Urbanisation and Economic Development in Bosnia and Herzegovina

The fundamental characteristics of urbanisation and economic development of Bosnia and Herzegovina at the end of 19th, and at the beginning of 20th century, have been discussed in the paper. The recent developmental urban processes have been considered through three groups of indicators: demographic, regional and socio-geographic development. Based on results of the surveys conducted in the regional economic centres in Bosnia and Herzegovina in 2011, a development of urban functions in the urban centres has been shown. It has been proved that the dominant tertiary activities have a big importance and an intensive influence on urban and economic development in all urban settlements. The research included a theoretical part within which the literature on urban and economic development of settlements has been searched. For needs of the research, eight economic centres in Bosnia and Herzegovina were chosen. Analysis of the obtained results shows a different level of urbanisation in Bosnia and Herzegovina with particularly separated larger and asymmetrically distributed urban centres: Sarajevo, Tuzla, Mostar, Banja Luka, Zenica, and Bihać. The mentioned urban and economic centres are distributed along the major traffic communications. The settlements in east and west part of Bosnia and Herzegovina, in which a traffic network is poorly developed, have a lower urbanisation level. The obtained data proved the existence of a traditional difference and a different level in development of particular regions and total economy in Bosnia and Herzegovina. Low urbanisation level of a large number of settlements in Bosnia and Herzegovina, is in direct connection with economic development and density of those settlements. The achieved urbanisation level with an overall economic development is characteristic of Bosnia and Herzegovina and of the other countries in its surroundings as well.

Introduction
Every country and every region urbanise gradually and the intensity and forms of urbanization change over the time with socio-economic development. Owing to its functions urbanisation has, as it is often emphasized, a focal importance in the space in which it is located. Such form of urbanisation and economic development, naturally, with certain specificities is characteristic of our developing country (Ptacek, 2008). The rapid growth of the population in the urban settlements and rural exodus, like a side effect, has certain results that arouse attention and require specific interventions of the society. It is thought that economic forces have a dominant influence on urban and economic development of cities in Bosnia and Herzegovina. Along with material production, the towns are bearers of service activities. In addition to industry, these are commerce, school system, health care, administration, banking, and insurance, etc.. Population of the surrounding spaces satisfies many vital needs in the cities, but the population of cities is also provided with many food items from the surroundings. Therefore, there are complementary functional relations between a city and the surrounding area.
Intensity of the functional connection of the city and the surrounding area weakens, as a rule, with increasing the distance from the city (Vresk, 1990).
However, processes in the world that change the tendencies of urban and economic development of Bosnia and Herzegovina strengthened in the past 20 years. Most of our areas are still in the urbanisation stage that is characterised by strong polarisation, i.e., a rapid growth of cities as a consequence of concentration of jobs and migration of the population from the village.
Such urbanisation form, naturally, with certain specificities is characteristic of all countries in the stage of industrialisation (Pacione, 2001). A rapid growth of urban population and rural exodus as a result affect certain occurrences, which arouse attention and require specific interventions of the society. These are, on the one hand, problems in the cities that are created by overemphasized and frequently uncontrolled concentration (high population density, unemployment, illegal construction, pollution etc.), and problems arising in rural environments (population aging, appearance of old people's households, production extensification, appearance of uncultivated soil etc.).

Socio-economic Transformation and Regional Development of Bosnia and Herzegovina
The most dynamical socio-economic development of Bosnia and Herzegovina was ongoing under influence of widespread industrialisation. Dynamical course of the second half of the 20th century has not reflected on growth of physical volume of work function as much as it has reflected on a change of socio-economic structure of population (Lorber, 2009). Level of socio-economic transformation and employment, as well as their spatial differences should be observed in connection with a network of work centres and significance of work functions of single centres in Bosnia and Herzegovina.
It is interesting, though, that cities and centres of work in order of size have similar characteristics, but some cities replaced the places in the system. Asymmetrical distribution of centres in the network should be, however, particularly emphasized regarding importance of function of economic work centres, as well as unequal urban density of network of settlements. Sarajevo, as the strongest work centre has been positioned on the edge in the network, and in single parts of the area there is a lack of stronger work centres. It is particularly noticeable in eastern part of central Bosnia and Herzegovina. Besides the asymmetry, in regard to size of work centres density of urban centres is also unequal.
According to density of network, an area of central Bosnia and Herzegovina is distinguished, and traffic lines toward Zenica and Doboj as well. However, the poorest network of centres is observed in east Bosnia and Herzegovina. This will, certainly, reflect on single directions, in particular on intensity and forms of urbanisation. In 1991, there were five such centres. Sarajevo is the largest work centre, with more than 184,674 or 46.9%; Banja Luka 65,026 or 16.2%, Zenica 54,991 or 13.7%, and Tuzla 51,852 or 12.9% of total employed population in Bosnia and Herzegovina. Today's indicators in 2011, in total number of employed population in regional centres of Bosnia and Herzegovina indicate deep crisis of economic activities.
In 2011, number of employed population decreased almost to the 1971 level. Thus, Sarajevo is still the largest work centre, with more than 94,165 or 28.0%, Banja Luka 54,622 or 16.2%, Tuzla 60,994 or 18.1%, and Zenica 54,622 or 16.2% of total number of employed people in Bosnia and Herzegovina. In 2011, Sarajevo is still the largest city (see Table 1). In the structure of smaller work centres a lack of centres with work function from 2,000 and more employed people is noticed. In their development in period from 1991 to 2008, urban cores of Bosnia and Herzegovina obtained the character of relative decentralization. Suburban settlements express faster tendency of increase in number of population.
Due to expanding the industrial firms, these settlements experience increasingly stronger functional transformation. In order to evaluate the suburbanisation level in Bosnia and Herzegovina, settlements are differentiated according to socio-economic changes into four categories: urban settlements, stronger urbanised settlements, less urbanised settlements and rural settlements.
Judging of dynamics of increase in jobs in the network of work centres, there won't be any significant changes soon. In the period from 1991 to 2011, the highest increase in jobs had some suburban centres of Sarajevo etc.. These data indicate increase of significance of work function of the Zagreb agglomeration with certain redistribution of jobs in favour of the surroundings. This is, as it has been ascertained, in accordance with development of metropolitan region of Sarajevo (Nurković, 2005). According to dynamics of increase in jobs some other, primarily municipal centres distinguish themselves.  Figure 1). Employment of agricultural population in industry and other activities has social and spatial mobility as a consequence, as it has already been emphasised. The latter can be manifested in two main forms: in permanent moving the population into work centres or daily movement of population more than 500 daily migrants. The mentioned forms of spatial mobility of population affect the adequate urbanisation forms (Ilbery, 1998).
Relation of intensity of one and the other form of spatial mobility may serve as a measure of the level of development and urbanisation of Bosnia and Herzegovina. Namely, it is known that in the first stages of industrialisation of every country, permanent moving the population exceeds a daily mobility, whereas in the mature stage of industrialisation permanent moving weakened and almost stopped and daily migrations strengthened. Daily migrations are in increase, not only in entire country, but also in Bosnia and Herzegovina.
Share of daily migrants in Bosnia and Herzegovina increased from 31.2% in 2010 to 35.5% in 2011.
In our opinion, two major factors influenced creating the existing, in some elements specific gravitational areas. The first is proximity, respectively accessibility of work centre. Due to possibility of daily movements to work there was no stronger moving the population from the surroundings of work centres: on the contrary, single settlements from the surroundings became attractive for settling. The second factor originates, in our opinion, from community organisation of our country.

URBANISATION AND
Community organisation system influenced much on forming the gravitational relations in different fields of life and in work relations as well. Due to mentioned factors, the zone of more intensive daily migration of employed people is within the territory of municipalities. Strict congruence between the zone of the most intensive migration and boundary of municipalities of the most municipal centres directly indicates that, in addition to proximity and higher accessibility (by foot, by bike, by motorbike, by bus, by car) the mentioned political factor also influenced the migration (Lloyd & Dicken, 1972).
Economic development of Bosnia and Herzegovina was different in single periods of its socio-economic development. Dependence was the highest when Bosnia and Herzegovina had the lowest level of development and lower, naturally, as development was getting more dynamical and diversified. Historical development of Bosnia and Herzegovina shows that it has been a backward and undeveloped area for centuries.
It is closed by ranges of high mountains, which affected a poor urban development. In these social conditions economic operations were directly related to exploitation of natural resources at a very low level of processing. Extensive economic development, whose economic structure insignificantly changed over the time, was characteristic of almost whole period of development of Bosnia and Herzegovina.

Urban Population of Bosnia and Herzegovina
Urbanized population has rather high growth rates in the whole period. The reached level of urbanisation in 2011 (according to criterion by which inhabitants of the settlements bigger than 2,000 inhabitants are regarded as urbanised) of 49.5%, shows that Bosnia and Herzegovina classified into countries having a medium level of urbanisation.
An accelerated development of urbanisation in the period from 1991 to 2010 may be attributed to significantly greater role of smaller settlements that become secondary centres in the municipalities, which is in accordance with the proclaimed principles of polycentric development that is supported also by the first generation of spatial plans of municipality. Active population share in a group of settlements from 400-600 active inhabitants was 4.9%, settlements up to 200 active inhabitants 4% and 3.8% settlements with 200-400 active inhabitants (see Table 2 and Figure 1).
The highest growth of settlements was achieved in a group of settlements with 2,001-10,000 inhabitants, and the highest demographic growth achieved the settlements in the group from 50,001-100,000 inhabitants. The previous trends of the observed phenomena, as well as their anticipated development, indicate that in the area of Bosnia and Herzegovina there is a simultaneous tendency of concentration, as well as certain forms of dispersion.
On the one hand, that dispersion is a consequence of the form of settling in numerous (around 5,800) scattered rural settlements that are abandoned every day, but also keep significant share of population. On the other hand, a sufficiently dense network of the centres that represent points in space at which social efforts for more equal development are crystallised is developed.
However, in order to familiarize ourselves more objectively with urban structure of city settlements in means of the mentioned models in Bosnia and Herzegovina in 1991, by using census data, five urban settlements in which 45% population live were separated. In the structure of urban settlements according to size, total of 34 settlements up to 4,999 inhabitants were dominant. There were 48 medium-sized urban settlements from 5,000 to 19,999 inhabitants, whereas two urban settlements had more than 100,000 inhabitants. In five largest urban settlements of Bosnia and Herzegovina there used to live 16.72% of urban population, respectively 38.2% of total population (see Table 2). High economic growth is certainly a result of strong development of economic activities in Bosnia and Herzegovina, and in particular industry, which lead to essential changes in the structure of BH economy and urban development.
What regularly happens in processes of economic progress based on industrialisation, happened also in Bosnia and Herzegovina, in such a manner that this country essentially changed the structure of economic operations, and the agriculture and other primary activities participated much less in creating the social wealth. In the structure of economic development very dynamical changes have been shown, in the sense of expressed strengthening the secondary sector of economic operations, while tertiary sector did not develop in adequate measure.
Transforming the economic structure in direction of achieving greater modernization of development was considerably below the achieved modernization in developed capitalist countries. Namely, in West European countries primary sector makes only 5 to 6 percent of social product, secondary around 40%, while a significantly more developed tertiary sector of economy makes more than 50% of social product of total economy.

Conclusion
Interdependence of urbanisation forms and spatial mobility of population in Bosnia and Herzegovina is clearly expressed. Permanent moving the population to work centres still has a great importance in urban development. This induces further concentration and development of existing centres. A positive feature in such URBANISATION AND ECONOMIC DEVELOPMENT IN BOSNIA AND HERZEGOVINA 205 development is noticed in slower growth of larger cities (Sarajevo, Banja Luka, Tuzla, and Mostar) with certain tendencies of decentralisation, which is clearly expressed at Sarajevo. Satellite towns of Sarajevo experience faster development, as well as some smaller centres. The constant moving shows the tendency of decrease, and daily migrations get stronger. They improve development of urbanised zones.
High economic growth is undoubtly a result of strong development of economic activities in Bosnia and Herzegovina and particularly the industry, which leads to essential changes in the structure of BH economy and urban development. What regularly happens in processes of economic progress based on industrialisation happened also in Bosnia and Herzegovina, in such a manner that this country essentially changed the structure of economic activities, and agriculture and other primary activities participated much less in creating the social wealth.


The Newsvendor Problem from A Press Distributor Viewpoint

Newsvendor problem is usually considered from the selling point interests. The editor cannot optimize his profits without full information about the distribution at each point. The distributors generally use heuristic methods, based on their market knowledge and of past experiences. The assignment of supply to each point is based on optimization profits or costs, or, alternatively, trough hybrid time series methods. This allows generating a disaggregated estimation on global supply based on the editor policy about the maximum desired proportion of unsold copies and of outlets that run out of stock. This methodology permits an increase of productivity in the staff in charge of the distribution’s decisions can, introducing objective criteria for the assignment of services through a network of selling points. The total run out decided by the editor implies modifications in the decisions of the assignment process, in accordance with the distributor’s business objectives.

Introduction
The distribution of a perishable good, as a newspaper or a magazine, is done through a network of heterogeneous selling points with random demand. Generally, the assignment of services for each establishment is carried out by heuristic methods, based on accumulative experience [1]. The distribution company has to counteract the return cost of samples unsold, with those from the unmet demand due to undersupply. In the marketplace, data of the real demand are not obtained [2], as the agents are not encouraged to provide reliable information, and, therefore, they would rather prefer in general a higher service (supply) level [3]. The patterns of the demand's distributions allows to obtain, in an objective way, the optimal service level, the probability of sufficient supply at each selling point, and the expected lost sales due of running out of stock. With net connections at the selling points, the integration of sales evolution in a distribution database should increase accuracy of prediction techniques. Computer programs, including some of these ideas are been developed in Madrid, which provide press distribution software to several countries in Europe and America, use novel econometric and statistical procedures. Sirius program allows a press distribution policy using objective criteria, together with the heuristic system of distribution tables based on previous experience, and include some probabilistic patterns modelling the demand at each selling point during the period of display (one day, in the case of newspapers, a larger period for magazines). Some models are based on dynamic Poisson [4], negative binomial and other discrete distributions, depending in the average demand. The use of an arithmetic family of distributions allows a general representation of the demand in each of the points in a selling network, both for daily press and for magazines. These models are used in the optimization problem of distribution in a network; also to implement new tools that help to increase significantly the productivity of the staff in charge of the diffusion, and, to establish objective controls in the decisions involved [5]. An open line from which that can produce positive results in a short term is based on approaching simultaneously forecasting global demand, making it compatible with estimating the demand at the level of selling point, with the aim of being able of extending upstairs, that is, towards the editors, prediction services of the demand, and controlling distribution costs. The use of additional statistical tools should allow to tackle some particular events: Bayesian methods for some decision problems, dynamic models of time series, and neuronal networks are among them [6].Some cost/benefit functions are studied related to the diffusion process of daily press and periodical magazine [7], both from the distributor's point of view and from the editor's. These functions depend on two parameters: the unitary cost of returning an unsold copy, Pd, and the implicit cost associated to a sample unsold when a selling point runs out of stock, Pa. The optimization of costs or benefits is useful both from the editor's point of view and from the distributor's [8] treated real and simulated data using edition and distribution costs. Benefit increases with a more restrictive assignment of services can be obtained, taking into account the cost of returned copies and of unmet demand, and, at the same time, reducing the proportion of returned copies, without affecting sales.

Processes of Daily Press and Magazines's Distribution
The print run St, corresponding to t (a day, a week or a month, depending on the frequency of the publication), is usually estimated using dynamic econometric models, with intervention variables to include of extraordinary events (as promotions) that might affect the demand. In a network of k selling points, the proportion of the print run assigned to point j is pjt = sjt/St, so the services assignment or supply to this outlet, is sjt = pjt St, j = 1,2,…,k.. The basic aim of all distribution processes is to minimize the returned unsold copies, as well as the number of points that run out of stock, both at global level and at the individual selling points. These objectives can not be fully met at the same time. An alternative, not totally equivalent, aims to maximize benefits or to minimize distribution costs, merging the two original objectives. Nevertheless, the fact that the local demand is of random nature, prevents an exact estimate. Every day data are available: the sales data vjt, the supplied quantity, sit, and the number of returned copies dit, for all the selling points j = 1,2,…,k; these are stored in the distributor databases. Two additional quality measures of the distribution are the proportions of the returned copies and of the selling points which have run out of stock with kjt = 1, if djt = 0, and kjt = 0 otherwise. Considering a temporal interval t = 1,2,…,T, as the economic fiscal year, these two proportions are related, by an hyperbolic function, at = dt  + ε, that comes from a theoretical efficiency model based on Cobb-Douglas functions. Is used to evaluate the distribution process and for interannual comparisons.
In the economic literature there are numerous references to distribution problem with a random demand, as it is the case of press distribution, at one selling point. Others, questions concerning the estimate of the optimal quantity in the supply of newspapers to a store, are dealt with. The approach SPP, for one day or a predetermined time (for example, one week, in the case of a magazine which has this periodicity) is normalized to multi-period situations [9].
The criterion of maximizing benefits is the most frequent approach, as in Khouja [10]. A usual macro-economic approach is to consider the utility of the selling point or of the client, although, it is little practical as far as its implementation is concerned in an integrated outline, as a distribution software, because of the diversity of utility functions that may have each of the economic agents that mediate in the process.
The inclusion of distributor's and editor's costs and benefits has been dealt with in several papers by Rodríguez, [11] including applications to real data. All these developments correspond to an approach down-up, that starts at the basic unit (the selling point), in which it is assumed that the individual demand is originated by a probabilistic law to be determined, and whose parameters change with time. Statistical methods (generally. maximum likelihood) are used to estimate the distribution of the 'demand at one point'. From this, it is possible to proceed to an optimization of the distribution process, taking into account the aims of the agent which controls the distribution, that is, to minimize costs or to maximize benefits, or to minimize the unmet demand due to undersupply, including costs of returned copies and of undersupply. All interests of each part mediating in the process are included in the estimation of the level of service associated to each point. All distribution process may follow different strategies [14]. The usual procedure is to estimate the global demand, and thus the forecasted sales, Vt, for period t; the print run is obtained applying to it a discount rate d, decided by the editor: the maximum proportion of returned samples allowed. The print run is, then The up-down processes aim to determine the assignment of services sjt = pjtSt, j = 1,2,…,k for each point of the network. Several techniques are available, using the last n sales data previous to the day t, and being m the corresponding delay to the last available data. From this information, as well as the number of copies supplied to the j selling point in the same period, the estimated demand for the period t is obtained It is assumed (and confirmed with real data) that this distribution belongs to a parametric family previously identified (in our case, several arithmetic distributions and its continuous approaches) whose parameter(s), jt θ are estimated from the previous data (1) and (2). The specification of Dj is generally stable for each point. With the predictions of the demand at each selling point for the day or period t and the corresponding distribution of the demand, the estimate of the number of samples, or services, to be assigned for each selling point is obtained: being H the function corresponding to the level of service, which may be implemented in several ways:  by means of a system of heuristic tables based, not on the distribution of Dj, but on its parameters.  Using methods semi-heuristics with a basic model in which sjt depends on its immediate past (for example, the corresponding to the same day of the week in previous weeks), using optionally some models, as techniques of exponential smoothing, and corrections for meaningful events.  Identifying the distribution Dj and estimating a function H with a criterion of optimization, as might be to maximize the expected benefit B(sjt) or minimizing the expected cost C(sjt), or trying to control jointly the proportions of points running out of stock and the number of returned copies, limiting the probabilities of these situations. These individual predictions are ajusted to fit the global print run, in such a way that  Temporal models for sjt according the past data (1) and (2). Some simple techniques of implementing are exponential smoothing with its different variants; it is necessary to use weekly cyclical components. They have the advantage of its simplicity and they do not need a specification of the distributions D ( ) j jt θ , j = 1,2,…,k.  Methods based on the estimate of some parameters jt θ of these distributions (generally the mean and variance), using the data sets of data, with the corresponding filters to avoid weekly cycles. The implemented tables in Credimática's software are an example of these methods, and some variants of these tables of decision simplify the process. Again they have the advantage of its simplicity and they do not need to estimate the distributions of the demand at each point.  Estimates derived from the distributions D ( ) j jt θ , optimizing an objective function (maximization of expected benefits, minimization of expected costs, limits on the probability of returning a prefixed proportion of the service sjt, or of no running out of stock). The first advantage to this approach is the possibility of incorporating economic criteria in the distribution process, instead of the classic estimates from measuring the proportion of returned copies and the selling points running out of stock, and allowing the incorporation of a company policy in relation with the estimate of each sample unsold, with reference to the benefit produced by the selling. These procedures, together with the optimization of costs/benefits, improve the classic criteria of distribution. They allow even to make way to other subsequent developments in order to modify the demand estimates taking into account the print run. Other developments are possible with this method, to increase the productivity of the persons in charge of the diffusion process, as well as some more general approaches of the general problem of diffusion are possible. Obvious generalizations have been omitted in this exposition as they require some theoretical developments within the scope of the theory of stochastic process in order to have in mind the temporal self-correlation among the data (1) that difficult the application of classical statistical techniques in the estimation processes.
In what follows, the development is focused in the behaviour of a selling point, ommitting the subindex j which represents it. The third approach previously presented introduces some improvements that are going to be commented in the process of distribution: maintaining the sales level, the number of returned copies is reduced, and, at the same time, decreasing the number of selling points that run out of stock. Other developments, as the measure of the global efficiency in the distribution process for each temporal period and their comparison, will be brought up further on.

Analysis of Selling Point: Cost Function
The number of copies demanded, on day (or period t), at a network's selling point, j, is a random variable. The knowledge of its statistical distribution is necessary to optimize the number of papers to be supplied. Hereafter, we omit the sub-indexes t and j, as we consider this demand, D = Djt, always referred to t and j. Its distribution is determined by its c.f. FD(x), which is discrete and arithmetic. The corresponding probability function is fD(x); if the demand at the selling point is large it can be approximated by continuous density. The number of copies sold is limited by the level of service (at that date and selling point), s. The cost function, is thus The expected cost corresponding to the level of service s is Depending if the demand is treated as discrete or approximated through a continuous distribution. It is necessary a subjective estimate of the implicit price, Pa, due to an unmet demand of a paper. The cost of returning a copy, Pd, includes its value, delivery and recall costs, and those derived from the subjacent administrative process, minus its residual value. The second term is generally less important as the density of X decreases sharply. The global demand of a newspaper is easier to estimate than the distribution of D at each point, and the aggregation of assignments to the selling points must not differ much from the decided print run. The interest of this analysis of one selling point, considered isolated, is obvious, as a great number of daily decisions must be taken on the number of copies to be distributed in individual points, and the staff in charge will devote much time to resolve hundred of isolated problems that can be automated. The demand distribution is selected within a parametric family; arithmetic distributions of the kind C (a,b,n) wich includes some usual distributions (further on, a Poisson distribution is used). If the demand is large enough, it is possible to use as an adequate approach a continous distribution. In both cases, we are always dealing with parametric families D ( ) j jt θ , j = 1,2,…,k, on each of the points j of a network and for a day or period t. Again, we leave aside these sub-indexes, when dealing with a selling point, considering the distribution of the known demand in its form, except parameter(s) jt  θθ that need to be estimated.
Although a non parametric approach is possible, the parametric modelling techniques to forecast the demand for a s elling point is better from a practical point of view as it is precise enough to improve the technological productivity and personal costs. The estimation of the distribution's parameters is carried out from previous historic data. The aim of the decision process is to forecast the quantity of papers to be supplied to each selling point, through an optimization of some economic criteria and taken into account the company's policy: to minimize the expected additional costs, C(s), associated to inefficiencies in the distribution. or to maximize the expected benefits. In many cases a Poisson distribution is an adequate model to represent the daily demand, and Normal apprixumations can be used for establishments with higher sales. Both distributions are reproductive in relation with their average, and that is why the demand of a magazine over a period corresponding to its display for selling, will be fit to a family of the same family. Nevertheless, actually, sometimes it is possible to dispose of additional information, as for example, an important informative event, a commercial promotion, or a specific demand, what induces to introduce the Bayesian methodology. In summary, the main focus is to give some guidelines to apply optimal assignments of services in each of the points of a network.
There are companies specialized in the logistics of press distribution, each of them providing services to different editors; they also produce market studies and estimates of the print run. The responsibility of the assignment rests upon these companies. The retailers may influence the offer, but, except a few cases (as in big promotions) its influence is small. Frequently, due to economic and even sociologic interests, their perception of the demand may result misleading. The selling points usually pay a fixed canon for distribution rights, independently of the quantity of newspapers or magazines returned, what reduces their incentives to estimate accurately the demand, having the tendency to apply for an excessive number of copies, with the corresponding direct loss for the editor.
Although the function C(s) is defined for integer non negative values, if s is assumed continuous, C is continuous and derivable. Also it presents a minimum that is reached at a point near the one obtained in the discrete case. The marginal cost's function, C'(s), is used to obtain this minimum. The distribution cost increases with the print run, but present economies of scale. Unitary production costs are low compared to the cost of returning a copy. Their increase is less that the sales level at each point, as can be observed in the following graph, where functions of marginal costs have been presented, according to estimates of the parameter of a Poisson demand distribution. Distribution data corresponds to distribution data corresponds to a main daily newspaper, distributed in Spain, during 2007.  It is possible to observe that to find a relative minimum there should be a value t where As was stated by Caridad & Rodríguez [15].
These results are generalized for any usual discrete distribution. Thus, the function of expected costs C(s) has the following proprieties:  At least there exists a relative minimum for s > 0, or there is absolute minimum in C(0).  If the minimum is not unique, the are at sucessive integer values.  Starting from this relative minimum, C(s) is increasing. Therefore, the problem optimization is reduced to the estimate of a relative minimum of C(s).

Analysis of A Selling Point: Profit Function
There are several scenarios to specify profit's functions for an establishment: only costs of returned unsold copies are considered, or costs associated to unmet demand when running out of stock, and finally using both types of costs. Although the methodology used in each case is similar to the one followed in the minimization of costs, the supply, s, is similar but not totally coincident, as the criterion of optimization is different.

Maximization of Benefits Considering the Costs of Returned Copies
The function of benefits for a level of service, s, is being Pi the net income per copy sold. The expected profit is Available online at www.managementjournal.info Penalties associated to unsold copies due to running out of stock are not included. If the average daily sales, μ, is not too low (between 10 a 25 copies), the first term is practically null, for large values of s, and profits might result negative. It is necessary to specify the ratio between the profit from selling a paper and the loss associated to its return, that is ki = Pi/Pd. In some cases it is near to ki = 2, being then The shape of this function is given in the following figure:

Fig. 3: Profit function BD(s) with demand N (20; 3 2 )
To obtain the maximum, the marginal benefit should be null, and a numeric method is used. When considering the second derivative it is observed that it has two zeros, as expected in this family of functions; thus, there exists a unique maximum. The expected profit starts decreasing (it is clear in the case in which Pi > Pd which is the one considered).

Maximization of profits considering both costs
Now the costs associated to returned unsold copies and the implicit costs corresponding to the negative satisfaction of the demand caused when a point of sale runs out of stock, that is, a demand no attended, are taken into account.  Fig. 4: Expected profits, B(

s). Demand Normal N(20, 3 2 )
In this case the maximum is reached when s = 26.
In fact the form of the function is derived from the expressions of its first and second derivatives

A Case Study: A Point of Sale with Average Demand
Sales are not similar to demand, even if they are related as min{ , } V D s  The distribution of the random variable V is obtained from the distribution of the demand, truncating if with the service level, s, supplied to the point of the network. Thus the probability or density function of sales is Demand can not be observed directly, but only trough sales at each point, and with a time lag, due to the delay of m days while returning unsold copies to the distributor.
Using a sample of past values of supply and sales, (si, vi), i = 1,2,…,n, a fit process should be done, to identify the demand distribution. A parametric approach is possible, with the estimation of the parameters jt  θθ associated to sales distribution. For example, with a gaussian demand, this parameter is bivariate and sufficient. Of course experimental design is not without difficulties, as non independence between the observations is clear. One way to overcome this is to consider data separated in time several days. This is feasible for daily newspapers, using data from the same day each week. Even in this case, it is necessary to use stochastic non stationary processes, to take account the autocorrelation.
Once identified, the demand distribution could be used to forecast the supply needed, s, and to estimate lost sales due to undersupply.

Fig. 5: Sales and service for a weekly publication
A case study is presented (figure 5), comparing this methodology of supply forecasting with the usually employed by press distributors based on heuristic assignation tables depending on recent past sales. In each case, a data base containing time series of supply and unsold copies for every period (a day, for a newspaper) is available. For example, with a sample of daily Monday data of a mayor Spanish newspaper, at a point of sale in Madrid´s urban area When the point runs out of stock, real demand is unknown, but can be estimated using the proposed models, and avoiding costly market studies. The service decisions have been made using the classical heuristic tables, and in our modelling, a Normal demand distribution is employed. Finally, forecasting services, optimising profits with 2 id PP  : Using returned copies costs: s  50.
Using out of stock costs, with the maximun mean expected profits for the distributor, s = 35.95 = 36 Using both types of costs: s  50, 51 Lost sales due to undersupply are estimated in the following table Taking into account both types of costs (for undersupply and for returned copies), the assignation process based on the maximization of profits, leads to lost sales of 0.20% for this point, while if the distributor wants to optimize the expected income, this would increase to 7.19%. Using s = 41. based on costs of under and oversupply, losses would reach 2.67%. These ratios are based upon total real sales,and using total potential sales, they should be 0.2%. 6.8% and 2.6%. The real distribution applied to this point, using the heuristic tables method is provided in the following table.

Conflicting Interests between Different Agents and A Compromise Solution
An editor can maximize his expected profits not only acting upon his production costs, but watching carefully the distribution process. The terms in the contracts with the distributors are the principal factor that could lead to benefits or losses. Beside this, the editor would want to increase its sales at the maximum level possible. At a point of sales with a service level s, and with d papers unsold, cost and profit functions (fixed costs are not considred, as they do not influence short term distribution) are the following.
The unitary prices or costs are: Pf E, edition or production cost, Pd E unsold copy value, returned to the editor, Pa E implicit cost for the editor of a copy demanded and not supplied due to an underestimated demand. Unitary profits are: Pi E , editor's income for a sold copy, Pd E ,estimated loss due to an unsold copy, , Pd D cost for a returned copy beared by the distributor, Pa D estimated distributor cost for an unsold copy due to underestimation of the demand, Pi E . The distributor collects the sales proceedings and its commissions, as a fixed amount per point of sales Its cots and profit functions are The expected cost and benefit functions are C(s) and B(s).
In the short term, with perfect information, all agents involved would try to optimize their own profits, but maximizing sales provide different utility (and returns) for each of them. This situation could lead to inefficiencies in the distribution process. A point of sale desire is to maximize the number of papers sold, and bears a null marginal cost, thus, its trend would be to ask for a larger supply of papers; larger that the number supplied by the distributor who is limited by the additional costs of distribution and edition.
The agents involved should maximize their respective profits functions, reaching an equilibrium point in the short term. Conflicts of interest are natural, as the editor tends to supply a smaller number of papers that the distributor (and the points of sales) would like to. To avoid losses, the editor needs information about the number of copies supplied to each point, and the corresponding sales. The data at each point are available only trough the distributor. A close collaboration between the two is necessary to optimize the distribution process as a whole.For example, a point of sale with Poisson type demand, has the following expected income and costs  Deviations from the optimum can lead to losses for the editor, who is conditioned by the distributor's decisions. Thus, if the editor is not able to identify the demand distribution at each point of sale, his profits will depend on the distributor's decisions. Controlling an upper limit for the supply is not the main interest of the distributor. Its marginal expected profit is   The point of sale has no influence in pricing, and its desired supply should not be under the point which maximizes its marginal profit. The distributor has the same information to decide, but he will use the aggregated expected profits(overallthe network):  The value of the information is a central point in the contractual relations between editors and distributors, and could be solved by an ownership control of the distribution firms by the editors, or, alternatively, by agreements where the flow of disaggregated information about supply and sales, should be provided by the distributors. In Caridad and Rodriguez (2004), some generalizations are considered, as well as spatial and temporal problems.

Some Concluding Remarks
Press distribution is a well studied problem, usually from the point of view of the salesman. But others economics agents take part into it, with partially conflicting goals, depending on their commercial agreements and the legal restrictions. In Spain, editors are not usually in charge of the distribution, which is outsorced trough distributors. These operate with full information, but can only observe sales at each point of a network, but not the real demand. Deciding about the number of copies that should be sended to each sales point is conditioned by several factors, usually decided by the distributor, but affecting the editors profit and loss account. Modelling the demand is the only alternative to be able to optimize the whole process, and this should be done at each point of a network. If the editor does not have access to this information, the optimization will be at his own expense. One could determine the value of complete information versus a partial one. Many statistical problems arouse in the identification of the demand distribution at a point of the network. Some have been addressed here, and some others are been studied. For example, stational aspects of sales, temporal autocorrelation in micro data, spatial autocorrelation between nearby points, introduction of restrictions derived from business policies, and so on.Alternative approaches could be data driven, with obvious computational advantages (witch should not be overlooked); even time series models for sales are easy to implement, and the results are quite satisfactory. More complex models, like hybrid time seriesneural networks are even more promising, but for the computational burden, and the need of long series of data, which is not the case in monthly, or even weekly, publications.
This leads to the present development, that can be easily implemented, with appropriate software and that allows to include editor and distributors policies, adjust the distribution process trough all the network selling points according to the desired print run, and to optimize the economic objectives. It is been implemented in commercial software, and successfully used in several countries.


Labour Productivity and the Chaotic Economic Growth Model: G7

Chaos theory is used to prove that erratic and chaotic fluctuations can indeed arise in completely deterministic models. Chaos theory reveals structure in aperiodic, dynamic systems. The number of nonlinear business cycle models use chaos theory to explain complex motion of the economy. Almost three years after the crisis, the G7 countries continue to be challenged with economic volatility. The global economy has slowed. Growth in the United States has weakened. In Europe, economic instability is generated by the financial and economic imbalances. Europe is gripped with financial strains from the sovereign debt crisis in the euro area periphery. How these G7 economies confront their fiscal challenges will profoundly affect their economic stability. The basic aim of this paper is to provide a relatively simple chaotic economic growth model that is capable of generating stable equilibria, cycles, or chaos. This paper looks in more detail at the GDP growth stability issues in each of the G7 countries in the period 1990-2012 (Retrieved from http://www. imf.org). A key hypothesis of this work is based on the idea that the coefficient           m m p b p b p n i s p  plays a crucial role in explaining local stability of the gross domestic product growth, where, p—the coefficient of labour productivity; pm—the coefficient of the marginal labour productivity, sp—private saving rate; i—investment rate; b—percent of the gross domestic product which belongs to budget deficit; bm—marginal budget deficit coefficient; n—net capital outflow rate.

Introduction 
Chaos theory attempts to reveal structure in aperiodic, unpredictable dynamic systems. Deterministic chaos refers to irregular or chaotic motion that is generated by nonlinear systems evolving according to dynamical laws that uniquely determine the state of the system at all times from a knowledge of the system's previous history. Chaos embodies three important principles: (1) extreme sensitivity to initial conditions; (2) cause and effect are not proportional; and (3) nonlinearity.
The basic aim of this paper is to provide a relatively simple chaotic economic growth model that is capable of generating stable equilibria, cycles, or chaos. This paper looks in more detail at the GDP growth stability issues in each of the G7 countries in the period 1990-2012 (Retrieved from http://www. imf.org).
National saving is the source of the supply of loanable funds. Domestic investment and net capital outflow are the sources of the demand for loanable funds. At the equilibrium interest rate, the amount that people want to save exactly balances the amount that people want to borrow for the purpose of buying domestic capital and foreign capital. Figure 1. The effects of a government budget deficit. When the government runs a budget deficit, it reduces the national saving. The interest rate rises. The higher interest rate reduces investment and labour productivity growth. Further, the higher interest rate reduces net foreign investment (net capital outflow). The real gross domestic product falls as a consequence of the negative open economy multiplier effects and the negative investment multiplier effects.
In an open economy, government budget deficit, as a negative national saving, raises real interest rates, crowds out domestic investment, decreases net capital outflow, causes the domestic currency to appreciate. However this appreciation makes domestic goods and services more expensive compared to foreign goods and services. In this case, net exports fall. Further, the real gross domestic product falls as a consequence of the negative open economy multiplier effects.
Almost three years after the crisis, the G7 countries continue to be challenged with economic volatility. The global economy has slowed. Growth in the United States has weakened. In Europe, economic instability is generated by the financial and economic imbalances. Europe is gripped with financial strains from the sovereign debt crisis in the euro area periphery. How these G7 economies confront their fiscal challenges will profoundly affect their economic movements.
The G7 countries have experienced economic and financial turbulence. High budget deficits and debt, lower national saving, an decrease in labour productivity growth rate between 2000 and 2010, and tensions between saving and investment are weighing on growth in much of the G7 economies (see Figure 2). Also, the G7 countries experienced an decrease in labour productivity growth rate between 2000 and 2010 (see Figure 3 and Figure 4).  Labour productivity growth can be attributed to two causes: (1) technological progress; and (2) capital deepening. Capital deepening is the rate of growth of capital per unit of labor input. When the capital-labor ratio is increasing, each worker can increase production because the amount of capital available is growing.
The tendency in labor productivity growth in the G7 countries since the mid-1990s has attracted significant attentions because the labor productivity growth represents an important factor of economic growth stability.
Productivity growth in Europe exceeded that in the United States up to the mid-1990s, but since then European performance has slackened while the United States has picked up and taken a lead. High-tech sectors have played an important role in the acceleration of productivity growth in the United States. Europe did not benefit to the same degree from the productivity boost that came from the information technology revolution. The downturn in labor productivity growth in Europe may also reflect slower growth in capital-labor ratios. Total factor productivity growth in Europe may also have declined, while in the United States it may have increased. It is important to compare (see Figures 5-11) total investment (percent of GDP), gross national saving (percent of GDP), general government revenue (percent of GDP), general government total expenditure (percent of GDP), and labour productivity growth rate in the G7 countries in the period .

The Model
Irregular movement of the gross domestic product can be analyzed in the formal framework of the chaotic economic growth model: 10) where, S: national saving; Y: the real gross domestic product; NCO: net capital outflow (net foreign investment); Bd: budget deficit; S p : private saving; L: labour ; p: the coefficient of labour productivity; p m : the coefficient of the marginal labour productivity; s p : private saving rate; i: investment rate; b: percent of the gross domestic product which belongs to budget deficit; b m : marginal budget deficit coefficient; n: net capital outflow rate.
By substitution one derives: Further, it is assumed that the current value of the gross domestic product is restricted by its maximal value in its time series. This premise requires a modification of the growth law. Now, the gross domestic product growth rate depends on the current size of the gross domestic product, Y, relative to its maximal size in its time series Y m . We introduce y as y = Y/Y m . Thus y ranges between 0 and 1. Again we index y by t, i.e., write y t to refer to the size at time steps t = 0, 1, 2, 3, ... Now growth rate of the gross domestic product is measured as: This model given by equation (12) is called the logistic model. For most choices of p, b, n, i, s p , b m , and p m there is no explicit solution for equation (12). This is at the heart of the presence of chaos in deterministic feedback processes. Lorenz (1963) discovered this effect-the lack of predictability in deterministic systems. Sensitive dependence on initial conditions is one of the central ingredients of what is called deterministic chaos.
It is possible to show that iteration process for the logistic equation: (13) is equivalent to the iteration of growth model (12) when we use the identification: . Firstly, we transform data on the gross domestic product (Retrieved from http://www.imf.org) from 0 to 1, according to our supposition that actual value of the gross domestic product, Y, is restricted by its highest value in the time-series, Y m . Further, we obtain time-series of y =Y/Y m . Now, we estimate the model (15). The results are obtained in the next section.

Conclusion
This paper suggests conclusion for the use of the chaotic economic growth model in predicting the movement of the gross domestic product in the G7 countries. The model (12) has to rely on specified parameters p, b, n, i, s p , b m , p m , and initial value of the gross domest product, y 0 .
A key hypothesis of this work is based on the idea that the coefficient plays a crucial role in explaining local stability of the gross domestic product growth, where, p-the coefficient of labour productivity, p m -the coefficient of the marginal labour productivity, s p -private saving rate, i-investment rate, b-percent of the gross domestic product which belongs to budget deficit, b m -marginal budget deficit coefficient, n-net capital outflow rate.
An estimated value of the coefficient  was around 1 in the G7 countries in the period 1990-2012. This result confirms stable economic growth in the G7 countries in the observed period. However, if  < 1, then the gross domestic product will be decreased. However, national saving in the G7 countries has been relatively decreased (the decreasing slope of the saving function). The tendency of decreasing saving rates and relatively decreased savings in the G7 countries represent challenges for economic policies. Also, the G7 countries experienced an decrease in labour productivity growth rate between 2000 and 2010. The budget deficits have risen to high levels. In this sense, it is important to increase labour productivity, national saving, private saving, net outflow capital; and to decrease budget deficit through fiscal and monetary reforms.


The Requirements for the Development of Small and Medium Enterprises in Croatia and the European Union

Small and medium enterprises are the main institutional medium of the European economy. This is also recognized by the government of the Republic of Croatia, which emphasizes their importance and values their dynamism and capability for revitalizing the Croatian economy, and supports this by ways of subsidies. But, for all the effort, the economic position of small and medium enterprises in the terms of globalization is becoming more complex and uncertain, limited by time and more demanding. This does not correspond with the thesis which states that in the environment and conditions of the modern market economy, which is dynamised by progress in science, technology, information and communication, entrepreneurship has manifested a progressive dimension with the character and needs of all economic activity, as well as a tendency to achieve set objectives and generate change. Recently, after the repeated recession, which was encumbered by the effects of the one before, the conditions of doing business and survival for small and medium enterprises have changed significantly in a negative sense. So, there is a justified cause for questioning earlier stances about small and medium enterprises and their capability to be a motor of development of the Croatian economy, as well as to reevaluate their influence in the context of GDP growth, to focus on the importance and prevalence of certain sectors of the economy, to critically evaluate economic measures which do not lead to a reduction in unemployment and to define the requirements for future development of the small and medium enterprises, which implicates the increased economic efficiency, quality and living standards.

Introduction
Modern entrepreneurship has a dominant role in economies and societies, and those are often labeled as entrepreneurial economies, or entrepreneurial societies. Today's modern entrepreneurship, which is the most prominent in the economic sphere of society, represents a result of intense change in economics, technology, and Goran  politics in the world. In the liberal phase of capitalism it has achieved a remarkable evolutionary prosperity, in the monopolistic state-capitalist phase it faced stagnation, and a near-collapse in command economies. In the most recent scientific-technological age specific for market economies, entrepreneurship has received full affirmation and expansion. The historical and developmental complexity of entrepreneurship and its futuristic outlook insist on its organization through companies. Entrepreneurship appears to be a "general need" in all segments of society, independent of the heterogeneous spheres of interest: firms, institutions (including the state), profit and non-profit organizations. Inside every activity of a "society of change" there is a tendency to achieve defined objectives, primarily by changing set constants and new affirmation by setting more efficient, more adequate relationships, i.e., to articulate social interrelationships and the system of the work process. It is beyond question that the society is the first environment with which entrepreneurs must align their interests, so it is necessary that the interests of the state and other institutions converge with those of the entrepreneurs. Therefore, to achieve entrepreneurial goals, a procedure to receive approval of the state is necessary to invest capital in a needed sector at a given time and under given conditions, and to be compatible with the laws of the state and society (Ruža, Veselica, Vranešević, Cingula, & Dvorski, 2002). The dynamics and character of general social change manifest themselves differently not only in the quality of life, but also on the application of values of those changes in entrepreneurship.
Entrepreneurship is the accelerator of a state's economy, it is the key element to increase a society's competitiveness by generating growth and creating jobs. Its importance and complexity are apparent in many factors-economic, technological, sociological, and it includes employment, development, stability, and the level of education. Developing entrepreneurship strengthens the economy as a whole, through which material independence is obtained and hence the citizens' living standard is increased. Therefore, entrepreneurship should be incorporated in the economic and social system to secure their efficient functionality and development as well as the requirements of economic growth and social well-being.
Today, the question of emphasis on certain economic sectors (that is, the prevalence of one over the other) is given much attention to primary and secondary activities which have been considered as real and productive for a long time. Because of that, the service industry is still being thought as unproductive without proper argumentation. But there is a worldwide trend of increasing importance and efficiency of the service sector, which is confirmed by GDP growth in developed countries and developing countries during the 1970s and 1980s.
The service sector today comprises more than 60% of the GDP of the world economy which by service as a means of exchange manifests market value for both the supplier and consumer. Also, almost a decade ago, the percentage of employees in the service sector was in the range of 51.9% to 75.9% in certain European countries (Vujić, 2010). It is possible to conclude that modern entrepreneurship participates in a growing service sector of national economies, therefore it demands special attention and thought, especially in the context of extending institutional support to small and medium enterprises within the bounds of those sectors.

Small and Medium Enterprises in the European Union
In the European Union, about 99% of firms are established as small and medium enterprises, which is a binding argument that this question is approached to as a priority sociological phenomenon, because it gives a key to the solution to many existential questions of modern society-economic growth and development, THE REQUIREMENTS FOR THE DEVELOPMENT OF SMALL AND MEDIUM ENTERPRISES 651 competitiveness of firms, opening and retaining jobs. Small and medium entrepreneurship (SME) is an important part of every national economy, holding 60%-70% of all employment in the national economies of Europe. SME represents the key factor of social and economic stability. Therefore, the concept of creating competitiveness in small and medium enterprises within the EU is an acceptable solution by which the European community is trying to counter the competitive markets of North America and the so-called Asian Tigers, with the objective of being the survival of the European industry and entrepreneurship on a global scale. However, in spite of all the developmental determinants, the fact is that in the conditions of modern business, enterprises are faced with much difficulties in finding successful solutions to attain a stable economic presence and operative security for any future period.
Other sources state that small firms are the generators of new jobs, innovation, economic dynamics, and stronger social involvment in the European Union. Those firms add up to 99.8% of all firms in the EU, in comparison with the 43,000 large firms which make up only 0.2% of the total number of firms. In 2007, the European Union (EU-27) had over 20 million small and medium enterprises which employed about 75 million people (two thirds of the total workforce of the EU). About 30% of those firms pointed out growth as their main objective, as well as reducing administrative costs by 25% in 2012. That could increase the European GDP by an extra 150 billion Euro which would indicate a GDP growth of about 1.5% (Audretsch, Horst, Kwaak, & Thurik, 2009). To make that happen, it is necessary that equal effort is exerted by the European Union and its member states. The number of small and medium enterprises is growing progressively from year to year in a far more dynamic fashion than large firms, which can be read from the following Small and medium enterprises are the foundation of almost all developed economies, that is, the elementary institutional form of the European economy. The majority of employment is in such enterprises. They come into being as a result of individual business initiative, which often has a consequence of innovation. They are the basis of economic growth and development, they are more ecologically acceptable because of smaller energy use and cleaner technology. The participation of small enterprises in export is generally low, but because of highly specialized production, they have a high export potential. The European Union has set entrepreneurship, as well as innovation, as a priority in the Lisabon Declaration of 2000. From those objectives, policies to encourage formation and survival of small and medium enterprises have emerged, and one of those policies is the European Charter for Small Enterprises which was also signed by the states of the Western Balkans. In developed economies, small entrepreneurs often decide to form new companies to exploit a business opportunity, whereas in transition economies, entrepreneurship is often a way out of an unfavorable social state or unemployment.
Small and medium enterprises are the main source of employment, innovation, and social integration in Europe.

THE REQUIREMENTS FOR THE DEVELOPMENT OF SMALL AND MEDIUM ENTERPRISES 652
It is believed that the efforts of the EU in bringing a new economy to life will only succeed if small and medium enterprises are set as the priority of development (Škrtić, 2005b).

Small and Medium Enterprises in the Republic of Croatia
The With regard to qualitative characteristics of small and medium firms, there are those which are universal for all entrepreneurs, including the ones in (Mugler, 1993): (1) The entrepreneur is most often the owner and manager of the firm; (2) The entrepreneur has a network of personal contacts: buyers, suppliers, and the public; (3) The firm produces according to the individual desires of the consumer; (4) The contact between management and employees is close and informal; (5) Informal organization; (6) The firm can respond quickly to changes in the environment; (7) The firm has a small market share; (8) The firm has one or few products and is not diversified.
Starting with the problems, which are apparent in the EU as well, the European Union has created a model for encouraging the development of entrepreneurship which is based on three priorities: removing administrative barriers, adequate financial support, and education. Some authors have tried to connect the problems related to SME activity in the European Union with some overarching elements which cumulatively form the barriers of SME activity in the Republic of Croatia what can be seen in Table 2 (Observatory of European SMEs, 2007).
It is obvious that the Republic of Croatia has a far wider spectrum of barriers, so it is safe to say that entrepreneurs in the SME sector in Croatia have more problems, i.e., access to entrepreneurial activity is far more complex than in the European Union. Along with these problems, the development of small and medium entrepreneurship is encumbered by additional difficulties which show their resistance to all efforts of the state to resolve them. Those are (Singer, 2004): (1) an inefficient judicial system; (2) property records; (3) an educational system not focused on entrepreneurship and related topics; (4) getting loans.  The differences between SME and large firms are evident in the narrow-scope and broad-scope strategies with all the advantages and disadvantages of approaches in Table 3. Table 3 Approaches to Measuring Efficiency Narrow-scope Broad-scope Specialization Generalization Concentration on quantity and know-how Focus on information and systems Specialized production processes A comprehensive production process Automatization Mobile automatization Quality due to control Quality due to process handling Hierarchical and beaurocratic systems Network system Large round flow Several smaller flows "One behind the other" "One with the other" It is beyond question that focusing on just one of the two philosophies would be unacceptable, that is, a wrong approach. Therefore, the stability of the Croatian economy must be found in a balance between the two approaches.
The importance and complexity of entrepreneurship are evident in many factors which have a direct impact on it, from economic and technological to soicological, and include employment, developments, social stability and education. The development of entrepreneurship strengthens the economy as a whole, which leads to material independence and a higher standard of living. Therefore, entrepreneurship should be incorporated in the economic and social system to increase their functionality and development and secure the requirements for a growing economy and social well-being. This conclusion is supported by the OECD (Organization for Economic Cooperation and Development) which emphasises that competitiveness is the measure of a country's ability to produce goods and services which meet international standards in a free and egalitarian market, while at the same time retaining the long-term increase in the real incomes of its population (Kutnjak, 2010).

The Requirements for the Development of Small and Medium Enterprises in Croatia and the European Union
The global market favors large firms because they are associated with large investments, market research, THE REQUIREMENTS FOR THE DEVELOPMENT OF SMALL AND MEDIUM ENTERPRISES 654 advertising, huge capital strength and so on, which small and medium enterprises cannot hope to parry. However, the SME sector provides an opportunity to apply modern solutions and practices of developed countries, on which their competitive and economic strength is based. This primarily means: the transfer of modern technologies, a larger share of investment in research and development, constant innovation, adaptation to market changes, application of the newest trends in management and organization, inclusion in worldwide trade, and encouragement of an entrepreneurial spirit which always moves the boundaries of firms, economies, and countries (Kersan-Škabić & Banković, 2008). The fact is that entrepreneurs are faced with many obstacles.
Compliance with administrative regulations and associated costs are a significant burden. In spite of the recent improvements, entrepreneurs still believe that administrative barriers are the basic obstacle in starting a business.
On the other hand, education should encourage entrepreneurial activity through nurturing a right way of thinking and a sense of opportunity. Having in mind the fact that personal and organizational skills are also of vital importance to achieve success, those skills should be recognized and encouraged in early phases of education.
Adequate tax measures can also contribute to the development, growth, and survival of companies. The complexity of taxation systems is an administrative burden in and of itself. The bottlenecks in the labor force create difficulties which can slow down growth-more effort is required to develop worker skills and qualifications. The growth of demand for highly qualified labor has surpassed supply. Today, many entrepreneurs are involved in lifelong learning programs, but at different levels (Zelena knjiga-Poduzetništvo u Europi, 2003).
To exploit the advantages of the internal market of the EU and to face the challenge of stronger competition, Croatian entrepreneurs should be encouraged to innovate and internationalize. They should have access to relevant information, contacts, education, and top-notch assistance. The pressure of competition entices firms to continually use new knowledge and innovation.
Small and medium enterprises are key to achieving growth and creating new and better jobs which are the two most important goals of the Lisabon strategy. They represent the greatest source of employment, entrepreneurial skills, innovation as well as economic and social cohesion in the EU. By increased efficiency and innovation in firms in terms of organization, processes, products, services, and markets, the competitive strength of the economy grows. This process gives consumers an advantage by offering a wider choice of products and lower prices (Škrtić & Mikić, 2006). For the development of small entrepreneurship there are several criteria to be met: knowledge, capital, and social influence.

Conclusions
The European Union and the Republic of Croatia have a common goal with respect to the treatment of small and medium enterprises, their importance and further development. With that in mind, the EU has set a priority objective: to be the most competitive and dynamic economy in the world, based on knowledge, capable of sustainable growth, with a tendency to increase the number of quality jobs and to strengthen social cohesion. The government of the Republic of Croatia has pointed out small and medium enterprises as an especially important developmental resource and a generator of growth in the Croatian economy as a whole in its project "Croatia in the 21st Century". Although the small and medium firms in Croatia lag behind their European counterparts significantly, the EU is still an opportunity for Croatian businesses. In cooperation with businesses from the European Union, Croatian SME's can and must use their own imagination, individuality, creativity, and business THE REQUIREMENTS FOR THE DEVELOPMENT OF SMALL AND MEDIUM ENTERPRISES 655 spirit. Small entrepreneurship does not stand a chance to prosper if it stays on the local market. A unified Europe opens a window of opportunity as well as a learning experience for Croatian businesses on a regional market with cooperation and joint ventures with small, medium, and large businesses of the EU. The European Union is more of an opportunity than it is a pitfall for Croatian SME's if, of course, the opportunity can be recognized and exploited (Škrtić, 2005c). Such a conclusion is supported by the OECD, which points out that competitiveness is the measure of a country's ability to produce goods and services which meet international standards in a free and egalitarian market, while at the same time retaining the long-term increase in the real incomes of its population. It is worth noting that forumlas for success do not have to be, and generally are not, the same for every situation.
With that in mind, conforming to external conditions depends on balance, mobility, and specialization of future development as well as fulfilling objective requirements for development and their criteria. With that, small and medium enterprises ensure competitiveness, minimize the tendency to monopolize, and increase wealth and diversity of supply as producers.