countries. For employees with secondary educational attainment, Ireland and Germany offer the highest mean gross hourly earnings of the selected countries. In contrast, the Czech Republic and the United Kingdom cannot compete in the field of earnings for secondary school graduates: their average gross hourly earnings are among the lowest of the selected countries. For employees with tertiary education the most favourable conditions in terms of mean gross hourly earnings are in Germany, and the second-highest average hourly earnings for employees with tertiary education are in Ireland. Italy and Austria also offer quite similarly high hourly earnings. However, the Czech Republic’s and the United Kingdom’s mean gross hourly earnings for this group too are among the lowest of the selected countries. Compared to other selected countries, the Czech Republic has the least significant differences in remuneration according to level of educational attainment. Especially between elementary and secondary education, the difference in gross hourly earnings is negligible. The opposite is true in Germany and the United Kingdom, where each level of educational attainment can be clearly distinguished in terms of remuneration. According to the level of educational attainment, it can be observed that employees with elementary education can reach the highest mean gross hourly earnings in Ireland, where mean gross hourly earnings for those with elementary education are almost twice as high as in the other countries. For secondary school graduates, again Ireland, together with Germany, can offer the highest average hourly earnings. For employees with tertiary education the highest gross average hourly remuneration can be observed to be in Germany and Ireland. In this case study, the hypothesis-testing proved the relationship and the dependency of the highest correlation coefficient to be in the United Kingdom. In the Czech Republic, the unemployment rate and mean gross hourly earnings also have indirect dependency; however, this dependency does not have such a significant value. In Germany and Ireland, where mean gross hourly earnings are the highest of all the selected countries, the dependence of mean gross hourly earnings is negligible. Therefore, the

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Czech Republic faces many open questions in its future as to how to approach Western European countries, with their developed economies and higher levels of remuneration. It can be maintained that the business environment will be one of the most significant factors influencing the competitiveness of SMEs. Therefore, the business environment should be stable, with simple rules, easy-tofollow administrative requirements and minimal regulations. This chapter has verified the applicability of the situational analysis of SMEs’ external environment. Based upon the examination of this area, it can be recommended that SME owners and managers regularly perform this analysis and identify the opportunities and threats for their businesses. The aspect of time (and its influence on a company) should also be taken into account. The analysis should be used to determine the order of importance of ‘opportunities’ and ‘threats’, and thus the order in which they should be addressed and resolved.

CHAPTER THREE CASE STUDY: RESPONSIBILITY IN THE GAMBLING AND BETTING INDUSTRY AS A TOOL FOR SUSTAINABLE DEVELOPMENT

This case study is based on research that was part of the thesis Corporate Social Responsibility in the Gambling and Betting Activities Industry, written by Terézia Ševþíková under the supervision of Sylvie Formánková in 2016 (Ševþíková, 2016). Concerns of sustainability are especially important for firms in controversial industries such as alcohol, tobacco, gambling, etc. Can a firm in the gambling and betting industry be socially responsible while producing products or services harmful to human beings, society or the environment? Or is it possible to assume that a firm which produces such products and services cannot be socially responsible? Gambling has received increasing social acceptance around the world. The gambling industry is huge and extremely profitable. It is linked with political and economic institutions of the state, promoted as legitimate and practised by the majority of the population (Cai et al., 2011). The CSR engagement of firms in controversial industries has been a topic of great interest in recent years for shareholders, regulators and academic researchers. There are heated discussions between proponents and opponents of CSR in these industry sectors. On the one hand, proponents assert that even controversial enterprises have a lawful right to develop and occupy themselves with CSR activities, because: CSR is one of the key tools towards gaining a better reputation and becoming a better organization; even controversial enterprises are human organizations and humans are simply imperfect; and top management is free to choose any kind of strategy to implement in their own business. On the other hand, opponents declare that governments should ‘denormalize’ and, as much as possible, regulate activities described as socially responsible by such

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industries (Cai et al., 2011). De Colle and York (2009, p. 94) believe that ‘it is nonsensical to define what socially responsible behaviour is on the basis of the particular product that a firm produces’, although it is easier for firms in some sectors to be ‘better’ at CSR than it is for firms in other sectors. Porter and Kramer (2006, p. 80) assert that ‘The prevailing approaches to CSR are … fragmented and … disconnected from business and strategy’. Firms may be socially responsible in many different ways, and CSR is not an ‘all or nothing’ situation. Cai et al.’s (2011) findings contribute to the issue of CSR in controversial industries by providing some preliminary empirical evidence on the positive effect of CSR involvement on the value of firms in such industries. They state that ‘CSR engagement of firms in controversial industries positively affects the firm’s value, suggesting that the top management of enterprises in controversial industries, on average, manage their firms morally or strategically and could be socially responsible, although their products may be detrimental to the environment, human beings, and society’. Firms within controversial industry sectors can take some actions that are socially responsible, and they should do so, especially in those areas that are directly connected with their business strategy. According to Porter and Kramer (2006), society is best served when a firm selects a social issue that intersects with its particular business interests, and creates shared value— that is, a meaningful benefit for society that is also valuable to the business.

3.1 Gambling and Betting in the Czech Republic The main legislation framing all gambling and betting issues in the Czech Republic is Act No. 202/1990 Coll., on Lotteries and Other Similar Games. According to this act, a lottery or other game is considered ‘to be such a game in which any physical person who paid a deposit (wager), the return of which is not guaranteed to the participant, may take part in on a voluntary basis. The win or loss is by virtue of random chance or any circumstance or event unknown beforehand, which, however, is specified by the operator in advance in the game terms and conditions. It does not matter whether the game is played with the use of mechanical, electromechanical, electronic or other devices.’

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The main principle is thus a bet in material or monetary value on an event with an uncertain outcome, with the intention to increase this value – to win – while (more or less) the decisive factor influencing the result is a coincidence. The key features are therefore betting, winning and chance. The fact is that the Czech Republic ranks among the top countries in the world for the number of casinos per 1,000 inhabitants. In the international context, in the Czech Republic there is a substantial offer of gambling, especially of electronic gaming devices (EGD). In 2013, among European countries with available data, the Czech Republic had the highest number of EGDs – 7.47 devices per 1,000 inhabitants, while the other comparator countries had a much smaller ratio. The range of places where odds betting is played is relatively high in the Czech Republic. Betting offices or places where a ticket can be submitted are often also places where number lotteries can be played or a scratch card bought. The number of places where odds betting is operated has increased in recent years: in 2013 in the Czech Republic a total of 7,329 places offering odds betting were in operation. In the Czech Republic, race betting is offered by only one company, Toto.cz, which maintains a stable number of 360 stores (Mravþík et al., 2014). At the end of 2013, in the Czech Republic, there were nine licensed operators of gambling via the Internet. Since 2009, when online gambling became legal in the Czech Republic for Czech operators, the offer expanded from only odds betting to live betting, and card games such as poker. The current situation is that the Czech Lottery Act of 2012 discriminates against foreign companies registered in other European Union countries. It practically forbids them to do business in the Czech Republic – these companies cannot obtain a licence at all, despite the fact that the European Commission regards this regulation as discriminatory. Nevertheless, foreign betting companies have done business in the Czech Republic and still do via the Internet. Their websites also have a Czech version, and therefore, participation in games is not a problem even for the less linguistically talented. The Czech Republic thereby loses tax revenues that disappear abroad. (Hazardní-Hry.eu, 2014). At the time of writing, the Ministry of Finance is preparing relatively drastic changes that should come into force from 1 January 2016. Apart from the planned abolition of roughly 10,000 gaming machines, an

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amendment to the lottery law is being prepared that would finally legalize, regulate and tax online gambling. The whole market would then be more open to foreign entities through the legalization of foreign betting companies’ businesses, and thus enhance competition. This should benefit bettors, through the margin pressure on betting – better odds – as well as the state budget, as foreign companies should begin to pay taxes to the state. The amendment to the lottery law should also tighten up administrative punishment, introduce the concept of responsible gaming and build a centralized monitoring system that would allow the management of data and information in the field of gambling and betting. The introduction of a so-called ‘gamer card’ and central supervision by the Ministry of Finance is also being considered. Players would need to register (to prove their identity), while some people could be totally excluded from participation in games of chance – that is, those in material need entitled to benefits, and those in insolvency or requesting entry into the insolvency register. Players would also be able to set up so-called ‘self-limiting measures’ – determining for themselves how much they can maximally bet or lose and how long they can play for. In addition, the amendment would set new limits on slot machines and video-lottery terminals that can be bet on. Limits will also vary depending on where slot machines are operated. From the year 2016, thanks to the amendment of the lottery law, gambling games would also be taxed more, because more bands would be implemented according to social harmfulness (Ihned.cz, 2015). The Czech Republic would earn about two billion crowns as a result. For example, the tax rates of the lottery’s levy would increase, from the current 20–23%, to 28% for gaming machines; the daily fee for each slot machine would increase by 25 crowns to 80 crowns. The amendment would increase the deduction from lotteries, odds betting, betting games in casinos, card tournaments and cash gambling, and other lotteries and similar games by three percentage points. An increase of eight percentage points awaits slot machines and other technical equipment. At the time of writing the Chamber has already approved the amendment of the lottery law. The draft has to be further assessed by the Senate and signed by the President.

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3.2 The Current CSR Situation in the Czech Gambling and Betting Industry Usually, the gambling and betting industry is considered, primarily by the non-professional public, as a sector and economic entity that cannot be associated with corporate social responsibility. Gambling and betting that allows fast and high winnings (and likewise losses) is regarded as incompatible with the publicly accepted opinion that wealth and esteem must exclusively be accomplished by beneficial work for society. TetĜevová (2011) claims that the gambling and betting industry is associated with a lot of negative externalities, referring to, principally, pathological gamblers (financial difficulties, marital break-up, selfdestruction, etc.) and possible non-transparent financial transactions (e.g. money laundering) or suppression of existing entrepreneurship and spending. On the other hand, it is also necessary to take the positive externalities into consideration, as gambling and betting are significant generators of revenue streams for the government budget and sources of job opportunities, and firms operating in the industry are patrons of many public activities. It is also necessary to consider that games are originally meant for amusement and fun. They fulfil human needs and desires for games, contention and risk with the promise of an unearned income, and, besides, they generate desired excitement. It depends on the free will of gamers how frequently they gamble and how much they are willing to bet. Gaming addiction is undoubtedly disputable; however, as asserted by Kasal (1995), gaming addiction appears seldom as an illness. It is often abused by psychopathic individuals to justify their crimes. As stated by Hušák: ‘nevertheless the absence of an ethical dimension of betting games and lotteries does not apply in the case where part of the profits raised serves some socially-acceptable purpose. In this case, not only the winner but the whole of society benefits from the game’ (Poberová and Tejkalová, 1998). According to TetĜevová (2011), even the enterprises engaged in the gambling and betting industry can be socially responsible and implement the CSR concept to the full extent.

3.3 Quantitative Research – Methodology For a better understanding of the awareness about CSR and the current situation in companies, quantitative research was undertaken in the form

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of a questionnaire, on which specific topics from all three CSR pillars were included (according to the triple-bottom-line principle of Elkington). Based on deep analysis of the results from the questionnaire, relative and absolute answers were defined, graphically analysed and interpreted. The questionnaire was voluntary and anonymous, and realized online through the portal Survio.com, which allowed the creation of the questionnaire based on knowledge from the literature and had the appropriate necessary output for further processing. The survey contained 21 online questions, which were in the form of closed questions with one or multiple choices. Before the creation of the questionnaire, pre-research was carried out in order to verify its logic and suitability. Companies were addressed via e-mail addresses gained from the Amadeus database. In total, 118 companies were addressed. In fact, after receiving undelivered e-mails and consequent thorough examination, it was discovered that more than half of the companies addressed had nothing in common with gambling and betting. These were companies that had closed down or completely changed the focus of their business. Ultimately, with the help of further research on the portal Seznam.cz, a new base of the gambling and betting industry in the Czech Republic was found and addressed. In total, the questionnaire was sent to 66 companies in the Czech gambling and betting industry via e-mail, from which the survey was completed and answered by 21 companies, indicating that only 32% of all respondents were willing to cooperate. In the next section of the chapter the most important questions are discussed. In terms of identification, seven of the 21 companies involved are active internationally (33%), nine companies are active on the national market (43%), four companies are active locally – in a selected district (19%) – and one is active only within the specific city where it based (5%). The other identifying question examined the size of the enterprises. From all 21 participants, 10 of them are large enterprises (47%), six companies are medium-sized (29%), four companies are small (19%) and one is a micro-enterprise (5%). It is essential to consider this before reaching any conclusions.

3.4 Main Conclusions and Results of the Questionnaire Research Based on the research, after processing and interpretation of the most important results obtained in the preceding section, opinions were drawn on corporate social responsibility from the perspective of the gambling and

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47

betting industry in the Czech Republic. The research results indicate that awareness of the social responsibility of organizations in the gambling and betting industry in the Czech Republic is at a high level: 95% of respondents have already encountered the issue of CSR. Those who never have are mainly small enterprises. Although the idea of CSR began to spread in the 1950s, on the basis of current research organized by Ipsos Tambor in 2010, Pavlík and Martin et al. (2010), and the CSR portal (2012), the prevalence and the awareness of the term ‘CSR’ in the Czech Republic were expected to be poor (Formánková and Mikušová, 2014), and because of that our 95% finding has an extremely positive value. In a similar way, almost all representatives of the companies addressed (95%) agree with the statement that they consider their company socially responsible. Participants were asked whether they agree with the statement that their company is socially responsible: see Figure 3.1.

5%

Yes No

95%

Figure 3.1 Do you consider your company to be socially responsible?

After the introduction of corporate social responsibility, 20 respondents (95%) consider their companies to be socially responsible and only one of them (5%) does not consider the company to be socially responsible. From these answers, it may be deduced that there is an almost unambiguous result.

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A significant proportion, in the form of 76% of respondents, confirmed that corporate social responsibility is a part of their business strategy. In the majority of firms surveyed (76%) the management of the company is occupied with the concept of CSR. The main indicators of corporate social responsibility of the companies surveyed are, in particular, that they try: x To behave ethically and be transparent (for instance, enterprises stated their ethical codes) x To be a good employer taking care of employees properly x To reduce and eliminate their ecological footprint (for example, waste recycling, use of ecological technologies, energy-saving programme) x To offer special services for customers x To engage in donorship and sponsoring. All of the representatives of the Czech gambling and betting sector unequivocally believe that CSR not only should be applied by large firms, but should become the prerogative of the whole sector. Almost all company representatives interviewed (95%) agree with the statement that enterprises should, apart from generating profit, also benefit the society in which they act. They claim that CSR activities are definitely needed, and furthermore for two-thirds of respondents it is very important to see how the money is spent. Among the reasons why firms deal with the issue of CSR, more than threequarters of companies with the parent company domiciled abroad indicated that they accept the strategy for CSR practices, either fully or partly, from their headquarters: see Figure 3.2. The research further shows that for the majority of surveyed firms, important incentives for CSR implementation are ethical and moral reasons and an effort to build a better reputation and stronger attraction not only among their customers but also among the general public: see Figure 3.3.

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49

Figure 3.2 Dooes your compaany accept a straategy from youur headquarters??

Figure 3.3 Whhat motivates your y company to o CSR? (Multipplechoice questtion)

Among otheer benefits thaat a company acquires throough its engag gement in socially respponsible behaaviour, company representtatives mentio oned, for instance: x x x x x

make customerrs more satisfiied To m To atttract and keepp skilful employees Suppport of PR/marrketing activitties of the com mpany To buuild a better reelationship wiith public adm ministration To keeep up with thhe competition n and market ddemand

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x To grow economic output. As the main reason why firms in the gambling and betting industry in the Czech Republic do not behave in a more socially responsible way, nearly half of the respondents (48%) indicated a lack of support from the government. According to research by Pavlík and Martin et al. (2010), more than 40% of their surveyed sample operating in the Czech Republic is convinced that the Czech government should be instrumental in the spreading of the ideas of corporate social responsibility. As emerges from our research, a third (33%) of the representatives of companies addressed consider a deficient knowledge and awareness about the concept of CSR another significant barrier to its expansion: see Figure 3.4. 60% 48%

50% 40%

33%

30% 20%

14% 14%

19%

24%

19% 19%

10% 0%

Figure 3.4 What are the barriers for your company in realizing CSR? (Multiple choice question)

From the answers given by respondents, it is clear that companies use many channels to inform people of their CSR activities, most often using their website and regular reports. Nevertheless, up to 29% of companies

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addressed do not inform the public of their CSR activities at all. The data obtained describes the current CSR situation in gambling and betting industry activities in the Czech Republic and is a good base for future steps and recommendations.

3.5 Current Key Quality and Sustainability Factors The current key quality factors were identified according to knowledge gained through thorough analysis of the documents (desk research) and the primary research in this industry (questionnaire). Among the factors that the companies in the gambling and betting industry use to achieve the best-quality services and to be sustainable are: x Various offers of gaming and betting activities/commodities, enabling them to be differentiated from their competitors x Gambling operators’ ability to freely set a winning probability – better odds lead to more frequent payouts to customers, which can attract more customers x 24-hour operating time in the gambling industry x Various offers of financial services – accounts, remittance, foreign exchange, cash issuing, etc. x Advanced technology – use of new technology enables the provision of unique products and services in order to better meet customers’ needs and wants x Customers’ utility – pleasure, opportunity of winning, etc. x Strong liquidity position – the industry is in a stronger liquidity position than others, meaning that greater liquid reserves provide a competitive advantage when funding any potential opportunity emerging in the market x Sponsoring and donorship engagement.

Situation analysis Apart from the current factors ensuring good quality and sustainability of the industry there are still some weaknesses that should be improved. The weaknesses are as follows: x Poor online presence – the online market is important for displaying information and mainly selling products and services,

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and most of the companies in the industry are not present online x Problem-gaming incompetence – a lack of knowledge about problems related to gaming x Large debt – enterprises in the industry have large capital investments in gaming equipment and usually accrue significant debt x Inefficiency – the industry is influenced by unbalanced utilization of goods and services. Companies operating in this industry could use the following opportunities to improve their situation: x Online market – creation of websites allows the industry to further expand and target new potential customers at relatively low expense x Expansion into foreign markets – the industry can tap into untouched markets available abroad where there is currently little or no supply x Attraction of new customers from abroad – gathering of foreign clientele, mainly from countries where this industry is or will be prohibited or strictly regulated (for instance, in Russia, Act No. 244-Ɏ3 has been applied since 1 January 2007, prohibiting gambling, except for some regional exceptions) x Expansion to related sectors – by offering customers a one-stop shop for all their gambling and betting needs, enterprises may not only increase the total number of customers, but also increase spending per customer x Perception – gambling is becoming increasingly more socially acceptable than it was in the past (demonstrated, for example, by the existence of charitable gambling) x Synergies acquisition – company mergers may lead to higher competitiveness. These companies should be also aware of the following threats: x Intense competition x Online gambling and betting – currently a lot of customers bet abroad via the Internet; foreign companies even make it easier for those who do not speak English and offer websites in Czech x Volatile currencies – which make the industry’s investments difficult, because costs and revenues change so rapidly

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x Volatile revenue – which makes planning difficult, which in turn could delay key investments in business x Government regulations – among others, the aim of the upcoming amendment is a limitation of the number of gaming clubs x Illegal gambling – as a whole-industry competitor x Criminality – the industry is an attractive venue for criminals and often linked with them as the consequence of its domestic totalitarian course and trend in the 1990s x Increase in gambling addiction – the popularity of the industry is becoming more and more of an issue for concern regarding problematic gambling behaviour, and the current situation does offer resolutions for pathological gaming besides the official residency regulation and supervision of the Czech Republic x Economic impacts associated with the problem of gambling – personal bankruptcies, divorces, lost productivity due to morbidity, mortality, criminal careers, etc. x Ban on gambling at bus and railway stations – due to the 2016 amendment x Introduction of self-limiting measures – the 2016 amendment would result in the compulsory introduction of so-called selflimiting measures, which a provider must offer to every single customer (both in a permanent store and on the Internet) x Centralized monitoring system – the 2016 amendment would oblige gambling enterprises to register gamers onto an online database and check their identity cards before every visit, which may lead to a reduction in the number of visitors.

3.6 Future Potential Key Quality and Sustainability Factors Donations and sponsorship engagement/Better perceptions of the gambling and betting industry Donations and sponsorship have become an inseparable part of public relations and corporate social responsibility in many industries. It seems companies in the gambling and betting industry on the Czech market have already started to support the interests of society. Further contribution from all over the sector could lead to a considerably better perception of the gambling and betting industry by society. Various opportunities, such as charitable events, sport events or corporate team-building events, could

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make this happen.

Poor online presence/Foreign online gambling and betting companies A weak online presence can result in either lost opportunities or potential threats from foreign markets. Most of the gambling companies in the Czech Republic are not present online and those that are present do not provide gambling online. Plenty of customers bet abroad via the Internet, and foreign companies make it easier for those who do not speak English by offering websites in Czech. People could be drawn away from gambling in casinos because they are able to gamble from their home or smartphone. Lack of communication is a qualitative factor that could easily be overcome in the short term period and companies should think about considerable investments in online tools in order to maintain competitiveness.

Communication of CSR activities on companies’ websites As has emerged from the research carried out, it is clear that companies in the Czech gambling and betting industry do not fully utilize the potential which communicating CSR activities brings. They do not inform the public about their socially responsible behaviour. Only a few companies (e.g. Synot Tip, a. s. or Bonver, a. s.) mention several activities that support some individuals or groups, providing a list or describing them in a few sentences on their websites or in regular reports. Communication of CSR activities to the public, business partners, potential employees and customers is inadequate or confusing. Without communication of the concept, CSR loses its meaning and companies thus lose the benefits that informing the public about corporate social responsibility brings. This stakeholders’ consciousness brings certain advantages for enterprises in most cases, whether this is in better perceptions and greater satisfaction among employees, the local community or business partners. Overall, there is an enhancement of corporate image. The annual report about the activities realized by responsible companies should contribute towards an improvement in their image and gaining competitive advantage. A report about corporate social responsibility should be issued each year in January. It should contain, besides a summary of CSR activities undertaken in the previous year, information on what social responsibility is, planned activities for the following year and the contact details of the

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person responsible for CSR activities. The ideal would be to include on websites a section titled ‘Corporate Social Responsibility’, where individual activities can be introduced and regularly updated. For clear arrangement, the section should be divided into categories (for example, economic responsibility, social responsibility, environmental responsibility). In each category, activities should then be listed that the company has undertaken in that specific area, accompanied by a short article. The person responsible for marketing or PR should be charged with this activity; the HR manager should be also involved. .

Responsible gambling and betting The gambling and betting industry is aware of the risks associated with gambling and betting, and should openly declare that it may, in some cases, cause serious personal and social problems, which may ultimately have devastating effects not only on gamers, but also on their families. Companies should set and follow the rules of safe betting and gambling and incorporate the principles of responsible gambling and betting into their culture and code of ethics. By adhering to these principles, enterprises should achieve the long-term setting of rules that would limit the risks associated with gambling and betting. The rules should regard safe play, instruments and measures against the occurrence of risky gaming, recognition of addiction, contacts or mediation of professional support, and other information such as case studies. Channels should also be provided through which it would be possible to obtain further information regarding this issue, but particularly links to partner websites that professionally, in some cases anonymously, help to address problem gambling and betting. Examples include GamblingTherapy.org, AnonymniGambleri.cz, ProblemGambling.cz and ProGam.cz. Companies should communicate these rules openly to their employees and clients. Employees should acquaint themselves with them so that they are able to apply them actively in contact with clients of the gambling and betting sector. This information regarding responsible gambling and betting should be published online, in a new special section of the company’s website titled ‘Problem Gambling and Betting’, and in the form of colour-printed posters containing the fundamental principles and rules of responsible gambling and betting, and contact details for professional assistance.

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These principles should not be construed as interfering or attempting to interfere in the government policy of the Czech Republic and the activities within their jurisdiction, but rather as a complement to the relevant policies and activities.

To motivate employees to become involved in CSR activities Our research found that currently almost none of the companies in the Czech gambling and betting sector motivate their employees to support and contribute towards philanthropic activities or make voluntary donations. In the case of gambling and betting companies, blood donation is suggested. Nowadays, blood donation is a very necessary activity that saves lives, and many companies are aware of this fact. Czech gambling and betting companies should take action to encourage a group blood donation by all their employees. Even though this activity belongs within the social pillar, its introduction would be of great importance for the company itself, for employees and, last but not least, for hospitalized patients. Enterprises would thereby gain moral satisfaction, increase their credibility and reputation and strengthen team spirit, while the benefits for employees would be a positive feeling of helping people, a change from stereotypical activities and a sense of release. Furthermore, it would increase the interest of employees in other similar philanthropic activities. Employees should be given the day off with full wage compensation when donating blood. Blood donation should be realized each year within one week. A list should be created where employees would be divided into five groups, who would give blood on five consecutive days, and thus employee absences should have no impact on the business. Blood should be donated at the hospital transfusion department in the town where the individual gambling and betting business entities are active. The costs associated with this activity should be covered by the company payroll attributable to one day of a month.

3.7 Conclusion At the present time, corporate social responsibility has become a method for an enterprise to distinguish itself from others. After assessment of

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research, it can be affirmed that CSR improves the competitiveness of enterprises, by the mediation of extended productivity of labour; improved perceptions among stakeholders; or higher economic output, which is, besides other factors, affected by lower costs due to energy saving and improved waste management, and a higher number of contracts. The identical conclusion – that CSR enhances competitiveness – was also reached by Kuldová (2012) and Greeing and Turban (1997), and in research by Ipsos Tambor (www.ipsos.cz), although many studies have also concluded that CSR is not connected with a company’s competitiveness, e.g. Friedman (1970), who detected a negative effect. In such a competitive market as the Czech gambling and betting sector, companies should be aware of the fact that CSR improves the competitiveness of enterprises and acts in their own interests. Thanks to every CSR activity introduced in the future, enterprises would gain greater esteem and credibility, as well as enhancing competitiveness, and the high level of understanding of CSR and willingness to implement it in business is the best precondition for its future development and the sustainability of the whole industry.

CHAPTER FOUR CASE STUDY: THE EVALUATION OF DESTINATION QUALITY – A VISITOR-ORIENTED APPROACH, SOUTH MORAVIAN REGION, CZECH REPUBLIC

This chapter summarizes the results of a study focused on the evaluation of the quality of a tourist destination from the visitors’ perspective which is elaborated in the frame of a wider research project aimed at developing a methodology for destination quality evaluation in the context of customer satisfaction and loyalty (project Gaþr nr.15-21179S). The proposed methodology evaluates the quality of a destination by exploring the influences of various quality factors on overall visitor satisfaction. The methodology was applied and verified in selected destinations in the Czech Republic. The quality factors are analysed by means of principal component analysis and subsequent stepwise regression; the input data was obtained using a primary questionnaire survey. The results obtained with this methodology show the important factors in quality of destinations (uniqueness and image), and also serve to determine the weak points of the areas concerned, which is vital for destination management. The research confirmed the possibility of using the proposed methodology of quality evaluation for different types of destinations. The methodology can be recommended especially for countries where it is not possible to fully implement the principles of TQM due to a lack of primary data for the evaluation model. The results also clearly show the different impacts of various quality factors on the overall satisfaction of visitors depending on the destination.

4.1 The Tourism Industry in the Czech Republic Tourism is a very interesting prospective branch of the service sector for the Czech Republic. A total of 22,200,880 foreign tourists stayed overnight in the Czech Republic in 2014, and in 2015 this number had

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increased by over one million (MMR, 2015). The share of tourism in GDP in the country has recently been just under 3%, which is similar to the tourist industry’s share of GDP in Sweden, the Netherlands and Germany. The share of tourism in total employment in the Czech Republic is slightly above 4.5% and the total number of people employed in tourism is about 230,000; approximately 80% of them are employees and 20% entrepreneurs. Due to a well-elaborated system of marking the dense network of interconnected tourist hiking trails and pathways, the Czech Republic is an ideal place for active tourism. At the same time the variety of cultural and architectural attractions and sights registered on the UNESCO list creates a high potential for cultural, urban and sightseeing tourism, and spa stays are also popular. The combination of these factors gives the Czech Republic the preconditions for becoming an attractive tourist destination. After political and economic changes in 1989 (opening the borders, freedom of enterprise, the foreign exchange market becoming accessible, etc.) the Czech Republic became a sought-after destination for tourists from all over the world. It was something new, not seen before (demonstrating the appeal of seeing behind the ‘iron curtain’), and at the same time not very expensive. This specific competition advantage increased the tolerance towards a quite low level of services on the Czech market. However, this circumstance has already changed and the Czech Republic has become a common tourist destination that cannot draw on such a specific competitive advantage any longer. In the period of global competition, when the whole range of substitution products – and so destinations too – is offered, quality is becoming a strong competitive advantage. Especially in European destinations that cannot compete with exotic destinations in developing countries in terms of their service prices, high quality, accompanied by the differentiation of the offer, is considered to be a deciding factor in the competitive fight. In spite of this fact, service quality – especially its very different level in different regions – is considered to be the weakness of tourism development in the Czech Republic. For this reason the quality is nowadays one of the priorities in state policies for tourism for the period of 2014–2020.

4.2 Destination, Service Quality, Destination Quality, Customer Satisfaction Sustainable development of a destination, founded on the principles of economic, social and environmental sustainability, is conditioned primarily

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by a continuing interest on the part of visitors, which can only be maintained by the quality of a product – a tourist destination in this case – and visitors’ satisfaction with it. A tourist destination, according to the United Nations World Tourism Organization (UNWTO), is defined as ‘a place with suitable attractions in connection with tourist facilities and services that a participant of tourism has chosen for his or her visit’. Bieger (2008) defines a destination as a ‘space (place, region) which a guest (or a segment of visitors) chooses as a target of his journey. It disposes of all necessary facilities for accommodation, boarding and entertainment. This way it becomes a product and a unit of economic competition that thus has to be strategically managed.’ Buhalis (2003) defines characteristic components of each destination: Attractions: A primary offer of tourism that, thanks to its amount, quality and attractiveness, activates attendance (natural, cultural-historical potential). Accessibility and ancillary services: A general infrastructure which enables access to the destination, travel to the attractions within the destination; also services used mainly by local inhabitants, such as telecommunication, medical and banking services. Amenities: Superstructure and infrastructure of tourism that enable staying in the destination and utilizing its attractions (accommodation, hostelry, sports-recreational, cultural-social facilities and others). Available packages: Prepared products and product packages. Activities: Sports, cultural, gastronomic or other experiential opportunities that represent individual market segments. The specific character of the services (in particular impalpability, transience and variability) is responsible for indefinite approaches to the interpretation and evaluation of their quality, which requires the examination of quality factors in different sectors. The identification and significance of factors of quality related to competitiveness is examined by a number of research studies, but these are mostly focused on the evaluation of quality in specific areas of the tourist industry (e.g. Thruong and Foster, 2006; Hsieh et al., 2008; Martin-Cejas, 2006; Chitty et al.,

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2007; Zhu and Zhao, 2010). Research dealing with the evaluation of the quality of a destination as a comprehensive product of the tourist industry are less frequent (e.g. Kreštiþ and Prebežac, 2011; Xielong, 2011; Žabkar et al., 2010). This topic is also directly dealt with in studies focused on surveying tourist satisfaction (e.g. do Valle et al., 2011; Kim and Brown, 2012; Fang et al., 2008) and studies focused on the quantification of satisfaction through various indexes, such as a visitor evaluation index (Martin-Ruiz et al, 2010) or a tourist satisfaction index (Ryglová and Vajþnerová, 2014; Song et al., 2012). Customer satisfaction literature usually differentiates two basic approaches to satisfaction: cognitive (based on the product quality, benefits, etc.) and emotional. Researchers also distinguish overall and attributive satisfaction (Campo-Martinez and Garau-Vadell, 2010; Chi and Qu, 2007; do Valle et al., 2011; Williams and Soutar, 2009). Baker and Crompton (2000) defined the concept of quality in tourism as the attributes of a service which are controlled by a tourism supplier, while satisfaction is referred to as a tourist’s emotional state after service exposure. Some authors have approached service quality and consumer satisfaction as being synonymous (Crompton and Love, 1995; Otto and Ritchie, 1995) or have narrowed the distinction (Spreng et al., 1996). Recently, a majority of researchers confirm that quality is a predictor of satisfaction. The empirical analysis carried out on a sample of visitors to an interpretation centre allows us to confirm that perceived quality is a direct determinant of satisfaction, as are emotions (Baker and Crompton, 2000; CampoMartinez and Garau-Vadell, 2010; de Rojas and Camarero, 2008). Among the approaches which try to detect the various factors having an influence on overall satisfaction are the ECSI (European Customer Satisfaction Index; Fornell, 1992), which is perceived as a set of hypothetical variables. Each hypothetical variable is determined by a certain number of measurable variables where ratio of measurable variables to individual hypothetical variables is not constant. The ECSI model is based on the assumption that to gain input data we use a questionnaire survey, where the questions are constructed according to the Likert scale. Usually, three to seven questions are used for modelling each hypothetical variable. The authors Cassel and Eklof (2001) researched the prerequisites for developing a common model structure useful for devising aggregate Customer Satisfaction Index results throughout Europe.

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Zeithaml et al. (2006) state that although in practice the terms ‘satisfaction’ and ‘quality’ are mutually interchangeable, experts claim that satisfaction is generally perceived as a broad concept while the quality of services concentrates especially on the dimensions of services. According to Zeithaml et al. (2006) customer satisfaction is an outcome of product quality. However, mutual relations between satisfaction and perceived quality induce more controversies. Petrick et al. (2004) verified models of relations between perceived quality, customer value, satisfaction and the market behaviour of customers. They do not assume that satisfaction has an influence on quality; rather, in all analysed variants they assume that the influence goes in the opposite direction. Lee et al. (2004), based on broad studies of the literature, state that research cannot agree on which of the two terms has a wider scope and which of them is the prerequisite of the other. Getz et al. (2001) comment that properly defining relations between quality and satisfaction depends mainly on the way quality is defined. The main dispute is between supporters of the idea of measuring service quality as a difference between consumer expectations and services performance, introduced by Parasuraman et al. (1988) and known as SERVQUAL, and critics of their method who suggest using the performance scale alone. In the latter group, among the strongest voices are Brown et al. (1993) and Cronin and Taylor (1994), who created an alternative to the SERVQUAL tool called SERVPERF. SERVQUAL and SERVPERF both seem to be broadly applicable to the tourism industry, but often slight changes are necessary. The question of whether service quality should be measured as the difference between customers’ perceptions and their expectations, or whether alternative approaches are more appropriate, remains an issue of an extensive debate in service quality literature. Among the best tools for researching the role of several features of a given product in order to produce a consumer importance-performance perception map presenting features of the destination’s product on a twodimensional graph (Zhang and Chow, 2004; ĩemáa, 2005) are: Hudson and Shephard (1998), who measured service quality at Alpine ski resorts by means of importance-performance analysis (IPA); Hill et al. (2003), who studied quality from the customer perspective. Hill et al. use the PFI (priority for improvement) method, which is based on gap analysis and identification of customers´ demands and wishes. The above-mentioned methods (SERVQUAL, SERVPERF, IPA, PFI) offer various possibilities for the quality evaluation of services in tourism.

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However, we can say that these methods more or less consistently emphasize the importance of partial factors based on specific dimensions of services. Performance within these factors, measured simultaneously by customer satisfaction and SERVQUAL, reflects guests´ expectations before the service is provided. In order to provide exact information for the management the elaboration of a graphical representation of the IPA with the axes in average values is recommended (Bacon, 2003). According to Hudson et al. (2004), in SERVPERF the use of simple values of performance seems to be insufficient. It is advisable to use both the SERVQUAL method to determine gap scores and the IPA approach for graphical representation. Although the academic literature increasingly deals with the measurement of the quality of services, experts are still divided about which method provides higher validity. As Getz et al. (2001) point out, providing a definition of quality is an essential prerequisite for success in further research. There are difficulties in finding a definition of the term ‘destination quality’ in the literature. The first reason for this is a high level of subjectivity in destination visitors´ perceptions and the complexity of a destination as a socialeconomic system. The second reason is respect for residents, whose quality perception does not have to be in compliance with the way visitors or the management of a destination perceive it. It is suitable to apply a TQM system in a destination, as it takes into account the overall satisfaction of all involved parties, including consumers and service providers as well as local inhabitants. Theoretical formulations for destination quality management (DQM) are included in an article by Woods and Deegan (2003), who analysed SERVQUAL, the gap model, the Kano model and the EFQM model. From the findings of their work resulted the principles of the theoretical concept of DQM – principles which are based on the necessity of meeting the basic standards and minimum needs of destination customers. In connection with a previous statement, ‘higher customer satisfaction’ is essential for development and competitiveness (SERVQUAL model, Kano model), and for a holistic approach an emphasis on partnership (EFQM model) is needed. The authors also highlight the irreplaceable role of a destination brand (Vajþnerová and Ryglová, 2012). The characteristic components of destinations (Attractions, Accessibility, Ancillary services, Amenities, Available packages, Activities; Buhalis, 2003) indicate that although service quality is primarily evaluated only in terms of functional quality – using SERVQUAL – the assessment of a

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destination in terms of technical quality aspects (the range of attractions and services) is necessary as well (Grönroos, 2007). Middleton and Clarke (2001) argue that the destination is made up of five components, three of which are the same as the components used by Buhalis (Attraction, Amenities, Accessibility); the other two components are the image and perception of the destination and price. It is necessary to find quality factors common to all destinations, to quantify these factors, and subsequently to compare destinations. The measurement of overall satisfaction with a destination, according Campo-Martinez and Garau-Vadell (2010), is based on the identification and assessment of key variables. Kreštiþ and Prebežac (2011), in their research, quantified the level of attractiveness of a tourist destination on the basis of principal component analysis (PCA), using the Index of Destination Attractiveness (IDA) taken from the original work of Phillips and Moutinho (1998). This method was verified in selected destinations in Croatia, where 19 original variables were reduced to four principal components. In the tourism context, satisfaction with travel experiences contributes to destination loyalty (Alexandris et al., 2006; Bramwell, 1998; Oppermann, 2000; Pritchard and Howard, 1997). The degree of a visitor’s loyalty to a destination is reflected in their intention to revisit the destination and in their willingness to recommend it (Oppermann, 2000). The impact of customer perception, destination image and satisfaction on loyalty has been a popular topic in tourism research. Coban (2012) writes about the importance of determining the destination image while taking decisions for strategic destination marketing, because it is assumed that this will result in a positive image of a destination, loyalty to destinations and satisfaction felt by customers (Coban, 2012). Some studies have found that tourist satisfaction directly influences destination loyalty (Chi and Qu, 2007; Kim and Brown, 2012; Yoon and Uysal, 2003; Yuksel et al., 2010); some have revealed an indirect relationship (Court and Lupton, 1997; Sonmez and Graefe, 1998); and still others have found that satisfaction exerts both direct and indirect influence on destination loyalty (Anderson and Sullivan, 1993; Cronin et al., 2000; Hallowell, 1996; LaBarbera and Mazursky, 1983; Taylor and Baker, 1994.) Current literature emphasizes the need for an integrated approach to quality management. Müller (1995) also emphasized the suitability of the

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application of TQM in the system, which takes into account the total satisfaction of all stakeholders, such as consumers, service providers and the local population. A new tool, Qualitest (European Commission, 2003), respects these principles and adds also an environmental factor. This tool was created to measure the qualitative performance of a destination. It consists of a set of 16 indicators divided into two groups. The first group of indicators provides information about the basic factors of the destination and the second provides information about the quality of the tourism product itself. Each indicator is rated by three indicators (QPCI or Quality Perception Condition Indicators, also called status indicators; QMI or Quality Management Indicators; QPI or Quality Performance Indicators). These indicators are interconnected and reflect the integrated quality management approach. The creation of Qualitest was initiated by the European Commission on the basis of studies which provide results on the best practices in quality management in selected European destinations (Ryglová and Vajþnerová, 2014). The introductory part of the next section summarizes the main theoretical assumptions of the chapter and specifies the position of this study on the basis of the literature review. The proposed methodology is adapted to the character of the input primary data for the evaluation model.

4.3 Research Design and Methodology The proposed methodology is based on the results of research focused on the use of standardized tools for measuring quality of services, such as SERVQUAL, Qualitest (European Commission, 2003) and IDA (Kreštiþ and Prebežac, 2011). The methodology was applied in the conditions of the Czech Republic for the evaluation of service quality in the destination (Ryglová and Vajþnerová, 2014; Vajþnerová et al., 2014). The abovementioned instruments have certain limits (see above), therefore the authors focus on the evaluation of quality based on customer satisfaction with partial factors of destination quality, and on the impact of these factors on the overall satisfaction of the visitor. The authors base their research on the assumption that quality is a component of overall customer satisfaction (Zeithaml et al., 2006). Factors that are evaluated in this chapter were formulated on the basis of original research into the quality components of a destination (Buhalis, 2003; Middleton and Clarke, 2001). These factors equally take into account the functional and technical quality of services (Grönroos, 2007). The factors are stipulated in order to suit all types of destinations. Their relevance and impact were confirmed through

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the qualitative research (expert in-depth interviews; sample size: 130 service providers, employees in destination management and public administration, and academics). The survey among the experts was enacted before the research in the given destinations (Vajþnerová, 2012). The impact of particular factors was evaluated on a 10-point scale (1 = lowest impact, 10 = highest impact); see Table 4.1. Table 4.1 Impact of the quality factors of a destination – expert evaluation Rank 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

Quality factors Uniqueness of destination Cultural-social attractions Natural attractions Image of a destination Transport accessibility Pre-arrival communication Accessibility and quality of information Friendly welcome by local inhabitants Sense of security Level of service prices and goods prices Boarding Accommodation Experience activities Local transport Product packets

Impact 8.1 8.1 8.0 7.5 7.4 7.3 7.2 7.1 7.0 6.8 6.8 6.7 6.6 6.5 6.4

Source: Vajþnerová, 2012

Primary questionnaire-based research was enacted among visitors with the aim of determining the impact of partial quality factors on the overall satisfaction of visitors. The set of respondents was obtained on the basis of quota sampling (age, gender, education). To determine the level of satisfaction a 10-point scale was used (1 = least satisfied, 10 = most satisfied). The level of satisfaction with 15 quality factors and overall satisfaction was evaluated by visitors in several regions: in the Palava and Lednice-Valtice Area by 106 respondents, the region of Znojemsko and Podyji by 109 respondents and the region of Brno and surroundings by 500 respondents. The different sizes of the sample sets are a result of various technical and economic conditions that did not allow the authors to obtain the originally planned sample of 500 respondents in each destination. This, however, does not significantly affect the results of the research because the primary objective is to verify if the proposed

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methodology is functional. The dependence of overall satisfaction with the quality of the destination on the partial quality factors was determined by means of regression analysis. In other words, the aim was to determine how various factors influence overall satisfaction and how the impact of each factor in this respect differs among destinations. Calculations in this research are based on the data on level of satisfaction with the selected aspects of tourism (15 input variables) and with the destination as such. Regression analysis was preceded by PCA. The primary objective of PCA was an orthogonal transformation of the original variables to the statistically independent components. The purpose of this transformation of variables was an effort to avoid the problem of multicollinearity. According to, for example, Liu et al. (2003, p. 141): ‘That there exists multicollinearity among independent variables tends to lead to the result that symbol and actual value of regression coefficient are not consistent with the expected ones.’ Similarly, for example, McAdams et al. (2000), cited by Abdul-Wahab et al. (2005, p. 1264), consider that ‘the regression approach can face serious difficulties when the independent variables are correlated with each other’. It is important to mention that the requirement of the independence of variables also concerns other multivariate analysis and classifications (e.g. cluster analysis). The results of the PCA were rotated. A rotated solution was used for pragmatic reasons, in particular because of the need for a meaningful interpretation of the results (based on component weights higher than 0.5 or lower than í0.5). Without the rotation, owing to the given values of the component weights, the majority of the variables would be ‘captured’ by the first component while the other components would be then very difficult to interpret (this assertion was verified by a primary calculation). Consequently, in the regression analysis, the values of the component score were used. The method employed was stepwise regression using forward selection.

4.4 Research Results The aforementioned methodology was used for all three researched areas: Palava and Lednice-Valtice area (PLVA), Znojemsko and Podyji (ZP), Brno and surroundings (BRO). The first two destinations are destinations with predominantly rural tourism, while Brno and its surroundings is a destination of urban character (corresponding to Vystoupil et al., 2011). The methodology and the analysis of the results will be described in detail

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only for the first destination; for the other destinations only the specifics regarding the results obtained will be mentioned.

Palava and Lednice-Valtice Area (PLVA) Fifteen components were extracted from the input data set by means of the PCA. Interpretation of the components is allowed by the ’original variables’ which saturate them with the values of component weights higher than 0.5; and respectively lower than í0.5. When using this criterion, all components except two were saturated with one original variable, to simplify their interpretation. These two exceptions are components 1 and 15. In the first case, the component is saturated in terms of the respective values of the component weight by two (original) variables and therefore it is interpreted as ’accommodation and boarding quality’. In the second case, the extracted component is below the relevant level of the component weight for any of the original variables, and therefore it is not further interpreted or included in the subsequent analysis. Components of PLVA destination quality 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

Accommodation and boarding quality Image of destination Pre-arrival communication Experience attractions Level of service prices and goods prices Product packages Cultural-social attractions Transport accessibility Local transport Sense of security Friendly welcome by local inhabitants Uniqueness of destination Natural attractions Accessibility and quality of information No interpretation

The order of the components identified by PCA is determined by their share in the variance of the original information. Thanks to the analysis of principal components we now have data relating to individual respondents and statistically independent variables available for the next procedure. These data are referred to as a component score, representing the basis for

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subsequent stepwise regression analysis. The sequence of the input of the components to the regression model is shown in Table 4.2; owing to the increase in the values of the squares of regression coefficient and adjusted R square, model 4 could be chosen as the most appropriate. This means that overall visitor satisfaction with the quality of the destination was influenced the most by the quality of accommodation and boarding, the image of the destination, its uniqueness, and pre-arrival communication. On the other hand, protection and a sense of security and availability, and the quality of information provided, proved to be virtually insignificant in this respect (see Figure 4.1). We note that the choice of a particular ‘most appropriate’ regression model was not decisive in this case. The most important factor was to determine the ranking of the factors according to their impact on overall satisfaction with the destinations. Table 4.2 Regression model summary – destination PLVA Model

R

R square

1 2 3 4 5 6 7 8 9 10 11 12 13 14

0.410 0.578 0.690 0.743 0.785 0.819 0.844 0.866 0.887 0.896 0.904 0.912 0.915 0.917

0.168 0.335 0.476 0.552 0.616 0.671 0.712 0.750 0.786 0.803 0.818 0.832 0.838 0.841

Adjusted square 0.160 0.322 0.460 0.535 0.597 0.651 0.691 0.730 0.766 0.782 0.797 0.810 0.815 0.816

R

Std. error of the estimate 0.917 0.824 0.735 0.682 0.635 0.590 0.556 0.520 0.483 0.467 0.451 0.436 0.430 0.429

Source: Prepared by the authors using SPSS software for Windows

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Average satisfaction

The factors of destination quality in PLVA 9.0 7.87.8 8.0 7.5 8.0 7.0 7.0 6.7 6.8 6.4 6.6 6.5 7.0 6.0 5.9 5.8 6.0 5.0 4.0 3.0 2.0 1.0 0.0

Order by contribution to overall satisfaction Figure 4.1 Evaluation of satisfaction in PLVA Source: Prepared by the authors

The order by which the factors were entered into the regression model was contrasted with the data on visitor satisfaction with the particular quality factors. The average values of satisfaction with all the factors range from 5.8 to 8.0, the overall satisfaction rating being 7.5. Visitors were most satisfied with natural attractions, the image of the destination, the uniqueness of the destination and cultural-social attractions (see Figure 4.1). This is in line with the characteristics of the destination, which is unique for its exceptional natural conditions and historical sights and is famous for cultural and social events (feasts, festivals) associated with rural tourism. We consider the particularly high degree of satisfaction with the image of

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the destination and the uniqueness of the destination to be the essential finding. These two factors represent the second and the third most important factors as regards impact on overall visitor satisfaction with the destination. Other components that are essential for the evaluation of overall visitor satisfaction are the quality of accommodation and the boarding quality (first in rank) and the pre-arrival communication (fourth in rank). The level of visitor satisfaction with these factors was relatively lower (value 7 and 6.8, respectively). Nevertheless, it should be noted that owing to the scale used in the evaluation, these values represent a positive evaluation. According to the evaluation of experts (Table 4.1) the quality of accommodation and boarding is a less important factor in the quality of the destination, but according to visitors to PLVA it affects overall satisfaction the most. The first component of the impact on overall visitor satisfaction is made up of the factors of quality of accommodation and quality of boarding. This is related to the scope, structure and quality of these services, which means that it contains information specifying whether there are boarding and accommodation facilities of sufficient quantity and structure available in the area and whether quality services are provided. In terms of the direct evaluation of satisfaction, the factor of pre-arrival communication was rated as seventh in the order of the 14 factors, with an average value of 6.8 on the 10-point scale. This suggests that the quality of this factor is closer to average. This means that it can be improved and thereby significantly affect overall visitor satisfaction (Vajþnerová, Andráško, 2012).

Znojemsko and Podyji (ZP) From the input data set collected from visitors to the area of Znojmo and Podyji 15 components were extracted, based on the above-mentioned methodology, each of them being saturated with one of the original variables with the desired value of the component weight. Therefore, all the components listed below are included in the subsequent regression analysis. 1. 2. 3. 4. 5. 6.

Level of service prices and goods Natural attractions Product packages Transport accessibility Uniqueness of destination Accessibility and quality of information

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7. 8. 9. 10. 11. 12. 13. 14. 15.

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Cultural-social attractions Pre-arrival communication Accommodation Local transport Friendly welcome by local inhabitant Image of destination Boarding Sense of security Experience attractions.

Table 4.3 Regression model summary – destination ZP Model

R

R square

Adjusted R square

Std. error of the estimate

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

0.307 0.428 0.520 0.592 0.638 0.679 0.716 0.740 0.763 0.782 0.801 0.817 0.830 0.837 0.843

0.094 0.183 0.270 0.350 0.407 0.461 0.513 0.548 0.582 0.612 0.641 0.667 0.688 0.701 0.710

0.090 0.175 0.259 0.338 0.392 0.445 0.496 0.530 0.563 0.593 0.621 0.647 0.668 0.680 0.688

0.954 0.908 0.861 0.814 0.779 0.745 0.710 0.686 0.661 0.638 0.615 0.594 0.576 0.566 0.558

Source: Prepared by the authors using SPSS software for Windows

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Average satisfaction

The factors of destination quality in ZP 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0

8.3 8.2 7.9 8.1 8.1 8.5

7.4

8.3 8.1 8.0 8.3 8.3 8.3

7.5 7.6

Order by contribution to overall satisfaction Figure 4.2 Evaluation of satisfaction in ZP Source: Prepared by the authors

In the case of ZP, the effect of each component on the overall evaluation is significantly more comprehensive. As far as the solution of the model (see Table 4.3) is concerned, seven components are the most important – the image of the destination, natural attractions, the uniqueness of the destination, cultural-social attractions, the quality of the accommodation, a friendly welcome by local inhabitants, and the level of service prices and goods prices. Local transport in the destination appears to be irrelevant in this case (see Figure 4.2).

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The average values of satisfaction with all the factors range from 7.4 to 8.5, the overall satisfaction rating being 8.3. The first seven components that influence overall satisfaction the most are evaluated mostly positively. The lowest level of satisfaction is related to the seventh component, the level of service prices and goods prices, which is probably influenced by the proximity of Austria and the higher purchasing power of foreign visitors. The high value of the factor of a friendly welcome by local inhabitants (8.5) is significant, perhaps resulting from the fact that the area is a wine production region associated with hospitality.

Brno and its surroundings (BRO) Fifteen components were extracted from the data set, each of them being saturated with one of the original variables. All the components listed below are included in the subsequent regression analysis. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

Level of service prices and goods prices Natural attractions Accessibility and quality of information Uniqueness of destination Friendly welcome by local inhabitants Cultural-social attractions Product packages Local transport Transport accessibility Sense of security Boarding Image of destination Experience attractions Pre-arrival communication Accommodation

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Table 4.4 Regression model summary – destination BRO

Model 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

R 0.284 0.401 0.479 0.536 0.582 0.619 0.644 0.668 0.688 0.708 0.726 0.738 0.750 0.754 0.755

R square 0.081 0.161 0.230 0.288 0.339 0.383 0.415 0.446 0.473 0.501 0.527 0.545 0.563 0.569 0.570

Adjusted R square 0.078 0.156 0.224 0.280 0.330 0.373 0.404 0.434 0.461 0.487 0.514 0.531 0.547 0.553 0.553

Std. error of the estimate 0.960 0.919 0.881 0.849 0.819 0.792 0.772 0.752 0.734 0.716 0.697 0.685 0.673 0.669 0.669

Source: Prepared by the authors using SPSS software for Windows

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77

The factors of destination quality in Brno 9.0

Average satisfaction

8.0 7.0

8.1 6.8

6.4

6.7 6.7

6.0

6.3

7.1 6.9

7.7

7.0

7.5 7.7 5.8

6.6 6.5

5.0 4.0 3.0 2.0 1.0 0.0

Order by contribution to overall satisfaction Figure 4.3 Evaluation of satisfaction in Brno Source: Prepared by the authors

In the case of BRO, the effect of each component on the overall evaluation is also significantly more comprehensive. Owing to the values of R square and adjusted R square, the overall satisfaction with the destination of Brno and its surroundings is influenced the most by, respectively, 10 or 11 monitored components of 15 (model 10 or 11, Table 4.4), i.e. friendly welcome by local inhabitants, uniqueness of the destination, image of the

78

Chapter Four

destination, sense of security, level of service prices and goods prices, quality of boarding, pre-arrival communication, transport accessibility, cultural-social attractions, quality of accommodation, and experience activities, while the aspects of accessibility and the of information had only minimal impact in this respect (see Figure 4.3). The first 11 components include eight components with lower evaluation and only three components with higher evaluation in relation to overall satisfaction. The most significant component is a friendly welcome by local inhabitants. Nevertheless, its value of 6.8 suggests that its effect is not significantly positive as in the following components. The lowest-rated components of the first 11 components are level of service prices and goods prices, uniqueness of the destination, feeling of security, image of the destination, and friendly welcome by local inhabitants. These components are significant and should be given due attention; the causes of dissatisfaction should be analysed and efforts should be made to eliminate them. On the other hand, transport accessibility and cultural-social attractions are components that visitors were greatly satisfied with, but their effect on overall satisfaction is relatively low. The destination of BRO was evaluated by quite different values of individual components in the range from 5.8 to 8.1, the overall satisfaction rating being 7.2, which is the lowest rating in all of the destinations compared. The average values of overall visitor satisfaction in the selected destinations did not differ significantly (Bro 7.2; PLVA 7.5; ZP 8.3). Although the rating is relatively high, these values do not reveal specific strengths and weaknesses in destination quality management. It is obvious that one value indicating overall satisfaction does not have sufficient informative value, which corresponds with the work of authors taking an attributive approach to the evaluation of satisfaction, such as Baker and Crompton (2000).

4.5 Discussion and Identification of Key Destination Quality Factors Quality was monitored by means of 15 factors covering the crucial areas of a tourist destination, and visitors rated the level of satisfaction with individual factors and their overall satisfaction with the quality of the destination (see Table 4.5). The final evaluation of the results was carried

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79

out using the following partial results: x Order of components according to effect on overall visitor satisfaction x Average values of visitor satisfaction for each quality factor x Order of significance of the quality factors from previously conducted expert research. The methodology proposed for the evaluation of quality of a destination allows the order of components/quality factors to be determined according to their effects on overall satisfaction with the destination. At the same time, the results can be used to establish recommendations for destination management, i.e. to address factors with low overall rating that are high on the list of the order of significance (e.g. PLVA: quality of accommodation and boarding, pre-arrival communication; ZP: level of service prices and goods prices, uniqueness of the destination; BRO: level of service prices and goods prices, uniqueness of the destination). In the three selected areas – with different characteristics and focused on different types of tourism (PLVA: rural tourism, protected landscape area, wine tourism, cycling, recreation, historical sites; ZP: rural tourism, national park, wine tourism, cycling, recreation, historical sights; BRO: urban tourism, historical sights, culture, shopping, business and incentive tourism) – the components of uniqueness and image of the destination occur in the first three positions, in a different order and with a different evaluation of satisfaction. According to expert evaluation of the significance of each factor, uniqueness is also the most important factor in the quality of the destination (image was ranked 4th out of 15). This can also be explained by the fact that the image and uniqueness of the destination reflect current changes in the external environment (globalization, strong competitive environment) and thus impose requirements for the differentiation and originality of the destination.

11 12 13

10

9

8

4 5 6 7

3

2

1

Accommodation and boarding quality Image of the destination Uniqueness of the destination Pre-arrival communication Natural attractions Transport accessibility Cultural-social attractions Level of service prices and goods prices Experience activities Friendly welcome by local inhabitants Product packages Local transport Sense of security Pre-arrival communication Boarding Experience activities

Transport accessibility

6.7 6.4 5.8 6.6

Sense of security

Accessibility and quality …

Natural attractions Uniqueness of the destination Cultural-social attractions Accommodation Friendly welcome … Level of service …

Image of the destination

7.0

5.9

6.8 8.0 6.0 7.5

7.8

7.8

7.0

Components of quality

Components of quality

‘P’

ZP

Chapter Four

PLVA

Table 4.5 Comparison of researched destinations

80

Order

6.8

‘P’

Sense of security Level of service … Boarding Pre-arrival communication

8.3 Experience activities 8.3 Local transport 8.3 Product packets

8.0 Accommodation

8.1 Cultural-social attractions

8.3 Transport accessibility

8.1 8.1 8.5 7.4

7,9 Image of the destination

7.5 7.7 5.8

7.0

7.7

8.1

6.7 6.3 7.1 6.9

6.7

8.2 Uniqueness of the destination 6.4

8.3 Friendly welcome …

‘P’ Components of quality

BRO

Accessibility and quality of information 7.5

6.5 Local transport

Product packages

8.3

7,6 Accessibility and quality…

7.5 Natural attractions

7.2

6.5

6.6

81

Notes: ‘P’ = average value of satisfaction with the particular factor of quality; order = order of components according to the effects on overall visitor satisfaction

Source: Prepared by the authors

Overall satisfaction

15

14

Case Study: The Evaluation of Destination Quality

82

Chapter Four

The methodology proposed for the evaluation of quality of a destination allows the order of components/quality factors to be determined according to their effects on overall satisfaction with the destination. At the same time, the results can be used to establish recommendations for destination management, i.e. to address factors with low overall rating that are high on the list of the order of significance (e.g. PLVA: quality of accommodation and boarding, pre-arrival communication; ZP: level of service prices and goods prices, uniqueness of the destination; BRO: level of service prices and goods prices, uniqueness of the destination). In the three selected areas – with different characteristics and focused on different types of tourism (PLVA: rural tourism, protected landscape area, wine tourism, cycling, recreation, historical sites; ZP: rural tourism, national park, wine tourism, cycling, recreation, historical sights; BRO: urban tourism, historical sights, culture, shopping, business and incentive tourism) – the components of uniqueness and image of the destination occur in the first three positions, in a different order and with a different evaluation of satisfaction. According to expert evaluation of the significance of each factor, uniqueness is also the most important factor in the quality of the destination (image was ranked 4th out of 15). This can also be explained by the fact that the image and uniqueness of the destination reflect current changes in the external environment (globalization, strong competitive environment) and thus impose requirements for the differentiation and originality of the destination. When comparing the results with foreign studies, different results can be found in the case study of a natural valley (Fang et al., 2008), in which a friendly atmosphere, services and accommodation were regarded as the most significant factors. On the other hand, the research carried out in the urban area of BRO had similar results to the study by Schofield and Thomson (2007), with the highly rated factor of public transport influencing overall satisfaction only marginally. At the same time, the comparison of four destinations in Portugal (do Valle et al., 2011) evidenced the significant impact of a friendly welcome by the local inhabitants on overall satisfaction. SERVQUAL and IPA are instruments frequently used for assessing quality in tourism. These tools, however, examine only customer satisfaction with the quality of the environment and provided services. However, in the framework of a destination they do not reflect the quality of the environment and the quality of life of the local population.

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83

When assessing the quality of a destination, the authors are aware of the necessity of implementing the TQM approach, as Müller (1995) emphasizes, and what is methodically included in the Qualitest. Unfortunately, the practical application of the Qualitest is rather difficult, due to the need for a wide scope of information that the destination management might not have. European methodology uses quantitative criteria information based on continuous measurements, records and surveys conducted by competent authorities. However, this information is not for the most part available in the Czech Republic (e.g. the ratio of complaints about public transport relative to the total number of passengers in the area, the ratio of waste collected in the area relative to the surface of the area, etc.). Also, with regard to the current level of destination management in the Czech Republic, where in some regions the organizations for destination management have not been established yet, the scope for use of Qualitest is limited. Qualitest can be used only in selected destinations and only under the condition of an important modification/reduction as regards the possibilities of given destinations (Vajþnerová, 2012). In terms of the uniqueness of a destination, it is desirable to provide some above-standard services – the type of services that will provide an authentic experience to the traveller/visitor, which works as an important motivator to choose the given destination (Magaš, 2008). This fact is related to the other disadvantage of Qualitest, when evaluating the quality of a destination: that it does not reflect the attractiveness of a destination. On the other hand, the IDA provides a very detailed evaluation tool which allows an unambiguous comparison of destinations offering similar types of tourist products. However, the IDA method ignores the principles of integrated quality management, focusing only on visitor satisfaction and the factors of destination attractiveness. The method reduces the factors using PCA, such that it no longer deals with their impact on overall satisfaction. The hereby proposed methodology tries to respect the current state and conditions as well as the level of information available in the Czech Republic. The proposed methodology corresponds to the research of Baker and Crompton (2000), who used structural modelling (structural equations model) and confirmed the need to monitor both categories: quality and satisfaction. Their research showed a higher impact of effectively obtained qualitative performance on after-purchase behaviour (behavioural intention), and not only on satisfaction (subjective disconfirmation measure).

84

Chapter Four

Baker and Crompton (2000) defined the concept of quality in tourism as the attributes of a service which are controlled by a tourism supplier, while satisfaction is referred to as a tourist’s emotional state after service exposure. Simultaneously, the most commonly used model considers satisfaction to be the difference between quality perceived and quality expected. This is also supported by Kozak (2001), who claims that the level of satisfaction is one of the most dominant variables in explaining revisit intention in destination tourism. At the same time, we realize that here some researchers (e.g. Chi and Qu, 2007) regard loyalty to be a better predictor of actual behaviour compared to satisfaction. A part of the hereby proposed methodology is a generally usable battery of important quality factors of a destination, as well as a procedure allowing the influence of particular factors on overall satisfaction with the area to be determined. At the same time the methodology allows the current strengths and weaknesses of the qualitative characteristics of the destination, from the client’s perspective, to be revealed. The proposed methodology can be generalized and used in regions/countries/destinations at a similar initial level, especially in places where destination management does not function at a sufficient level. This problem is also related to the lack of statistical information.

4.6 Conclusions As tourism, despite temporary fluctuations, has shown global long-term sustainable growth, great attention should be paid to quality in order to maintain a good position in the highly competitive market. The research discussed in this chapter relates to the perception of destination quality factors by visitors, which can be considered a starting point for effective quality management and further research. The proposed methodology can be expressed as shown in Figure 4.4. Based on the research carried out, it can be stated that the proposed factors of destination quality can be used for all types of destination, but the effects of various factors on overall satisfaction cannot be generalized across destinations. An interesting finding is that generalization is impossible even for destinations of a similar type, which can be explained by the significant influence of visitors’ expectations on their subsequent satisfaction, which in turn is confirmed, for instance, by the ECSI or SERVQUAL.

Case Study: The Evaluation n of Destinationn Quality

85

Figure 4.4 Prooposed methoddology of destin nation quality evvaluation Source: Prepared by the autthors

The advantaage of the propposed method d is its practiccal applicabilitty, unlike Qualitest. A As already mentioned, m it is usually a problem to t obtain sufficient reelevant primarry data for thee model. In otther cases, thee problem might be thhe necessity of o using a veery comprehennsive questio onnaire to obtain primaary data from the client/visiitor (e.g. usingg ECSI). The proposed method takees into accounnt not only the views of thhe client (e.g. PFI), but also the views of expeerts (managem ment/entreprenneur/tourism supplier)

86

Chapter Four

when determining the importance and selection of factors to be used in quality research. The results of the research show that the methodology can determine factors that significantly influence overall visitor satisfaction in a specific destination. The results of the regression analysis show that the level of overall satisfaction is affected by partial satisfaction with quality components specified in the regression model. The specific values of components provide information about the strengths and weaknesses of the quality of a destination that can be used in destination management. The factors with lower visitor satisfaction must be analysed in detail and improved, because they are crucial to the perceptions of visitors. It is evident that the possibilities for improvement and subsequent increased visitor satisfaction differ for specific factors. These factors should be subjected to a more detailed analysis to determine the specific causes of dissatisfaction and focus on their elimination. Regular monitoring of visitor satisfaction and gradual elimination of the reasons for dissatisfaction can result in an increase in overall visitor satisfaction and the quality of a destination.

CHAPTER FIVE CONCLUSIONS

Business sustainability requires firms to adhere to the principles of sustainable development. If companies want to survive, remain profitable and even improve their quality they need to consider many factors. The Czech business environment offers several opportunities to all large, medium-sized and small enterprises. These opportunities can be found in the growth in demand (for quality, innovation and domestic production), the development of the Internet and social media networks, technical and technological development, and the possibility of obtaining subsidies. Apart from these general opportunities, some specifics in each industry have to be observed and reflected on. In the case of the gambling and betting industry, these opportunities can be found in e.g. the 24-hour operating time, a strong liquidity position, or sponsoring and donorship engagement. Results from research in the tourism industry have shown that regular monitoring of visitor satisfaction and gradual elimination of the reasons for dissatisfaction can result in increasing overall visitor satisfaction and destination quality. Naturally, the positive factors are not the only ones. The most important threats in the Czech business environment that can lead to decreasing sustainability are competition and rivalry in industry, increase in input prices, and government interventions and legislation. The 2015 Corruption Perceptions Index (Transparency International, 2015) clearly shows that corruption remains a big problem around the world, including in Europe. In the Czech Republic perceptions of corruption are improving. This factor is very important from the sustainability point of view. On the other hand, some factors that seem to be negative could have a positive influence on the quality and level of industry. This is true, for example, in the case of competition and rivalry in the industry. Only those with good ideas will find an appropriate means of differentiation, and can stay. This means a benefit for the customer.

88

Chapter Five

The Czech Republic faces many open questions in its future regarding how to approach Western European countries and their developed economies. Generally, it could be said that those who see an opportunity where others see threats can survive and work on their sustainable development and continuous improvement. Those who keep going, who obey the laws, regularly follow trends, analyse the environment and react appropriately, who respect the stakeholders and their interests, are on a good road to a sustainable business.

SUMMARY

This monograph, entitled Achieving Quality and Sustainability in the Czech Business Environment, will be beneficial for all researchers and academic staff dealing with the business environment in their lectures or papers, as a tool for comparative analysis or case studies. It can help to develop an understanding of the Czech business environment, including for those beginning to do business in this country, whether as a potential investor or as a customer. This book introduces the Czech business environment from different points of view. It focuses on the quality and sustainability factors that influence Czech industries. Sustainability and its importance in business are presented in the first part of the book. Its practical application is presented in the form of case studies from two different industries – the first (the gambling and betting industry) very controversial from the responsibility point of view and the second (the tourism industry) very important for many Czech business units. Since more than 99% of European companies are small and medium-sized and these percentages are reflected in the make-up of industry in the Czech Republic, the monograph pays attention to these companies and their specifics. The outputs of each chapter are based on the analysis of primary and secondary data using quantitative and qualitative research. The Czech business environment has gone through many different changes since the onset of capitalism. According to the Association for Foreign Investment (2017), these are the Czech Republic’s current key competitive advantages: x Location at the centre of Europe, gateway to both eastern and western markets, less than two hours by air from most European destinations x Creative, experienced and internationalized professionals at lower costs x High degree of entrepreneurship and good conditions for doing business (above average within EU27) x Regulatory and patent environment in accordance with EU standards

90

Summary

x One of the world’s most attractive places to live x Highest GDP per person by purchasing-power parity in Central and Eastern Europe x Well-developed infrastructure. The quality of enterprises is indirectly influenced by the appropriate remuneration of employees. Here it is possible to state that in the Czech Republic, the unemployment rate and mean gross hourly earnings have indirect dependency; however, this dependency does not have a very a significant value. For example, in Germany and Ireland, where mean gross hourly earnings are the highest of all the countries selected for evaluation in this book, the dependence of mean gross hourly earnings is negligible. Therefore the Czech Republic faces many open questions in its future as to how to approach Western European countries, with their developed economies and higher levels of remuneration. It can be maintained that the business environment will be one of the most significant factors influencing the competitiveness of SMEs, which are particularly sensitive to the quality of the business environment. Therefore, the business environment should be stable, with simple rules, easy-to-follow administrative requirements and minimal regulations. Based upon examination of the applicability of the situational analysis of SMEs’ external environment, it can be recommended that SME owners and managers regularly perform this analysis and identify the opportunities and threats for their businesses. The aspect of time (and its influence on a company) should also be taken into account. The analysis should be used to determine the order of importance of ‘opportunities’ and ‘threats’, and thus the order in which they should be addressed and resolved. The three most frequently defined opportunities in 2015 were: x Growth in demand (for quality, innovation, domestic production) x Development of the Internet and social media networks, technical and technological development x Subsidies for SMEs. In the case of the gambling and betting industry, the current key quality factors were identified. Among the factors that the companies in the gambling and betting industry use to achieve the best-quality services and to be sustainable are:

Achieving Quality and Sustainability in the Czech Business Environment 91

x Various offers of gaming and betting activities/commodities, enabling differentiation from their competitors x Gambling operators’ ability to freely set a winning probability – better odds lead to more frequent payout to customers, which can attract more customers x 24-hour operating time in the gambling industry x Various offers of financial services – accounts, remittance, foreign exchange, cash issuing, etc. x Advanced technology – use of new technology enables the provision of unique products and services in order to better meet customers’ needs and wants x Customers’ utility – pleasure, opportunity of winning, etc. x Strong liquidity position – the industry is in a stronger liquidity position than others, meaning that greater liquid reserves provide a competitive advantage when funding any potential opportunity emerging in the market x Sponsoring and donorship engagement It is possible to predict future potential key quality and sustainability factors, which are: x Donations and sponsorship engagement – better perception of the gambling and betting industry x Poor online presence – foreign online gambling and betting companies x Communication of CSR activities on companies’ websites x Responsible gambling and betting x Motivation of employees to become involved in CSR activities Tourism, despite temporary fluctuations, has shown global long-term sustainable growth, great attention should be paid to quality in order to maintain a good position in the highly competitive market. The research discussed in this book relates to the perception of destination quality factors by visitors, which can be considered a starting point for effective quality management and further research. Based on the research carried out, it can be stated that the proposed factors of destination quality can be used for all types of destination, but the effects of various factors on overall satisfaction cannot be generalized across destinations. An interesting finding is that generalization is impossible even for destinations of a similar type, which can be explained by the significant influence of

92

Summary

visitors’ expectations on their subsequent satisfaction, which in turn is confirmed, for instance, by the ECSI or SERVQUAL. The advantage of the method proposed here is its practical applicability, unlike the Qualitest. As already mentioned, it is usually a problem to obtain sufficient relevant primary data for the model. In other cases, the problem could be the necessity of using a very comprehensive questionnaire to obtain primary data from the client/visitor (e.g. using ECSI). The proposed method takes into account not only the views of the client (e.g. PFI), but also the views of experts (management/entrepreneur/tourism supplier) when determining the importance and selection of factors to be used in quality research. The results of the research show that the methodology can determine factors that significantly influence overall visitor satisfaction in a specific destination. The results of the regression analysis show that the level of overall satisfaction is affected by partial satisfaction with quality components specified in the regression model. The specific values of components provide information about the strengths and weaknesses of the quality of a destination that can be used in destination management. Factors with lower visitor satisfaction must be analysed in detail and improved, because they are crucial to the perceptions of visitors. It is evident that the possibilities for improvement and subsequent increased visitor satisfaction differ for specific factors. These factors should be subjected to a more detailed analysis to determine the specific causes of dissatisfaction and focus on their elimination. Regular monitoring of visitor satisfaction and gradual elimination of the reasons for dissatisfaction can result in an increase in overall visitor satisfaction and the quality of a destination. Despite different conditions in each industry, they share some common key drivers. They have to keep going, obey the laws, regularly follow trends, analyse the environment and react appropriately, respect the stakeholders and their interests; only then will they be on a good road towards sustainable business.

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