E-Commerce and SME

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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Much confusion surrounds the definition of e-commerce. Some see e-commerce as Internet-based activities only, while others include any kind of business or exchange of information on any type of network. Our approach is closer to the latter one: we define e-commerce as a process, where electronic connections facilitate economic transactions between various parties in the value chain. This wide definition includes the usage of different types of information and communication technologies and systems, trade in both physical and digital products, and different types of services (Tuunainen, 1999). Even though this definition of e-commerce includes a range of technologies from proprietary IOS and EDI to Internet-based solutions and mobile or wireless technologies, for the purposes of this study we distinguish between the different technologies when such has been done in the reviewed literature.

There are different definitions of what SMEs are. The number of employees and turnover are two factors used to categorize businesses. According to the European Parliament, SMEs are businesses with up to 500 employees, net fixed assets of less than ECU 75 million, and with no more than one-third of their capital in the hands of a larger company. The European Parliament divides SMEs into different sub-groups based on the number of employees, for instance small undertakings with 10 to 50 employees and medium-sized undertakings with 50 to 250 employees (European Parliament, 2000).

A long-debated issue is whether SMEs substantially differ from larger ones or not. SMEs are not homogeneous and some even claim that it is impossible to draw any general conclusions about them. Still company size has been found to be a critical factor to adoption of e-commerce technologies (Premkumar, Ramamurthy, and Crum, 1997; Premkumar and Roberts, 1999). There also seems to be a significant difference in use of e-commerce between large and small companies. A Swedish study shows that 87.5% of companies with more than 500 employees had their own Web site in 1999. The corresponding figure for companies with 10 19 employees was 48.2% (J nsson, 2001). The difference is even more substantial when looking at EDI adoption. While more than 62% of the largest companies have adopted EDI, only 7% of the micro companies (10 19 employees) have EDI (ibid.). This is problematic for the small companies that may be able to save money and increase revenue with the help of e-commerce technologies. The poor spreading to small companies, however, also cripples their larger business partners' possibility to gain optimal advantages from their e-commerce investments. Once a company has implemented any form of e-commerce, it is a large advantage to be able to connect all of its partners to the new system. In that way they avoid working with double routines and can reach maximal benefits.

Most companies today live under a strong economical, as well as technological, pressure. Welsh and White (1981) describe this special condition that distinguishes SMEs from their larger counterparts as "resource poverty." The increased globalization has intensified competition, the technical development is fast, and the information overload puts new demands on organizations (Turban, Lee, King, and Chung, 2000). For small businesses to strengthen their competitive ability and face the increased competition, both nationally and internationally, they need to adopt new technologies for production as well as management of the company (Julien, 1995). Some even claim that SMEs in the long run will be the real beneficiaries of IT (Chesher and Kaura, 1999).

A lot has been written about SMEs' poor ability to use IT as a strategic resource. For example, SMEs lack both business and IS/IT strategy, they have limited information skills, and when they modernize their equipment, the planning process is less structured and more incremental than in larger businesses (Ballentine et al., 1998; Julien, 1995). The strategic decision-making process is short-termed and reactive rather then proactive (Blili and Raymond, 1993). SMEs often use intuitive methods when monitoring new technologies and collect information in a more iterative and less organized manner (Julien, 1995). In small businesses the CEO is often the same person who owns the company. This makes his or her vision and commitment essential, especially to get the adequate resources and support to implement an innovation (Premkumar and Roberts, 1999).

The perhaps mostly discussed difference between SMEs and large businesses is the resource constraints that the former have to deal with. SMEs are usually poor in human, as well as financial, resources (Blili and Raymond, 1993). Their weak financial standing makes them more vulnerable to risk-taking, and an innovation (such as e-commerce) can represent a disproportionately large financial risk (Rothwell and Dodgson, 1991). Also, the level of IT-knowledge is generally low in SMEs. Small businesses often have difficulties recruiting and keeping well-trained IT personnel and their financial standing prevents them from employing their own IT expertise (Thong, 2001). Even though there is often a general lack of IS expertise in SMEs, small companies are unfortunately also less inclined to use external advice-giving services (Thong, Yap, and Raman, 1996).

There are also some advantages with being small. Small companies are claimed to be more flexible and they can more rapidly adapt to new demands and changes in the external environment (Rothwell and Dodgson, 1991). This is facilitated by an efficient internal communication that takes place in informal networks (Rothwell and Dodgson, 1991). The ability to reorganize fast is a valuable property, since a high level of uncertainty usually characterizes the environment of smaller businesses. Small businesses are also less bureaucratic and more willing to take risks to grasp new opportunities (Rothwell and Dodgson, 1991).

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