Impact of e-Commerce on Consumers and Small Firms

Salvatore Zappala

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351155984
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

The change from old to new technologies has fundamentally changed the relationship between the consumer and the firm. This book is at the frontier of behavioural research into how these new commercial realities are borne out in practice, examining the adoption of e-commerce by small firms and the transactional phenomenon that entails access to the Internet. In analyzing the process of e-commerce adoption and why e-commerce actors behave as they do, its coverage includes the adoption of information and communication technologies (ICT) by small firms; the use of ICT applications to support marketing and sales transactions; and the factors that influence consumers' online purchasing decisions.

Part I
Impact of e-Commerce on Small Firms

Chapter 1
Stage Models of ICT Adoption in Small Firms

Colin Gray

Introduction

Global competition and the potential of ICT to increase massively the speed of communication and access to information offer enormous business opportunities though added complexities mean that individual firms are finding harder to manage on their own. Small and medium enterprises (SMEs), with their more limited resources and significantly weaker market power, find the competitive pressures are even more intense. This has increased the pressure on SMEs to cooperate more in networks, to share information, development costs and risks. Networking – sometimes referring to the tight or loose social ties that bond groups of business owners and managers, sometimes to the information and communication technologies (ICT) that enable faster connections between businesses with mutual interests – has come into the limelight as policy makers across Europe have become alert to the pressures of globalisation. The networks that policy makers have in mind are generally supply and value chains that link SMEs to larger ‘focal firms’ but sometimes their attention is on the agglomerations of SMEs (clusters) that can produce innovations that are successful in world markets. The key to future development, growth and networking is seen as lying in the effective adoption of ICT.

Despite a slow start, there is now widespread use of ICT by SMEs across Europe. Use of personal computers is almost universal, the vast majority of firms and consumers access the Internet, and now many SMEs are networking their computers through internal intranets or through dedicated extranets with external partners. Even so, the 2002 European SME Observatory revealed strong size effects and that some 30 per cent of microfirms (SMEs with less than 10 employees) were not connected to the Internet (EC, 2002). Some 43 per cent of microfirms without access at that time felt it did not apply to their type of business or product. This was followed by concern that their investment would not pay off (18 per cent) and a similar number felt that they lacked of appropriate ICT skills (17 per cent). Although these concerns still exist, more recent EU surveys reveal that access to the Internet has taken off dramatically and, by 2003, half of the EU’s 370 million inhabitants had access and 87 per cent of firms were connected (Ottens, 2004). However, this means that around 13 per cent of microfirms are still resisting the adoption of the Internet or finding no use for it. Also, the adoption of e-commerce still seems stuck at the bottom of the adoption curve with 19 per cent of individuals, but only 12 per cent of firms, reporting that they had purchased something online – and just 5 per cent and 7 per cent respectively reporting that they had made sales online. It is clearly important to have a better understanding of the adoption process. In the following sections, a number of different models of ICT adoption are described and considered in the light of empirical research conducted among SMEs in Britain.

Models of ICT Adoption

When ICT applications, such as personal computers, modems and e-mail, were first introduced, small businesses, especially the smaller microfirms, were initially slow to adopt the new technologies. Although this is no longer true, the adoption and use of ICT is not uniform across Europe and needs to be better understood. Attempts to explain and analyse ICT adoption among SMEs appear to fall into three broad approaches:

1. supply-side, technology-determinist, rational process where the supply of more advanced ICT applications creates its own demand through the benefits of superior business performance;
2. demand-side, rational and business strategy response by small firm owners to ICT-induced competitive, market and socio-economic changes whereby, through use, they move to another stage of business development as they master earlier stages and become aware of the business benefits of more advanced ICT applications;
3. social network approach where adoption is not necessarily a linear process and will not happen until the owner is ready, a state that depends on the everyday influences such as individual expectations, peer pressure and the business milieu that shape opinions, attitudes and behaviour of small firm owners.

It needs to be stated that it is unlikely that none of these models alone adequately explains or predicts the adoption of ICT by small firms. However, in line with many other aspects of small firm behaviour and performance, usually effects associated with firm size and industry need to be taken into account. For instance, very small firms and the self-employed are often motivated to sustain a lifestyle that preserves their independence rather than to achieve business or financial success (Gray, 1998). Some small firm lifestyles may be resistant to the adoption of new technologies whereas other small firm owners may view ICT as the means for defending their autonomy. Medium firms in the ICT sector, business services, distribution and manufacturing are likely to be more aware of new applications and to have in-house ICT skills and so be more open to a technology-push approach. Growth-oriented small firms, whose size-related resource limitations make them more alert to value-for-money, productivity and efficiency issues, are more likely to take a more strategic approach, often driven by the cost-reduction or time-saving potential of ICT. Most small firms, however, do not have a formal or explicit strategy and most, especially the microfirms, suffer from information, knowledge and skills gaps. For many of these small firms and microfirms, networks, which can range from informal local clusters to more formal inter-firm relationships governed by contracts, offer real economic and business advantages (Perry, 1999). The microfirm sector is where the social network diffusion model might be most useful in understanding and promoting adoption.

Referring to Tables I.1 and I.2 in the Introduction, it is clear that supply side issues in investment, in the development of ICT applications and in the provision of infrastructure do influence adoption patterns, at least at the macro level. However, this is always more difficult to detect at the micro level, which is the main concern of this chapter. The ‘adoption ladder’ (see Figure 1.1) developed by Cisco for the UK government’s information age partnership study (DTI, 2001) is one of the most widely used technology-push models. Indeed, it is used in the EU to support the next stage of development which envisages specialised small firms linked through ICT connections in real and virtual clusters as ‘digital business ecosystems’ (Nachira, 2002).

Figure 1.1 e-Business adoption ladder
Source: Adapted from DTI (2001), and Nachira (2002)

Although the adoption ladder provides a sense of technological progression, it is too linear to describe processes that are often non-linear and very complex. Indeed, there is no evidence that the rungs in the DTI ladder actually do represent evolutionary steps by which SMEs transform themselves into e-businesses (Sparrow, 2001). Nor does this ladder help in understanding how ICT alters what SMEs can do or the resource implications of successful adoption. Even though the model has organizational changes as one of its axes, there is no indication of the dynamic processes that drive SMEs from one stage to the next.

The business-strategy approach, with its concerns for demand-side issues, is well represented by an earlier ICT adoption model, which focused on small firm demand and customary modes of working. This accepted that the business opportunities and organizational change of ICT adoption can indeed be described in stages, or different phases, but that SMEs will enter at any point according to their immediate business needs and according to the current capabilities in the firm (Venkatraman, 1994). The Venkatraman model of integration of ICT into the business in Figure 1.2 distinguishes between small evolutionary changes, where ICT applications are used to improve the effectiveness and efficacy of existing business practices and processes, and changes where ICT results in revolutionary changes to processes, business conduct and, indeed, what the core business is.

Figure 1.2. Business integration ICT adoption model
Source: Adapted from Venkatraman (1994) (reprinted with permission)

The dotted line separates the bottom stages where incremental change can take place from stages where a fundamental change in the nature and processes of the business needs to occur. The bottom incremental stages could include the adoption of simple ICT applications that do not require a major change to existing business routines and systems, such the introduction of word processing, databases, e-mail, networked computers and so on. The more advanced stages above the dotted line require a strategic decision for their adoption, including budgeting and planning, and imply fundamental changes to the firm. However, this is not a path followed by many small firms which tend to respond to immediate need and do not necessarily follow a staged, rational process. A non-linear approach is more likely to describe their behaviour in the evolutionary stages but not in the revolutionary stages where the knowledge demands and strategy needs are more acute. This does appear to be a useful model for describing the routes taken by some SMEs that have transformed themselves through the considered use of ICT applications into proper and successful e-businesses. These firms remain a very small minority. This model does not take into account the ‘trial and error’ approach adopted by many SME owners, many of whom may view the dotted line between incremental, evolutionary changes and fundamental, radical, revolutionary changes as a point of no return beyond which a return on investment cannot be guaranteed with any degree of certainty. The majority of SMEs, especially the very small microfirms, do not adopt a rationale strategic approach to business and this generally includes the decision of how and when to invest in ICT.

A more considered approach to understanding patterns of ICT adoption by SMEs must start f...