What s in It?

Chapter 11 - SME Barriers to Electronic Commerce Adoption: Nothing Changes-Everything is New
Managing IT in Government, Business & Communities
by Gerry Gingrich (ed)
Idea Group Publishing 2003

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What's in It?

There are reasons to believe that many SMEs can gain from e-commerce. Advantages of early e-commerce technologies such as EDI typically include reductions in transaction costs and delays, higher quality service, and improved operations management (Raymond and Bergeron, 1996). Raymond and Bergeron (1996) also point out that SMEs could gain more benefits from EDI. This could be achieved by providing a higher level of organizational support for EDI, such as management support, employees training, and obtaining the collaboration and support of all the departments and business partners involved.

Newer communication technologies, such as the Internet, are claimed to have opened up new markets and made geographic locations irrelevant (Premkumar and Roberts, 1999). This brings interesting opportunities to small companies, as well as additional risks (ibid.). The spread of the Internet has changed the way consumers and companies collect information and conduct their businesses. The Internet has brought the possibility to reach new markets and new customers, but has at the same time made it more difficult to keep old customers. Buyers can, with the help of the Internet, relatively easy find competing suppliers and compare their offers. As an increasing number of enterprises and consumers are using the Internet to seek information before their final purchase, the risk is obvious for companies without a Web presence: if the company does not exist on the Internet, it does not exist.

E-commerce is driven by a number of factors on both buyer and supplier sides: access to an affluent customer base, lower information dissemination costs, lower transaction costs, broader market reach, increased service, additional channels for customer feedback, and consumer and market research (Auger and Gallaugher, 1997). Small businesses using Internet commerce have perceived a decrease in communication costs and the rise of new opportunities (Poon and Swatman, 1999). These opportunities can, for example, consist of the discovery of new business partners or business networks as well as useful feedback from customers (ibid.).

E-commerce applications, whether external or internal, are expected to improve coordination with trading partners or internal business units, and facilitate information exchange within organizations as well as market creation to reach new customers (Riggins and Rhee, 1998). One way to increase the potential benefits for the small players is the use of different kinds of cooperative arrangements between a number of SMEs. For instance, Kettinger and Hackbarth (1997) claim that to the extent that small firms can leverage their limited resources with other small firms via cooperative electronic network connections, they may achieve economies of scale and create new sales opportunities that were not available prior to e-commerce. Network members are believed to often have complementary resources that make the total benefits from being a network member larger than the sum of the individual parts (Poon, 2000).

The Web also offers an inexpensive way to market the company and to get new information (Turban et al., 2000). For companies with niche products or those wanting to conduct market research, the Web provides good possibilities (ibid.). Furthermore, the Web is said to be sparking an explosion of entrepreneurial activity by encouraging rapid experimentation with new business organizations and systems (Tenenbaum, 1998). Evidence has also been found that Internet commerce is increasing the competitive advantage of small businesses and the quality of information support (Poon, 2000). The benefits that Internet commerce brings to a corporation depend, however largely, on the percentage of customers and business partners that participate in Internet commerce (ibid.) This is due to the fact that the success of e-commerce and other inter-organizational systems depends on the number of external participants, while with internal IT systems, the success depends on the number of internal users.

According to this it seems that e-commerce can bring a number of benefits to SMEs. Small businesses are also under increasing pressure to use information systems to stay competitive or simply to survive (Thong, 2001). Even so the SMEs are hesitating. The crucial question is: What's hindering the spread of e-commerce to SMEs?

Barriers to E-Commerce

In the literature concerning barriers or inhibitors to implementing and adopting e-commerce technologies by SMEs, the issues discussed fall mainly into two categories: internal and external to the organization. Internal or organizational issues relate mainly to the lack of awareness and knowledge in SMEs and resource limitations. External issues, outside the sphere of influence of SMEs, include mainly technical considerations and the topic of external influence or support.

Internal Issues

There are a number of barriers related to information and communication technologies (ICT) that prevent SMEs from adopting and exploiting them for interorganizational purposes (Chapman, James-Moore, Szczygiel, and Thompson, 2000). In this paragraph we discuss the internal issues that may hinder the adoption, summarized in Table 1 at the end of the paragraph. Many barriers relate to SMEs' lack of understanding of e-commerce potential opportunities and how to implement these techniques (ibid.). SMEs have been found to lack both an awareness of the potential benefits of the technology and the organizational readiness needed for the development of integrated EDI systems (Iacovou, Benbasat, and Dexter, 1995). The diffusion of IT and EDI may in many cases be delayed because the managers fail to see the advantages of the technology (ibid.). Difficulties in perceiving any direct benefits may hinder both the adoption of Internet (Walczuch et al., 2000) as well as EDI adoption (Kuan and Chau, 2001). The lack of recognizable or measurable financial gains from Internet-based commerce is one such example (Vassilopoulou, Keeling, and Macaulay, 1999; Walczuch et al., 2000). The owner attitude towards growth and his or her perception of the business value of the Internet is another factor that is instrumental to the adoption decision (Levy and Powell, 2002). Similarly Poon and Swatman (1999) found that the lack of experiences of tangible benefits is a major e-commerce adoption barrier among SMEs.

Table 1: Adoption Barriers of E-Commerce in SMEs Internal Issues

Internet-based Electronic Commerce (EC)	Electronic Data Interchange (EDI)	Information Systems (IS)/ICT in general
Lack of understanding of opportunities (Chapman et al., 2000). Owners perception of the business value (Levy & Powell, 2002). Lack of measurable financial gains (Vassilopoulou et al., 1999; Walczuch et al., 2000; Poon & Swatman, 1999).	Lack of awareness of the potential benefits (Iacovou et al., 1995). Perception of (too few) direct benefits (Kuan & Chau, 2001).	Lack of understanding of potential advantages (Iacouvou et al., 1995).
Lack of IT-knowledge and technological expertise (Walczuch et al., 2000; Vassilopoulou et al., 1999; McCue, 1999; Haynes et al., 1998). Lack of understading of implementation techniques (Chapman et al., 2000).	Lack of IT-knowledge and technological expertise (Tuunainen, 1998; Chen & Williams, 1998; Iacovou et al., 1995; Damsgaard & Lyytinen, 1998; Bennett et al., 1999; Kuan & Chau, 2001).	Lack of IT-knowledge and technological expertise (Rothwell & Dodgson, 1991; Levy & Powell, 2000). Lack of knowledge of implementation issues (Thong, 2001).
Perceived cost (Deschoolmeester & Hee, 2000; Walczuch et al., 2000).	Perceived cost (Kuan & Chau, 2001; Saunders & Clark, 1992; Iacovou et al. 1995).	Lack of financial resources (Tuunainen, 1998; Bennett et al., 1999; McCue, 1999; Chapman et al., 2000).
Insufficient organizational readiness (Poon & Swatman, 1997; McCue, 1999). Lack of human resources and time to investigate new technologies and systems (Bennett et al., 1999). Reluctance to dedicate time and resources to resolving their lack of understanding and skills (Chapman et al., 2000).	Insufficient organizational readiness (Iacovou et al., 1995; Chau, 2001).	Insufficient organizational readiness (Buratti & Penco, 2001). Lack of human resources to investigate new technologies and systems (Stymne, 1996).

Several studies describe lack of IT knowledge and technological expertise as a major hurdle to the adoption of different e-commerce technologies and procedures by SMEs (Iacovou et al., 1995; Damsgaard and Lyytinen, 1998; Bennet, Polkingham, Pearce, and Hudson, 1999; Kuan and Chau, 2001). In a study among Finnish SMEs supplying the automotive industry, Tuunainen (1998) found that particularly the smallest subcontractors rarely have the sufficient IT knowledge to fully utilize EDI. This is found to be still true in a more recent study conducted by Chau (2001). Again, in the Internet usage context, the lack of knowledge of technology has been cited as a major factor differentiating SMEs from larger firms (Haynes, Becherer, and Helms, 1998). In other studies this has been expressed as unfamiliarity with the Internet (Walczuch et al., 2000), lack of understanding of the e-commerce medium (Vassilopoulou et al., 1999), and limited knowledge of how the Web pages could contribute to the organizational strategy (McCue, 1999).

Small firms often lack suitable qualified technical specialists (Rothwell and Dodgson, 1991). They also tend to postpone the implementation of internal IS due to insufficient knowledge of how to implement it successfully (Thong, 2001). Most owners are aware of their lack of knowledge of IS and this results in doubts about given advice (Levy and Powell, 2000). The lack of knowledge also makes them reluctant to spend their limited resources on an area that they feel they do not control (ibid.).

Regardless of the technology in question, the technological development in SMEs is claimed to suffer from poor ability to manage technology as a strategic weapon, negative attitudes, and limited human resources as in-house expertise (Poon and Swatman, 1997; McCue, 1999; Buratti and Penco, 2001; Chau, 2001). Together, this indicates an insufficient organizational readiness. SMEs are also found to suffer from a lack of staff and time to investigate new technologies and systems (Bennett et al., 1999), as well as a reluctance to dedicate time and resources to resolve their lack of skills and understanding (Chapman et al., 2000). Similarly, findings of a study conducted by Chen and Williams (1998) among UK small businesses also pointed out that SMEs tend to lack resources and experience, and seem to have difficulties in planning, designing or implementing EDI systems. Only few SMEs are recorded to have a full time IT professional, since IT-based systems are not regarded as an economically viable alternative (Stymne, 1996). This is in line with a study by Poon and Swatman (1999) who found that among the major barriers for SMEs not using Internet for their financial transactions is the fact that traditional transaction ways are perceived as robust and sound.

A weak financial position of SMEs and their resistance to invest in sophisticated systems involving complex telecommunications have been found as major barriers in several studies (Tuunainen, 1998; Bennett et al., 1999; McCue, 1999; Chapman et al., 2000). Saunders and Clark (1992) found that perceived cost has been a significant barrier to EDI adoption among small vendor firms. This result is consistent with findings of Iacovou et al. (1995) on SME EDI adoption and with a recent study conducted by Kuan and Chau (2001) on small businesses EDI adoption. Also the adoption and use of Internet technologies is found to be hindered by the cost and speed of Internet access, as well as by the cost of the start-up investment (Deschoolmeester and van Hee, 2000; Walczuch et al., 2000). Table 1 shows a summery of the internal issues that can hinder the adoption of different e-commerce technologies.

External Issues

Empirical investigations (e.g., MacKay, 1993; Iacovou et al., 1995) have suggested that a major reason why small companies become EDI-capable is due to external pressure, especially from trading partners. Insignificant influence by the industry and poor promotion campaigns by vendors and consultants are still found to play a role in slow diffusion of EDI (Chau, 2001) as well as Internet technologies (Poon and Swatman, 1997). Large firms wanting their smaller trading partners to adopt EDI can use a coercive or a supportive strategy (Premkumar et al., 1997). If the smaller trading partner is reluctant to adopt EDI, a coercive strategy consisting of creation of competitive pressures and threat of loss of business is sometimes used. The supportive strategy involves marketing the technology in such a way to help the smaller firms understand its advantages and sharing expertise with them (ibid.). Financial and technical assistance can be used to reduce the problems related to the smaller firms' organizational readiness (Iacovou et al., 1995). The latter strategy, even if costly, might be better in the long run to get as many partners connected as possible (Premkumar and Ramamurthy, 1995), but as both customer support and competitive pressure have proved to impact the adoption decision most firms need to use both strategies (Premkumar et al., 1997).

Another important barrier is the lack of a critical mass of electronically connected business partners. Previous studies have showed that low volumes of EDI transactions (Tuunainen, 1998), low volume of messages received over the Internet (Poon and Swatman, 1997), as well as concerns that suppliers and customers are not on-line (Walczuch et al., 2000) are barriers that prevents SMEs from investing time and money in new technologies. To be motivated to make a costly investment such as EDI, it is necessary that a majority of partners in the distribution chain, such as customers, suppliers, carriers, and banks adopt the technology as well (Premkumar et al., 1997). Otherwise it may be impossible to obtain adequate benefits because the organization has to maintain a paper-based system in parallel with the EDI system (ibid.). Electronic marketplaces and databases of products or suppliers are other examples where there have been problems reaching the critical mass.

Furthermore, lack of security or perceived security hazards have been and still are a major concern among SMEs, whether in EDI, Internet, or other ICT adoption (Tuunainen, 1998; Poon and Swatman, 1999; Vassilopoulou et al., 1999; Deschoolmeester and van Hee, 2000; Walczuch et al., 2000). Legal issues (Deschoolmeester and van Hee, 2000), lack of standards (Tuunainen, 1998), still experimental payment systems, and limited services offered on the Internet (Poon and Swatman, 1999) are other important factors contributing to slow adoption of different e-commerce technologies.

External consultants and IT vendors could play an important role in assisting small businesses to successfully adopt IS (Thong et al., 1996). However, the lack of impartial advice (Vassilopoulou et al., 1999) and the difficulty of access to expert help (Bennett et al., 1999) are still inhibiting the adoption of new technologies among SMEs. A further problem is that the attitudes towards consultants are ambiguous in SMEs (Stymne, 1996). Table 2 shows a summary of the external issues that can hinder the adoption of different e-commerce technologies. The table compares only barriers to EDI adoption with barriers to Internet adoption since the adoption of proprietary IS are expected to be mainly an internal decision, and therefore less influenced by external forces.

Table 2: Adoption Barriers of E-Commerce in SMEs External Issues

Internet-based Electronic Commerce (EC)	Electronic Data Interchange (EDI)
Insignificant influence by industry (Poon & Swatman, 1997).	Insignificant influence by industry (Chau, 2001). Lack of external pressure from trading partners (MacKay, 1993; Iacovou, 1995; Premkumar et al., 1997).
Poor promotion campaign by vendors (Poon & Swatman, 1997).	Poor promotion campaign by vendors (Chau, 2001).
Lack of critical mass (Poon & Swatman, 1997).	Lack of critical mass (Tuunainen, 1998; Premkumar et al., 1997).
Lack of security or perceived security hazards (Poon & Swatman, 1999; Vassilopoulou et al., 1999; Deschoolmeester & Hee, 2000; Walczuch et al.; 2000). Lack of secure payment systems (Poon & Swatman, 1999).	Lack of security or perceived security hazards (Tuunainen, 1998).
Legal issues (Deschoolmeester & Hee, 2000).	Lack of standards (Tuunainen, 1998).
Limited services offered on the Internet (Poon & Swatman, 1999).

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