CHAPTER 2: LITERATURE REVIEW
2.7. E-commerce adoption by SMMEs
2.7.1. E-commerce adoption by SMMEs in developed countries
Parker and Castleman (2007) argue that over half of the journal articles from 2003 to 2006 investigated SMMEs in the United Kingdom, United States of America, Australia, Canada, and New Zealand. For the sake of this research, the focus will be on the United States of America, Australia, New Zealand, and United Kingdom. These countries were chosen due to the large number of research findings in the literature concerning e-commerce adoption in those countries. The analysis of these countries’ e-commerce adoption helps in comparing developed countries to developing countries as far as e-commerce adoption is concerned. In return, such comparison provides a better understanding of e-commerce adoption from a global perspective.
2.7.1.1. United States of America (USA)
SMME e-commerce adoption in the USA is limited, to a large extent, to e-mail and company webpages (Grandon and Pearson, 2004c). A previous study by Verizon (Cyberatlas, 2001) showed that 36% of SMMEs in the USA12 adopted e-commerce for advertisement and promotion of the business, with only 9% selling online. In addition, a survey of 444 SMMEs in the United States revealed that SMMEs are not keen to conduct transactions online with 80% of them using the internet mainly to communicate via e-mail and to gather business information (Pratt, 2002).
Grandon and Pearson (2004c) found that perceived usefulness, perceived ease of use, compatibility, and external pressure are significant determinants of e-commerce adoption in US
12 In USA, SMMEs are known as SMES (Small and Medium sized enterprises) may have up to 500 employees
24 SMMEs. Perceived usefulness and perceived ease of use were found to be the most influential factors of e-commerce adoption as perceived by top managers of SMMEs. The results also confirm the studies of Anadarajan, Igbaria and Anakwe ( 2002) regarding the factors that influence personal computer adoption and Riemenschneider et al. (2003) concerning the factors that influence web site adoption, both in the context of SMMEs. Compatibility between e- commerce and the firm’s culture, values, and preferred work practices was also found to be an influential factor in terms of e-commerce adoption (Grandon and Pearson, 2004c).
Compatibility emerged as a factor that highly influenced e-commerce adoption. Regarding external pressure, the Grandon and Pearson (2004c) study validated previous research. External pressure was found to exert an influence in terms of e-commerce adoption. However, organisational readiness, which includes the financial and technological resources to adopt e- commerce, was not found to be a significant factor in the decision. Finally, managers who have positive attitudes to the adoption of e-commerce also perceived e-commerce as adding strategic value to the firm. Thus, interventions toward changing managers’ perceptions about the strategic value of e-commerce can be devised in order to increase the adoption/utilisation of e- commerce by SMMEs.
2.7.1.2. New Zealand
In an empirical investigation of e-commerce adoption, Al-Qirim (2007) found that SMMEs in New Zealand13 lack knowledge of e-commerce and its applications. The internet was found to be used mainly as a communication tool. In addition, websites were used for publishing organisational information only. There was little evidence that SMMEs in New Zealand were using websites for commercial transactions purposes. The limited use of e-commerce is due to various factors. Firstly, 84% of the New Zealand sector is dominated by micro-enterprises employing up to five employees only (MOED, 2000). Secondly, geographical isolation and time differences which separate the country from the rest of the northern hemisphere are additional factors that hamper the use of e-commerce in New Zealand. Thirdly, the New Zealand population is relatively small, and dominated by low-average income families. Pressure from competitors was singled out as a compelling factor towards extended e-commerce technologies adoption. Perceived lack of business advantage, lack of support from technology vendors, pressure from suppliers and buyers operating online, lack of CEO14 involvement at the initial stage of e-commerce adoption were identified as barriers to e-commerce adoption by SMMEs in New Zealand. The research also highlighted that adoption of e-commerce in SMMEs was fostered by the inexpensive nature of e-commerce initiatives, the extent of CEO
13Generally in Europe, SMMEs are known as SMEs and may have up to 250 employees.
14 Chief Executive Officer
25 innovativeness and willingness to adopt e-commerce, the need to remain competitive in the business environment and the apparent compatibility of e-commerce technologies with the business environment of SMMEs. Organisational size emerged as a strong motivator for e- commerce adoption and it was clear that larger SMMEs were more capable of adopting e- commerce and different e-commerce technologies.
2.7.1.3. Australia
In Australia, e-commerce generated about $11.3 billion dollars annually according to 2001 estimates (Cannon and Homburg, 2001). In 2005, Australia was ranked the second top country in the Asia Pacific region in terms of e-commerce infrastructure (EMarketer, 2005). Although the country is highly ranked with regard to internet infrastructure, penetration and activity (Chong, 2006), e-commerce adoption has been slow compared to other countries and larger Australian businesses (NOIE,2000; Sensis, 2003). One of the factors that hamper e-commerce adoption is the perception of e-commerce as being risky, complex, time-consuming, and expensive. Chong (2006) argues that most Australian SMMEs15 face challenges such as lack of perceived relative advantage over existing systems, lack of visible benefits, competitive pressure, and insufficient sources of information that can propel them to adopt advanced e- commerce applications. Fisher, Craig and Bentley (2007) argue that 57 % of SMMEs in Australia use a website to promote their business. These researchers suggest that once a business has a clear online strategy through a website, they are more likely to move to e- commerce. Although many small business owners have a business strategy, it is likely that the strategy does not include their web presence (Turban et al., 2010). Fisher et al. (2007) advocate that many owners see their websites mainly as an advertising tool but few are ready to move to more advanced e-commerce activities.
2.7.1.4. United Kingdom
Small and medium sized enterprises (SMMEs) play an important part in the UK economy, accounting for 99% of the nation’s business enterprises and contribute to over half of employment (58.9%) and turnover (51.9%) (Dyerson et al., 2009). Thus, the UK government has deployed much effort to provide support to the SMME sector. However, the state’s support does not match with the rate of SMME development. Based on research done on UK manufacturing, Dyerson et al. (2009) conclude that UK SMMEs16 differ by region in a number of key characteristics such as innovation rates, profitability, size and ownership structure, which affect UK adoption rates of ICT-related technology. For instance, in Yorkshire whilst 63% of SMMEs were connected to the internet, 46% had a website and 36% traded on-line, 30 %
15 In Australia, SMMEs are known as SMEs and may have up to 199 employees
16 Generally in Europe, SMMEs are known as SMEs and may have up to 250 employees.
26 (mostly micro businesses with less than 10 employees) did not use computers at all (Pritchard, 2006). Those who opt for e-commerce adoption often face difficulties related to the inflexibility of their business operations, especially in the area of business integration with their supply chain partners (Brown, Lockett and Schubert,2005).
Daniel et al. (2002a) argue that SMMEs in the UK adopt e-commerce in four (4) sequential stages. Stage one is the developer’s stage whereby firms are developing their first e-mail system and website. The communicator’s stage involves firms that are using e-mail and exchanging documents and designs electronically with customers and suppliers. The web presence stage includes firms with websites that have online ordering facilities. The transactor’s phase encompasses those using online ordering and payment capabilities.
In the year 2000, 90% of UK businesses were connected to the internet and this had increased to 94% by 2001. From a national survey of SMMEs’ use of IT in four sectors (Dyerson et al., 2009), there is evidence that most UK SMMEs use simple technologies such as email, internet access and websites. However, the use of complex technologies involving electronic data interchange remains highly skewed. The survey also remains inconclusive with regard to strategic use of ICT. Although the use of websites for advertising purposes is common in most of the surveyed SMMEs, there is little evidence of internet usage to build customer databases or online ordering and payment (Dyerson et al., 2009).