1 Factors Affecting the Adoption of E-Commerce by Small Businesses ...

Factors Affecting the Adoption of E-Commerce by Small Businesses: A Case Study

Ali Acılar Bilecik University, Bilecik University, the Department of Business Administration, 11000, Bilecik, Turkey Phone: (228) 212 40 25, Fax: (228) 212 91 40 E-Mail: [email protected]

Çağlar Karamaşa Bilecik University, Bilecik University, the Department of Business Administration, 11000, Bilecik, Turkey Phone: (228) 212 40 25, Fax: (228) 212 91 40 E-Mail: [email protected]

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Electronic copy available at: http://ssrn.com/abstract=1700643

Factors Affecting the Adoption of E-Commerce by Small Businesses: A Case Study

Abstract

In recent years, computers and the Internet have become an integral part of the societies. The Internet has created a new medium for communication and commerce for the businesses. Today, it is hard to imagine a business working without using a computer. These technological advances have also largely affected small and medium-sized enterprises (SMEs). While large companies have been quick to adopt information and communication technologies, SMEs have been slow to adopt these technologies in general for various reasons, especially in developing countries. The main purpose of this present study is to explore the factors affecting the adoption of ecommerce by small businesses. To attain this purpose a case study was conducted in a small hotel, using the website to keep up with customer expectations and competition. Although having a website is critically important and it provides some benefits for the hotel, in order to become successful in e-commerce, it just is not enough. Conclusions and suggestions derived from this study will provide a meaningful contribution to the understanding of e-commerce adoption in small businesses. Keywords: e-commerce, small businesses, hospitality industry

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Electronic copy available at: http://ssrn.com/abstract=1700643

Küçük İşletmelerin E-Ticareti Benimsemesini Etkileyen Faktörler: Bir Örnek Olay Çalışması

Özet Son yıllarda, bilgisayar ve İnternet toplumların ayrılmaz bir parçası haline gelmiştir. İnternet eğitim, iletişim, eğlence ve ticaret için işletmelere yeni bir ortam yaratmıştır. Bugün, bilgisayar kullanmadan çalışan bir işletme hayal etmek zordur. Bu teknolojik gelişmeler Küçük ve Orta Büyüklükteki İşletmeleri (KOBİ) de büyük ölçüde etkilemiştir. Büyük şirketler bilgi ve iletişim teknolojilerini hızlı bir şekilde benimserken, KOBİ'lerin bu teknolojileri benimsemeleri çeşitli nedenlerle genel olarak yavaş olmuştur, özellikle gelişmekte olan ülkelerde. Bu çalışmanın ana amacı küçük işletmelerin e-ticareti benimsenmesini etkileyen faktörleri incelemektir. Bu amacı gerçekleştirmek için müşteri beklentilerine ve rekabete ayak uydurabilmek amacıyla web sitesini kullanan küçük bir otelde örnek olay çalışması yapılmıştır. Web sitesine sahip olmak kritik önemde ve otele bazı faydalar sağlıyor olmasına rağmen işletmenin e-ticarette başarılı olabilmesi için sadece web sitesi yeterli değildir. Bu çalışmadan elde edilen sonuç ve önerilerin eticaretin küçük işletmelerde benimsenmesinin anlaşılmasına anlamlı bir katkı yapacağı düşünülmektedir. Anahtar kelimeler: e-ticaret, küçük işletmeler, konaklama sektörü

Introduction Information and communication technologies are progressing at a relentless pace, affecting almost all aspects of our everyday lives. Today, computers and the Internet have become an indispensable part of the modern society. It is estimated that there are approximately 2 billion (28.7% of the world's population) Internet users in the world. From 2000 to 2010, the number of Internet users around the world increased by 444.8%1 and Internet use in all areas of life has

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http://www.internetworldstats.com/stats.htm (18-08-2010)

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become more common over time. The use of Internet for commercial purposes has also greatly increased. According to the US Census Bureau, the total volume of e-commerce transactions in the US was about 3,704 billion dollars in 2008. 92.2% of these transactions were B2B.2 Computers and the Internet have changed the way we live, the way we communicate, the way we get education, and the way we make business (Lee and Chan, 2008). Today, many businesses depend on computers and Internet for their daily operations. The Internet has many benefits and advantages to small businesses. It serves the small businesses in many ways. As a means of transaction, the Internet serves as a marketplace to bring sellers and buyers together for conducting sales. As a communication medium, the World Wide Web provides an inexpensive, easy and fast way for interacting with customers, suppliers and other businesses. A company's Web presence helps enhance credibility, gather feedback, improve customer service, and facilitate business process. (Chen, et al., 2003) SMEs face various difficulties when adopting the Internet and e-commerce. These difficulties are mainly related with SME's structure and their surrounding environment (Al-Qirim, 2007). Small businesses usually lack the technical knowledge, the financial power, the know-how, and the experience (Al-Hawari, Al–Yamani, and Izwawa, 2008). Overall, the literature suggests that Internet use is not prevalent among small enterprises (Karanasios, 2007), especially in developing countries. The tourism and hospitality industry is very important for developing countries to prevent unemployment and to achieve economic development. Tourism is the top national priority for economic development in many developing countries, and because of its relatively low start-up costs and its high potential to attract foreign capital, e-tourism is being promoted. (Bui, Le and Jones, 2006) The vast majority of hospitality businesses around the world are small and medium sized, belong to local entrepreneurs, are run by family, generally employ members of the local society (Main, 2002). Despite their size, small and medium sized hospitality organizations are very

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http://www.census.gov/econ/estats/2008/2008reportfinal.pdf (18-08-2010)

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important. These organizations provide stable employment opportunities and support the integration of local economies in peripheral areas, even during recession periods. (Buhalis and Main, 1998) The tourism and hospitality industry has relied mainly on information. While tourism services are produced and consumed in a physical world in a regional or local context, purchase decision of a tourism product is generally based on information received through direct or intermediary market channels; prior knowledge; word of mouth; and perceptions of trust and service quality. (Braun, 2006: 234) In this case, information and communication technologies can provide the information to customers looking for data as part of their purchase process. Information and communication technologies can significantly enhance the way in which tourism and hospitality enterprises conduct their business (Nodder at al., 2003). These technologies can reduce costs, enhance operational efficiency, help to access international markets and most importantly to improve service quality and customer experience in tourism and hospitality enterprises (Law, Leung and Buhalis, 2009). The Internet can create a direct link between the members of the hospitality industry and consumers, and also websites can provide information about the services and create an instant confirmation response to an inquiry such as room availability (Braun, 2006: 234). Despite these apparent benefits and advantages, the small hospitality business owners do not use the Internet and Web to its full advantage (Lituchy and Rail, 2000; Hudson and Gilbert, 2006). Given these issues, the main objective of this paper is to examine factors affecting the adoption of e-commerce by small businesses by using a case study approach. For this reason, this paper investigates the case of a family owned small hotel, using the website to keep up with customer expectations and competition. Review of Related Literature Factors Affecting E-Commerce Adoption in Small Businesses Several factors were identified from the literature reviewed as having considerable influence on the adoption of e-commerce among small businesses. These factors can be summarized as 5

follows: organizational factors, technological factors, individual factors, management factors and environmental factors (Al-Qirim, 2007; Upadhyaya and Mohanan, 2009; Rogers, 2003; Cloete, Courtney and Fintz, 2002). Auger and Gallaugher (1997) studied factors affecting the adoption of an Internet-based sales presence for small businesses. They identified six factors that impacted the decision to go online: low development and maintenance costs, an interest in experimenting with a new marketing tool, the desire to promote products and build the company's image, financial considerations, benefits in obtaining and disseminating information, and competitive considerations. According to the study results, among these factors, low development and maintenance cost was revealed as the most significant. Auger and Gallaugher (1997) also found that small businesses that have made the decision to go on-line perceive that deploying a Web-based sales presence is a relatively low-risk, and high reward strategy. Poon and Swatman (1999) found that the perception of long-term benefits and potential business opportunities drive small business to adopt internet commerce. Premkumar and Roberts (1999) studied factors that influence the adoption of various communications technologies in small businesses located in rural communities in the US and they found that relative advantage, top management support, organizational size, external pressure and competitive pressure are important determinants of adoption. Riemenschneider and Vicki R. McKinney (2001-2002) analyzed the differences in the belief of small business executives regarding the adoption of Web-based e-commerce. They found that security and cost were barriers to adoption of Web-based e-commerce. Daniel and Grimshaw (2002) found that the use of e-commerce for responding to competitors, providing enhanced customer services and improving relations with suppliers was driving the uptake by smaller businesses to a greater extent than by their larger counterparts. Cloete, Courtney and Fintz (2002) identified factors affecting e-commerce adoption in small businesses as follows: owner’s perception and acceptance of e-commerce, characteristics of the 6

organization, and the context in which the business find itself. According to Cloete, Courtney and Fintz (2002), adoption of e-commerce is mainly based on perceived benefit. Chen, et al., (2003) studied the e-commerce case of a small traditional retailer and identified six critical success factors for the firm, as following: incremental e-commerce involvement, allocating resources widely, outsourcing the development, changing business process, studying the customer, and revising and evaluating results. Jennex, Amoroso and Adelakun (2004) investigated the key infrastructure factors affecting the success of small companies in developing economies that are establishing B2B e-commerce ventures. They found that workers’ skills, client interface, and technical infrastructure are the most important factors to the success of a B2B e-commerce relationship. Jeon, Han and Lee (2004) investigated determining factors for the successful adoption of e-business by SMEs in Korea and they determined several factors for e-business adoption, i.e., CEO's knowledge of IT/e-business, the relative advantages and benefits from adopting e-business, governmental support for e-business, and using e-business as a globalization strategy for market expansion. They also found that business size, the cost of e-business adoption and competitive pressure from the industry do not seem to be an important factor in adopting e-business by SMEs in Korea. Pearson and Grandon (2005) surveyed managers/owners of SMEs to identify variables that differentiate between adopters and non-adopters of e-commerce. They found that organizational readiness, perceived usefulness, compatibility, and external pressure differentiated between adopters and non-adopters of e-commerce. Al-Qirim (2007) investigated the impact of technological, organizational, individual and environmental factors on e-commerce adoption in New Zealand SMEs. He found that technological factors such as complexity, the compatibility, and the cost are affecting significantly, but observability and trialability are not. Image was found to play a supplementary role by this study. At organizational level, factors such as user involvement, external/internal communications, quality of IT systems and capabilities, and specialization were found as insignificant. At the individual level, 7

the study found CEO's innovativeness played an important role in e-commerce adoption in SMEs. At the environmental level, pressure from supplier/buyer on their adoption decision of e-commerce was identified as important. Bharadwaj and Soni (2007) found that a major reason for businesses not engaging in ecommerce is their perception that it is not strategically important for their businesses. Upadhyaya and Mohanan (2009) researched the factors affecting electronic marketplace adoption among manufacturing SMEs in India. They found that the owner’s knowledge of computers and the Internet, organization’s familiarity with Internet-based applications and size of the firm are the factors that contribute to the e-marketplace adoption. According to their study, the government support and the extent to which the firm is globalized does not have any influence on manufacturing SMEs to adopt e-marketplace. Factors Affecting E-Commerce Adoption in Small Businesses in the Tourism and Hospitality Industry Buhalis and Main (1998) studied the process of information technology adoption in small and medium-sized hospitality organizations (SMHOs) and identified several reasons for the lack of use of technology in these organizations. These are as follows: a) the lack of training, b) the age, educational level, and family arrangements of the SMHOs’ proprietors, c) the deficiency of rational management and marketing functions, and d) the short-term, operational focus of managers. Raymond (2001) administered a survey to travel agencies to study determinants of website implementation in small businesses. He identified various factors determining the assimilation of ecommerce by small enterprises in the form of informational, transactional, and strategic implementation of a website. Raymond (2001) found that the informational implementation and transactional implementation are determined by environmental context (business partners’ influence and environmental uncertainty), whereas strategic implementation is determined by travel agencies’ marketing strategy (in terms of distribution and communication), the organizational context (type of

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ownership, nature of business), and the characteristics of e-commerce (perceived advantages and technology attributes). Morrison and King (2002) explored the perceptions and attitudes of small tourism business owner-operators in regional areas towards investigating e-commerce as an element of destination marketing. They identified two major challenges for small tourism enterprises: First, the impact of online technologies supporting e-commerce in tourism is likely to increase rather than diminish, because they enable and support new organizational configurations and have the capacity to reengineer market places and supply chains. Secondly, the success of many destination marketing businesses is dependent upon the effective engagement of a significant proportion of small tourism businesses. Morrison and King (2002) suggested that that public sector destination marketing organizations need to: accept and work with the innate characteristics of the population; ensure the utility and functionality of the proposed technology; enhance owner-operator understanding of the benefits and costs of Internet-based trade; and utilize a combination of coercive push and voluntary pull factors to engage them in both individual and destination-based e-commerce strategies. Warden and S. Tunzelana (2004) found that organizational barriers exist in e-commerce adoption initiatives of SMMEs (Small Medium Micro Enterprises) in the South African Tourism industry. Hudson and David (2006) studied small hospitality businesses to identify the underlying success factors in utilizing the Internet as a marketing tool in the tourism and hospitality sector. Their study results suggest that bed & breakfast hotel owners are using the Internet as a low-cost method of increasing their customer base, especially from overseas markets. Hudson and David (2006) found that success in adoption of the Internet is closely related to online experience, the measurement of website efficiency, prompt responses to inquiries, making it easy for customers to make a reservation, the development of relationships with customers, customer adoption of technology, and the existence of online partners. Karanasios (2007) identified four major Internet adoption obstacles in small tourism 9

enterprises in Ecuador. These are as follows: the cost of adoption, the ICT infrastructure, government support, and a lack of ICT skills. Methodology The main aim of the present study is to explore the factors affecting the adoption of ecommerce by small businesses. The study uses a single-case research methodology. According to Dul and Hak, (2008, p.4) “A case study is in which (a) one case (single case study) or a small number of cases (comparative case study) in their real life context are selected, and (b) scores obtained from these cases are analysed in a qualitative manner.” A family owned small hotel using website since 2009 was selected for the study. The authors conducted interviews with the owner of the hotel to explore the factors affecting e-commerce adoption in a small business. The owner of the hotel was visited and interviewed three times by the authors. In interviews, we gathered information on the background of the hotel and its owner, Internet and Web use in the hotel, benefits of these technologies to the hotel and then we examined the factors affecting the adoption of e-commerce. In addition to the interview, the website of the hotel was also explored. Case Study Otel Gören is a three-generation family owned and operated small hotel. It was established in 1952 and since then has served customers. Otel Gören is located in one of the main streets of Bilecik, a small but a historical city in the northwest of Turkey. Bilecik's population is about 45,000. Besides the owner, the hotel currently employs four people; one of them is his wife. The owner works on a full time basis in the hotel. The hotel is a bed and breakfast hotel. It serves approximately 3000 customers annually with 20 rooms and 40 beds. Taner Gören is the owner of the hotel. He is forty years old, graduated from commercial high school, married and has one child. His computer skill is neither expert nor novice. The owner indicates his level of computer skill as middle level. Information technology resources of the hotel are limited. There are two computers in the hotel; one is in the owner’s office and the other one is on the reception desk. The hotel has ADSL 10

Internet connection. Customer records are kept on the computer at the reception desk. The Hotel has been using the Internet since 2000, but not mainly for business purposes until 2005. In Turkey, Hotels have to report the identification information of their guests to the appropriate Turkish authorities every day. Since 2005, keeping customer records on a computer and sending to the police department via the Internet have become mandatory for the hotels above a certain size. For this reason, Mr. Taner has started using ADSL broadband Internet connection since 2005. The hotel also provides wireless Internet connection to its customers. Communication (E-mail), sending the identification information of the guests to the police, information search and gathering were the main uses of the Internet in the hotel. At present, room reservations are usually made via telephone enquiries direct to the hotel. Sometimes, customers use e-mail to book a room. Approximately 10% of the bookings are made via e-mail in this year. Since the customers cannot get instant response via e-mail they may prefer to book a room via phone. Last year, the owner, Mr. Taner, decided to renovate the hotel and then the hotel building was completely refurbished inside and out. With this renovation he wanted to have a website. The hotel website was launched in 2009. The owner is aware of the importance of the Internet for businesses and he believes that today, it is necessary to have a website. The website was designed by a local Web solutions firm and was registered with one of the main search engines. The content of the website is in Turkish. The website is relatively basic, simple and easy to use and navigate. It contains some sample pictures of the rooms, a list of the services provided by the hotel, contact information and daily weather of Bilecik. Audio, video and 360-degree photography weren’t used in the website. The hotel website doesn't include Web-based booking system and doesn't offer online payment. Because of owner’s concerns regarding the technology, he doesn't want to use Web-based booking system. He believes that it may cause some problems. For now, Web-based booking system is not seen as necessary by the owner. It seems that the main reasons for that the hotel is not using Web-based booking system are the lack of technical knowledge of the owner about the system and 11

for now, it is not seen as necessary by the owner. Mr. Taner, hasn't registered the hotel to a booking portal (i.e. www.booking.com) yet. He stated that he didn't know that there is such a service exists in the Internet. But when asked, he states that he might register to an online booking portal in the future. The introduction of the website has provided the following benefits to the hotel: Availability: The information on the hotel website is available to potential customers 24 hours a day, 7 days a week. This provides convenience to the customers and to the hotel. Today, the most popular and convenient way of looking for a hotel is the Web. Credibility: The website gives the hotel a mark of credibility and creates an image. Keeping up with the competition: Having a website helps the hotel to keep up with the competition. In terms of e-commerce, it cannot be said that the hotel is successful. The hotel has not been benefitting fully from the Web's potential. The hotel has not completed the e-commerce adoption process yet. Discussion and Conclusions Today, computers and the Internet have become an important part of business life. The Internet has affected many industries, but the hospitality industry has been one of the most impacted. Nevertheless, the small hospitality business owners do not use the Internet and the Web to its full advantage and only a small number use a secure server for online bookings (Hudson and Gilbert, 2006). To be able to survive in the fast-changing environment, the small businesses in the hospitality industry have to adapt technological advances such as e-commerce to stay competitive. However, practicing e-commerce in developing countries is a major challenge (Bui, Le and Jones, 2006) for especially small businesses with scarce resources. The main aim of the present study is to explore the factors affecting e-commerce adoption by small businesses. For this reason, a family owned and operated small hotel was examined as a case study. 12

The owner of the hotel appreciates the value of the Internet and the Web. However, it cannot say that the hotel makes full use of them. E-mail, sending the identification information of the guests to the police, information search and gathering were the main uses of the Internet in the hotel. The hotel has a basic website that is not having Web-based booking system. Having a website can be accepted as the first step to e-commerce for most businesses in the Internet. But, it is not enough for a successful e-commerce application. In order to be successful in the Internet, the small hospitality businesses should also add value to their websites with, such as Web-based booking system, tourist information, and maps. Also, developing a website in only one language for a hotel may not be sufficient in the hospitality industry. The hotel website should provide information in common languages of the world, such as English and German. The authors of the study suggest that the most important factor affecting the adoption of ecommerce in the case hotel is the perceived benefits by the owner. Other factors are identified as follows: customer expectations, competition and the increased use of the Internet by people. The main reasons for not using the Web-based booking in the website of the case hotel are found as following: the owner lacks the technical knowledge and, for now, Web-based booking is not seen as necessary by the owner. In order to keep up with competition in the era of Internet, e-commerce awareness among small businesses should be increased especially in developing countries. In addition to increasing awareness, it is required to support small businesses with knowledge and experience about ecommerce. Because most small businesses cannot afford the necessary training, consulting or outsourcing for e-commerce implementations, it is possible for chambers of commerce, or smallbusiness associations to organize training sessions for small businesses to attend at an affordable price (Lituchy and Rail, 2000). There are a number of limitations of this study. The first limitation is that the authors used a single case study methodology, and investigated only one small business. The second limitation is that investigated business is a hotel in the hospitality industry. The factors affecting adoption of e13

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