CHAPTER
ONE
ICT,
E-BUSINESS AND SMES
INTRODUCTION
Information
and communication technology (ICT) and e-business applications provide many
benefits across a wide range of intra- and inter-firm business processes and
transactions. ICT applications improve information and knowledge management
inside the firm and can reduce transaction costs and increase the speed and
reliability of transactions for both business-to-business (B2B) and
business-to-consumer (B2C) transactions. In addition, they are effective tools
for improving external communications and quality of services for established
and new customers.
Despite
these advantages, rapid growth in businesses’ purchases and sales over the
Internet has yet to materialise. E-commerce is increasing but still accounts
for a relatively small share of total commerce. Broad definitions of e-commerce
(including established EDI as well as Internet transactions) suggest that in
2000 total on-line transactions were generally 10% or less of total business
sector sales and are mainly business-to-business, and business-to-consumer
sales are even lower, generally less than 2% of the total retail transactions.
On-line transactions are mainly B2B and domestic, rather than B2C or
cross-border. The situation is similar for small and medium-sized enterprises
(SMEs), although they lag behind larger firms in Internet transactions.
For
small firms to adopt e-business and e-commerce strategies and tools, benefits
must outweigh investment and maintenance costs. Commercial considerations and
potential returns drive adoption.
Beyond
a certain level of connectivity (PC, Internet access, on-line information or
marketing), not all SMEs will necessarily “catch up” with large firms, simply
because e-commerce may not bring large benefits and SMEs will stay with
traditional business processes. Other barriers have been seen to be the
availability of ICT competencies within the firm, and availability and cost of
appropriate interoperable small-firm systems, network infrastructure and
Internet-related support services. Lack of reliable trust and redress systems
and cross-country legal and regulatory differences also impede cross-border
transactions.
Policies
that will affect the adoption and use of e-business strategies include those
designed to expand and improve the quality of network infrastructure and legal
and regulatory environment, foster technological diffusion and create a
favourable business environment. Beyond these general framework policies,
specific policies for SMEs have focused on ICT and e-business awareness
programmes, business consultation services and employee and management training
to enhance ICT and managerial skills.
Policies
have shifted over time as firms and economies have moved from concentrating on
readiness and connectivity, to diffusion and use, and are moving towards mature
e-business strategies which blend broad policies for the business environment
with polices for particular areas such as IPRs and competition. Policy has
moved beyond a narrow concept of e-commerce (on-line transactions) to a wider
view of e-business integration of internal and external processes, based on
technology neutrality. Policy initiatives in some cases aim at facilitating SME
participation in product and sector value chains and providing them with
information to assess the opportunities and costs of e-business. However there
is no one-size-fits all approach to policy and the policy mix and priorities
will depend on national circumstances (leading or lagging countries) and
sectoral distribution of economic activity, as well as size factors.
CHAPTER
TWO
USE
OF ICT AND INTERNET AMONG SMES
The
use of ICT by SMEs is increasingly common according to survey for OECD countries.
A Eurostat survey on e-commerce shows that nine out of ten SMEs were equipped
with computers at the end of 2000/early 2001. Internet access is also
commonplace among SMEs. While Internet penetration is generally higher in
larger enterprises, the gap between larger firms and SMEs is narrowing. In most
OECD countries, Internet penetration rates for medium-sized firms (50-249
employees) are the same and sometimes higher than for larger firms (more than
250 employees), with penetration rates of over 80%, although there are
exceptions. Small firms (10-49 employees) have a slightly lower penetration
rate, between 60% and 90% (Figure 1). Even in micro-enterprises, the
penetration rate is nearly 60% in most countries and in Denmark 85% have
Internet access.
Towards
e-business integration
Some
businesses, mainly early adopters of e-commerce, are entering the next stage of
ICT use, e-business. They have begun to engage in increasingly sophisticated
uses of ICT, involving business process reengineering and more complex
technology. In such firms, B2C and B2B e-commerce are components of an overall
e-business strategy. External relations with customers as well as internal
processes are being linked. Marketing and sales, logistics and delivery,
after-sales service, supply chain management and other business functions are
integrated in an overall e-business strategy.
Most
SMEs appear still to be at a stage where establishing a Web site or adopting
e-commerce is the main issue. Successful integration of external and internal
business processes in e-business necessitates organisational and management
changes which may entail proportionally greater costs and risks for SMEs.
In
addition, smaller firms may have fewer incentives to integrate their business
processes than larger firms, which have more complex business processes and
resources to harmonise and co-ordinate. It may therefore take more time and
resources for SMEs to adopt e-business strategies. However, in the near future,
B2C and B2B electronic commerce will have to become components of SMEs’ overall
e-business strategy and “normal” business processes that are supported by ICTs
and carried out on electronic networks.
In
relation to assisting SMEs to integrate e-business into their entire business
process, there could also be more emphasis on integrating e-government into the
business process. For example in Australia, government compliance activities
tend to be undertaken separately to other 'back office' business processes. The
Business Entry Point (BEP) is currently implementing mechanisms that more
closely integrate e-government activities into the day-to-day activities
associated with running a business. E-business will have greater appeal to SMEs
if their B2B, B2C and B2G activities can be more closely integrated. Making use
of e-government initiatives as an incentive for SMEs to go online is crucial
but again, these need to be seamless and integrated into business activities
more generally.
Enabling
factors: Internal ICT and managerial knowledge
SMEs
generally lack the human technological resources needed for ICT and e-commerce,
because they focus on day-to-day operations and lack the time to understand the
benefits of new technologies. Even when they are aware of the potential
benefits of adopting e-commerce, they require know-how or qualified personnel.
The firms that adopt Internet and e-commerce are likely to have within the firm
someone who has a reasonable amount of knowledge of the specific technology
and/or technology in general. A study of small ICT companies with 3-80
employees suggests that the Internet was adopted by firms with personnel who
understand the technology (Mehrtens et al., 2001). Interestingly, the
study found that these were not necessarily ICT professionals, but simply
people interested in technology.
If
firms can access affordable outside ICT services, lack of ICT expertise within
the firm is not necessarily an obstacle to the decision to adopt Internet
e-commerce. However, internal technological capabilities still matter because
adoption of e-commerce cannot succeed without an understanding of the
e-commerce business model. Without internal technological capabilities,
dependence on ICT support services for system maintenance can be dangerous
because firms that conduct e-commerce have to live with the risk of computer
viruses and other system failures. If ICT support services, especially in an
emergency, are needed to minimise the loss from a system malfunction, the
e-commerce system of the firm may be vulnerable if they are not immediately
available. The existence of local ICT services is an important issue,
especially for small offices in remote areas or emerging economies, where ICT
services are generally scarce and costly.
SMEs
may also lack managerial understanding and skills for e-business. Successful
integration of e-business requires many firms to restructure their business
processes, to change organisational structures and to redefine their core
competence and positions in the value chains. So, e-business tools cannot be
successfully introduced and implemented without the visionary power and
strategic decisions about how to apply ICT technologies for their business
processes. However, SMEs lag behind larger firms in terms of internal
managerial capabilities, usually having no CIO (Chief Information Officer) who
can plan and implement e-business strategies for them. The professional advice
of IT and e-business consultants can help them, but SMEs may not easily have
access to them because of relatively high cost.
THE
OF ICT IN MARKET
Using information Communication Technology
(ICT), is crucial to most businesses, regardless of size. It is important to a
company aiming to expand and to improve efficiency. The use of good ICT also
improves customer services and customer demand.
From database development, website design to
market research, translation software, direct mail marketing and training, the
application of ICT is critical for a economic success.
Tele-marketing is often used by media companies,
especially ‘sales departments’ to generate appointments with potential
customers. Company Directory Software is used to identify decision makers
within companies, capturing their details. Often electronic versions of
customer database lists are purchased, allowing sales to contact potential customers
directly. The objective being, to secure appointments that lead to orders.
BARRIERS
TO USE
There
is a wide range of reasons why SMEs do not make more active use of the Internet
and e-business.
Reasons
vary widely among sectors and countries and are most commonly related to lack
of applicability to the business, preferences for established business models,
and the kinds of electronic transactions SMEs are involved in or wish to
introduce (B2B or B2C). Common barriers include: unsuitability for the type of business;
enabling factors (availability of ICT skills, qualified personnel, network
infrastructure); cost factors (costs of ICT equipment and networks, software
and re-organisation, and ongoing costs); and security and trust factors.
BENEFITS
AND USE BY SMALL BUSINESSES
SMEs
have gradually recognised the positive impact that ICTs, such as computer
terminals, e-mail and the Internet and their applications can have on their
business. In advanced OECD countries, most small firms, including
micro-enterprises with fewer than ten employees, now have at least one computer
terminal, usually with Internet access. Many types of business software can
improve information and knowledge management within the firm, leading to more
efficient business processes and better firm performance. Communication via
e-mail and the Internet can help to improve external communication, in either
B2C or B2B contexts, and may reduce transaction costs, increase transaction
speed and reliability, and extract maximum value from each transaction in the
value chain.
Cost
of developing and maintaining e-business systems
Most
SMEs will not adopt e-commerce if the benefits do not outweigh the costs of
developing and maintaining the system. The issue is costs relative to benefits
expected, not cost itself. Nevertheless, SMEs are generally concerned about the
costs of establishing and maintaining e-commerce since they generally suffer
from budget constraints and are less sure of the expected returns on the
investment.
Some
SMEs cannot afford to adopt sophisticated ICT solutions (e.g. a Web site
with a secure environment for credit card transactions). Some small businesses,
especially micro-enterprises with 1-9 employees or the self-employed, may adopt
a simple Web site without any e-commerce function if the cost of basic Internet
use is well within their marketing budget. For example, in the United States,
typical Internet charges – USD 10-35 a year for a domain name (i.e. Web
site address) and USD 10-100 a month for Web site hosting, are low compared to
traditional advertising in printed media (Bricklin, 2002).
E-commerce
maintenance and upgrades can be very costly, especially when firms prefer a
highly sophisticated virtual shop. The Australian study indicates that Web site
maintenance is the most costly element of ongoing costs, ranging from AUD 800
to AUD 103 000 (Figure 8). Other elements include telephony, Internet service
provider (ISP) charges and Web site hosting. Web site maintenance and upgrades
may increase over time as the volume of on-line transactions grows, and this
may raise costs and generate excessive workload in terms of staff time. In
fact, some small shop owners, especially those that outsource Web page design
and updating, have found it difficult to contain site development costs which
are more or less beyond the firm’s control (Ernst & Young, 2001).
Logistics
services, e.g. package collection and delivery, also matter. While they
can be subcontracted to private delivery services, some may charge higher rates
to small businesses because of their location and/or small volume (Phillips,
2002). This is a real concern for small businesses, especially those in remote
districts where private package collection/delivery services may not be
available at reasonable cost. Items such as software, music and books can be
delivered over the Internet, but the volume of such on-line delivery is still
very small. In 2000, for example, book publishers in the United States derived
90% of their revenue from printed materials, while on-line materials only
accounted for 6.4%. In addition, digital delivery may not be feasible or
desired by the individual or business customer with a slow Internet connection
and small download capacity rather than a high-speed (broadband) connection. For
the SME leaders in e-commerce, narrow cost factors are likely to become less
important.
They
are more concerned about how to increase their profits by using e-commerce than
about costs of adoption. They are concerned, however, about the complementary,
invisible costs related to the management and organisational changes required
for adopting new e-business strategies.
Advantages
and Disadvantages of information technology in Business
Ad:
- Increases production and saves time: Business use technology to automate tasks. A
good example is a bakery which uses automated temperature censors to
detect any drop or increase in room temperature in a bakery. These censors
will send information directly to the operator and report any temperature
change. This saves the bakery time and it also results into quality
products.
- Improves communication through communication
technology: With the help of communication
technology tools like phones, video conferencing , electronic mail,
databases just to mention but a few. Movement of information with in an
organization or business has become easy and first. Employees can easily
move information across departments without having any interruptions.
Tools like electronic mail , e-fax, mobile phones and text messaging
enhance the movement of information among employees , customers and
business partners or suppliers.
- Improves data storage and file management: Businesses use cloud hosting services to store and
backup business data. Also it saves on paper work and makes transfer and
access of data remote. With services like ‘’Dropbox.com’’, business
owners can access their data any time any where. Information and data are
very important tools for a business, so it is very essential to store them
safely and also access them at any time of need.
CHAPTER
THREE
CONCLUSION
General business framework and ICT policies have an important role
in enhancing the conditions for small businesses to adopt and exploit
e-business and Internet strategies. In addition, specific policies have been
common in areas seen to be crucial for initial uptake (e.g. awareness,
managerial and ICT skills).
The overall policy
approaches are to:
• Shift to a wider view of e-business integration of internal and
external processes. Policies have shifted over time as firms and economies have
moved from concentrating on ereadiness, connectivity and awareness, to
diffusion and use, and are moving towards mature e-business strategies which
blend broad policies for the business environment with polices for particular
areas such as IPRs and competition.
• Focus on facilitating SME participation in B2B product and
sector value chains, including technology neutrality and interoperability among
different systems.
• Encourage business and sector associations to provide tools to
assess e-commerce/e-business opportunities, benefits and costs, and the
development of niche products and services. Reduce discriminatory access to
finance, and improve information regarding financing opportunities.
These issues may be of particular importance in developing
non-OECD countries.
• Training programmes for SME managers and employees focusing on
both technical and managerial skills need to be provided in cooperation with
business and sector organisations, training institution and commercial training
services.
• Continue to ensure open, competitive telecommunication markets
that offer a range of interoperable technological options and network services
(particularly broadband) of appropriate quality and price. This is a crucial
factor in developing non-OECD countries.
• Address security, trust and confidence through broad policy
frameworks, regulatory and self-regulatory tools, trustworthy technologies and
affordable redress mechanisms. Affordable redress mechanisms are being
addressed in OECD work on alternative dispute resolution/on-line dispute
resolution.
• Monitor anti-competitive behaviour as e-business becomes more
widespread, electronic marketplaces evolve and potential market power increases.
• Use e-government initiatives to provide incentives for SMEs to
go on line by simplifying administrative procedures, reducing costs and
allowing them to enter new markets (e.g. e-procurement).
• Continue to address human resource issues as a priority.
Training programmes for SME managers and employees are increasingly focused on
both technical (ICT) and managerial (“e-business”) skills designed to improve
abilities to benefit from e-business strategies.
• Expand collection and analysis of increasingly available
statistics on e-business and ecommerce to monitor progress and improve
cross-country analysis.
However there is no one-size-fits all approach to policy and the
policy mix and priorities will depend on national circumstances (leading or
lagging countries) and sectoral distribution of economic activity, as well as
size factors.
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