Electron Commer Res (2015) 15:159–175 DOI 10.1007/s10660-015-9178-3
Access to the Internet and financial performance of small business households Aditya R. Khanal · Ashok K. Mishra · Krishna H. Koirala
Published online: 29 January 2015 © Springer Science+Business Media New York 2015
Abstract With increased focus on survival strategies for small farm businesses, we investigate the impact of access to the Internet on household income and expenses of small farm businesses and households. Using a nationwide data from the U.S. and nonparametric matching estimators, the study finds a significant positive impact of access to the Internet on total household income and off-farm income. Our study suggests that small farm businesses benefit from Internet access as it increases business income, off-farm income and total household income. Also, access to the Internet reduces some input costs and household expenses. Keywords Small business · Internet access · Matching estimators · Treatment effect · Farm household 1 Introduction Small businesses are the backbone of the U.S. economy. The Office of the United States Trade Representative highlighted benefits of Internet-enabled trade to small business
A. R. Khanal Department of Agricultural Economics and Agribusiness, Louisiana State University, 32 Martin D. Woodin Hall, Baton Rouge, LA 70803, USA e-mail:
[email protected] A. K. Mishra (B) Department of Agricultural Economics and Agribusiness, Louisiana State University, LSU AgCenter, 128 Martin D. Woodin Hall, Baton Rouge, LA 70803, USA e-mail:
[email protected] K. H. Koirala Department of Agricultural Economics and Agribusiness, Louisiana State University, Martin D. Woodin Hall, Baton Rouge, LA 70803, USA e-mail:
[email protected]
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[34]. Internet is an important tool for small businesses as it enables businesses to increase their sales through Internet trading as well as empowers millions of small businesses to sell their goods and services to customers around the world, 24 hours a day [34]. Like any other small business, the U.S. Small Business Administration classifies farming as a business that is most satisfying and rewarding ways to make a living. From farming and food production to forestry, agribusinesses contribute to the health of the population and security of the country. Starting and running an agricultural business involves a lot of paperwork, regulations and technical know-how. According to United States Department of Agriculture (2010), 91 % of all U.S. farms are categorized as small businesses—gross cash farm income1 of less than $250,000. Most of the small farms businesses range from retirement and residential farms to commercially oriented farms with operators employed full time in agriculture, which includes the production of poultry, beef (cow/calf operation), hay, and grain/soybeans. Significant number of small commercial farm businesses and their share of farm sales continue a long-term decline because most of them do not earn profits from farming. However, small farm businesses remain in business despite financial losses because their owners (or operators) have other sources of income (mainly off-farm income) and operate the business for reasons other than profit. Since, small farm businesses are purchasers of inputs and suppliers; they are important contributor to rural economies and U.S. agriculture. They can also make better stewards of natural resources, conserving biodiversity, and safeguarding the sustainability of agricultural production and the environment. An operator age and education, off-farm work, farm size, participation in government program, soil productivity, debt-to-asset ratio, and ratios of variable and fixed costs of production to value of agricultural production are the major factors that will affect on profit of small farm businesses [5,25]. Recently Sila [35] investigated factors affecting Internet based business-to-business commerce activities; found that many variables, ranging from firm size and firm type to variables such as pressure from competitors, network reliability, scalability, top management support, and trust affecting firms’ decision to adopt business-to-business electronic commerce. Internet can pose both a threat and an opportunity for small and medium enterprises and it depends on the degree of adoption [36]. Internet can be a lifeline for small businesses allowing them to reach new targeted audiences in a cost-effective way and helping small businesses to survive in the modern economy [38]. Use of Internet increases ability for small business to compete with other companies both locally and nationally. It can provide an important role in information gathering. Small farm business households can increase their farming efficiency via Internet. It can help in search cheaper inputs and build connections and virtual networks with different economic agents—such as contractors and buyers for their product. In
1 Gross cash farm income is the sum of the farm’s cash and marketing contract revenues from the sale of livestock and crops. It includes all farm-related revenue, not just crop and livestock sales, and is based on annual sales, not the value of annual production.
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addition, it is convenient and easy way of doing business transaction and opens the possibility and opportunity for more diverse people to start a business [13].2 Internet use is increasing on small farm businesses, although at a modest pace. Internet-based application is one of the most important reasons for computer adoption by farmers in the US [5,25]. Farmers are increasingly using Internet applications such as tracking price, accessing agricultural information, assessing information from government agencies, and online recordkeeping [26], with increasing enthusiasm. The Internet has become a driving force for development and innovation in many countries with millions of business connected to worldwide because it can play a key role in marketing and enterprise performance as it enhances one’s ability to manage information quickly and effectively. As an indispensable part for both producer and consumer, Internet allows consumers to do more-informed decisions quickly and effectively. Suki [39] investigated consumer-shopping behavior on the Internet in Malaysia and found that familiarities followed by promotional offers are important factors in shopping through the Internet. Further, Internet allows entrepreneurs to maintain a strong business-to-business relationship. While Internet and e-commerce activities are discussed for wide range of areas, the actual role that the Internet could play on small farm business households has not been investigated. Internet access could be a boon for small business and rural households as it opens up new areas of marketing their products and help survive their business, though small in nature. Small farm business households comprise 91 % of total farm households in the U.S. and thus the impact of Internet on their businesses could have a substantial impact on business performance and rural development. There are some studies discussing information and communication technologies in rural households and application of the Internet in agricultural business [23]; [12,16,18,22,41]. Most of these studies have discussed the factors influencing adoption, household’s purchasing pattern through the Internet, and benefits and overall profit potential in general. Moreover, farm household studies are focused on the association of socioeconomic factors with adoption of the Internet. Very few studies have analyzed impact of having access to the Internet on the well-being of farm households (such as total household income3 and off-farm income) and farm business performance. Therefore, this study investigates the impact of Internet access on small farm business household income and business (farm) financial performance using farm-level data of farming households through treatment-effect models (defined as those with sales
