Research Model

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Based on a review of the related research areas, key factors that might have influence on EDI adoption by SME are identified, which then provide a necessary foundation upon which a research model for explaining the EDI adoption decision in SME is developed. As shown in Figure 1, three categories of factors: (1) perceived cost-benefits of EDI, (2) organizational characteristics and (3) external influences are included in the research model.

Figure 1: Research Model.

Perceived Cost-Benefits of EDI

Many researchers suggest that the characteristics of innovation are important attributes in influencing adoption decisions (for example, see Rogers, 1983; Kwon & Zmud, 1987). Among these characteristics of innovation, perceived benefit and perceived cost are suggested to be important factors in the adoption decision in previous EDI studies. When an organization makes decision on whether to adopt a particular innovation, cost-benefit analysis is considered as an unavoidable process which would be done either formally or informally (Chau & Tam, 1997).

Perceived Benefits

Perceived benefits are defined as the degree to which an innovation is perceived as better than its precursor (Rogers, 1983). Many studies on IT have provided supportive findings of a positive and consistent relationship between perceived benefits and the adoption decision regarding an IT innovation (Tornatzky & Klein, 1982). As a subset of IT, EDI is also found to have a similar relationship between its perceived benefits and the adoption decision. This is supported by many empirical studies (e.g., Premkumar et al., 1994). Specifically, in the SME context, perceived benefits are identified as a vital motivator in influencing the adoption of EDI (Iacovou et al., 1995).

Many EDI studies have found that EDI provides a wide range of benefits including quick response to information, reduced turn around time in the transaction process, lower cost, improved coordination with trading partners, lower error rates, greater accuracy, improved customer service and enhanced operation efficiency (Cox & Ghoneim, 1996; Fearon & Philip, 1998; Ferguson & Hill, 1989; Premkumar & Ramamurthy, 1995). These benefits can be classified into two major categories: direct and indirect benefits (Iacovou et al., 1995; Pfeiffer, 1992). Direct benefits are the operational savings related to the internal efficiency of an organization. This kind of benefit has an immediate effect on an organization and is easier to identify. Faster communications, increased data accuracy, lower transaction costs, improved information and reduced paper use are examples of direct benefits. Indirect benefits are the impact of EDI adoption on business practices and relationships of an organization. Improved customer services, improved relationships with trading partners and gaining greater competitive advantages are examples of indirect benefits.

Although EDI can generate lots of direct benefits that result in saving resources such as costs and time, many researchers have suggested that strategic benefits and the impact of EDI are crucial to organizational strategic planning or the business reengineering processes (Chatfield & Bjørn-Andersen, 1997; Clark & Stoddard, 1996; Teo et al., 1997). Iacovou et al. (1995) found that EDI adopters considered both direct and indirect benefits as significant factors, but non-adopters focused more on direct benefits as primary motivators for EDI adoption, indicating that there is a low perception of competitive advantages in adopting EDI. This, therefore, suggests that an organization may evaluate the importance of direct and indirect benefits differently when making adoption decisions and these two types of perceived EDI benefits may exert different levels of influence on the EDI adoption decision. The above arguments lead to the following two hypotheses:

H1: Higher levels of perceived direct benefits of adopting EDI will positively affect the likelihood of EDI adoption.

H2: Higher levels of perceived indirect benefits of adopting EDI will positively affect the likelihood of EDI adoption.

Perceived Cost

Recent studies in the EDI literature have suggested that cost is an important factor in EDI adoption decisions (Bouchard, 1993; Cox & Ghoneim, 1996; Mukhopadhyay et al., 1995; Premkumar et al., 1994; Saunders & Clark, 1992). Arunachalam (1995) argued that since adopting EDI might lead to changes in work procedures, it would incur training costs to equip employees with the skills and knowledge to use EDI. Ferguson and Hill (1998) further argued that the cost of setting up an EDI linkage by installing necessary software and hardware was a significant barrier for some organizations, especially SME, to adopt EDI. Based on the above, it is therefore hypothesized that:

H3: Higher levels of perceived cost of adopting EDI will negatively affect the likelihood of EDI adoption.

Organizational Context

Since adopting EDI involves substantial efforts in development and has significant impacts on an organization, many organizational factors can be expected to influence the adoption decision (Premkumar & Ramamurthy, 1995). Previous studies have shown that IT knowledge and top management attitude towards EDI are two important factors that influence EDI adoption in SME.

IT Knowledge

IT knowledge refers to the extent of related knowledge to the innovation. Many studies have shown that lack of expertise and lack of IT knowledge are significant barriers in IT adoption (Attewell, 1992; Fichman, 1992). When an organization adopts and uses a new IT innovation, this creates a burden of learning technical knowledge, which is known as the knowledge barrier. The knowledge barrier results in inhibiting the adoption process (Attewell, 1992; Fichman & Kemerer, 1997). In other words, a lack of IT knowledge may inhibit an organization's adoption decision. Also, the difficulty of developing necessary skills and knowledge may affect IT adoption. Organizations tend to postpone adoption when they cannot equip their employees with adequate knowledge and skills. Many studies have identified that IT knowledge is a barrier to IT adoption in SME since a lack of in-house IT expertise is a common situation in SME (Cragg & King, 1993; Fink, 1998; Thong & Yap, 1995).

Fichman (1992) recommended that the complexity of the technology should be included when considering adoption of a particular IT. The requirement of the IT knowledge level is different across different technologies. EDI is considered to be a complex technology, which means there is a requirement of higher knowledge levels. McGowan and Madey (1998) found that the level of technical expertise and EDI knowledge has a significant influence on the EDI adoption process.

According to Fichman and Kemerer (1997), having related knowledge makes it easier to acquire and retain new knowledge because it allows better associative connections needed for understanding related new knowledge. If an organization has experience with an innovation or related knowledge, this will help to diminish knowledge barriers and allow the organization to become better equipped to deal with adoption issues. Thus, if an organization has higher levels of IT knowledge, it will be more likely to adopt EDI. It is therefore hypothesized that:

H4: Higher levels of IT knowledge will positively affect the likelihood of EDI adoption.

Top Management Attitude towards EDI

Attitude refers to the degree of favorable or unfavorable evaluation of an innovation when making decisions to adopt it. In general, the importance of the relationship between attitude of an organization's "power elite" towards an innovation and successful adoption is vital (Zmud, 1984; Rogers, 1983). Many studies have found that a positive attitude towards an innovation has a positive impact on the adoption decision (Drury & Farhoomand, 1996). In the SME context, the structure of typical SME is relatively centralized, as the owner very often assumes a dual-post as owner-manager (Raymond, 1985). Thus, decision making by top management is important for SME. Top management attitudes towards an innovation are crucial in the adoption decision process. Adopting an innovation invariably requires reallocation of organizational resources. Without active support from management, it is very unlikely that such allocations will occur. It therefore is posited that:

H5: Better attitudes among top management towards adopting EDI will positively affect the likelihood of EDI adoption.

External Influences

Though cost-benefit analysis is a critical input in the decision of whether or not to adopt EDI, the influence of the external environment, such as the social and relationship context, cannot be ignored (O'Callaghan et al., 1992). Since EDI is an IOS, adopting EDI may involve many parties other than the organization itself. Using EDI may change not only the way an organization operates, but also its business practices and its relationships with other EDI-enabled parties. External influences are always considered as important factors that determine EDI adoption (Bouchard, 1993; Premkumar et al., 1995). In this study, two major external factors are identified: (1) government incentives and enforcement, and (2) trading partners' influence.

Government Incentives and Enforcement

The EDI system examined in this study is a "government-to-business" type of EDI system. Since the government can institute several policies such as mandatory regulations and promotion programs to force organizations to adopt EDI, government incentives and enforcement are absolutely important to EDI adoption. Abrahamson (1993) argued that when government agencies were actively involved in mandating the use of a particular system or technology by using certain administrative techniques such as legitimacy actions or promotion, these influences could not be ignored. Take TradeNet in Singapore as an example. TradeNet is a government initiative and a mandatory EDI system that organizations must use to communicate with the government. Several studies on TradeNet have shown that the success of this nationwide EDI adoption is mainly due to government influence (Neo et al., 1994; Teo et al., 1997). This suggests that government incentives and enforcement can explain an organization's adoption decision.

Apart from the legal enforcement as in the case of TradeNet, the government may also play an important role in guiding organizations to further EDI diffusion. It is suggested that the government can help organizations to adopt EDI by providing more information and IT knowledge (Swatman & Clarks, 1990; Farhoomand & Boyer, 1994). For example, this can be achieved through promotion. Promotion provides information about EDI adoption that increases the awareness of EDI, which in turn promotes EDI adoption. It is argued, therefore, that:

H6: Higher levels of government incentives and enforcement will positively affect the likelihood of EDI adoption.

Trading Partners' Influence

Trading partners' influence is another crucial factor of influence in EDI adoption. Neo et al. (1994) suggested that social relation influence on EDI adoption was very important. As EDI is an inter-organizational system, when more organizations adopt the system, more benefits can be obtained by each EDI adopter owing to the enlarging transaction network. This means that, in order to gain more benefits, an organization that has already adopted EDI would like to see its trading partners adopt the technology as well. This argument is empirically supported in both Bouchard's (1993) case studies on EDI adoption and Hart and Saunders' (1997) study on EDI adoption in SME. Based on the above, it is suggested that:

H7: Higher levels of trading partners' influence will positively affect the likelihood of EDI adoption.

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