E-commerce is among the rapidly growing industries across the world and is one of the fast evolving areas of national and international trade. The internet has become an extremely powerful tool for conducting business electronically and it has had an intense effect on the way business is conducted. The e-commerce technologies have offered opportunities for business growth, but on the other hand, they have presented the business world with many challenges. In this paper, the impact of e-commerce technologies on business practices is going to be looked at. At some point, the focus is going to be put on small and medium-sized enterprises. The adoption of e-commerce brings in benefits to these business organizations but some of them have faced great challenges in the process of e-commerce adoption. The central idea in the paper is going to be that; e-commerce has equipped traditional business owners and added great value by adopting the most contemporary technology.
The main objective in the paper is to look at the impact of e-commerce technologies on the business practices in firms. The other objective in the paper is to find out the factors that affect the adoption of e-commerce by firms, especially the small and medium-sized enterprises.
Definition of E-Commerce and Background information
According to Laudon and Travern (2009), e-comerce is defined as “the use of internet and websites to perform business transactions” (p.1). Halim, et al, (2012) Point out that e-commerce is defined as “a process of buying, selling or exchanging products, services or information through computer networks” (p.2). From the business point of view, e-commerce involves conducting business electronically, dealing with the business processes on an electronic network that substituted the “physical business process” (Weill & Vitale, 2001, p.10). The e-commerce concept is to boost trade with the computing system with high dynamic and open IT. Halim, et al (2012) point out that “e-commerce, also known as doing business without paper, includes a measuring system, check, pay and product delivery”(Halim, et al, 2012, p.184).
According to Tassabehji (2003), e-commerce is defined as the “sharing of business information, maintaining business relationships and conducting business transactions by means of telecommunication networks” (p.4). This author maintains that e-commerce, in its purest form, has been there for more than the last four decades, having its origin in the electronic passing over of messages in the course of the airlift in the year 1948. Beginning from that time, the “Electronic Data Interchange” or EDI was the stage that followed in the process of the development of e-commerce. In the course of the 1960s, a joint effort between the industry groups came up with the initial attempt at “common electronic format” (Tassabehji, 2003). However, these formats were just for purchasing, finance data and transportation and were basically utilized for intra-industry transactions. It took some time before work commenced for national EDI standards, in the late 1970s, which developed well into the starting years of the 1990s (Tassabehji, 2003).
EDI refers to the “electronic transfer of a standardized business transaction between sender and receiver computer, over some kind of private network or value added network (VAN)” (Tassabehji, 2003, p.4). The two sides, receiver and sender sides, would have to possess similar application software and the exchange of data would be carried out in a very accurate format. Within such sectors as automotive, retail, heavy manufacturing and defense, the development of EDI was carried out to have information integration across bigger parts of the value chain of the organization to maintenance from design in order for the manufacturers to be able to engage in the sharing of information with the stakeholders, maintenance, designers and other partners (Tassabehji, 2003). Before people starting to take up and using the internet commercially on an increased level, the EDI system was very much costly to run and this was majorly due to the high costs of setting up the private networks. Hence, there was limitation to uptake largely “to cash-rich multinational corporations using their financial strength to pressure and persuade smaller suppliers to implement EDI systems, often at a very high cost” (Tassabehji, 2003, p.4).
With the internet invention, the concept of e-commerce started to encompass the following; electronic trading of goods and servcies; all the steps that are involved in the process of trading like delivery support, online marketing and ordering payment among others; providing services electronically such as after-sales support; electronic support for collaboration between business organizations like “collaborative online design and engineering or virtual business consultancy teams” (Tassabehji, 2003, p.5).
Effects of E-commerce on Business Practices
Watson, et al. (2008) point out that, e-commerce technologies have the ability to contribute to remarkable productivity benefits at the firm level and especially, when they are applied to the business-to-business relations. These technologies can contribute towards having business process rationalization as well as saving costs. As an instant impact, the electronic technologies make it possible to have automation of common processes like inventory management, distribution, sales and after-sales-service. The internet solutions have been basically set up for the management of the distribution channels and at the same time there has been continual carrying out of supply chain management through the set up EDI applications. However, while the internet costs decrease, there are expectations that new entrants or small business organizations which are not in a position to afford EDI will, on an increasing level, make use of the internet in managing their supply processes (OECD, 2000).
It is pointed out that the applications that are internet-based “are not specific to any particular level of the business value chain and can be used across a vast range of sectors and firms” (OECD, 2000, p.4). Among those who adopted these technologies early enough in the United States of America, observation of the impacts has been made in product design as well as in the production and logistics. The product design observed has been in line with having a short design process and higher level of product customization as well as standardization of the parts. In relation to production and logistics, there has been realization of the inventory and supply costs that are lower and faster production (Duncombe, et al, 2006).
E-commerce increases the level for the possibilities for having re-location of production. There can be development of the product specifications where the design or development work of the company is undertaken; while there can be undertaking of production at the locations that can provide the most excellent framework conditions. By using the E-commerce applications, business organizations within the distribution and supply chains that were not formerly linked can now set up direct contact. A significant efficiency source linked to e-commerce could emanate from dynamic impacts. These come about when business organizations utilize e-commerce technologies in a practical manner to produce new products, “adopt new business practices and change their way of interacting in the marketplace, i.e. their relations with customers, suppliers, intermediaries and competitors” (OECD, 2000, p.5). Using e-commerce in a strategic way makes it possible for the business organizations “to enter, maintain, or improve their position along the sectoral value chain” (OECD, 2000, p.5).
Having a realization of these dynamic benefits is dependent greatly on the manner in which business organizations carry out the integration of e-commerce strategies into their business functions. If at all possible, the application of e-commerce technologies should be carried out all through the value chain of the business. An illustration of this can be given by considering the manufacturing industry where product creation and shorter product cycles calls for having greater flexibility as well as speed. In such environment, the avenue to success is dependent not just on competition that is based on price, but rather on the capability to bring in the information links that are sophisticated as well as on the forecasting abilities and management systems. It is pointed out that competitive performance “is driven less by how a company manages its assembly operations and more by how it manages the organization and logistics of its operation as a whole – from inventory to time to market” (OECD, 2000 p.5).
Benefits of electronic commerce: the challenge for SMEs
There are several factors that can determine the adoption of e-commerce by business organizations. These factors may include; transaction cost reductions as well as improvements in the customer service and product quality, “reaching new customers and suppliers in existing markets and expanding in new markets; a defensive reaction to competitors engaging in e-commerce; requirements by businesses that their suppliers link into their e-commerce system as a condition of doing business” (OECD, 2000, p.5).
Generally, the business organizations which make an entry into the electronic markets are either start-up businesses that are specifically set up in such a way that they can operate within the internet environment or those businesses that are established which shift to e-commerce. The economic importance of the internet start-ups is very minimal; however, its growth rate is high (OECD, 2000). It is pointed out that the ‘scalability’ of the internet provides “small niche players” a large number of benefits that are enjoyed by large business enterprises in regard to range expansion of the e-commerce customers as well as transactions (OECD, 2000, p.5). This may be especially of great significance for small innovative business enterprises that are making an entry into the electronic market.
Hypothetically, the invention of the internet is assisting in expanding the geographical as well as sectoral markets by cutting through a large number of the marketing and distribution barriers that bar the smaller business enterprises from gaining entry into the foreign markets. The smaller business enterprises may mostly derive benefits from the opportunities that are offered by e-commerce. They seem to be less locked in to “legacy technology” in comparison to the firms that are large in size, and they are usually unencumbered by the relationships that are there with the traditional retail channels. Therefore, they can take up a business model which compels the larger competitors that are established to engage in restructuring of their relationships that are there. The internet as well offers opportunities for firms to engage in competition in new areas by producing new goods and servcies (Duncombe, et al, 2006).
Moreover, e-commerce applications compel business organizations to carry out the re-examination of the value chain cost structure as well as their competitive strategies by making a redefinition of skills and functions. There may be some effects on the whole business operations cycle in such areas as value-added components change as well as “production planning and logistics and inventories” (OECD, 2000, p.5). The capability and flexibility to engage in innovation and to become accustomed to rapid change of small and medium enterprises imply that they are in a better position to capitalize on these opportunities. “The flattening of organizational structures and the promotion of horizontal production and work structures can suit their less hierarchical organization”( OECD, 2000, p.5).
Conversely, undertaking either business-to-customer or business-to-business e-commerce encourages firms that are smaller in size to engage in improving management of their business process. The business processes that were formerly carried out in an informal manner are institutionalized and rationalized, which implies that there is transmissibility of information, encompassing employees at various geographical points. The driving force to attain organizational models that are more structured and formal offered by e-commerce could be crucial for small and medium enterprises to a level that models like these are vital for them to be able to cope up with the increasing competition in the global marketplace and to realize growth. It has been pointed out that the same positive effects on organization of small and medium enterprises are the product of the networking as well as partnerships that are taking place as the expected response to increasing competition in the global market (OECD, 2000).
The networking of functions and sharing them, characteristic of clusters and partnerships, make it possible for business organizations to intensify the benefits of e-commerce. Fresh opportunities for small and medium-sized enterprises come about as a result of integrating the demand and supply chains via horizontal inter-firm connections between the suppliers and the clients and they are also as a result of creating production clusters. Such kinds of organization give room for the small and medium enterprises to get over their isolation by having an interaction with their partners and also sharing information with them. They can make a contribution towards offering solutions to the problem that the small and medium-sized enterprises have of not having adequate resources and also not having access to technology, by boosting knowledge transfer through utilization of integrated processes (OECD, 2000).
The level to which there can be enhancement of the e-commerce tools utilization is dependent on the level of skills the firm has as well as its specialization and innovation. Basing on the fact that it is not just the investment size that matters but the manner in which implementation of the e-commerce applications is carried out as well; to attain success, there is need to develop a formal e-commerce strategy. Some evidence that have been traced in case studies about adopting e-commerce and its use by small and medium-sized enterprises indicate that there is a variation in strategies and this depends on the behavior of companies in the way they respond to the competition in the global marketplace. The small and medium-sized size enterprises can set up effectual e-commerce tools and utilize them in proactive manner as being a part of their own strategies that assist them to win a competitive advantage in the global markets (OECD, 2000).
The small and medium enterprises take up e-commerce technologies “as part of top-down strategies of large global companies” (OECD, 2000, p.6). When business organizations only become accustomed to top-down strategies instead of coming up with their own individual strategies, this may not favor them as such, particularly in case the business re-organization along the set up value and supply chains contributes towards making the opportunities to be narrowed (OECD, 2000).
The challenge that the small business organizations encounter lies in their well-timed taking up of the e-commerce technologies. In addition, the challenge in this regard also lies in the strategic justification behind these businesses’ adoption and the utilization of such technologies that follow. The factors that may contribute towards having a reduced level of participation in the world electronic market by the small and medium enterprises may include such factors as; “first-mover advantages, the trend towards concentration of supply in some segments due to dominance of a few firms o new business models, and the need for greater recognition in market-led strategies” (OECD, 2000, p.6).
Factors That Affect E-Commerce Adoption among the SMEs
The research that was conducted in the recent times by Kapurubandara & Lawson (2006) contributed to identifying various factors that affect the adoption of e-commerce adoption among the SMEs. Following their study, it as revealed that business owners or managers of the small and medium enterprises are the ones that make decisions when it comes to the idea of whether or not to adopt e-commerce for their global business operations. However, these decision makers are challenged with various factors that have an effect on the adoption of e-commerce for their exporting business activities (Kapurubandara & Lawson, 2006). Iacovou et al (1995) in their study established that the lack of awareness by the business owner about technology and the perceived gains is a major factor that determines adoption of e-commerce. Lack of knowledge about how to utilize the technology and the low level of computer literacy are among other factors that contribute towards businesses not adopting e-comerce (Knol & Stroeken, 2001). Eshum & Taylor (2009) point out lack of trust in the information technology industry and lack of time as being among the factors that has an effect on the decision to take up e-commerce.
The owners of the small and medium enterprises have concerns about a return on the investments they make and are not willing to make significant investments, especially in the case where there is no assurance of obtaining returns in the short-run (Eshum & Taylor, 2009). This is for the reason that the small and medium enterprises do not have adequate resources (Eshum & Taylor, 2009). This ‘resource property’ “has an effect on the adoption of e-commerce, as they cannot afford to experiment with technologies and make expensive mistakes” (Eshum & Taylor, 2009, p.11). There are still other factors that are linked to the characteristics of the organization, which have an effect on e-commerce adoption (Kapurubandara & Lawson, 2006). Iacovou et al (1995) point out that the present day level of the use of technology within the organization has as well an effect on the adoption process. A study that was conducted by Cloete et al (2002) indicated that low utilization of e-commerce by the suppliers as well as customers, the security concerns, the liability and legal aspects, the “high costs of development and computer and networking technologies for e-commerce, limited knowledge of e-commerce models and methodologies, and unconvincing benefits to the company are among some factors that affect internet and e-commerce adoption by SMEs” (p.7).
According to Eshum & Taylor (2009) the internet may be the single best motivation for marketing that has ever been created. The internet has the capacity to help business organization to obtain new customers as well as suppliers and distributors. It is also able to assist the business organizations to engage in the generation of a “wealth of information” about the trends in the market and also about the newest technology and development in research (Eshum & Taylor, 2009). However, although there is optimism about the global marketing potential of the internet for such firms as those that engage in exporting, the studies that were conducted recently hardly gives a distinction between the exporters and those who do not export, “is limited to descriptive quantitative studies, and focused initially upon internet adoption as a dichotomous variable” (Eshum & Taylor, 2009, p.12).
It is pointed out that innovation as being a range of stages, beginning from e-mail to purchasing of goods and services online are the recently conducted studies that have been evaluated and viewed (Daniel & Wilson, 2002). Distinguishing between various types of adoption is vital because the internet is a combination of various innovations that play different roles and serve different purposes with the activities of marketing undertaken by the small and medium enterprises that engage in exporting (Eshum & Taylor, 2009). Each of them may have the ability to replace tasks undertaken by “traditional export channel intermediaries” (Eshum & Taylor, 2009, p12). As a result, it is not a surprise that it was established that distinctive factors drove each application adoption. The results that were obtained from the in-depth interview that was conducted by Houghton et al (2001) indicated that “website adoption appeared to be stimulated by assistance from person contact networks, whilst lack of information technology knowledge acted as an obstacle” (p.1).
On the contrary, Eshum and Taylor (2009) point out that the employees’ workload, the increased level of the perceived risk, “the importance of augmented product dimensions and compatibility with existing marketing channels are likely to act as obstacles to e-commerce adoption” (Eshum & Taylor, 2009, p.12). But on the other hand, the increased levels of the supplier service, IT knowledge as well as “entrepreneurship stimulates e-commerce adoption” (Eshum & Taylor, 2009, p.12). Such researchers as Schneider & Perry, 2000; Saloner & Spence, 2002; Scupola, 2003 also point out the benefits of e-commerce as helping firms in improving their product quality, cost reduction, assisting firms in reaching new customers as well as distributors and suppliers, and creating new ways of selling the products that are already there. Considering all these benefits that are offered by e-commerce to the firms, the empirical evidence that has been presented indicate that the adoption of e-commerce by the small and medium-sized enterprises is limited (Grandon & Pearson, 2004). A larger number of firms that have websites restrict these sites to business advertisement and promotion (Beatty et al, 2001) and they are not willing to engage in doing business online (Eshum & Taylor, 2009).
E-commerce has equipped traditional business owners and added great value by adopting the most contemporary technology. For instance, the invention of the internet has helped in the expansion of the geographical and sectoral markets by cutting through a large number of the marketing and distribution barriers that prevent the businesses from gaining entry into the foreign markets. Moreover, using the e-commerce technologies has made it possible for business organizations to derive significant productivity benefits at the firm level and particularly when the application of these technologies is carried out on the business-to-business relations. These technologies have contributed to having business process rationalization and cost savings among businesses. By using the e-commerce applications, business organizations within the distribution and supply chains that were formerly not connected can now set up direct contact.
The electronic technologies make it possible to have automation of common processes like inventory management, distribution, sales and after-sales-service. Evidence of the impact of e-commerce impact among those companies that undertook e-commerce technologies adoption early enough can be traced in their product design and production and logistics.
Considering the small and medium sized enterprises, it has been realized that, by these firms engaging in the adoption of either business-to-customer or business-to-business e-commerce encourages them to undertake improvement in the management of their business process. The business processes that were previously carried out in a casual manner are institutionalized and rationalized, which implies that there is transmissibility of information, including the workers of the organizations at various geographical locations. The motivation to achieve organizational models which are more formal and structured by e-commerce technologies could be essential for small and medium enterprises to an extent that such models are very important for them to be in a position to put up with the ever increasing competition in the global marketplace and to realize growth
While the adoption of e-commerce technologies has enabled business organizations to derive the benefits associated with it, the small and medium-sized enterprises have faced several challenges that have hampered the adoption of this most contemporary technology. However, the level to which there can be enhancement of the e-commerce tools use relies on the level of skills the firm has and also on its specialization and innovation. Considering the idea that it is not only the investment size that matters but also the way in which implementation of the e-commerce applications is undertaken; to be successful, this requires the firms to set up a formal e-commerce strategy.
Evidence that has been identified in case studies regarding adoption of e-commerce technologies and their utilization by small and medium-sized enterprises give an indication that there is dissimilarity in strategies and this is dependent on the conduct of business organizations in the manner in which they offer a response to the competition in the global market. The small and medium-sized size enterprises can come up with e-commerce tools that are effective in order to use them in a practical manner as being a part of their own competitive strategies that can help them to go ahead of the competition in the global markets.
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