With the ever-growing dominance of the Internet as the universal medium to purchase and sell goods, it is imperative to study how it works from a technological perspective. In the first of this two part sample dissertation, we will visit how e-commerce has grown over the last several years, highlighting how the Internet has changed the production and flow of goods and services. Part two of this sample dissertation explores how technology and e-commerce reshaped business.
Internet Technology, E-Commerce SMEs: A brief literature review
Internet usage rates reflect a surge of adoption that is international in scope. For example, as a percentage of total population, the World Bank reported that while there was only 5% in 1999, that number has surged to over 30% in 2010. This drastic growth has been skewed primarily towards more developed parts of the world where technological advancements were much more readily available. For instance, 80% of the North American population uses the internet while over 85% of the UK population is reported to use it. While the usage rates of lesser developed regions of the world are significantly less, their recent adoption within the last two years has grown dramatically as well. Consequently, such widespread adoption has prompted many businesses to enter the world of social media and e-commerce, where goods and services are sold online.
While internet based commerce is in widespread use today, it is worthy to note that it represented a strong part of the international economy since before 2000. For instance, in 1999 the estimated total dollar amount of goods bought online was reported to be 109 billion. This figure has grown tremendously and is showing a strong trend towards more adoption from businesses. Raphael Amit argued:
Business adoption of e-commerce has become popular because it allows businesses to “disregard traditional boundaries between firms along the value chain.”
Indeed, the relative absence of geographical limitations has fostered the notion of mass consumption around the world. However, because internet usage adoption rates have been skewed towards developed nations, the larger portion of consumption has been focused on big cities where technological infrastructure has been strong. Because the economic geography is of e-commerce is much more limited than traditional consumption, much business interest has been generated, especially among small to medium-sized enterprises (SME).
The Internet: A new era of business growth
According to Boris Nissen in The Internet Adoption Decision in Small and Medium Enterprises, the European Union has defined these SMEs as having less than 250 employees and annual turnover that is less than €400. For such a relatively small business structure compared to that of large corporations, SMEs make up the greater portion of business entities and its impact is far-reaching. In the United States alone:
- SMEs produce 48% of the Gross Domestic Product (GDP)
- Account for 99.7% of all enterprises
Given this, one would estimate that adoption patterns of SMEs would be high.
However, the evidence reflects an overwhelming sense of apprehension in terms of adopting the internet and relying on e-commerce as a means of conducting business (online privacy plays a major factor here). In fact, cost, firm size and prior experience with technology represent just a few of the many barriers that SMEs have in adopting technology as a mission critical facet of business operations.
SMEs have adopted internet commerce at a relatively slow pace because of both real and perceived difficulties. Martin Beckinsale and Margi Levy’s research suggested there are three primary reasons why SMEs have resisted adopting e-commerce and the inherent benefits of the internet as a valuable business tool:
“Perceived benefits, organizational readiness, and external pressures.”
The adoption patterns of SMEs were thus implicated because not many felt comfortable that their infrastructure would be able to accommodate such a sharp transition towards reliance on the Internet.
Perceived benefits matrix of internet adoption among SMEs
The main area of discomfort for SMEs has therefore been an inability to perceive the benefits with respect to the potential outcomes that can result. Consequently, SMEs have been slow to adopt the Internet because of numerous barriers. Adopting the Internet for mission-critical purposes has presented a few challenges for SMEs. SMEs usually operate on much tighter budgets and do not have dedicated IT departments or research and development employees.
As a result, companies that must replace many of their current business processes are usually apprehensive to do so. While such a paradigm shift may yield extraordinary benefits, the short term liabilities have impacted SMEs global adoption of the Internet. Shifting business processes into the hands of data centers and programmers has been a difficult transition for SMEs, such as Airbnb, as financial restrictions act as a barrier to entry.
For example, while many proposed improvements and integrations can yield benefits, having enough capital and the strategy to implement can be expensive. Given these barriers, the government also has a role in stimulating businesses by providing outlets of support or funding. Nelson Maseko and colleagues strongly argued that while government intervention can be extremely beneficial in fostering Internet adoption rates among SMEs, nations like Zimbabwe, where technological development is undermined, are representative of governments that have yet to embrace proactive roles in this arena.
Resistance to internet a hindrance to industry
Moreover, slow adoption of the Internet for core business purposes has also undermined the fact that SMEs have an advantage over larger companies because they can adapt and shift strategies much faster. Nonetheless, businesses that engage in manufacturing or transportation of goods have been even slower to adopt.
For SMEs that engage in transporting tangible goods or making them, Internet adoption has been even slower as there are many more complex challenges to running such a business at scale. Rosemary Stockdale and Craig Standing argued that SMEs have strong advantages over large corporations because they can participate in supply chains that they previously would not have had access to. However, given the difficult and complex nature of transportation and exporting, many SMEs do not have the capital or infrastructure to transition towards a fully technologically integrated approach.
For example, John Lynch and Dan Ariely’s analysis of the online wine industry reflect the observation that price, quality, distribution and consumer interaction are just few of many factors that have to be taken into account when successfully implementing an online strategy when transportation is a relevant factor. As businesses have to align many different aspects of their business to coordinate in an online scheme, the costs and frustrations can be burdensome, especially for SMEs that operate under tighter margins and lower cash flow. In a survey of SMEs, Gregory Fleet and Micah Williamson found that only 28% of the companies exported their goods beyond their limited geographical reach. Surely, the difficulties that SMEs must embrace in terms of exporting can outweigh potential long-term benefits if the business cannot feasibly implement a successful strategy the first time around.
New technology and consumer products
Exporting SMEs that integrate technological innovation and e-commerce into their business processes can reduce transaction costs significantly. Transaction costs make up the time, capital and labor that is dedicated to following through with the execution of business functions. Together, all of the business processes make up a value chain of independent steps that need to take place; Internet commerce and technology make coordination and integration of these steps easier. One example of this is the ability to choose whether a certain activity is performed locally or is outsourced for a lower cost.
Adoption of Internet technologies will give SMEs more flexibility and choice in determining which is optimal for their business process:
“Diffusion of the internet will allow some activities that used to be outsourced to be performed internally or vice versa, thereby either shrinking or expanding vertical firm boundaries.”
Essentially, in having more control over choosing which processes happen where, Afuah argued that businesses can be much more flexible in lowering overall transaction costs for both internal and external tasks that need to take place. This also creates a reliance on real-time business intelligence.
Notably, scholarship tends to agree that SMEs have great advantages in adopting e-commerce and Internet portals because they can have superior control over critical business processes. For example, in having a dedicated portal for employees to organize and track their respective departments:
“The internet can be used to coordinate, communicate, or process information at a lower cost than was possible with previous information technologies.”
Such improvements clearly reduce transactions costs because there is no need for extraneous labor spent on tasks that the Internet can do with less. Also, the unique and challenging needs of manufacturing and exporting SMEs are addressed because of the value of business intelligence. For example, Uber’s business structure uses technology that reduces and, in some cases, eliminates the human element.
To exemplify, as SMEs grow in terms of scale and complexity, there is an ever greater need for centralization and information flow. Consequently, a benefit of using the Internet and e-commerce is:
“The more they depend on information, the more the internet can be used to reduce capital/labor requirements and costs.”
The raw savings that businesses embrace are astounding. Instead of wasting resources on paper, telephone and fax, electronic distribution can simplify communication and foster the development of much more robust business processed. The value that Internet-driven business processes can derive is a facet of commerce that is only steadily improving as well. Companies that have adopted such approaches have documented other forms of value as well.
Benefits of e-commerce as a trading tool
SMEs that engage in exporting and manufacturing stand to improve from Internet technology because of centralization of inventory management. The notion if centralization through Internet technology is heavily derived from the success that the airline industry had upon its early adoption (see an analysis of airline industry marketing). Andrew Boyd and Ioana Bilegan remarked:
As the airline industry pioneered a centralized flow of information, they were able to develop a “model of dynamic, automated sales enabled by central[ization]…” where inventory was automatically adjusted. The level of centralization that they had was in correlation to the control the companies had over their revenue, cash flow and throughput of their business cycle.
While SMEs who export goods do not necessarily need to adopt infrastructures that deliver goods or services on a global scale, the airline industry case study makes a clear point: there is a clear advantage to using Internet technology and e-commerce for operating business processes. Also, another beneficial facet of e-commerce is that management teams have quick access to business intelligence which can be instrumental in forecasting, market research and other non-critical functions of SMEs. In having access to such resources, optimization and control of product cycles are much more easily attained.
Buyers made central target
Aside from the benefits that SMEs gain from e-commerce, many advantages are also oriented towards the buyer or consumer of a product. It is worthy to note that wholesale businesses differ in the sense that the buyer may not also be the consumer of a good. Nonetheless, customers have much quicker access to information regarding their purchases. Barua et al outlined the twofold benefits that both businesses and customers have in e-commerce environments:
“Digitization of interactions with customers may lead to a smaller sales force, less paperwork, and fewer data input errors, while shifting the responsibility of product information search, order entry, and tracking to customers.”
Indeed, developing strong marketing initiatives and having the right information delivered is critical in adding value to the customer’s perspective. SMEs have a new opportunity to engage with customers that are able to find them online using free search methods on the Internet. Also, customer value is increased as a result of the efficacy of e-commerce models. In The Value of Internet Commerce to the Customer, Ralph Keeney posted:
Customers can enjoy speedier service and much more specificity in terms of their options for buying goods. SMEs can surely utilize these advantages in order to increase their presence and compete with larger companies that are much slower to adapt in a dynamic and technologically influenced marketplace.
Additionally, SMEs that can give access to vital information to their customers have the advantage of transparency, trust, and loyalty.
Despite these difficulties, there are many advantages that SMEs have in embracing technological innovation, the Internet and e-commerce. As the Internet is widely available for all SMEs to use it and then market to consumers with improved businesses processes, it is surely a way that they can “level the playing field” against larger companies. The competitive nature of online marketplaces render the notion that even SMEs that are not as well-known can still participate in taking market share. Indeed, the wide variability of online prices for similar products online suggests that companies are under pressure to develop business processes that are as lean and robust as possible.
As shown, the technological landscape offers immense opportunities for SMEs that are involved in complex businesses like exporting or manufacturing. As individuals have adopted using the Internet more and more, it is becoming a strong marketplace for consumers as well as an attractive option for businesses. The abundance of SMEs among all enterprises make it a formidable portion of the private sector that has a strong influence in both GDP and employment. However, scholarship has shown that SMEs share a relative apprehension in adopting e-commerce and the Internet for mission-critical business functions.
Such slow adoption stemmed from perceived risks and unfamiliarity with the emerging technologies that are available. Capital and labor requirements were the primary barriers to entry while the margin of error is always a risk. For SMEs that have adopted e-commerce, the benefits have resulted in lower transaction costs, increased information flow and centralization. Together, these benefits translated into a much more value added experience for the buyer.
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