SMEs

International Journal of Accounting, and Business Management (IJABM) Volume 1, Issue 1, September 2013

Consumers’ Perspective View: A Preliminary Study on Factors Influence Small and Medium Enterprises (SMEs) in Penang Reluctant to Adopt Electronic Commerce (e-Commerce) Application Seng Chee Lim, Cheng Peng Tan, Ahmad Suhaimi Baharudin Universiti Sains Malaysia, Penang, Malaysia [email protected], [email protected], [email protected] Abstract The power of the Internet has grown rapidly and changed the world. The e-Commerce success stories from Amazon.com with millions of active customers and AirAsia.com provides low cost air carrier encourages many entrepreneurs to modify their traditional business model and practices to e-business model. Malaysia's government realizes the importance of e-Commerce technologies. However, after a decade of implementing the e-Commerce, the adoption level still low. Based on Association Chinese Chamber of Commerce & Industries of Malaysia SME's (ACCIM) survey, it shows that 28% of the SMEs engage in e-Commerce activities. They have contributed 97.3% to Malaysia's economic (D.O.S., 2012). Thus, this paper presented the case studies through preliminary interview. Interviews have been conducted with five online consumers to determine potential factors that hindrance to the e-Commerce adoption among SMEs in Penang. The results shows that organizations, consumers and the government are the critical factors affecting SMEs to adopt e-Commerce. Keywords—Electronic commerce, SME, adoption, Malaysia, Preliminary Interview 1.

Introduction

e-Commerce is a powerful tools entrepreneur to expand their marketplace over the Internet. The successful stories about ‘Amazon.com’ had motivated and encourage the entrepreneur to change their business model to e-business model. Kshetri (2007) mentioned in some developing countries failure to get the benefits from the Internet. The Malaysian government realizes the importance of ‘e-Commerce’. In Ninth Malaysia Plan (year 2006 2010), the government had allocated 12.9 billion to boost up e-Commerce and the framework (Kamaruzaman & Handrich Yasmin, 2010). According to the news reported from local press released on April 18th, 2012, a senior officer from Malaysia External Trade Development Corporate (MATRADE) commented that e-Commerce adoption among SMEs in Malaysia is still low, only 28% out of the 965 participants involved in e-Commerce activities (ACCCIM, 2012; TheStar, 2012). The e-Commerce adoption rate in Malaysia is relatively low compared to other developing countries. Hence, this paper discussed the preliminary interview results with five online consumers based on their user experience and the critical factors influence them to purchase online from the merchant.

2.

Background of The Study

e-Commerce has many definitions from academicians and researchers. Table 1 shows a list of eCommerce definitions from different perspectives: management, economic, marketing and technology.

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International Journal of Accounting, and Business Management (IJABM) Volume 1, Issue 1, September 2013

Researchers Turban, Lee, King, and Chung (2000)

Definitions E-Commerce is the delivery of information, products or services, or payments over telephone lines, computer networks, or any other electronic means. [Technology] E-Commerce is the application of technology toward the automation of business transactions and work flow. [Management] E-Commerce is a tool that addresses the desire of firms, consumers, and manages to cut service cost while improving the quality of goods and increasing the speed of delivery. [Economic]

O'Daniel (2000)

E-Commerce Provides the capability of buying and selling products and information on the Internet and other online services [Marketing] Electronic commerce is a new vehicle for providing information to target market through advertising, promotion and publicity. [Marketing] Electronic commerce is a tool that addresses the desire of buyers and sellers to cut costs while improving the quality of goods and increasing the speed of service delivery. [Economic] Electronic commerce is the application of technology toward the automation of business transactions and workflow. [Management] Electronic commerce means the delivery of information, products, services, and payments via computer networks. [Technology]

Table 1: e-Commerce Definitions Sulaiman (2000) had conducted a research on the e-Commerce applications among Malaysian and concluded that there are nineteen types of e-Commerce application: (1) Prepaid cards, (2) Smart cards, (3) Credit cards, (4) Electronic fund transfer, (5) Logistics, (6) Procurement, (7) Online sales order, (8) Online application, (9) E-mail, (10) Customer feedback, (11) Online product updates, (12) Online help FAQ, (13)Electronic catalogues, (14) Third-party website, (14) Home page or website, (16) Display Information & product, (17) Research on Competitors, (18) Research on Suppliers, and (19) Research on Consumers. 3.

Methodology

In this study, five online consumers have been selected for the case study based on their education background and online shopping experience. (Kshetri, 2007) mentioned that multiple case studies and single case study owned their strengths and weakness. Despite there are some debate about single or multiple case studies but it is useful in early stage of the research process.

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International Journal of Accounting, and Business Management (IJABM) Volume 1, Issue 1, September 2013

Case Study Respondent 'A' Based on respondent A’s opinion, e-Commerce implementation in Malaysia considered conservative, the SMEs are preferred to conduct their businesses through physical medium such as having a physical shop. Most of the SMEs still do not adopt e-Commerce because they find that it is difficult to identify reliable and trustable vendors. Without a trust, it is difficult to establish a relationship between merchants and consumers. Despite the current e-Commerce practice is considered low, but some of the medium-size companies managed to change their business model into an e-business model, such as having an online application form. Users are able to send their requests by filling up the particular Web form and will be attended by customer service. He also provides a few successful cases about e-Commerce implementation. Furthermore, he emphasized that the Web promotion and branding are very important. For an example, AirAsia is also well-known by everybody with their tagline “Everyone can fly”. AirAsia always promotes their services through mass media, social portal, and the website. Periodically marketing campaign enables customers to get the latest information, so that they can make decisions promptly. Hence, the customers feel that AirAsia provides useful information. They trust on AirAsia and willing to pay for their services by using a credit card or online banking. Moreover, respondent A shared another example, Alibaba.com, which provides a medium for sellers and buyers to do online trading and communicate to each other. Usually, consumers expect to have timely delivery, but sometime users also afraid of business fraud. In order, to reduce the business risks, Alibaba provides a service called Escrow services to ensure both parties are always protected under the regulatory and cyber laws. First, the user has to place an order through Alibaba’s portal and the administrator will instruct the vendor to deliver the items to respective customers. When the customer received the item and verifies, they will give feedback to the Alibaba administrator. If the transaction is successful, Alibaba administrator will transfer the money to the respective vendor. Hence, it increases the level of confidentiality of Alibaba. Lastly, he concluded that trust, policy and content information are important to consumers. Respondent ‘B’ SMEs are reluctant to use e-Commerce application due to different cultures and practices. In developed countries such as United States, the e-Commerce in their cultures and practices are mature, they are utilizing the technology, conversely in Malaysia e-Commerce practices consider as infancy stages. Furthermore, there are many shopping malls, convenience shops nearby especially in Selangor and Penang States. Most of the people prefer to go to nearby physical shops to get the products or items. This is the way that they can see, sense and feel about the products and enjoy the shopping moment. During weekends or public holiday, the shopping mall will be a place for the public to celebrate together with their family. From the technical perspective view, he said that system design of the website must be user-friendly, simple and ease of use. Apart from that, the SMEs are reluctant to use e-Commerce because of the rapid change of technologies. The SMEs perceived that having these technologies will cost them a lot such computer servers, software licenses, backup storage, etc., which also requires a high maintenance cost. Besides that, they are also lack of skilled and talented workers to deal with the technical issues. Other important factors used to determine e-Commerce adoption are such as education and knowledge. Through education, they could understand the benefits of eCommerce technologies; hence, they will use it for their businesses. From the customer's perspective view, he stated that payment security and privacy are very important. Without security and privacy, the customer will not purchase anything from your e-commerce website. He also mentioned about the potential of mobile commerce through the marketplace.

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International Journal of Accounting, and Business Management (IJABM) Volume 1, Issue 1, September 2013

Nowadays, there are numerous of mobile users especially the Generation-Y. Mobile commerce is another niche market in the marketplace. He suggested the SME who owned the e-Commerce site to provide a lightweight Web pages or mobile gadget version. These features allow users to access the e-commerce site via mobile Web to get the information or perform online transaction. He also gives some valuable opinions about the marketplace and customer behaviour, such as a target the right audience and use appropriate technologies. Those SME who adopted e-Commerce should aware of the technology trend, for example social media. It is free and used as viral marketing to communicate with users and promote the product via social portal. As a conclusion, education, culture, benefits, marketing strategies, security and privacy are the important factors to be considered when adopting an e-Commerce. Respondent ‘C’ The local SMEs do not adopt e-Commerce because of the available products at marketplace are limited and the product range is much more identifiable. Therefore, users prefer to go to the physical shop to purchase the products. In Peninsular Malaysia especially west coast, there are many convenience shops and shopping malls around. Shopping in the mall is part of Malaysians’ cultural, where they can spend more time with their friends and family. In today’s market trend, the SMEs are focusing on customer relationship and service quality. The market trend has been shifted from a product-oriented to customer-oriented. The customer relationship is important for the SMEs to sustain their businesses in a competitive marketplace. The SMEs assumed that having an e-Commerce site will cost them a lot. Hence, they are reluctant to adopt e-commerce. They perceived technologies such e-Commerce requires to spend much on the e-Commerce development and maintenance. In respondent C opinion, the SME’s attitude is still conservative, they are not willing to take the risks to invest in e-Commerce. There is a few e-Commerce success stories could to encourage them to embark on these technologies. Respondent C also mentioned that in the virtual world, the e-Commerce catalogue is fully automated. Most of the e-Commerce site doesn’t provide instant support or assistance for the automated catalogue. When they have problems or inquiries about the product, they couldn’t get help. This will make them feel anxious and having a bad impression about the service quality. The customer’s satisfaction is an important factor to determine the success of an e-Commerce site. If a customer satisfied with the service and trust the e-Commerce site, they will definitely purchase the product. Service quality is another important factor. Through reciprocal communication, it helps SMEs to understand the customers’ demands. Moreover, it could also help SMEs get some valuable opinions or feedbacks to improve the products and services. Moreover, he pointed out, SMEs are reluctant to apply e-Commerce technologies in their business because they cannot get any benefits over the Internet and it is costly to set up eCommerce applications. Hence, they will not apply the technologies into their businesses. The government plays an important role to promote e-Commerce. Incentives, funds and grants are useful resources to help them improve the Internet infrastructure with high speed, secure networks and cultivate specialists such as Web developer,network engineer or system administrator. Besides that, the government should subsidize the Internet broadband subscription fees to encourage more people to join the network and it will be an added value to SMEs. Lack of regulatory bodies and cyber laws to protect the online shoppers and sellers is another issue. The roles of government are important to ensure that the progressive development of technology infrastructure. In order to promote e-Commerce, the government should enforce the cyber laws, such as Personal Data Acts 2010, e-Commerce Acts 2006 , Computer Crime Acts 1997 , Digital Signature 1997 are important. It could protect both parties: sellers and buyers. With the protection, it will encourage many people involved in e-Commerce activities. Respondent ‘D’

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International Journal of Accounting, and Business Management (IJABM) Volume 1, Issue 1, September 2013

According to respondent D, SMEs are still following the conventional practices; they believe that a company’s reputation is important. If the company has a good reputation, the company will survive longer in the marketplace. Therefore, they focus on customer services and do not adopt e-Commerce application. The conventional way of conducting the business does not require to compete and worried so much about the company’s reputation among the competitors. Contrastly, the delay and slow responsiveness of e-Commerce such as email delivery to the customers are the issue. Nowadays there are many unauthenticated marketer keeping on sending unsolicited email to customer. In order to avoid such issue, end user need to set a higher filter benchmark. Hence, this would cause the miscommunication and customer dissatisfaction. Anyway, payment security issue still is the main threat to online users. They afraid of their personal information being collected and abused by an unauthorized party. Respondent D personally think that a featured system is essential to encourage SMEs to adopt eCommerce such as user friendly, ease of use; so that it could help customers to perform daily online operation easily. Besides that, customer service also plays an important role in eCommerce applications. If their customer service representative serves their customers poorly, the customer will feel dissatisfied and never support them again. Through “word of mouth”, they spread it to the world and this could ruin the company’s reputation. The customer service representative need to provide prompt responses to them and never ignore their requests. An innovative company needs to educate the customers, thereby they can have a mutual understanding through reciprocal communication. Most of the local entrepreneurs reluctant to apply technology into their business, because they think that the high cost investment, such as development, maintenance and operation. They have negative perceptions towards to have an IT department within the organization. Even though this is an opportunity to create more jobs on the market but they have to learn and use it, if an unexpected technical issue occurred, the organization will have economic loss. In order to avoid more jobs and unexpected issues, they would prefer to remain current practice. Based on the technological perspective view, security, privacy, system design such as ease of use are very important. From the customer's perspective view, responsiveness, reciprocal communication, customer satisfaction cannot be neglected. Respondent ‘E’ Based on respondent E working experience, the local SMEs and industries are reluctant to put their businesses online due to lack of trust. In the virtual world, people have never met one another before; therefore it is difficult to let them to judge about the vendor's reputation. Besides that, the service quality from the SMEs also did not reach a satisfactory standard because they still could not prompt responses from their customer services or service help desk over the Internet. Moreover, a good product branding position and business strategy are relatively important, which can assure to their customers. Local SMEs are reluctant to bring eCommerce technology into their businesses due to lack of online security and cyber law to protect both parties. They perceived that a technical incentive job and the rapid change technologies require high cost of investment, for example e-Commerce software such as an Enterprise Resource Planning system (ERP). Though, it requires a long term to get back their initial investment. Respondent E also commented about the local vendor's attitude and service quality is not satisfied yet, for example customers expected a prompt response after sending an email to ask for a quotation. Customer service or help desk must provide an effective response to their customers. As such, the Customer Relationship Management (CRM) plays an important role to help SMEs retain good relationships with their customers. The system featured such as Frequently Asked Questions (FAQs) section is very useful as it helps customers to retrieve the knowledge and solution data bank to solve a particular doubt or issue. Everybody in this world is different. Some of the people manage to make decisions in a short moment, whereas some need sometimes to make a decision. This is due to their different characteristic and environmental factors. If someone has a positive attitude towards the technology, one will has it, on the other hand, if someone has a negative thought about the technology, then one will avoid using it. As a potential solution to the online payment security issue, the SMEs can consider to

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International Journal of Accounting, and Business Management (IJABM) Volume 1, Issue 1, September 2013

use a reliable third-party vendors such as Paypal, 2Checkout or ipay88. They do not have to bear the risk, and also will avoid the customers' anxiety. As a conclusion, trust, security and privacy, customer service are the critical issues need to be addressed carefully when the SMEs are engaging in e-Commerce site. 4.

Conceptual Framework

Figure 1: List of potential factors 5.

Discussion and Conclusion

Based on the intensive case study, the adoption of e-Commerce site could be measured with these potential factors: organizational, consumer and government. Organizational factor: The company's e-efficiency and e-effectiveness are relying on the ability to perform and implement the strategies either tangible or intangible which includes company’s capabilities and performance; information and knowledges (Barney, 1991). The decision either to adopt or reject innovative technologies is based on a business owner's decision. Agarwal and Prasad (1999) mentioned that individual difference such as attitude and his or her knowledge plays an important role to determine the implementation of any technological innovation. Pavlou (2003) mentioned that novice customers are aware of company reputation and brand name. The brand name is well established product which will mitigate the reputation of the vendor. Paynter and Lim (2001) mentioned that in Malaysia, shopping in the mall is part of Malaysian’s cultural; furthermore there are many convenient shops available in Malaysia. The planning, execution and measurement are the three specific facets in the e-business strategies particularly in business-to-business strategies (Miller, 2012). In the planning phase, business plan is the essential component used to document the strategies into business ideas and scopes, identify the niche market, target audience, market segmentation, value propositions and the competitive advantage. The execution phase includes marketing strategies by using any popular medium such as social networks, advertising and mobile networks. This phase is about how to implement and use them to strategies the e-business based on the planning. Finally, in the measurement phase, the e-business will be analyzed based on the performance and activities. It should cover the evaluation of customers’ feedback, needs and expectations. Consumer factor: The vendor’s reputation has an indirect relationship with the technology such as security, privacy, unfriendly website featured. Based on the conducted survey, the main reason that SMEs are reluctant to adopt e-Commerce due to security issues especially online transaction issue (ACCCIM, 2012). Khatibi, & Ismail claimed that most of the people concerned about the online payment security issue, if online purchasers are not assured with secured online transaction, they will lose of confidence with the online retailers, hence it is difficult to build trust, satisfaction and good reputation (Khatibi, Ismail, & Ismail, 2003). In e-

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Commerce, information becomes more abundant, lower cost and higher quality ( Kenneth C. Laudon & Carol G.Traver, 2011). This is an advantage for the SMEs in Malaysia to engage the eCommerce in their businesses and have an opportunity to differentiate their products and services in the marketplace. Government factor: The E-Commerce Act 2006 shows the commitment of the Malaysian government to boost and encourage SMEs to involved in e-Commerce (Government of Malaysia, 2006). With this act, it could help the SMEs to boost e-Commerce in their businesses, recognize e-Commerce as authoritative e-business transaction medium in Malaysia. References [1] [2] [3] [4] [5]

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[15]

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