Factors of EC Adoption for SMEs Document Transcript

1. Factors that influence the adoption of e-commerce in SMEs Key research findings By Sandy Chong Introduction 2 The research 3 Adopting e-commerce in SMEs 5 Implementing ecommerce in SMEs 6 Perceived benefits of e-commerce 7 Leveraging on the Internet 8 Managerial Implications 9 Creativity | Passion | Growth

2. Creativity | Passion | Growth Electronic commerce (e-commerce) has changed and is still changing the way business is conducted around the world. The commercialisation of the Internet and the World Wide Web (WWW) has driven e-commerce to become one of the most important mediums that facilitates the sharing of business information both within and between organisations. As many researchers and practitioners have What kinds of benefits are business leaders shown, e-commerce has reshaped the expecting from its adoption? And in practice, traditional value chain and has revolutionised how optimally is the Internet being used for business processes, creating phenomenal value this purpose? for businesses worldwide. Thus, in a globalised economy with less and less opportunities for To investigate these questions, we conducted a regional and niche market positions, it is research on SMEs between October and necessary that small and medium enterprises December 2000. The research consisted of (SMEs) take advantage of what e-commerce can preliminary interviews and a cross-country offer. survey in Australia. Yet, the remarkable value and growth of e- In the following pages, we have summarised commerce do not come without these practical our key findings in graphical forms, and we questions: What exactly are the reasons behind hope they will provide useful insights for our e-commerce adoption? What factors hinder the readers. adoption and implementation of ecommerce? E-commerce adoption in SMEs: Key research findings 2

3. Creativity | Passion | Growth The Research Fig. 1: Profile of SMEs who participated in the study Age of company Industry Sectors Other characteristics Most of the SMEs have been in operation for more than As can be seen, a majority of participating SMEs was 10 years, a majority of participating firms are from the manufacturing industry (37%), with retailers registered as Proprietary Limited companies, with a and wholesalers forming 21% of all respondents. modest turnover of between $1m and $15m, and with less than 50 employees. Fig. 2: Profile of respondents Fig. 3: Level of adoption in SMEs Education level of SME owners Experience with e-commerce Most of our respondents had formal education of up to The responding firms had varying lengths of experience diploma, while about a quarter of them received with e-commerce adoption and implementation. A high university education and above. percentage of late adopters is consistent with the expectation that e-commerce was a relatively new and growing business practice at the time of the study. E-commerce adoption in SMEs: Key research findings 3

4. Creativity | Passion | Growth Being aware of the critical success factors would equip SMEs to address adoption issues effectively and hence progress in the global marketplace. E-commerce adoption in SMEs: Key research findings 4

5. Creativity | Passion | Growth Adopting e-commerce in SMEs The respondents reasons for adopting e-commerce are reported in Fig. 4. It is apparent that the ability to disseminate product

information easily and quickly is the main reason why SMEs adopt e-commerce, followed by cost savings and a quick turnaround for orders and purchases. On the other hand, increasing their sales and gaining global business access were the least important reasons. Respondents were also asked to rate the concerns they had to deal with before adopting e-commerce. The greatest barrier to adoption was the high initial costs whereas on-going costs ranked significantly lower in importance. This possibly indicates an ignorance that on-going maintenance costs are, in practice, much higher than initial outlays, as in most IT investment. Fig. 4: Reasons for & barriers of adoption Reasons for adopting e-commerce 3.94 Disseminate product information quickly & easily 3.91 Save costs / lower prices 3.88 Gain quick turnaround for orders / purchases 3.74 Improve productivity 3.62 Improve image & reputation 3.62 Simply eager to explore what the Internet can offer 3.56 Showcase your companys products 3.47 Increase sales 3.44 Gain global reach of customers / suppliers Barriers to adopting e-commerce 3.47 Initial set-up costs 3.38 Lack of in-house expertise or competence 3.35 Security issues 3.26 Customers and/or suppliers not EC ready 3.26 Company not ready 3.26 On-going operational costs 3.21 Lack critical mass among business partners 3.09 Reliability of the Internet 3.09 Lack of perceived needs 2.91 Dont know enough about EC 2.79 Unfamiliar with IT in general 2.62 Legal issues and standards 1: Very unimportant 2.56 Wait and see mindset 5: Very important 2.26 Currently VAN-based, no need to migrate to Internet E-commerce adoption in SMEs: Key research findings 5 E-commerce adoption in SMEs: Key research findings 5

6. Creativity | Passion | Growth The lack of managerial time is expected, as e-commerce facilitators in SMEs are mostly directors or owners themselves, who are inevitably busy executives. Implementing e-commerce in SMEs We also investigated the problems faced by Fig. 5: Barriers faced during the implementation of e-commerce companies while implementing ecommerce. The lack of resources, particularly managerial time, skills and finances, were significant obstacles. This indicates the need for technical Lack of managerial time 3.62 and management training within the company. Shortage of skills 3.29 Morale and more technical issues appear to be Excessive costs 3.21 less important once these SMEs have decided to adopt ecommerce. Lack of EC or IT knowledge 3.06 Lack of systems integration or unstructured systems 2.88 Company too small 2.88 Lack of reliable technical advice and support 2.79 Lack of suitable infrastructure in the country 2.44 1: Very unimportant Lack of enthusiasm towards computing, IT and EC 2.29 5: Very important Inappropriate economic climate 2.26 E-commerce adoption in SMEs: Key research findings 6

7. Creativity | Passion | Growth Perceived benefits of e-commerce Respondents were asked to rate direct and indirect benefits, as perceived at the time e-commerce was being adopted at their firm. Concerning direct benefits, there was less agreement that generating sales and retaining customers were benefits of e-commerce. This suggests that responding SMEs were unable to generate more short- term revenue and improve customer retention from adopting e- commerce. As for indirect benefits, most respondents felt that more potential business opportunities and initiatives resulted, and they also had better access to new distribution channels. Though shortterm sales generation may be moderate, SMEs are generally optimistic that future business opportunities and long- term revenues will increase. Fig. 6: Direct and indirect benefits of ecommerce, as perceived by adopting firms Direct Benefits DIRECT BENEFITS Saving time in searching 3.94 information Long term business 3.79 partnership Cost savings 3.76 Increased sales 3.53 Customer retention 3.21 Generate short term revenue 2.68 Indirect Benefits INDIRECT BENEFITS Opening potential business 3.94 opportunities New business initiatives 3.85 Access to new distribution 3.79 channels Effective publicity, advertising 3.74 1:Strongly

disagree and marketingbusiness Ongoing 3.50 5:Strongly agree transformation E-commerce adoption in SMEs: Key research findings 7

8. Creativity | Passion | Growth Leveraging on the Internet Fig. 7: Aspects of the business the Internet was used for To understand how the Internet was to conduct business, respondents were asked to rate usage on a scale of 1-5, Internet Usage with 1 = "very little", 5 = "very often" 1.12 Online selling of goods & services and 0 = "not used" (see Fig. 7). The 2.18 Publicity, promoting & advertising of goods & services Internet was used mostly to facilitate cross-company communication and 2.21 Research & development collaboration, than for online sales of 2.29 Collaboration with customers, suppliers & industry groups goods and services. These results are expected because a majority of the 2.85 Communication with customers, suppliers & industry groups respondents are from the manufacturing 5 0 industry. Although overall usage was not very often not used high, it is expected to increase over time. As with the adoption of most new technologies, there will tend to be two distinct groups of users: one that knows how to take full advantage of it, and the other that under-utilises it because of their lack of expertise. Fig. 8: Total distribution of Internet usage The individual scores were added to give an indication of how optimally the 0.3 Internet was being used as a whole. The chart in Fig. 8 appears to peak thrice. If however, the two extremes (lower and upper modes) were ignored, the graph 0.2 would reflect a normal distribution, which is expected. Nevertheless, the lower peak suggests marked underutilisation of the Internet, and the upper peak represents a group with a 0.1 good understanding of the Internet's potential. Overall, the normal distribution shows that Internet utilisation is moderate. 0 E-commerce adoption in SMEs: Key research findings 8

9. Creativity | Passion | Growth Managerial Implications The exploratory nature of this research has identified some of the issues commonly faced by practitioners in various phases of the ecommerce adoption process particularly, before adoption and during implementation. Though the full potential of e- commerce and the Internet has yet to be realised, it seems that the inability to expend resources in the short term (such as initial financial outlays and managerial time) severely impedes progress. Knowledge of these issues would certainly help SMEs to preempt problems or mitigate the effects of these problems. In many instances where new technologies are being adopted, top management support seems to have a strong influence over the success of these initiatives. Our findings reiterate this, as the lack than it is human-oriented. Again, the of managerial time seemed to be the importance of top management greatest barrier to successful e- involveme The significance of shortage of skills and lack of EC or IT knowledge as barriers to success certainly suggests that of all the resources required, human resources are more critical than technical resources and infrastructure. This disputes the common misconception that e-commerce adoption is more technical-oriented E-commerce adoption in SMEs: Key research findings 9nt is emphasized here; commerce implementations. It is thus policies that address these human necessary for top management to issues need to be formulated to govern participate in this phase of adoption; the new system and steer the e- not only does this serve as a form of commerce initiative towards its support and encouragement to intended objectives. Policies could employees, critical decisions (that could include technical or management potentially accelerate progress) can training, or assigning key staff to drive also be made and acted upon promptly. the development of these projects.

10. Creativity | Passion | Growth About the Author Dr. Sandy Chong Principal consultant Verity Consulting Pty Ltd dr.sandychong@verityconsult.com linkedin.com/in/sandychong About Us Verity Consulting is a boutique international marketing & communication consultancy

specializing in corporate training, senior executive coaching and business advisory services. For more information about Veritys global services and innovative business solutions, contact us at: +61 4 02211373 (Australia) +65 8337 7178 (Singapore) info@verityconsult.com Copyright 2010 Verity Consulting Pty Ltd. All rights reserved. www.verityconsult.com E-commerce adoption in SMEs: Key research findings 10

Indias e-commerce market is expected to grow from the current Rs 50,000 cr to Rs 120,000 cr by 2015. But will the major players be able to sustain themselves and avoid the mistakes of the previous dotcom bust?

Its dj vu again, especially for those who have been tracking the internet business in India. As e-commerce becomes the new buzzword, many would be wondering why it feels like the old days. The huge venture capital investments, the hefty growth projections, the acquisitions & mergers. And, the niggling doubts of what will really work with buyers. Rewind to 1999-2001 when the Indian online space saw an explosion, triggered by Satyam Infoways takeover of Rajesh Jains IndiaWorld for Rs 499 crore. A plethora of start-ups blew up venture capital funds in the race to create a brand identity and ramp up valuations. Within a couple of months, though, they were history. While the scenario doesnt seem as drastic as that now, most analysts feel the sector is definitely headed towards consolidation. And those who will survive would be those with staying power. Prashant Agarwal, senior principal at the Boston Consulting Group, says consolidation will happen as many of the companies are flush with venture-capital cash and those that arent will look for exits. Even strong companies will try and form alliances. The US example is telling. For the last 15 years, people have been in two minds about Amazon. Yet, today its market cap is almost as much as Costco and Target, Americas no. 2 and no. 3 retailer combined. PRETTY PROJECTIONS A look at the numbers reveals what is at stake in India. The countrys e-commerce market that includes travel sites as well as online retailers is estimated to be worth Rs 50,000 crore currently and expected to grow to almost Rs 120,000 crore by 2015. The main factors fueling this growth are better internet connectivity (3G & 4G are touted as the game-changers) and the increasing number of people slowly getting comfortable with the idea of purchasing on the web. According to a report by financial services firm, Avendus Capital, about 11 % of the total online population in

India, which would be 8 to 10 million people, uses the internet for e-commerce. Their number is expected to grow to 39 million by 2015. On this premise, investments in the sector have been ramping up over the past one year. From $ 110 million dollars in 2010, funding has zoomed to upwards of $ 800 million. This, according to Sandeep Krishnamurthy, director, business program, University of Washington Bothell, is because India is the last big untapped market when it comes to e-commerce. For a long time, the financial and supply chain infrastructure were big detractors. Now, there is hope that there has been more-than-adequate progress on these fronts. CAN I TRUST YOU? But a number of nagging bottlenecks remain. Most of the people transacting online are doing so on travel sites where delivery of physical merchandise is not required while the percentage of sales on non-travel e-commerce portals is still comparatively low. This reflects the Indian shoppers reluctance to take to shopping for physical products which cant be touched and felt. Although e-tailers are compensating for this by offering more discounts, the major categories selling online are still books, gifts and electronics. Sachin Bansal, founder of Flipkart, which recently acquired its competitor Letsbuy for almost Rs 125 crore, says that in the future customers would shed their inhibitions towards other products, too. We ourselves are looking to add more categories and are considering different options. Everything, except for groceries and automobiles, is fair game for us. Soon, one would be able to purchase almost anything under the sun on the internet. If and when that happens, would the payment and delivery mechanism be robust enough to support it? Indians are still not comfortable with the idea of using credit cards to pay online. E-tailers have countered this by introducing options like cash on delivery and payment through cheque. In order to address the issue of reliable delivery, quite a few online shops are following the Amazon model of controlling the supply chain from the warehouse to the last-mile delivery. This has ramped up costs, although many feel it will pay off in the long run. Pretty much all the internet retailers in the US are companies with a strong offline presence. The winners are few but they win big, says Agarwal. BHARAT BECKONS Most companies are also betting that a large chunk of the online retail growth would

come from small town India. Muralikrishnan B, country manager of virtual marketplace eBay India, says that customers in cities where modern retail has not yet penetrated are a huge opportunity. India has 3,311 e-commerce hubs from where consumers buy and sell. Out of this, 1,267 are rural hubs, he says. Nonmetro consumers increasingly aspire to consume brands and lifestyle products. They have the spending power, but no access. We see these aspiring consumers latching onto online shopping like never before. PADDING UP FOR BATTLE The opportunity may exist, but internet retailers are still figuring out how to tap it effectively. As of now, most companies are in the cash-spending mode, as they take decisions on whether to invest in infrastructure, supply chain or branding. A few, like Letsbuy, have decided to sell out; more may follow suit as competition gets more intense. Gautam Sinha, CTO and head (e-commerce), Indiatimes.com, predicts that this year will be all about acquisitions, mergers and consolidation. Ventures who are well capitalized and with a long term strategy will emerge as leaders. It is a capital intensive industry, so companies must have deep pockets. That, and a realization of what the customer needs. Govind Setlur of en-Stage, which provides payment solutions to e-commerce websites, says that companies should ensure that the mistakes of last time are not repeated. Earlier, the ecommerce services got ahead of real market needs, he says. Without strong value propositions in their offerings, these companies lost steam. This time, they must be cautious. As long as the focus is on services that meet real needs, growth will continue. NET NUMBERS India has 80 million Internet users 10 million 3G connections were taken within 6 months of launch, almost equal to the base of wireline broadband connections 28% of travel gets booked online; 117 million transactions on Indian Railways website alone 47% of the classifieds business in the country is online 7% of bank users in India access their accounts online 25% of IT returns were filed online in 2010-11 Close to 50% of music revenues in India comes from mobile downloads