COMMERCE ADOPTION AND DEVELOPMENT

According to Chambers of Commerce of Ireland (2002) on chamber SME e-business survey 2002; there is about 84 per cent of internet penetration rate within the SMEs market and 50 per cent of SMEs have their own websites. From United Kingdom’s national statistics (2002) results for 2001 e-commerce survey of UK businesses indicate that 46 per cent of the smallest sized businesses were online, compared with 98 per cent of businesses with 1,000 or more in employment. Indirectly, it is means that the larger the business the more likely it is to be online.

Per cent Total

Electricity 51.1% 212,209 Telephone 30.6% 127,212 Internet 4.6% 19,190 Personal Computers 7.8% 32,399

Note: From total household of 415,100 in Sarawak state.

Source: Abdul Aziz (2003), State government initiatives in the Development of ICT. adapted from Department of Statistics, Census 2000.

51.1% 4.6% 7.8% 30.6% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Electricity Telephone Internet Personal

Computers

Figure 4: Basic ICT Infrastructure in Sarawak

With realizing the important of online, internet and e-commerce, the Malaysian government initiates two sub- committees chaired by the Ministries of International Trade and Industry (trade and finance) and Ministry of Energy, Communications and Multimedia (infrastructure) obtained the endorsement of the Cabinet to use the National Electronic Commerce Strategic Directions as the strategic document for related ministries and

government agencies. (Multimedia Development Corporation [MDC], http://www.msc.com.mt/mdc) The report document seeks to identify and describe the most prospective areas for national initiatives to begin the task of securing Malaysia’s e-commerce future. (Ng, 2003; Mazlan, 2003) From the surveys conducted for 800 SMEs throughout country, about 90 per cent had computers, just over half had internet access and less than 20 per cent had a web sites. Less than 5 per cent of Malaysian companies had implemented internet payment system in 1999 (MSC Technology Centre, 1999). This shows the status of e-commerce progress in Malaysia, and the government are played their role in facilitating the use of e-commerce for SMEs and in increasing their ability to reap the benefits (e.g. via awareness building and training programme). The governments also in partnership with the private sector to establish a more comprehensive and consistent policy approach to SMEs and e- commerce, and apply evaluation mechanisms to assess what works and does not work (UNCTAD, 2001). To re-intermediate the economic competitiveness in the manufacturing sector with emphasis on the electronic and electrical clusters, Technology, Industry and Government working together for E-economic Revolution (TIGeR) project provides an integrated platform for collaboration between manufacturers with their global and local buyers and suppliers, the strategy is to encourage SMEs to adopt and implement e-business applications for on-line real-time participation with an e-community of multi-tier suppliers, manufacturers, buyers and governmental bodies (Tengku, 2002; Latifah, 2002).

BENEFITS OF E-COMMERCE

The adoption of electronic commerce by SMEs depends largely on their perception of the opportunities and benefits afforded by electronic commerce and the relevance of these opportunities to their business. As shown in table 4, most SMEs participating in the survey by APEC (1999) are optimistic about the potential benefits that e-commerce can bring to their business.

Benefit to Consumers

Electronic commerce enables firms to be more responsive to customer needs and more efficient in interacting with and servicing business and consumer needs. SMEs value the fact that e-commerce enables them to offer 24-hour per day information to customers through their Internet web site and respond more quickly to customer inquiries and requests for information by email. E-commerce allows SMEs to be more targeted in their customer communications and realize more cost reductions in their advertising and product promotion. They value the ability to standardize customer information digitally and update it efficiently and at lower cost. SMEs believe that e-commerce will enable them to gather and compile better market intelligence on their customers, suppliers and competitors through Internet research and better develop and update customer databases, including online databases. By providing a higher quality of service and better information exchange with customers, SMEs believe that e-commerce will offer important benefits in improving longer-term customer loyalty and retention.

Table 4: Potential Benefits Of E-Commerce Use By Smes

Rank Top 10 Benefits

1 Improve customer service 2 Enhance company image 3 Customer information exchange 4 Improve competitive position 5 Increase customer loyalty 6 Access international markets 7 Increase revenue

8 Reduce costs of information 9 Supplier information exchange 10 Attract new investment

Source: APEC. (1999). SME Electronic Commerce study, Exhibit 2.1

Improving the company image and competitive position is a very important perceived benefit of electronic commerce. Many participating SMEs believe that e-commerce can enable firms to develop a presence and compete in markets that were previously untapped by SMEs. Traditional barriers such as distance,

communications costs and access to international markets that prevented SMEs from competing with larger firms are not as significant. Electronic commerce can remove some of these barriers and SMEs recognize this as an important benefit of developing their e-commerce capabilities.

Benefit to Organizations

SMEs with higher levels of e-commerce capability identified using e-commerce to increase revenues and reduce procurement and information costs as a more important benefit than firms with lower capability. This suggests that SMEs with higher e-commerce capability levels may be more advanced in integrating e-commerce into their overall business models, and thus have higher expectations on revenue and cost benefits derived through e- commerce than do SMEs with lower levels of capability. Firms of this type typically use e-commerce to reduce product inventory, decrease warehousing costs or shorten sales and distribution cycles.

Benefit to Society

Participating SMEs with higher levels of e-commerce capabilities were more likely to identify using e- commerce to reach international markets as an important benefit. This suggests that for many SMEs, the desire to access international markets may have an important influence on promoting the rapid development of more advanced e-commerce capabilities. Many of these firms further noted that they were using e-commerce strategically to access international markets and had integrated the development of e-commerce capabilities as an important priority of this strategy.

SMEs with higher levels of e-commerce capability were more likely to identify using e-commerce to attract new investment as an important benefit. Firms that identified attracting new investment as more important were often larger enterprises that viewed e-commerce as an opportunity to modify or significantly enhance their business model and value chain thereby enabling the firm to attract new investment more effectively. Some of the SMEs also interested in attracting new investment in information systems (hardware, software) through e-commerce related funding programs.

BARRIERS TO E-COMMERCE

From pass research, Akkeren and Cavaye (1999) has studied the factors affecting e-commerce adoption by SMEs in Australia. They studied that perceived lack of business benefits, mistrust of ICT industry and look lack of time are the main inhibitors to the e-commerce adoption.

CommerceNet’s 2000 Barriers to e-commerce survey (Keenan, 2002) laid out the Top 10 Global Barriers for SMEs perspective in expanding into the world of e-commerce. This list is reproduced below:

1. Lack of qualified personnel: Cannot attract qualified consultants and staff to implement e-commerce systems for SMEs.

2. Lack of business models: There are few proven business models that show how SMEs can use e- commerce to profit or expand their business.

3. Fraud and risk of loss: SMEs are more concerned about risk from fraud over the Internet.

4. Legal issues: Just like contracts, liability, etc. – there are too many legal issues to make it easy for SMEs to use the Internet to transact business with suppliers and customers.

5. Not sure of benefit: Most of the SMEs do not understand how e-commerce can really benefit them to gain competitive advantages.

6. Customers can’t find me: It is difficult to differentiate between SMEs and large enterprises over the Internet.

7. Partner e-commerce readiness: This is a new business, most of the consultant or project manager just started to embark on this new market, and there are too few proven business models for SMEs to justify the expense of a major investment.

8. Inconsistent tax laws: E-commerce is doing business globally; tax incentive or laws can be varying from countries to countries.

9. Proprietary technology: Different computer platform may have their own proprietary design; it is hardly to develop a system suitable across all platforms. Proprietary technology restrict user from switching one system to another without redevelop the whole system. It is not interoperates and cost effective.

MacGregor, Bunker and Waugh (1998) have studied the e-commerce in SMEs in Australia and has not only discussed the various approaches used by SMEs in their adoption of ICT and have also discussed the reasons why the speculated benefits of e-commerce adoption could not be achieved and that were due to mismatched mechanism and non understanding of business environment.

OVERVIEW OF THE METHODOLOGY

This study required the opinions of early adopters and users of e-commerce in the SMEs community. This approach was then used to identify the issues affecting e-commerce adoption in terms of political, economic, social and technological in Sarawak. It is also to address the barriers identified by early adopters and thus enable the next wave of SMEs to adopt e-commerce without facing the same barriers.

This study employed qualitative methods, reinforced by quantitative techniques, to elicit the views and perceptions of SMEs with regard to potential opportunities, perceived prospects and challenges to the adoption and use of e-commerce. The study was not intended to make a statistical measurement of e-commerce uptake by SMEs in the state.

Population And Sample

Fraenkel and Wallen (1993) mentions the population is the group of interest to the researcher, or the subjects to whom the researcher would like to generalize the results of the study. One of the easier ways of getting all the SMEs in Sarawak is go through the relevant bodies like SMIDEC, Ministry of Industrial Development Sarawak (MID), Sarawak Manufacturer Association (SMA), Associated Chinese Chamber of Commerce and Industry of Sarawak (ACCCIS) or Sarawak Chamber of Commerce and Industry (SCCI). But, it is happened that the problems of getting information from the above sources are mainly because of SMEs are not all register with them, some of the bodies cover only the bumiputra SMEs, and some might cover all companies in Sarawak or Malaysia. Registrar of companies has the entire manufacturing companies in Sarawak, but they can’t identify how many of them are SMEs and how many are not operating currently. Department of Statistics Sarawak is the ideal resource of collecting all SMEs in Sarawak. They did their survey regularly; it is considered as more up-to- date and more reliable. So, this study is based on their data as the population of the study.

There are nearly 2000 SMEs in Sarawak based on the criteria of employees less than 150 or annual turnover less than RM25 million. For this study, in order to have more significant result reflected on SMEs status, SMEs who have more than 20 employees will be elected as the sample of representing the entire SMEs to participate in this survey. Sampling refers to the process of selecting these subjects. So, 289 samples were then selected.

Data Gathering Procedure

Since the survey target is all the SMEs in Sarawak, so it is decided that for those SMEs in other location beside Kuching, which is less than half of the total samples, the survey questionnaire and the prepaid returned envelope were together send by post. Follow up by phone, fax or e-mail to the person in-charge. For the SMEs located in Kuching, it is grouping into areas. Later, the questionnaire was distributed either directly by the researcher, or through associates, friends and contacts. Clarifications on how to complete the questionnaire and list of SMEs in the same area to distribute are given. The respondents were given a time frame of about 1 month to complete and return the questionnaire. The questionnaire were then sorted and checked to ensure that they were properly, correctly and completely filled. Those that were incorrectly or incomplete filled were rejected.

When necessary, interviews were conducted with the respondents to understand their business environment. And also gain a better understanding of the pressures that the organization experiences from their trading partners in doing or not doing e-commerce. Managers, especially in charge of ICT development were interviewed via telephone and electronic mail to obtain further clarification.

ANALYSIS OF SURVEY RESULT

The questionnaires was distributed with the prepaid postage returned envelope to all the manufacturing companies or companies providing manufacturing related services which have employees above 20 but not more than 150. So, there were all 360 copies sent. 2 weeks later, follow up call is conducted to those companies situated in Kuching (which cover more than half of the total SMEs) areas, the undelivered copies are then

sending to the respondents again with their new address obtained via conversation. At the same times, interview and observation may also be used in this study to get a clearer understand, feedback and answers from the respondents.

As a result, total of 61 survey questionnaires (response rate: 16.9%) were collected. In this study, the Cronbach alpha (also referred to as coefficient alpha) is 0.9170. It is a high correlation, which means that the scale of questionnaires is reliable and valid.

Background Of Respondents

The socio-demographic characteristics of the respondents include the SME industries, business volume in term of annual sale turnover, and numbers of employees employed are presented in Table 5. The individual personnel who response to this questionnaire are categories into gender, age group, academic qualification are shown in Table 6; years of experience in business and the position hold in the organization are indicate in Table 7. Table 5: SMEs Industries, Business Volumes And Employees

Annual turnover (RM million) 0-50 51-100 101-150 Total 0-10 13 6 2 21 10-20 0 2 0 2 Sub-total 13 9 2 23 0-10 4 4 0 9 10-20 2 2 0 4 20-25 0 2 0 2 Sub-total 6 9 0 15 0-10 4 11 0 15 10-20 2 9 2 13 Sub-total 6 19 2 28 0-10 23 2 2 28 10-20 2 0 0 2 20-25 0 0 4 4 Sub-total 26 2 6 34 Grand total 51 38 11 100

Note: Number of per cent (%) of total respondents Structural / fabricated metal products Wood-based products / furniture Others Industry Vertical industry Number of employees Food Processing

Analysis the responded SMEs in Table 5, 51 per cent of the total SMEs, their entire employees is below 50 persons, with approximately 86 per cent of them, their annual turnover is below RM10 million. Only 11 per cent of the total SMEs have above 100 employees.

There are 73 per cent of total SMEs have annual turnover below RM10 million and 6 per cent of total SMEs has existed RM20 million of turnover per annum.

From the industry sectors, wood-based products and furniture have 28 per cent responses, Food processing is 23 per cent, structural and fabricated metal products is 15 per cent, and the remaining 34 per cent come from others industry.

Presented in Table 6 are the individual executives who response to this survey. It consists of 49 per cents of male and 51 per cents of female, this represent an equal proportion of gender. But, from 21 to 35 age level, female respondents is 15 per cent more than male respondents in the same age level, and 8 per cent less than male respondents in the next 36 to 50 age level. Age above 50 respondents is only 8 per cent of the total, this may indicate that they are not really aggressive to participate or not knowing much about the development of e- commerce.

Table 6: Respondents’ Qualification By Gender And Age

Gender Age Primary Secondary Diploma Degree Total Male 21-35 6 11 4 - 21 36-50 - 4 11 6 21 above 50 - - 2 4 6 Sub-total 6 15 17 11 49 Female 21-35 17 15 4 - 36 36-50 - 6 4 2 13 above 50 - - - 2 2 Sub-total 17 21 9 4 51 23 36 26 15 100 Note: Number of per cent (%) of total respondents

Qualification

Grand total

Beside that, Table 6 also shows that 59 per cent of total respondents’ educational qualifications are primary and secondary. This is a good sign for graduates to join the work force and increase their competitive advantage. Observed Table 7, chairman, chief executive officer or general manager of the organization have above 10 years experience take up 28 per cent out of 36 per cent of both position total, head of department and other executive position have below 10 years working experience take up 52 per cent of total SMEs, so, more than half of the SMEs’ executive has below 10 years in business.

Table 7: Respondents’ Position And Working Experience

0-5 6-10 11-20 above 20 Total - - 2 2 4 - 9 13 11 32 9 11 4 2 26 15 17 6 - 38 23 36 26 15 100 Note: Number of per cent (%) of total respondents

Experience in business (years) Position Grand total Chairman, CEO General Manager Head of Department Other Position

SUMMARY OF FINDING AND INTERPRETATION

Further to the survey analysis, the affecting variables are extracted from “Level of e-commerce application to involve”, “Benefits of adopting e-commerce”, “Barriers of implementing e-commerce” and “Critical success factor regarding e-commerce” sections. Based on issues affecting e-commerce adoption, summarized the output in Figure 10.

The e-commerce market is still at a relatively infancy stage in Sarawak. When consider the e-commerce development, two important factors “Critical success factor” and “Barriers of implementing e-commerce” must be aware in order to have successful implementation.

Application Of E-Commerce

“Online ordering”, “Electronic Advertising or Internet advertising” and “Online marketing or e-marketing” are the essential application on the internet in promoting e-commerce. This is the new channel of marketing, beside the traditional way of physically going to the store, via direct mail, phone or facsimile as media to reach everyone. SMEs in Sarawak see the prospect of this new way of doing business, by involving of these applications; they can virtually moving their products to the interested groups.

The use of the Internet for advertising or brand building has been addressed by a number of researchers. And this is one of earliest uses of the Internet for many of small organizations (Webb & Sayer, 1998). The study done by Jacobs and Dowsland (2000) also found that 30 per cent of SMEs in Wales were using the Internet for advertising and brand building.

Based on their pass records, the growth rate are slow, most of them cater for local market. Currently, the business is protected. But with the globalization, neighboring countries entrepreneurs can came in with larger scale of operation and tap the market. This may become unsecured for local SMEs. if they are resists to accept the change. Gaining competitive advantages, e-commerce is a new alternative to capitalized.

Political Benefits

Access international markets Improve competitive position

Barriers

Inconsistent tax laws Critical success factors Security of the e-commerce system

Economical Benefits

Reduce costs of information Attract new investment

Barriers Not sure of benefit E-commerce Application Vertical market Online ordering

Electronic advertisement Social Online marketing Benefits

Supplier information exchange Customer information exchange

Barriers

Customers can’t find me Partner e-commerce readiness

Critical success factors Customer acceptance

Corporate knowledge, culture and acceptance Technological

Barriers

Proprietary technology Critical success factors

Information Technology Infrastructure Integration with existing corporate system

Figure 5: Summary Of Variables Affecting E-Commerce

From the surveyed top ten e-commerce application, it shows that the first step towards electronic based trading is computerized their existing accounting system. It automates the routine operations and immediate response to user inquiry on transactions history. Further to the accounting system, Human resource information system to manage employees on their activities, tracking and record, it can reflect their work performance, helping manager to delegate the right job to the right most capable person. Supply chain management system to get in touch with suppliers to know the responsive and supportive from suppliers, start from product information to after sales services. This is a typical opinion from the surveyed SMEs; it is a good opportunity for systems