A Recipe for Electronic Commerce Success in SMEs

The Dilemma of Electronic Commerce Benefits

In the SMEs scenario, different research emphasized the different EC advantages to SMEs (Abell & Black, 1997; Abell & Lim, 1996; Adam & Deans, 2000; Deloitte, 2000; Poon & Swatman, 1997, 1998, 1999a, 1999b; PWHC, 1999):

• The Internet is an efficient communication medium and a vast resource for information. The SMEs could use the e-mail technology to communicate efficiently with their buyers and suppliers, reducing many of the communication cost including buying of expensive equipment (e.g., fax/telex).

• The Internet provides value-added services to customers/partners/suppliers by providing different primary/supplementary information about the organization's industry, products and services on their Web sites. This could result in increasing the loyalty and the stickiness (CRM) of their customers. The preceding tangible/intangible tactics are of strategic importance to retain and/or increase their customer base by increasing the switching costs.

• The Internet would provide new opportunities to SMEs, otherwise not possible before the introduction of the Internet, such as the ability to reach global markets and the ability to mass customize products and services to appeal to the different tastes of global consumers.

• SMEs would adopt EC for image-enhancement purposes. Having an Internet account (URL, dot.com, Web page), e-mail address on business cards and letterheads was reported as a major driver as well. Whether the SMEs were able to elevate from such initial depiction to a more strategic posture in adopting more strategic EC initiatives such as selling and buying online is worth further investigation from the perspective of the different countries.

On the other hand, the main impediments are:

• Technological impediments, e.g., security (privacy concerns, viruses, ePayments), legalities (enforceability of contracts, confirmation of receipt, prosecutions), policy (lack of global or unified standards), telecommunication services (bandwidth, convergence, reliability and quality of services (QoS)).

• Organizational impediments: cost, busy nature, small size and limited resources, lack of knowledge/expertise about EC. All of the preceding hindrances may force the SMEs to cast away from EC and hence, view it as not critical to their businesses.

• Environmental impediments: relating to the lack of regulatory frameworks pertinent to the above technological impediments highlighted above, either at the one country level or even at the global level.

In the light of the above advantages and impediments, most of the existing EC research found most of the SMEs not witnessing real benefits (direct sales and tangible profits) in the short run due to difficulties in selling products over the Internet as yet (Adam & Deans, 2000; Poon & Swatman, 1998, 1999a). The face-to-face interactions with customers and buyers proved to be more dominating than electronic interfaces (Ba et al., 1999; Poon & Swatman, 1997). They found the key motives for SMEs to adopt EC are the long-term indirect benefits, e.g., ongoing business transformation and new business initiatives (new opportunities), which could resemble a preparatory stage (infrastructure) for the long run direct benefits stage (secure returning customers and long term business partnership) (Poon & Swatman, 1998, 1999a).

However, the biggest challenge for the SMEs here is to succeed in moving from such simple and preparatory EC initiatives (driven mostly by media and researchers hype) to the more sophisticated and strategic initiatives (e.g., efficiency ® effectiveness ® strategic advantage).

Can You Afford the Investment in Electronic Commerce?

Despite the advent of economical personal computers (Cragg & King, 1993; Poon, 1999; Naylor & Williams, 1994), most of the research which examines this feature pertaining to SMEs found that scarce financial resources are one of the main inhibitors to IS and EC adoption (Blili & Raymond, 1993; Behrendorff & Rahman, 1999; Burgess, 1998; MOED, 2000; Poon, 1999; Poon & Swatman, 1995; Poon & Swatman, 1999a; Soh, Yap & Raman, 1992; Thong, 1999) including New Zealand SMEs (Cragg & King, 1992, 1993; Peters & Paynter, 1999).

On the one hand, having EC requires an apparent investment in different areas: technological infrastructure upgrades or replacement, EC integration with existing systems, EC consultants, investments in bandwidth and applications (Web site, intranet, extranet, etc.). However, this considerable investment in the EC infrastructure is necessary to make it possible to process information efficiently, handle heavy traffic, and deliver satisfactory performance. SMEs would perceive this to be an expensive endeavor and hence, represent a barrier to EC adoption (MOED, 2000; PWHC, 1999). It is worth mentioning here that unlike the investment on IS/IT, which requires high initial investment and smaller ongoing maintenance and support costs, EC would require considerable continued investments on upgrading, new, overhauling, and/or replacing the whole EC system with an innovation or new design.

On the other hand, most probably the investment in EC would materialise in the long term only as highlighted earlier (Poon & Swatman, 1998, 1999). However, this depends on different factors, among them the ability to develop economies of scale (Ba et al., 1999; Poon, 2000), e.g., having a well-established online customer base and ongoing business that enables the firm to sell massively and cheaply at the same time.

The EC field is very vast and mining its perspectives for different saving opportunities is possible and is therefore, highly recommended. Overall, a thorough cost-benefit analysis should provide many insights concerning the investment path on EC - where it should be highly stressed that tangible profits should not be necessarily the main driver for adopting EC. SMEs, for instance, could achieve cost savings in marketing their business over cyberspace as a cheaper means than the regular physical channels (Ba et al., 1999), which require a considerable regular investment (e.g., catalogues or TV ads).

Despite the lack of such tangible benefits, interestingly recent research found that most of the SMEs willing to continue adopting EC viewed the EC technology as a necessity for business like any other technologies existing in the office such as fax and telephone (Poon & Swatman, 1998). It is as if the earlier hype (mentioned above) about EC drove the SMEs to explore its perspectives and hence, believed in its importance as an efficient communication mean. However, other research found that most of the SMEs did not even experience any savings in communication costs by adopting the Internet and e-mail (e.g., ISP, hardware, software) (Poon & Swatman, 1999b).

However, how far the earlier assertion about IS/IT applies to a considerable investment in EC infrastructure and whether the business would be able to sustain that investment for a long time is highly questionable, unless it proves viable to the business. This represents the greatest challenge for SMEs in balancing their investments on EC in the light of the anticipated advantages or value sought. That is, if EC proved its absolute effectiveness to the business in the first place.

Change Your MindSet

Recent EC research found fear of technology and management resistance to change hindering EC adoption and use within SMEs. With the introduction of new EC technology like the Intranet, Internet-EDI, Extranet, Web site, etc., there would be some fundamental changes in work processes and current practices (Alexander, 1999; Behrendorff & Rahman, 1999).

EC is not only a new way of selling and marketing, but also a new way of thinking, which requires a change of mindset. Teo, Tan and Buk (1998) pointed to the fact that organizations attempting to adopt the Internet should expect a possible change in communication and culture patterns. The Internet provides rich and accessible information to organizations and this could result in removing the existing segmented walls of knowledge in organizations. The new pattern of communication may disturb the internal power structure (status quo) and culture of the existing firms.

On the other hand, other research found the compatibility factor (compatible with the internal value, beliefs, and system of the organizations) significant to Internet adoption and hence, SMEs adopting EC (e.g., Web site) perceived it compatible with their organizations. The result indicated the importance of the fit between the innovation and the organization in the EC adoption and use scenario.

Issues pertaining to the technology itself may lead to a loss of confidentiality and to the leakage of SMEs vital information to hackers or snoopers. In light of a non-existing regulatory framework, this will deter many SMEs from going to EC. If SMEs perceive that their employees will misuse the Internet, this may create many incompatibilities within SMEs and hence may raise barriers to EC adoption.

On the other hand, small business faces the two-sided problem of asymmetric information, where in the marketplace customers meet buyers and develop basic trust and rapport through eye contact, bargaining, shaking hands, etc., but this kind of interpersonal interaction does not exist on the Internet (Ba et al., 1999). Such loss of the interpersonal interactions on the Internet will deter SMEs and suppliers/buyers from transacting over the Internet.

The above challenges would represent major barriers for SMEs in moving from their initial EC initiatives, or even deter them completely from adopting EC in the first place.

Be Small but Think Big, Think Smart

SMEs will always have much simpler structure, resources and capabilities than larger firms (Poon, 1999; Thong, 1999). Therefore, it is expected that SMEs will always lag behind larger business in adopting EC (Premkumar & Roberts, 1999).

Interestingly, most of the earlier IS literature found that larger SMEs are more likely to adopt IS and IT than smaller ones. Recent EC research found the same (Adam & Deans, 2000; Al-Qirim & Corbitt, 2002; Deloitte, 2000; Premkumar & Roberts, 1999) but other research found that smaller SMEs are as capable as larger ones in adopting EC (Abell & Lim, 1996) and this could be attributed to their enthusiasm for the technology and to their agility and flexibility in making fast decisions. Remember that most of the start-ups on the Internet were SMEs.

The open standards of the Internet bring electronic commerce (EC) within the reach of the smallest of firms and help reduce the gap between large and small firms (Kalakota & Whinston, 1996; MOC, 1998). Traditionally, the availability of such EC infrastructure was within the reach of the large enterprises only. The availability of such economical infrastructure is becoming more of an essential tool for organizations in general, and for SMEs businesses in particular, in gaining competitive advantage and in accessing global markets (Poon & Swatman, 1995). It is expected that SMEs will not be able to develop EC capabilities alone and hence, outsourcing part or all of their EC stake to the outside to a trusted EC vendor/ consultant (discussed later) will assist the SMEs in developing their EC strategies and in reaching online markets quickly. The emergence of this new technological innovation is changing the way business is conducted - even it is expected to changing our lives and daily activities in the long run.

Look Internally

EC is changing the way business is conducted even with individual customers. Firms that are able to streamline their products or processes or delivery agent on the Internet will be able to shift entirely to the pure EC arena (Choi et al., 1997). The success stories of small business using the Internet are quite apparent and are publicized and reported by the media.

Most of the businesses existing on the Internet are not necessarily transacting information-based products only, but rather complementing the sale and/or the delivery of a physical product with such things as publishing information about the usability of a physical product (e.g., user manuals), tracking the shipment, etc. (Teo et al., 1998). Product characteristics appeared to have an effect on EC adoption being physical or digital (e.g., software download), where Poon and Swatman (1997) indicated that there are other activities, which could be implemented over the Internet to supplement the physical delivery of products. For instance, the Internet could be used to transact information pertaining to delivery or acquisition of physical products.

Thus, using the Internet to transact products is dependent on how efficient and effective the Internet is in coordinating transactions between senders and receivers of the product or the service (Poon & Swatman, 1998). Characteristics include:

• the physical or information component

• usability in electronic form (e.g., music, video)

• gain in effectiveness, and efficiency during the transaction process

• value added during the transaction process (e.g., freeware)

• customer preference between different forms of the same product and the related transaction process.

The Manager

Most of the IS literature in SMEs (Blili & Raymond, 1993; Cragg & King, 1992, 1993; Harrison et al., 1997; Jarvenpaa & Ives, 1991; Thong, 1999; Thong & Yap, 1995, 1996) and EC in SMEs (Poon & Swatman, 1997, 1998, 1999a, 1999b) emphasises the role and the characteristics of the manager (usually the owner) as a product champion. Poon and Swatman (1998) highlighted the importance of the following two main determinants on EC success in small business:

• Management involvement: most of their respondents were either owners or managers who have direct involvement in adopting the Internet and using it for business; and

• The entrepreneurial perspective: Poon and Swatman observed the entrepreneurship characteristics among their Internet-active users, are always searching for change, responding to it, and exploiting it as an opportunity, ability to create, innovate, bear risk, manage and achieve targets.

Be Involved in Electronic Commerce

Poon and Swatman (1998, 1999a) point to the manager's role in their EC study, where they found direct management involvement was the norm in the different cases. Although the managers of small business lacked formal IT qualifications and training, they were champions in adopting EC specifically in micro-businesses, where the sole decision-maker was the director of the business. Poon and Swatman emphasized the importance of the manager's involvement as being vital to EC success.

Peters and Paynter (1999), however, point to the lack of senior management involvement with computerization and to the low positioning of the IT function in the firm which further highlights the importance of the manager's involvement perspective on EC success.

Further, due to the multi-perspectives that characterise EC, which requires the collaboration of different departments within the organization (e.g., IT, marketing, management), top management involvement and ownership is essential to overcome any political frictions that may arise in the introduction of EC.

Be an Innovative Manager

In adopting a closer stance to the IS literature, Thong (1999) and Thong and Yap (1995, 1996) considered the following measures for the CEO's innovativeness (based on Kirton's (1976) theory of innovativeness): introducing new original ideas, always looking for something new rather than improving something existing, and risk taker. Such features are at the heart of the entrepreneurial literature, in emphasising features pertaining to entrepreneurship and to entrepreneurs.

Due to the recent nature of EC, it is expected that the adoption decision for EC would include some sorts of high-risk elements and hence, the adoption decision for EC would require a risk taking manager.

Poon and Swatman (1997, 1998, 1999a) found that the entrepreneurial perspective differed between the different firms in their study. Managers/owners embraced EC technology and attempted to exploit it to the maximum. The managers who championed Internet adoption in their organizations demonstrated an innovative and a risk-taking attitude towards EC despite lacking formal IT training.

Reassess the Competition and New Entrants

Two main issues are reported for the elements of competition in EC: firstly, Adam and Deans (2000) in their Australian/New Zealand study found that only the SMEs which operated with overseas businesses perceived the greatest benefits from adopting EC.

Poon and Swatman (1998) pointed to the market scope of small business, where SMEs transacting with international markets would perceive many advantages from the Internet, such as cost savings and market communication in comparison with other SMEs operating in local markets. Teo et al. (1998) showed that SMEs planning to expand their business globally would face high set-up costs and high levels of risk. The Internet, on the other hand, would provide a relatively low-cost alternative for SMEs for advertising and for finding new partners and suppliers around the world.

Poon and Swatman (1998, 1999b) report that some SMEs reported having a competitive advantage on the Internet. This was only a perception and the SMEs failed to produce financial evidence endorsing the competitive advantage assertion. The SMEs did not maintain customer counts and comparison sales figures to show they performed better than their competitors, but indicated that their competitors were either not connected to the Internet or their own Web site was reporting higher hit counts on search result lists.

The literature on small businesses suggested that the greater the perceived intensity of competition in the industry, the more likely EC would be adopted by SMEs (Poon, 2000; Poon & Swatman, 1999a; Teo et al., 1998), specifically if the innovation directly affects the competition (Premkumar & Roberts, 1999).

Get Closer to Your Buyers and Suppliers

Pressure from buyers/suppliers could be divided into pressure from consumers and pressure from other businesses. SMEs in the consumer business (SMEs-to-consumers (S2C)), e.g., retailers, would establish, e.g., Web sites to provide different products and services to their existing customers. At the same time, SMEs will anticipate reaching the masses existing on the Internet for the chance of increased sales and revenues.

SMEs in selling-to or buying-from other businesses [SMEs-to-business (S2B) or business-to-SMEs (B2S) respectively or S2S if both businesses are SMEs], e.g., wholesale trader, manufacturer, etc., are usually encouraged (sometimes forced by larger businesses) to adopt EC to enhance the collaboration with other businesses. Such collaboration could result in having different EC activities such as sending purchase-orders, monitoring delivery status, price and inventory enquiries, and stock monitoring (Poon, 2000).

The type of relationship between SMEs and other businesses could be established on a continuous basis, where SMEs leverage their inter-organizational systems (IOS) and extend them to link with their buyers and/or suppliers for automating large parts of the manual processes and transactions. Accordingly, the pressure from suppliers/buyers would influence the type of technology adopted as well. Poon and Swatman (1999a) asserted that if a small business retained a high percentage of customers and competitors online, this would increase the chances of adopting EC.

Select the Right Technology Vendor

External support refers to the availability of support for implementing and using the innovation (e.g., EC), where organizations are more willing to risk trying new technologies if they feel there is adequate vendor or third-party support for the technology (Premkumar & Roberts, 1999). SMEs will lack the availability of technical resources and IS expertise inhouse.

Due to the expected growth in EC SMEs will be further encouraged to adopt EC (Mcdonagh & Prothero 2000). On the other hand, the field of EC is relatively new and the actual functioning and utilization of EC-technologies are still unknown to most organizations (Teo et al., 1998) including SMEs. Therefore, it is expected that SMEs planning to adopt EC would seek assistance from consultants/vendors in the industry in different areas such as planning and strategy, training, development, and implementation (Deloitte, 2000). Consultants and technology vendors can add significant value to business planning by SMEs (Mcdonagh & Prothero, 2000). Poon & Swatman (1995) found SMEs relied on external support for their EC initiatives. Thus, the availability of such external support is essential for SMEs and will further encourage them to adopt EC (Alexander, 1999). How far efficient technology vendors in providing feasible and well-integrated EC products and services to SMEs are worth further investigation. For instance, Fichman and Kemerer (1993) point to the lack of unbiased information sources about the different innovations as provided by the different technology vendors. Technology vendors tend to aggressively promote their own products, which are sometimes "masked in new vocabularies that are explainable only by a self-selected cadre of experts." Thus, selecting a suitable innovation and/or a technology vendor for the SMEs would be a very difficult task. Above all, how the SMEs viewed technology vendors in the first place is worth further investigation as well (Al-Qirim & Hanoku, 2002).