The Small and Medium Enterprises (SME’s) have lagged behind in the adoption of the realization of the potential engraved in Electronic Commerce (E-commerce) both in the local and global economy. The adoption of the Informal and Communications Technology (ICT) has been fully embraced by large-scale enterprises, and their final results have been evident from their increased profit margins.
Although there are several instances where SME’s have made great use of the Electronic Commerce system for several productions- related and commercial purposes, most of these enterprises have a limited understanding of the full range of benefits they can accrue from the use of E-commerce. This dissertation presents a vibrant discussion on the reasons as to why the Small and the Medium Business Enterprises ought to adopt and fully embrace the Electronic Commerce system and the determinants for adoption of these systems in developing countries. The paper will navigate around the background behind the adoption of the E-commerce system both in the local and the global markets. An exploration of the different E-commerce systems used in different markets and countries will also be made with a great emphasis being put on the developing countries. Moreover, a background of the economic levels in the developing countries will be made, and a clear revelation of how these economic systems, rules, and regulations will affect the adoption of SME’s is also explained. Furthermore, the paper will also discuss the relevant theories applicable to the adoption models in SME’S and a detailed, clear and precise research methodology will be presented. The issues arising from the research are then discussed in the paper and several debates surrounding these issues, and this eventually leads to the identification of key themes in the research problem. The results and findings from the research are presented, and they have provided a clear analysis and explanation on why Electronic Commerce should be adopted by the Small and Medium Business Enterprises. The research findings reveal that need for SME’s to quickly adopt the E-commerce system as the benefits obtained from the system surpass the drawbacks, and the changing technological terms are also proof that E-commerce will be the ultimate deal for all business enterprises, whether small, medium or large during the coming years. The dissertation then concludes with a discussion which is a summary of the entire paper highlighting the overall importance of E-commerce to the business and the cooperate world.
Section 1
1. INTRODUCTION
Institutions termed as SME’’s can be referred to using many definitions depending on the economic size of the country thus giving the SME’s a commercial meaning. A clear definition of SME’s and their size criteria appear to be a controversial subject as most countries define them using the number of employees that they have. On the contrary, some institutions think that the enterprise turnover holds more meaning when defining the SME’s. World Bank defines the microscale SME’s as having less than 50 staffs, the small scale as having 50 employees while the medium scale SME’s are defined as having between 50 to 200 workers. The cases of a tremendous increase in inflation and productivity have led to SME’s being often changed as economic developments need to be accounted for in the business environments’.
In most emerging markets, there have been disparities in the adoption, implementation and the use of E-commerce by most small and medium business enterprises both in public and the private sectors. The SME’s has formed a great representation of the global and local economic markets. The SME’s have been known to be one of the greatest employers not only in the United Kingdom economy but also in the entire world. The SME’s also account for about 47 percent of the private sector employee’s turnover, and this makes their numerical importance to be apparent. The SME’s are also considered to be a crucial part of a healthy economy with the role they play of job creation and fostering innovation and with the combination of their ability to make rapid adaptations even with the changing marketing conditions. The SME’s also perform a conceptual function in the modern economy through sustaining the notions of competition and prospect.
In most developing countries, the SME’s have promoted the new philosophy of globalization and neo-liberalism which is very different from what was experienced in the 19th and the 20th centuries. These ideologies place more emphasis on the roles that SME’s play in the promotion of economic efficiency, healthy business climates and power that supports the economic growth and development in the developing countries. On the other hands, these enterprises have gained far much more important in developed nations and economies, and they have not only gained the proficiency of quick adaptation but are also able to work with less capital, a more intense workforce having reduced their production and management costs. All of the above advantages are enjoyed by SME’s in developed economies as a result of the full adoption of the use of Electronic Commerce.
The SME Enterprises are a great contributor to the regional and national development in most of the developing countries. Some of these developing countries have implemented the support for SME’s in various policies and programs, and some of these programs have been implemented to facilitate the improvement of entrepreneurship and innovation in the SME’s.
These organizations also play a vital part in the economic and the social cohesion of countries, and it also has a significant contribution in the gratification of the various objectives of the social economy such as outputs, promotion of exports, improved employment rates and the fostering of entrepreneurship. SME’s has been estimated to contribute to over 50 percent of most countries’ Gross Domestic Product (GDP) and over 65 percent of the employment rates in developed countries. In low- income countries, the total GDP contribution by SME’s is over 60 percent, and the employment percentage is above 70 percent.
However, most of the developed countries have adapted to new technological changes as a result of the technological advancements and the changing competitive and innovative strategies as a result of the globalization process in the economy.
The E-Commerce has also facilitated significant productivity gains in these firms especially in issues relating to the electronic technologies and business-to-business interactions that can result to the rationalization of the business processes and leading to saving the costs.
The technologies have also made an immediate impact of allowing the automation of common processes such as in sales, after-sales and the distribution process and practicing of inventory management. Furthermore, the development of internet solutions has been primary for the development of the distribution channels, and the supply chain management system has facilitated its continuation through the establishment of the EDI applications.
All these benefits are mostly accrued to SME‘s in developed countries, and this creates the need of the research as to why the developing countries ought to adopt the E-Commerce to facilitate the smooth operation of SME’s. Factors that revolve around the adoption of the Electronic Commerce system also research to determine the obstacles hindering SME’s from adopting E-Commerce in the developing nations
1.1 Research problem
This research is aimed at identifying and giving a clear elaboration on the determinants of E-commerce adoption by the SME’s in developing countries. The problem of the failure of adoption of E-commerce in these countries has proven to be a hindrance to the general economic growth and development in this country. The research paper will cover all the determinants associated with the adoption of this electronic business system.
A clear background of the E-commerce system and the adoption of these systems by the developing nations will be provided. Additionally, relevant theories that relate to the problem statement will be fully discussed, and the reasons behind why the problem exists will be fully highlighted. The relevant research methodologies will then be provided, and these approaches will facilitate the provision of possible solutions to the problem and the.
The research will eventually present the solution to the problem and identify the determinants behind the adoption of the Electronic Commerce by the Small and Medium Enterprises in developing countries, and this is the main aim of conducting the research.
1.2 Essay structure
This dissertation paper will compose of six sections:
Section 1: Introduction to the paper
Section 2: A literature review of the paper
Section 3: The Research Methodologies Used
Section 4: Significant Issues brought out during the research debate about these issues
Section 5: Key themes presented during the research
Section 6: The final section will be the conclusion of the entire paper with a brief discussion of the issue discussed in the paper.
Section 2
2. Literature Review
2.1: SME’s and E-commerce in developing countries.
Several papers and publications have been printed discussing the adoption of E-commerce in most economies. There has been various studies that have been conducted about the adoption of Electronic Commerce by SME’s(Thomas & Simons, 2010) although most of the studies were conducted in well-developed and established countries such as the United Kingdom (Simpson, et al., 2004), Switzerland, Malaysia, Wales, New Zealand(Al-Qirim, 2007), South Africa(Cloete, et al., 2002) and some parts of Asia(Sharma & Sheth, 2004), The Netherlands and Italy (Thomas & Simmons, 2010). The development of SME has recognized different countries of the world as engines of economic growth both in the developed and the developing countries (McMillan & Woodruff, 2002). The acceleration in growth has been experienced in most transition economies as a result of these economies supporting the Small and Medium Enterprises (Watkins, 1993; Friedman, 2004) and this often coincides with the approval and the use of Electronic Commerce in their business ventures. Developing countries, the adoption of the use of Information Technology has created a dynamic economic transition, and the adoption of e-commerce in the developing states has definitely led to positive economic transactions over the past years.
Developing economies that have fully embraced the Electronic commerce system has been able to do away with the state-owned enterprises and instead facilitated an open door policy where both the public and the private sectors could venture into the business is operating the SME enterprises. This move in the developing nations has facilitated economic liberation both for the individual and the private owners of businesses. The decline in foreign investments’ in most countries has also facilitated the establishment and support towards the SME’s. The focus was then shifted to the potential SME’s like the best alternative for economic growth, and as the SME’s continued expanding, great economic benefits continued to be hosted in most of these countries.The technological advancements in most of these countries have then facilitated the full operations of SME’s and created more usefulness to the use the Electronic Commerce system in most business organizations in these countries.
2.2 E-commerce background in developing countries
Several researchers have proven that e-commerce in the business context is far much more than the simple act of buying and selling goods services electronically. E-Commerce has been argued to involve an extensive range of activities such as advertising, enhancing business communications and maintaining business relations (Zwass, 1996). However, E-Commerce can be simply defined as the sale and purchase of products and services through electronic means such as the use of the Internet. Other definitions of E-commerce may include the online services, information, the online exchange of goods and services and the involvement of money between different firms and their customers by the use of electronic means. However, this definition best fits the developing countries due to their technical build out the immaturity in the aspect of the banking and the technical, financial infrastructure and the rare cases of online money exchange programs being undertaken in these countries. Moreover, government control limits the unconstrained transfer and exchange of information in most socialist societies in the developing countries. For the effective implementation of E-commerce and the online technologies, countries have to learn to embrace and to take maximum advantage of free transfer of information and openness. These social limitations in the different developing states have therefore led to e-commerce being narrowed down to the buying and selling of goods and services among and between SME’s over the internet. Since the early years of its invention, E-commerce has then used the electronic means in the expedition of commercial transactions and the improvement of efficiencies in business processes within and across organizations e (c.f.., Turban et al., 2000, or, Zhu et al., 2004). E-commerce is also viewed to be practiced in firms that have a website that is used in the facilitation of any form of business transactions and where the parties involved interact electronically rather than by direct physical contacts or physical exchanges. Various factors such as a firm’s resources, its size, its strategic orientation, the employees’ knowledge of e-commerce, the knowledge of new technologies, the managers’ attitudes towards innovation, the intensity of the competition, the national Information Technology Infrastructure, the degree of support from the government, the complexity and the capability of E-commerce, and the perceived relative advantages from the use of E-commerce affect the adoption of E-commerce practices in the less established nations. These factors are a clear indicator that the practice is not easy to fully implement.
Additionally, there are some difficulties associated with SME’s such as the limited use of technological skills, scarcity of capital, failure in hiring and keeping employees who are experts, lack of administrative skills by some of the managers, problems related to administrative procedures, stiff competitions from other business enterprises and difficulties in the distribution of goods both in the external and the local markets. These challenges have been known to pose a difficulty in the sustenance of economic growth and development (Blili & Raymond, 1993). However, most of these problems cannot be resolved by SME’s and thus the specific governments in the various developing countries, the financial institutions and the large enterprises play a critical role in encouraging and supporting the SME’s with their assistance programs and through the policies and rules that they set. The adoption of technological innovations in most of the less established countries has been crippled not only because of resources but majorly because of poor work culture and work habits by the people in charge of managing the SME’s (Huy, 2008). Most of these business managers cannot and refuse to accept receiving the risks involved with changing the structure of business operations and the decision making processes by adopting the use of E-commerce and Information Technology in their daily business activities.
2.3 Expanding to the Technology, Organization, and Environment (TOE) Framework in the E-Commerce
The adoption of E-commerce in SME’s technological environment is compelled by factors that range from the environmental characteristics and other competitive pressures to the internal characteristics such as the business’s innovation and risk-taking features. Very few studies have been conducted on the adoption of Information Technology (IT) in various SME’s across the developing countries, and some other fewer studies have managed to conduct an examination of the evolvement of SME’s in the Southeastern economy of the Asian Continent. The utilization of Internet Solutions (IS) and IT in most SME’s is mostly driven by the attitude of the business managers towards the use of IT and the skills that they have at their disposal.
Nevertheless, other factors such as the size of the business enterprise, their knowledge in terms of Information technologies, the economy, infrastructure, structure and culture of the organization, also influence the adoption of Internet Solutions and the information technological systems, in business organizations (Chieochan et al., 2000; Grover & Goslar, 1993; Iacovou et al., 1995; Yap et al., 1992).
Previous studies on the adoption of e-commerce have also determined that the Technological context greatly impacted the adoption of E-commerce and use of the Internet both in the business setup and the country in which the business operates (Premkumar & Roberts, 1999), the Organizational context (Ling, 2001; Mehrtens et al., 2001; Seyal & Rahman, 2003) and the Environmental context (Lertwongsatien & Wongpinunwatana, 2003; Rashid & Al-Qirim, 2001; Teo & Tan, 2000). Other frequent researchers have also identified the characteristics of business managers to have a great influence on the adoption of E-commerce (Rashid & Al-Qirim, 2001; Seyal & Rahman, 2003). Other research work s by (Cragg & King, 1993; Thong, 1999) have proven that the business managers’ characteristics play a vital role in the generalized adoption of any form of technology and the adoption of an electronic network is measurable.
According to the contingent criteria (technology, organizational, environmental, and managerial characteristics) as described above. (c.f., Lertwongsatien & Wongpinunwatana (2003); Limthongchai & Speece (2003); Molla & Licker (2005)). In a technological or innovation related context, the influencing factors include the information systems, the attitudes towards innovation and the approaches towards E-commerce (Karahanna et al. 1999; Lefebvre & Lefebvre, 1996; Premkumar & Roberts, 1999; Thong,1999).
The organizational related context is influenced by factors such as the available resources, the size of the firm, strategic orientations and the culture and structure of the business, and the employees’ knowledge about the organization’s operations (Chieochan et al. 2000; Grover & Goslar 1993; Iacovou et al. 1995; Yap et al., 1992; Huy & Filiatrault 2006). On the other hand, cultural factors, the government policies, self-efficacy, the infrastructure and the economy are evident in the related environmental context (Cui et al. 2008; Teo & Tan 2000). Also, the manager related or the internal factors are influenced by aspects such as the cultural profile, enthusiasm, support and the risk-taking attitudes of the managers (Cragg & King 1993; Thong, 1999; Chen & McQueen 2008; Rashid & AlQirim, 2001; Seyal & Rahman, 2003).
Consequently, some of the demonstrated factors in the various contexts predict the adoption of the Internet in profit based SME’s. Conversely, most of the SME’s end up adopting the use of Internet Solutions and Electronic Businesses due to the constant pressure from customers, suppliers, and competitors in need of standing strong in their businesses. Thus, the Technology, Organization, and Environment ( TOE ) framework has been able to recognize and appreciate the decision that factors ground the adoption of any technological innovation in an SME in the external environment, the Internal organization and the characteristics of the technology to be adopted (Kuan & Chau, 2001; Li et al., 2010).
Test of homogeneity of variances
Levene statistic
df1
df2
Sig.
Benefit_a
0.747
3
259
0.525
Benefit_i
1.036
3
258
0.377
Benefit_j
1.873
3
256
0.135
Benefit_k
1.943
3
258
0.123
Benefit_l
0.400
3
258
0.753
Benefit_o
0.396
3
259
0.756
Table 11
ANOVA
Sum of squares
df
Mean square
F
Sig.
Benefit_a
Between groups
5.695
3
1.898
4.500
0.004
Within groups
109.263
259
0.422
Total
114.958
262
Benefit_i
Between groups
3.196
3
1.065
3.700
0.012
Within groups
74.288
258
0.288
Total
77.485
261
Benefit_j
Between groups
6.534
3
2.178
4.255
0.006
Within groups
131.020
256
0.512
Total
137.554
259
Benefit_k
Between groups
1.180
3
0.393
0.859
0.463
Within groups
118.087
258
0.458
Total
119.267
261
Benefit_l
Between groups
4.203
3
1.401
3.498
0.016
Within groups
103.328
258
0.400
Total
107.531
261
Benefit_o
Between groups
4.627
3
1.542
2.912
0.035
Within groups
137.183
259
0.530
Total
141.810
262
Information provided in Table is used to identify whether a variant on scores of each of the four groups are equal or not. In this case, it is desired that the variance of scores are equal because one of the basic assumptions to conduct a One Way ANOVA is the homogeneity of variance. According to Pallant (2003), if the significance value is greater than 0.05, it means there is a homogeneity of variance, however, if the significance value is less than 0.05, it means that there are differences between variances in population. Based on Table it can be seen that the significance value of homogeneity test for all benefits is greater than 0.05. These values show that the assumption of homogeneity of variance is met.
In order to determine whether the mean scores given by each group are different statistically and significantly, the significant value provided in Table can be used. If the significance value is less than 0.05, it means that the differences on mean scores of dependent variables are statistically significant, however, in contrast, if the significance value is greater than 0.05, it means that the differences on mean scores are not statistically significant. The table shows that the significance values of all benefits are less than 0.05, except for benefit k with a significance value of 0.463. This means that there are significant differences between the mean scores of all benefits except for benefit k. This implies that the benefits perceived by SMEs tend to increase along with the increasing of the level of e-commerce adoption.
2.4: Developing countries background and SME’s on E-commerce adoption.
In developing countries use of these technologies by SMEs is variable. Abell and Lim (1996) found that SMEs in some developing countries like New Zealand used the internet in order to communicate with internal and external parties, get information from suppliers, provide information, conduct R&D activities, to be seen at the forefront of technology, to do market and product research, place orders to suppliers, and take orders from customers. Drew (2003) also found that SMEs used e-mail and intranet applications for internal communication; while websites were used to advertise, promote, recruit, and for procurement.
In addition, Daniel and Wilson (2003) mentioned that e-commerce technologies assist SMEs in a wide range of activities, which are: providing information about the company, providing information about goods and services offered, taking and placing orders, receiving payment, delivering goods and services, after sales service or contact, identifying suppliers, purchasing inventory and non-inventory, communicating with internal and external parties, exchanging document and design with customers or suppliers, searching the information, advertising and recruitment activities. The breadth of e-commerce use in business activities reflects the level of e-commerce adoption where the wider the use of e-commerce the higher level of e-commerce adoption. The wider the scope of e-commerce use in businesses, the more likely the realization of even greater commerce benefits (Zhu and Kraemer 2005).
2.3 Relevant Theories such as Adoption Models and others
Therefore, to fill this gap, this study aims to provide a better understanding about the adoption of e-commerce by SMEs in developing countries identifies the e-commerce benefits realized by these SMEs and investigates the relationship between the levels of e-commerce adoption and the benefits realized. Indonesia was chosen as the country in which to conduct the study.
There are four reasons for this choice. Firstly, Indonesia is one of the developing countries in Asia and has a large population being the fourth largest population in the world and the largest in Southeast Asia, so therefore, Indonesia might reflect other developing countries in Asia, particularly in Southeast Asia. Secondly, Indonesia is also recognized as the biggest archipelago country in the world, consisting of more than 13 million islands. The huge population and the vast and fragmented geography offer a good reason for businesses in Indonesia, especially SMEs, to adopt e-commerce. And as commonly found in most developing countries, the adoption of e-commerce by Indonesian SMEs is still lagging behind counterparts in developed countries (Kartiwi and MacGregor 2008).
Thirdly, Indonesia is at the heart of Southeast Asia, neighboring alongside Malaysia, Singapore, China, Japan, and Australia. Finally, Indonesia has recently been identified as one of countries that will become one of the economic powers in this century, together with Mexico, Nigeria and Turkey, popularly known as “MINT” countries (Mexico, Indonesia, Nigeria, and Turkey). MINT was initially popularized by Jim O’Neil in 2013 as a companion to his BRIC countries (Brazil, Russia, India, and China). As a country that has been recognized as an important player in the economic world, it is particularly interesting to study e-commerce adoption in this countries.
As mentioned several, there are many potential benefits offered by e-commerce. Based on a review of previous studies, fifteen benefits of e-commerce
In this model, the subsequent stage is better than the previous stage. Even though the evolution is described sequentially, there is no necessity for a business to start from the beginning stage (presence stage). Business can start at any stage.
In line with this, Prananto et al.(2003) also proposed six stages of e-commerce development, which are no presence, static online, interactive online, e-commerce, internal integration, and external integration. This model links the level of e-commerce adoption with the investment required and its potential benefit.
Section 3: Research Methodology.
3.1 Introduction (Secondary Research Method on existing papers)
In this study, an online questionnaire survey method was applied. The online questionnaire was chosen because this method is considered to have several advantages, which are that it is cheaper, better (in term of response rate), faster and easier than conventional methods (Fricker and Schonlau 2003). The questionnaire for this study consisted of three main parts. The first part relates to the current condition of e-commerce adoption by the SMEs: their level of adoption, length of adoption, number of IT staff and scope of e-commerce use. Regarding the level of e-commerce adoption, in this study six levels of e-commerce adoption were proposed, which are: no internet/no email (stage zero), e-mail but no websites (stage 1), static website (stage 2), interactive websites but no transaction (stage 3), websites which allow business transaction (stage 4), and integrated websites (stage 5). The second part is about the benefits of e-commerce adoption realized by the SMEs following adoption. In this part, the respondents were asked about their perception of the fifteen e-commerce benefits (shown in Table) by responding to a five-point Liker-scale, ranging from 1 (strongly agree) to 5 (strongly disagree). However, for consistency of measurement, in the further analysis, the score of respondents’ perceptions was re-coded, in with a score of 1 for strongly disagree to 5 for strongly agree. Then, the last part of questionnaire is about demographic factors, such as age, education, type of industry and firm size.
3.2 Sampling method
Developing country SMEs in the services sector have expanded their market with the increased ability to transact directly with overseas or international customers and to advertise their services. This is especially true for small operators of tourism-related services. Tourism boards lend assistance in compiling lists of service providers by category in their Web sites.
In addition, for SMEs in developing countries the Internet is a quick, easy, reliable and inexpensive means for acquiring online technical support and software tools and applications, lodging technical inquiries, requesting repairs, and ordering replacement parts or new tooling.49
The Internet is also instrumental in enabling SMEs in developing countries to join discussion groups with their peers across the globe who are engaged in the same business, and thereby share information, experiences and even solutions to specific technical problems. This is valuable especially to entrepreneurs who are geographically isolated from peers in the same business.50
What is the extent of ICT usage among SMEs in developing countries?
Currently the Internet is most commonly used by SME firms in developing countries for communication and research; the Internet is least used for e-commerce. E-mail is considered an important means of communication. However, the extent of use is limited by the SMEs’ recognition of the importance of face-to-face interaction with their buyers and suppliers. The level of confidence of using e-mail for communication with both suppliers and buyers increases only after an initial face-to-face interaction. E-mail, therefore, becomes a means for maintaining a business relationship. It is typically the first step in e-commerce, as it allows a firm to access information and maintain communications with its suppliers and buyers. This can then lead to more advanced e-commerce activities.
One of the key barriers to e-commerce development in the developing world is secure payment gateways. Even in Egypt, with a well-developed international tourism market, local SMEs are largely unable to take secure payments online. Payment gateway providers are still not operating in the developing world, and local banks are more likely to develop customized solutions rather than open source plug-in for web sites.
ICT usage patterns among SMEs in developing countries show a progression from the use of the Internet for communication (primarily e-mail) to use of the Internet for research and information search, to the development of Web sites with static information about a firm’s goods or services, and finally to use of the Internet for e-commerce.
In this study, a combination of government sources and the private organization sources was used to determine the sample frame. In order to ensure there were no overlapping SMEs on the sample frame, the list of SMEs was sorted alphabetically by company name. Only the firms which
