Prospect of E-Commerce in Small and Medium Enterprises in India

Prospect of E-Commerce in Small and Medium Enterprises in India

Background of the Study

            Small and medium enterprises (SMEs) continue to achieve importance in international business in the last few decades. Results of theoretical and empirical studies on business and economic development recognize the important contribution of small and medium firms in catalyzing growth of national or international economies.  (2002) provides that the importance of SMEs is due to two factors: First is the volume of employment opportunities that these firms offer in the international labour market and second is that the small and medium sized firms represent ninety percent of the total number of establishments around the world.

            Information and communication technology (ICT) constitutes an important tool for all business organizations (2000). The utility of ICT is wide-ranging because it encompasses functions of personal computers to network frameworks as well as from simple word processing to the application of complex systems  

Information Communication and Technology (ICT), on the other hand, is found to play an important role for any organisation ( 2000). The use of ICT that range from mainframe to personal computers, from word processing to sophisticated application and systems have made considerable inroads into large, Australasian Journal of Information Systems Volume 14 Number 1 Nov 2006 medium and even small organisations ( 1996). Recent research also found positive signs that SMEs can take advantage of electronic commerce (e-commerce), as a type of ICT, in helping their business to expand ( 2002).

A number of e-commerce adoption methodologies and types of e-commerce applications have been suggested through literature – both the academic press and trade journals – and are being undertaken by many organisations. Most of this research, has however, focused on developed countries where the structure of the economy is common. There are only few studies that shed some light on prescribing strategies of e-commerce adoption for SMEs in developing countries, especially Indonesia.

Therefore, this research was aimed at addressing this gap in our knowledge – to understand the factors and combinations of factors that SMEs need to be considered before embracing e-commerce into their business. Case study research was carried out to analyse and explain the underlying factors that are likely to determine the varying extent of e-commerce adoption in SMEs, particularly the service sector. The findings of the case studies have further extended into the development of proposed practical framework to illustrate how e-commerce adoption should be carried out from a strategic perspective.

 

Literature Review

Characteristics of ICT in SMEs

The adverse impact of the economic slowdown in South East Asia region, especially Indonesia, and the globalisation of the world economy underscore the need for SMEs as the backbone of the national economy to become more resilient and competitive.  (1998) believes that successful implementation of ICT offers the prospect of substantial competitive advantage for large and SMEs alike.

However, SMEs are not ‘little’ large business (2000, Dandridge 1979). In terms of e-commerce implementation, it requires one to give thorough attention and proper understanding towards SMEs characteristics before delineating further issues of technology adoption and strategies.

The renowned characteristic of SMEs that are common in most countries is the lack of in-house ICT expertise and financial resources. Furthermore, in relation to ICT usage, previous research conducted by  (1991) found that there are three major differences between SMEs and large organisations:

             • SMEs tend to use computers more as tools and less as a communication medium;

             • The small number of stakeholders involved in an SME means that there are likely to be fewer problems in terms of organisational politics;

             • SMEs have considerably fewer resources available to implement ICT solutions.

 

Much of the research also shows that the decision for ICT adoption in SMEs are more likely made by the owner ( 1996, 2003), which often have little concern towards the importance of ICT strategy and planning within their business (2003). Furthermore,  (1992) found in their research that the management involvement is crucial to IT success within SMEs.

 

 

Australasian Journal of Information Systems Volume 14 Number 1 Nov 2006

Research on SMEs and E-commerce

E-commerce can be defined as any economic or business activity through Web storefronts to enable the buying and selling of products and services and to facilitate the transaction of business and activities between and amongst individuals and organisations (2002). In a wider definition, however, e-commerce is not limited to buying and selling products online. Along with customers, an online business will also find its suppliers, accountants, payment services, government agencies, and competitors online. These online partners demand changes in the way they do business from production to consumption ( 2002, 2002). Succinctly, e-commerce is a new way of doing business ( 2003; 2002; 2000).

Numerous studies into the use of e-commerce in SMEs recently have been of an exploratory and qualitative nature (2002). While there is rapid growth and development of dot-coms and the ‘new economy’, SMEs in developing countries have been slower to adopt e-commerce than their developed countries (2003).

Moreover, there are several issues that have been raised in recent SME literatures, which include:

      • Exploring the advantage and disadvantage of e-commerce in Thai SMEs ( 2003)

 

                • The importance of e-commerce infrastructure in facilitating the e-commerce adoption initiatives for SMEs in developing countries ( 2004, 2003).

                • The use of e-commerce by manufacturing sector of Italian SMEs (2003).

                • Adoption attributes that may affect e-commerce use in Brunei SMEs ( 2003)

                • Factors influencing e-commerce adoption decisions in small and medium enterprises (SMEs) in Thailand (Lertwongsatien and Wongpinunwatana 2003)

                • The use of e-commerce in Australian SMEs (1998).

 

In addition, the business press and trade journals have also given coverage to many of the issues faced by SMEs in moving into e-commerce ( 2003,  1998, 2003).

However, there are some issues that have received very little attention in research to date, such as:

      • Framework that helps SMEs evaluate the strategic use of e-commerce as well as guiding the adoption process.

      • Assessment of e-commerce application and post adoption experiences in different sectors of Indonesian SMEs.

 

Impact and Benefit of Strategic Use of e-commerce in SME

One might question why the presence of e-commerce has expanded very rapidly in recent years. The answer is simply because of the opportunities and benefits that are evident from the current implementation by many organisations. The concept of strategic use e-commerce through the utilisation of Internet software and services also endeavours to link Internet use with opportunities it offers to the firm (2002). It further recognises that the strategic potential Internet use Australasian Journal of Information Systems Volume 14 Number 1 Nov 2006 allows exercising the control over the bounds of relationships and interfaces used in relationships between customers and the business, which are also related to the firm’s strategies.

E-commerce has offered a variety of potential benefits both to SMEs and large business. Numerous studies claim their findings on the benefit and impact of e-commerce. Those findings are summarised into the following points ( 2001,  2002):

      • E-commerce offers unmatched savings in terms of transaction costs

      • The reduction of cost in advertising and promotion

      • Speed communication between buyer and seller

      • Companies can shorten their traditional supply chains, minimise transport obstacles, and reduce delivery costs.

      • Physical limitations of time and space are removed.

 

Despite the attractive benefits that SMEs may obtain from adopting e-commerce into their business, SMEs possess significant problems in identifying the appropriate application of e-commerce and its strategy due to the lack of knowledge and planning in ICT. Consequently, it is hardly surprising to witness that most of the SMEs’ owner/managers will finally develop their ICT strategy through a ‘trial-and-error’ method.

Statement of the Problem

Objectives

Methodology

 

Credit:ivythesis.typepad.com