Barriers to adoption of

ecommerce by Small
and medium enterprises
(SMEs)
Term Paper
Submitted by
XXXXXXXXXXXXXXXXXXXXX (1111XXX)
Submitted to
PROF. RAHUL DE
Management of Information Systems an !e"#no$ogy
Management of Information Systems and Technology Page 1
Introduction:
!#e to%i" for t#is %a%er & '(arriers to t#e ao%tion of e"ommer"e )y Sma$$ an Mei*m
Enter%rises (SMEs)+ & #as $ot of signifi"an"e in t#e %resent an f*t*re gi,en t#e rate at -#i"#
)*sinesses #a,e starte e%$oying t#is te"#no$ogy. A$$ ty%e of in*stries (in terms of omains
t#ey o%erate in) rig#t from "ons*mer goos to efen"e e.*i%ments to mining an stee$ #a,e
res%one ent#*siasti"a$$y to it. (*t t#is gro-t# of gro-t# of e"ommer"e is #ig#$y %o$ari/e
to-ars t#e $arge s"a$e in*stries an SMEs are sti$$ #esitant to in,est in it. Ho-e,er to $e,e$
t#e %$aying fie$ an "om%ete effe"ti,e$y -it# $arge s"a$e in*stries it #as )e"ome e0%eient
for SMEs to ao%t t#is )rea1t#ro*g# te"#no$ogy. !#is to%i" #as gaine e,en more im%ortan"e
if -e tra"e t#e %a"e at -#i"# t#e SMEs #a,e mo,e from t#e fringes an "a%t*re t#e "enter
stage. Hig# *nem%$oyment rates an o-nsi/ing efforts )eing *nerta1en )y $arge
"or%orations in t#e aftermat# of t#e re"ent "risis #as ae to t#e im%ortan"e of t#e SMEs on
t#e ma"roe"onomi" sit*ation in ifferent "o*ntries. !#e aitiona$ res%onsi)i$ity of 2o)&
"reation an s#oring *% e"onomies -eig#s #ig# on t#e SMEs to )e"ome more effi"ient.
!#e managers are t#e e"ision ma1ers of t#e "om%anies an t#ey are t#e ones -#o are
res%onsi)$e for ens*ring t#at t#is effi"ien"y is a"#ie,e. !#*s t#is to%i" gains *tmost
im%ortan"e for t#e managers -#o -or1 in t#e SMEs an inten to ta1e t#eir )*sinesses to
ne- #eig#ts.
Description:
3#at oes e"ommer"e rea$$y mean4 Ecommerce is enabling or achieving business objectives by
using internet to enhance or transform business processes. In sim%$e terms e"ommer"e "an )e
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es"ri)e as t#e %ro"ess of )*ying or se$$ing goos an ser,i"es )y "ons*mers6 eit#er
ini,i*a$ or )*sinesses6 o,er t#e internet. !#e transa"tions are %erforme )y se"*re %ayment
gate-ays -#i"# ens*re t#at t#e transa"tions are not "om%romise )y *sing en"ry%tion an
ot#er se"*rity me"#anisms. E"ommer"e "an )e eit#er (5( ()*siness to )*siness)6 (57
()*siness to "*stomer) or 85( ()*siness to go,ernment) e%ening on t#e ty%e of entities
in,o$,e in t#e transa"tions.
!o *nerstan t#e )arriers t#at e0ist for t#e ao%tion of t#is te"#no$ogy )y SMEs it is
ne"essary to *nerstan t#e )asi" re.*irements to )e s*""essf*$ in t#e ao%tion %ro"ess. !#e
t-o most im%ortant "a%a)i$ities -#i"# are emane )y e"ommer"e are 9 a workforce with
Information technology knowledge and a committed management which has financial
resources. On"e ao%te e"ommer"e nees to )e o%erate on an maintaine )y t#e
em%$oyees in an organi/ation regar$ess of t#e f*n"tion -#i"# t#ey %erform (mar1eting6
sa$es6 o%eration et".). So it is re.*ire t#at t#e em%$oyees #a,e a "ertain egree of te"#ni"a$
e0%ertise in Information te"#no$ogy. !#e "ommitment of management to t#e "a*se #as )een
name #ere )e"a*se st*ies #a,e s#o-n t#at e"ommer"e emans a re*"tion in t#e "ontro$
e0er"ise )y t#e management (e"entra$i/ation of "ontro$) a$ong -it# t#e #ea,y in,estment
for e%$oying it.
Analysis:
:ario*s ty%es of )arriers e0ist for t#e ao%tion of e"ommer"e )y t#e SMEs an re"ognition
an systemati" "ategori/ation of t#e reasons is re.*ire to effe"ti,e$y aress t#em. !#e
ifferent reasons for t#e )arriers are st*ie as *ner;
1) Lack of communication infrastructure: !#is 1in of )arrier is more %re,a$ent in t#e
e,e$o%ing e"onomies. E,en if t#e SMEs agree to ao%ting e"ommer"e t#e $a"1 of
%ro%er infrastr*"t*re a"ts as a am%ener. !#e $a"1 of ae.*ate "omm*ni"ation
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infrastr*"t*re is -#at #am%ers t#e %ro$iferation of e"ommer"e an "reates an
*n"ertainty a)o*t t#e ao%tion of e"ommer"e )y t#e "*stomers=s*%%$iers -it# -#i"#
t#e SMEs intera"t an transa"t. Studies consider this as the most significant barrier in
developing countries because of the reason that its elimination is not in the hands of
SMEs.
2) Doubts about the suitability of ecommerce for the industry: SMEs in "ertain se"tors
#a,e o*)ts a)o*t t#e a%%$i"a)i$ity of e"ommer"e to t#eir )*sinesses. !#e )*sinesses
are not s*re #o- t#is te"#no$ogy "an )e *se to get )enefits for t#emse$,es. An
e0am%$e "an )e of SMEs o%erating in rea$ity se"tor. !#e management in t#is in*stry
is s1e%ti"a$ of #o- t#is $a)or intensi,e in*stry "an )e s*ite to *se a 1no-$ege&
intensi,e %ro*"t. !#is )arrier is #eig#tene )y t#e "ategori/ation of t#e I! in*stry
as 1no-$ege in*stry an t#e strong $in1ages )et-een t#e e"ommer"e an
information te"#no$ogy. !#is 1in of )arrier is most$y fo*n in t#e e,e$o%ing an t#e
*nere,e$o%e "o*ntries -#ere Information te"#no$ogy is in its nas"ent stages.
Initially in India ecommerce was not used extensively by small retail stores as this
was not deemed suitable for that kind of business where consumers preferred having
a look at a product and feel it. However recent successful adoption of ecommerce by
supermarkets has helped to reduce this barrier !not eliminate". Ebay provides an
option to small and medium si#ed retailers to adopt ecommerce for enhancing their
top$line and bottom$line both.
3) Uncertainty about the benefits of ecommerce: Most of t#e e"isions in mae )y
)*sinesses are )ase on t#e "on"e%t of ret*rn on in,estments. For SMEs t#is )e"omes
m*"# more im%ortant as t#ey #a,e $imite reso*r"es to a"#ie,e t#eir set targets. So
t#ey #a,e to e%$oy t#e "a%ita$ at %$a"es -#i"# gi,e t#e ma0im*m ret*rns.
E"ommer"e initia$ in,estments ten to )e ,ery #ig# an t#e )enefits are not rea$i/e
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instant$y. !#ere is $aten"y )et-een t#e e%$oyment an rea$i/ation of t#e )enefits an
t#is time e$ay e0a"er)ates t#e e0isting *n"ertainty a)o*t t#e ret*rns. In aition to
t#is t#e fa"t t#at e"ommer"e is a re$ati,e$y ne- te"#no$ogy as to t#e o*)ts a)o*t
e0%e"te finan"ia$ ret*rns. !#is ma1es t#e e"ision ma1ers more s1e%ti"a$ to-ars
ao%ting e"ommer"e.
4) ast !ace of inno"ations in the technology s!ace: 8enera$$y t#e te"#no$ogy s%a"e is
"onsiere to )e transforming at a ,ery fast %a"e. Pa"e of inno,ation %ro*"es ne-
te"#no$ogies an reners e0isting ones *se$ess. !#is ra%i %a"e of "#anges in t#e
te"#no$ogies -#i"# e$iminates t#e e0isting one a"ts as a ,ery effe"ti,e )arrier for t#eir
ao%tion )y t#e sma$$ an mei*m enter%rises. More often t#an not t#e SMEs are
re$*"tant to ma1e in,estments in te"#no$ogies -#i"# )ear t#e ris1 of s*"# fast e0%iry.
#) Lack of technical skills and I$ knowledge in the organi%ation: !#e s*""essf*$
ao%tion an *se of e"ommer"e in organi/ations re.*ires "ertain te"#ni"a$ s1i$$s an
I! 1no-$ege. !#is re.*ires training of e0isting em%$oyees an #iring of s1i$$e $a)or.
!#is s#rin1s f*rt#er t#e %oo$ of $a)or a,ai$a)$e for t#e "om%anies an t#is ma1e t#em
resist t#e ao%tion of t#e te"#no$ogy. If t#e #iring of ne- em%$oyees is set asie for
some time t#e training of e0isting em%$oyees itse$f seems a signifi"ant eterrent.
%overnment enterprises in India had long resisted the adoption of ecommerce but this
process speeded up after technology boom which has led to the emergence of India as
a heavyweight in I&.
&) $he fear of losing control o"er the subordinates: Information te"#no$ogy #as
res*$te into a -#o$e $ot of e"entra$i/ation in t#e e"ision ma1ing %ro"esses in t#e
)*sinesses. !#is #as $e to a $oosening of "ontro$ -#i"# managers e0er"ise o,er t#eir
s*)orinates. In SMEs t#is %ro)$em is more %rominent. 8enera$$y t#e SMEs enti"e
ta$ent to -or1 for t#em on )y %romising to gi,e t#em more "ontro$ -#i"# in many
-ays "orres%ons to more %eo%$e -or1ing *ner t#em. In so"iety t#is is "onsiere as
a matter of %rie. Ho-e,er t#e intro*"tion of e"ommer"e "#anges t#e $ans"a%e )y
$oosening t#e tig#t "ontro$ -#i"# managers #a,e o,er em%$oyees an transa"tions
#a%%ening in t#e "om%any. !#is %ro,ies a ,ery strong reason for mangers to o%%ose
t#e e%$oyment of e"ommer"e.
') (igh in"estment in the setting u! of the infrastructure and maintaining it: !#e
initia$ "ost for setting *% t#e infrastr*"t*re for e"ommer"e is ,ery #ig#. In genera$
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setting *% an e"ommer"e -e)site in,o$,es "reating a -e)site6 #osting on ser,er6
"o$$e"ting an transferring "*stomer re"ors to ser,ers6 mar1eting t#e -e)site6
"reating "ontent an "reating a se"*re "#anne$ to %ro"ess t#e "*stomer orers. !#is
e0er"ise re.*ires signifi"ant monetary "ommitments an %*ts $oa on t#e a$reay
straine )*gets of sma$$ an mei*m enter%rises. A%art from t#e e0%enit*res at t#e
o*tset a se%arate "ommitment nees to )e mae for r*nning an maintaining t#e
-e)site. !#is re.*ires aitiona$ traine %ersona$s to maintain t#e system. !#e
e"ision to ma1e s*"# #*ge in,estment is a #ar one to ta1e.
)) Lack of guidance about how to start the !rocess of ado!tion: E,en if t#e )*siness
e"ies to ma1e ne"essary e0%enit*re for ao%tion of e"ommer"e6 t#e $a"1 of %ro%er
g*ian"e a"ts as a strong eterrent. !#is "an )e attri)*te to t#e $a"1 of te"#ni"a$
1no-$ege in t#e "om%any.
*) +oncern about the security of ecommerce: !#e se"*rity of e"ommer"e a%%$i"ations is
a ,ery signifi"ant )arrier to t#e ao%tion of e"ommer"e. !#e "ases of se"*rity
)rea"#es -#i"# 1ee% on a%%earing in t#e ne-s "reate a negati,e attit*e to-ars t#e
e"ommer"e. SMEs #a,e $imite f*ns an any )rea"# in t#e se"*rity of e"ommer"e
"o*$ stri% t#em of t#eir fort*nes.
1,) +ritical mass among the collaborators: E"ommer"e is e%$oye to #e$% in t#e
transa"ting -it# t#e "$ients6 s*%%$iers an )*siness %artners. !#e SMEs nee to first
e,a$*ate if t#ere is a "riti"a$ mass of "o$$a)orators -#i"# *se e"ommer"e. !#e non&
ao%tion of t#e te"#no$ogy )y t#ese "o$$a)orators -o*$ eter t#e SMEs from
ao%ting it. !#is 1in of )arrier is more %re,a$ent in t#e SMEs -#i"# intera"t -it#
ot#er sma$$ "$ients6 s*%%$iers -#i"# are t#emse$,es tra%%e in a simi$ar i$emma.
Some of t#ese are not ,ery s%e"ifi" to t#e SMEs )*t sti$$ t#ey #a,e )een in"$*e )e"a*se of
t#e fa"t t#at t#ese )e"ome signifi"ant$y im%ortant in "ase of SMEs *e to t#e $imite
reso*r"es an minima$ e0%erimentation o%%ort*nities )y t#ese SMEs. !#e managers in t#ese
SMEs -i$$ #a,e to ea$ -it# t#e )arriers on"e t#ey e"ie to ao%t e"ommer"e. !#e a)o,e
mentione )arriers "an )e segregate into )arriers -#i"# are *e to interna$ fa"tors an -#i"#
are *e to e0terna$ fa"tors. !#e interna$ fa"tors $i1e concern about the security lack of
technical know$how doubts about the benefits of ecommerce #a,e to )e aresse )y
strengt#ening t#e "a%a)i$ities $i1e e"ision&ma1ing %ro"esses6 -#ereas ne- "o$$a)orati,e
so$*tions nee to )e e,e$o%e for ea$ing -it# t#e e0terna$ fa"tors $i1e critical mass of
collaborators and poor communication infrastructure. !#e e0a"t so$*tions are not -it#in t#e
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"o*rse of t#e st*y as t#ese so$*tions -i$$ )e ifferent for ifferent 1ins of in*stries an
"o*ntries. Ho-e,er t#e 1no-$ege of t#ese )arriers -o*$ "ertain$y #e$% t#e managers of
t#ese yo*ng an gro-ing enter%rises (SMEs) for e"iing on t#eir gro-t# %$ans.
Conclusion:
!#e emergen"e of Information !e"#no$ogy #as %ro,ie "ertain too$s to t#e )*sinesses to
stream$ine t#eir o%erations an en#an"e t#eir "a%a)i$ities. E"ommer"e is in"reasing$y )een
e%$oye )y t#e "or%orations an t#eir finan"ia$ %o-er gi,es t#em an ege o,er t#e sma$$
"om%etitor -#o fa"e a m*$tit*e of ao%tion )arriers as mentione a)o,e. Here t#e ro$e of
managers )e"omes m*"# more im%ortant to *nerstan t#ese )arriers an ta1e "rei)$e a"tion
for e$iminating t#em.
Most of t#e )arriers emanate from t#e $imite reso*r"e "a%a)i$ity %ossesse )y t#e SMEs.
!#ese )arriers "an )e "ategori/e into t#ree ty%es an ste%s to aress t#em s#o*$ )e
*nerta1en at t#ree ifferent $e,e$s.
1) In*stry re$ate & o*)ts a)o*t t#e s*ita)i$ity of e"ommer"e for t#e in*stry6 $a"1 of
"omm*ni"ation infrastr*"t*re
5) 7om%any re$ate 9 *n"ertainty a)o*t t#e )enefits of e"ommer"e6 $a"1 of te"#ni"a$
s1i$$s an I! 1no-$ege in t#e organi/ation6 #ig# in,estment in t#e setting *% of t#e
infrastr*"t*re an maintaining it6 $a"1 of g*ian"e a)o*t #o- to start t#e %ro"ess of
ao%tion6 "on"ern a)o*t t#e se"*rity of e"ommer"e
<) Person re$ate & t#e fear of $osing "ontro$ o,er t#e s*)orinates
!#ese iss*es nee to )e aresses )y t#e managers at ifferent $e,e$s an t#e 1ee%ing in min
t#e "a%a)i$ities an reso*r"e "onstraint of t#e SME to -#i"# t#ey )e$ong.
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