Sustainable development of economics and corporate system as a basic element of its structure is the priority objective of the state policy at the present stage under the conditions of global financial crisis. The achievement of this objective is possible only in the complex binding with the investigation of economical growth processes, increase of population income, competitiveness, innovation development, attracting of investments and improvement of ecological situation in the regions (Fig. 1).
Fig. 1. Sustained development scheme of Russian economics and corporate structures
It is necessary to point out that the achievement of sustained economics development at the expense of internal resources use is impossible without sustained growth.
The notion «economic growth» has divergent interpretations in the scientific literature. At present this notion is expand, including more and more necessary conditions of production scientific and technological, innovative, social and economic nature and the impact of foreign economic factors. From the viewpoint of quantitative description, economic growth is a process of gain of gross national product or national income of the country for a definite period (quarter, year) of time.
S. Kuznets, who first introduced the notion «modern economic growth», considered the economic growth to be «long-term increase of economy ability to provide more and more distinctive needs of population with the help of more and more high performance technologies and its corresponding institutional and ideological changes». High rates are a distinction of such growth from a perspective of quantitative evaluation.
Ye. Yasin confirms that a source growth is «an initiative release, reinforcement of economic activity stimuli, optimization of resource allocation and, eventually, enhancement of efficiency».
R. Solow proposes a formula of «golden rule of accumulation», which describes the optimal level of capital endowment for consumption. As a result, «golden rule» determines optimum inventory of the capital and its economical efficiency, which is necessary for the sustained development of economics with high level consumption.
At the present time, experts talk of slowing down of the economy, beginning from the second half of the year 2008. and to the year 2010 there is no view of increase in the economic activity.
Generally, the rates, reflecting its development dynamics are used at the consideration of complicated system (whether it is national economics or corporate entities) and the evaluation of performance.
Exposure to external factors leads to fluctuation of constituent parameters, which should be within the control points for preservation of balanced, stable condition of the system. In such a way, we will consider the stability of economic system and corporate entities from a perspective of their ability to preserve constrained parameters under fluctuation conditions. It is necessary to define the constrained parameters in particular, the preservation of which may be necessary for the specification of stability notion. Thus, annual increase of GDP at the rate of 5-7% is used for the specification of economic growth parameter of national economics. We suppose in our work, that if the system may be defined as sustained, then minor changes of small parameters are not able to lead to sharp changes of main variables.
As already stated, the notion of sustainable growth is miltifactorial, including innovative activity, growth of investments, competitiveness and socioeconomic welfare, efficiency of resource exploitation. Competitiveness, as a high importance indicator of operating results in corporate entities at corresponding levels (sectoral, regional, international) sale market. Furthermore, competitiveness is a powerful challenge for the development and modernization of corporate entities and national economics as a whole. Accordingly, competitiveness of regional corporate structures is production of competitive products at the efficient use of resources, attraction of investments, cost reduction at the expense of innovations; implementation in the production process; securing of human wellbeing steady growth in the region; program preparation of environmental development in the region, which should eventually lead to sustained growth. It is necessary to point out that high level of competitiveness can be determined by the market conjuncture, at present experts speak about «unstable competitive advantages and high risks of their loss».
Consequently, sustainable development of national economy as a whole and corporate structures, in particular, is inseparable from the solution of social and economic development problems and increase of competitiveness level at all levels.
Another important stability parameter of economical system is valuation of innovation activity of corporate entities and the degree of state involvement in this process. At the moment, there are high technology corporations in following branches of industry in Russia: atomic, aircraft, rocket-and-space, fuel and energy and petrochemical complex, as well as electronics manufacturing industry and communication industry. Securing of adequate level of innovation activity is possible, in the opinion of A.S. Davydenko, only «with the help of implementation of innovation wave conception, built and realizable within the innovative flow of corporation».
The essence of conception consists in forming the life cycle of innovation projects in order to secure the achievement of its minimal level (Fig. 2).
Fig. 2. Innovative project life cycle
The use of innovative flow principle in hi-tech corporations, a complex of innovation projects, under which the implementation of innovation is carried out, appears to be a pre-requisite. The effectiveness of innovations is measured by aggregate results of production, economic and financial business of corporate structures, engaged in innovations. It is necessary to point out that quantitative evaluation of innovative activities is the volume of produced and sold products. Qualitative structure of innovative products is measured by the specific weight in the structure of modified or newly implement goods, export innovative products, new product line, production, which is under the license and has legal protection.
Quantitative assessment of corporate entities competence in the regions, as a basic constituent o social and economic steadiness of national economy, seems to be the most up-to-date at the present time, as we think. To our opinion the empiric constituent of sustainable development results in the determination of stable historical series, which consist of successive values of factors, specify the process state in definite, equidistant time points and are the key factors at the present stage of development of the country and regions.
Time series steadiness reflects the predominance of regularities over the random variations of its levels. Generally, we may trace a clear trend line of the developmental process of the studied event at the assessment of stable series. Moreover, steadiness of time series may be defined, depending on the trend line direction both as a sustained growth, and a sustained decrease. Changes, which do not fit in the overall picture of trend line, give evidence of incomplete steadiness. Chaotic change of progression level suggests system instability. Ye.I. Tihomirova suggests to use the Spearman correlation coefficient as an indicator of trend line steadiness.
Such values of spearman rank correlation specify the complete stability of level increase or decrease. At the chaotic alternation of periods the spearman coefficient tends to zero. Among the disadvantages of the coefficient there is low sensitivity to minor changes, as well as its applicability at the presence of some observation. Ye.I. Tihomirova suggests to decrease these disadvantages by the use of developed indicators of KYR growth steadiness. A set of conditions was used for the development of this indicator:
KYR variation range falls within the limits of from 0 to 1;
the layer of each succeeding range is higher than the preceding one at positive dynamics, and KYR =1, otherwise KYR =0;
the denominator in arithmetic formula of indicator cannot be equal to zero;
unstable conditions are within the range from 0 to 1, not including extreme values, steady-state conditions correspond to one, unstable — to zero.
Fig. 3. Algorithm of relevant situations for the consistency growth indicator
The formation of corporate entities is induced by natural processes in Russian economic territory: the growth of business, when considerable amount of work emerges, money flows increase rapidly, various capital investment projects are carried out , extensive network of subsidiary enterprises originates. Corporate entities interact with other economic agents (state, suppliers, contractors, credit establishments etc.) directly or indirectly in the progress of development, thus, forming a complex interdependent system. Behavior of economic agents (system elements) is imposed by its objective achievement, the main elements of which are maximally productive activity with attraction of material and technical, and social resources, strengthening of present and capturing of new market power, elimination or weakening of business rivals.
In the present circumstances there appears a natural desire in an economic entity to form a range of measures, which allow to prevent or reduce the negative effect of external environment and adjust to the prevailing conditions, which do not show any negative influence on its sustained functioning.
At the moment, there is no unique definition on the subject matter and the concept content of economic system steadiness in science. As it was stated previously, corporate entities, which constitute a complicated structure, comprising its interconnected elements, accumulate and transform considerable resource flows, making new management forms. It is impossible to secure a settlement of the exterior problem, which is the assimilation or absorption of completed or caused to be completed, without quite successful implementation of the inner problem, which is perfection of the own organization. Perfection tasks of organization, growth of system orderliness are the tasks of orthogenesis. Accordingly, development involves the orthogenesis demands submission not only to the external nature, but to the internal nature of changing formation. Within a system, involved in the developmental process, the structure, responding to the decision of the new class of task, is always built from «locally available materials», from those elements, which are really involved in «business». The bearer of activity changes, modifies himself, not postponing the process of inner rebuilding for the better time. Partial changes in the content absorbed outerly involve partial changes in the structures, ensuring such assimilation, self-determination as a consequence of determination on the external circumstances of special modality, special quality. Accomplishment of various actions on the medium elements, which have a certain modality, qualitative specifity, is called a function. Structural complication of the bearer’s activity begins with the rebuilding of its function. Not every functional relationship may be considered reasonable, but this does not mean that functionality cannot be the type of causality.
The shift in rebuilding of internal structure means transition of the gravity center from the successful solution of exterior problems to successful implementation of inner problems. Being modified, the system enters into relations with new sides of the the surrounding medium, exploding at the expense of its self-transformation into the situation, where it was previously. Its impression on the external existence grows up as much that the system changes not only itself, but its interrelation manner with the world around. One breakout into the rebuild medium involves a second one, third one etc.
Describing progressive advance as a restoration of the first ambiguity (of the first spontaneity) at a higher level, V.G. Hegel writes: «Every new stage of going outside, i.e. further definition, is also some going inside…». Such outcome contains its beginning, and a further movement of some common beginning enriches this beginning with new definition.
At the present time, transformation of business in corporate entities is an objective process, under which massive capital investments projects are carried out, cash flow increases, a branching network of subdivision is separated, the necessity in cost optimization appears, as well as deduction of taxes and other compulsory payments. In this particular case one may talk of natural process of origin of corporate entities, this process touches both big, and small businesses in this or that form. Forming elements may be divided depending on their nature into:
productive (instruments of labor, subjects of labor, regulating operation rules and norms, volume of output, implementation of new scientific achievements in the production process, realization);
social (labor collective, its employment training, educational attainment, knowledge and skills, interpersonal relations, formally and informally regulating norm relations, commands);
financial (political situation within a country and the world, tax policy, presence of demand and supply on the output, foreign-exchange fluctuations, inflation economic relationships with credit organizations, supplier and contractor, output quality);
environmental (complex of environmental protection measures, focused on the elimination or prevention of infliction of injury to the environment, in the course of economic management).
According to our reckoning, corporate entity is sustained if the interrelation between constituent elements in the consequence of affect of adverse factors on it, securing its existence and development as a single organism, will return to the balance as soon as possible at the expense of accumulation of own resources, i.e. a corporate structure is sustained when changes of external factors exert immaterial effect on the internal relation structure. Various researchers consider economic resilience to the effect of loss risk from a perspective of non-susceptibility of corporate entities in the course of implementation of business activity. Other researchers suggest balance of inverse factors (for example, demand and supply, income and expense).
According to our reckoning, development of stability system is impossible without the objectively formed management system.
Lack of consensus of academics on economic resilience only confirms that there is still no single theoretical foundation to the question. According to our reckoning, stability of corporate entities is closely related to financial stability, under which the implementation of business activity in the uncertain environment and risk is regarded, as well as severe competition, for the purpose of satisfaction of individuals, social stratum and society as a whole strengthening of dominating market power, in comparison with business rivals, realizing peculiar activity within the law and observing public norms and regulations.
Integrated complex analysis of performance indicators of corporate entities is carried out, the interrelation and interconnection of production factors is defined, the required reserve for further development is shown up for the implementation of business solvency valuation of corporate entities.
The complex of economic analysis basically rests upon the processing and interpretation of various information, derived from bookkeeping, analytic, planned and other types of records on the activity of organization in combination with impact of social, political, and institutional factors.
In the opinion of some experts, realization of complex analysis is required only at the origin of unforeseen circumstances, when hard problems appear, when the solved problem resolving on several interrelated blocks, for the displaying of a problem from all sides and provision of ways of their solution. However, according to our reckoning, management of complicated system is impossible without realization of fundamental analysis of the cause-effect relationships for the purpose of adoption of optimal decision. As corporate entities constitute a system of interrelated components, with complex, or even random structure of relations with the external environment, it is necessary to perform diagnostics of each system element. There are no insignificant, unimportant elements in the system performance, therefore it is important not to put the slightest changes out of account, as the range of transformations in one element has an impact on the system and eventually on that very element (the principle of feedback). Therefore, it is efficient to use a multiple factor analysis for the assessment of of resistance of corporate entities.
Corporate entities, as a complex open system, actively engage and have impact on the external environment, conversely, external heterogeneous environment induces transformation of the system according to the impact of new terms. It is efficient to reveal and consider the exposure of both internal (related to the activity of economic entity), and external (independent of the company activity) factors in the course of evaluation.
Factors, used for the evaluation of financial stability of corporate entities, can be divided into the following groups:
factors, which have influence with the financial stability of corporation. This may be the analysis of liquidity, creditworthiness, liability, rate of inflation, changes in the currency exchange rate, tax and other compulsory payments, competitive environment;
factors, specifying the risk level: analysis of bankruptcy, effect of the market on company operation (systematic risk), credit, investment, environmental risks;
informative factors, which are used as major sources at the stability analysis of corporate structures. Among these are the data on bookkeeping, financial, budget, planned and other recordings of the economic entity.
L.T. Gilyarovskaya and A.V. Endovitskaya propose the following complex analysis structure of creditworthiness, On their opinion, it represents a scheme with fourteen interrelated modules. The first module represents preparative, draft analysis of operating results, financial receipts for the financial period. Then they consider a big block, consisting of eight modules, which are focused on the revelation of growth and effectiveness of factors. In other words, they practice the method of factorial analysis in the evaluation of financial stability of corporate entities. L.T. Gilyarovskaya and A.V. Endovitskaya consider such factors as: asset liquidity, creditworthiness of the company, evaluation of financial leverage, capital and obligation, influence of inflation rate and foreign-exchange fluctuations, taxation system, analysis of cash flows, distribution of profits and funding of additional financial reserves, stability analysis of business segments inside of a given method.
Then there are blocks, which study the effect of risks, information, planning on the stability of economic entity General assessment of business solvency impact on business reputation and investment appeal of economic entity comes from twelve blocks considered above. Tendency of creditworthiness is regarded as the last module, on which basis a set of measures is elaborated on the stability improvement of corporate entities (Fig. 4).
The authors of this scheme make a pointed reference on the strong interrelation between the first and last modules, as based on the analysis of the existing tendency, changes of financial stability may be build upon the prognosis of operating results of the economic entity (principle of feedback).
At the beginning of ХХ century emerged theories, which became fundamental in methodology of system analysis and organization administration in the economic science. These are conceptions of life cycle, wholesale markets, population ecology, theory of organizational capacity.
Fig. 4. Module complex analysis scheme of business solvency within a company
Life-cycle concept. This theory considers the development of system in time, «life cycles», where the company has basic stages of formation, peculiar for any living system: origin, development, maturity, regression (recession). In addition, the majority of scientists agree that the last stage does not necessarily end by the company liquidation, a variant of degeneration is possible. Let us consider each of several cycles detailed (Fig. 5).
At the stage of new business origination the company runs into a variety of problems, associated with advertising, trade name promotion, customers search, equipment with manufacturing facilities. The question of search of source of funds and distribution area becomes acute for the owners of a «recently born» business. It is necessary to point out that the company widely uses strategies of overall cost leadership, differentiation, focusing and merger (fusion of business) at the stage of origin.. A young company in the struggle for a place at the market should use all available competitive advantages from its reserves at this stage, beginning from the reduction of prices and attraction of talented specialists to the implementation of innovative technologies in the production job. The obtained short-term returns should be converted into a long-term competitive advantage, and dominating positions at the market may be gained by the reduction of production cost, variety of goods, use of the recent development in science and technology, correct assessment of the existing situation at the market, flexibility and customer focus.
If the company succeeds in interesting the consumers with the produced goods, it can be switched to the stage of intensive growth. This stage is specified by the increase of employees, build-up of production volume, quantity of traded commodity, filiation growth. Transition from the growth stage to mature stage is characterized by tightening up at the market, production growth retardation, constant level of income. At this stages companies may face the following problems:
the competition is increased at this market segment;
consumers become more and more demanding, and manufacturers depend up the customers’ preferences, which facilitates the escalation of costs;
further increase of production capacities becomes unjustified, as product has gain its market segment and products-substitute shave appeared.
constant implementation of innovative technologies for the keeping of customer;
development of international market;
severe competition promotes the development of mergers and acquisitions process.
The stage of stagnation is characterized by the contraction of the volume of production release, lowering of profitability index below the acceptable value, removal of business rivals from the positions taken up at the market, possible cancellation of a firm. In this situation another scenario of further company development is possible, which is the transition to the next level of development but with a new product, which should pass the stage of origin, intensive growth, maturing and stagnation, if the conditions are favorable.
Each stage provides certain financial resources for company development (Fig. 6).
Fig. 6. Company life cycle and financial resources availability at each of these stages
It is necessary to point out that business cycle of development is common for any system. The economic science defines the following cycle types:
major cycles – «Kondratyev waves» with the length of 50-60 years, connected with the life cycle of basic capital, buildings and structures, human capital assets;
medium-term «Juglar cycles» (7-11 years), characterized by a complete wear and replacement of the basic capital;
short-term «Kitchin cycles», expressed in supplies of commodities, imbalance between demand and supply.
Every life-cycle stage of the company has its specific corporate strategies. It is possible to detect a compliance to the internal company environment at the correlation of organizational objective with its strategic orientation.
It is necessary to point out that every stage has the emergence of value systems together with the intracompany setting, which regulate the activity of the company for the objective fulfillment.
Corporate system passes the stages of value system parallel to life-cycle phases.
The initial stage has a typical «crowd» setting, which rests on the interpersonal relationships within the company. Norms and principles of communication are formed among the employees, the informal code of behavior is also established at this stage.
At the stage of company development the setting «crowd» is transformed into «mechanization». Awareness of activity structure, adjustment of internal organization is typical for this period. The process of management reshuffling begins at this stage, «nice boys» for informal socializing are dismissed, their place is taken by highly skilled experts.
The theory of company’s life cycle promotes a more precise definition of goals and objectives, facing the company, as well as contributes to the efficient elaboration of personnel policy.
In this connection, it appears to be relevant to carry out a business solvency analysis for every stage of the company development.
The strength valuation of corporate entities appears to be unreasonable and extremely difficult, unless defined by the users of this information. They are commonly divided into internal (employees, owners of the analyzed company) and external (regulatory, controlling state organs and other economic agents, which have limited access to information) in the economic literature. Let us introduce the classification of information user subject, which is received in the course of business solvency valuation in terms of the following scheme (Fig. 7).
Fig. 7. Classification of users on the appraisal value of financial stability of the organization
Our classification defines basic groups of external information users, who get it on the grounds of regulatory documents, controlling the realization of business activity within the Russian Federation. On the first hand, these are state organs of supervision and control, tax administration, statistical authorities, management committees of federal property, audit companies, law enforcement bodies. On the other hand, these are financial and credit institutions, insurance, and investment companies. In the third place, these are business partners both domestic, and foreign ones: suppliers, contractors, agents. In the fourth place, these are economical agents, which do not have a direct relationship to this business, consultative agencies, mass media, exchange markets etc. There are not available ample resources for the analysis and evaluation of company’s activity sustainability in the arsenal outsiders, and therefore, information acquires value of commodities.
Internal users are not always able to read financial information, therefore its assessment get through the intermediate party: accounting department, and planning and economic department. Source information on economic events is recorded in the accounting records in practice. Then it proceeds to the planning and economic department for analytical treatment, where with the help of metrics the reports are formed, and prospect predictions are given. Analytics, formed in such a manner, is received by company management and principal shareholders, owners, who take necessary decisions for further running of the company relying on the results of the conducted analysis.