A Study On The Innovation of Ecommerce in Small and Medium-Sized Enterprises (Sme) in Uganda

A study on the innovation of Ecommerce in small and medium‐sized enterprises (SME) in Uganda
A STUDY ON THE INNOVATION OF

ECOMMERCE IN SMALL AND
MEDIUM-SIZED ENTERPRISES
(SME) IN UGANDA
By
Kamya Julius
September 2010
The work contained within this document has been submitted

by the student in partial fulfilment of the requirement of their course and award
1 Student ID: 3330939 MBA‐IT

A STUDY ON THE INNOVATION OF ECOMMERCE

IN SMALL AND MEDIUM-SIZED ENTERPRISES
(SME) IN UGANDA
Author Kamya Julius

Student ID 3330939
Course Title MBA (Information Technology)
Module ARUM99EKM MBA Dissertation
Date 24th September 2010

Abstract
Ecommerce is a conception which has gained the industries worldwide inclusive the small
and medium industries in Uganda, the SMEs occupies a small part of the economy, currently
the EDI is not mainly used by the SMEs to further up their business. There is lack of
transparency in the whole framework used by the SMEs although they are contributor to the
national economy. There are no enough administrative and legislative support from the
government, there are problems around the financial resources available to keep the SMEs
from progressing. On the side of the business, these enterprises lack the proper management
force, knowledge, style and the skills in handling complex and innovative developed
technologies, which are flooding the markets. This is what the SMEs have to know in order to
compete in the environment. SMEs have no single development systems which can protect
their interest. They need to have and integrated approach which has three levels, strategic,
enterprise and institutional. The private/public and government sector, they need to provide
support to fulfil this long term strategy, which eventually will turn the SMEs into a profitable
centre. Ecommerce has both advantages and disadvantages to SMEs and this project is to
develop deeper understanding and even learn more into the effects of the technical
innovations in Ecommerce on SMEs. This study tries to put more on the existing literature by
looking at how the SMEs should incorporate the Ecommerce into their business strategies or
how they can improve their current approach. This study will also try to judge the consumer
experiences on online shopping and how Ecommerce has affected their expectations.
This research was carried out using a collection of methodologies. Both the secondary and
the primary research were used for this purpose.
The survey conducted shows that there was a relationship between the use of Ecommerce and
accessibility of internet and the organization size. For the medium enterprises they do access
the internet and they do own their own websites. More than half of the small sized enterprises
do have computing facilities and internet access but they don’t have Ecommerce presence.
Inclusion I do say that there are a number of strategic directions to be taken up by

organizations in Uganda to achieve success and there’s no single path to success. The
selected path should base on the requirements and the company structure along with the
dominating market conditions. Basing on the fact that technology keeps changing, this is the
most reason for this and hence the evolution rules will always be rewritten.

Acknowledgement
The successful completion of any task would be incomplete without mentioning the names of persons
who helped to make it possible. I take this opportunity to express my gratitude in few words and
respect to all those who helped me in the completion of this dissertation.
I am extremely grateful to my God for his substantial blessing and mercy all stages in the
completion of this dissertation.
I express my sincere thanks and deep sense of gratitude to my supervisor Mrs Joy Joseph, for
her support and guidance on how to successfully complete my dissertation.
I convey my heartiest thanks to Mr Lawrence Mukwaya, the CEO for Hello Uganda dot
com, who kindly granted me permission to do this dissertation work in his esteemed organization.
Finally, I express my sincere thanks and deep sense of gratitude to my Wife and friends for
giving me timely advice in all the ways and in all aspects for the success of this dissertation.

Declaration
I declare that this dissertation was composed by myself and that the work contained therein is my own
except where explicitly stated otherwise in the text, and that this work has not been submitted for any
other degree or professional qualification except as specified.
Date 24 September 2010 (Kamya Julius)
Copyright acknowledgement
I acknowledge that the copyright of this dissertation belongs to Coventry University.

Brief Contents
Chapter 1 – Introduction
Chapter 2 – Literature Review
Chapter 3 – Research Methodology
Chapter 4 – Case Study
Chapter 5 – Research Analysis
Chapter 6 – Discussion and Conclusion

Glossary of terms
This part of the document is to provide acronyms and definitions of some of the key words used in
this dissertation.
B2B - Business-to-Business
B2C - Business-to-Consumer
B2G - Business-to-Government
BOI - Board of Investment
C2B - Consumer-to-Business
C2C - Consumer-to-Consumer
C2G - Citizen-to-Government
CBR - Central Board of Revenue
CM - Comparison Matrix
DTI - Department of Trade and Industry
ECA - Economic Commission for Africa
ECASH (Electronic Cash)
Is a computer generated Internet based system which allows funds to be transferred and items
to be purchased by credit card, check or by money order, providing secure on-line transaction
processing
ECOMMERCE – Electronic Commerce
EDI (Electronic Data Interchange)
Is the transmission of electronic data between organisations, It’s used to transfer electronic
documents/data from one computer to another computer, that is to say. From one trading partner to
another trading partner without human intervention
E-GOVERNMENT - Electronic government
EPB - Export Promotion Bureau
ERP - Enterprise resource planning
EU – European Union

FAQ – Frequently Asked questions
G2B - Businesses to Government
G2B - Government-to-Business
G2C - Government-to-Citizen
G2E - Government-to-Employee
G2G - Government-to-Government
GDP (Gross domestic product)
Is a measure of a country's overall official economic output
ICT - Information and Communication Technology
IDRC - International Development Research Centre
IFC - International Finance Corporation
ILO - International Labour Organization
IOS - Inter organisational information systems
ISDN - Integrated Services Digital Network
ITU - International Telecommunication Union
IXP - Internet Exchange Point
LDC (Least Developed Country)
Is the name given to a country which, according to the United Nations, exhibits the lowest
indicators of socioeconomic development, with the lowest Human Development Index
ratings of all countries in the world. A country is classified as a Least Developed Country if it
meets three criteria i.e. low-income, human resource weakness and economic vulnerability
M-COMMERCE (Mobile Commerce)

Is the ability to conduct commerce using a mobile device, such as a mobile phone e.g. PDA, a
smartphone
MTN - Mobile Telephone Network

OECD (Organisation for Economic Co-operation and Development)
Is an international economic organisation of 32 countries . It defines itself as a forum of

countries committed to democracy and the market economy, providing a setting to compare
policy experiences, seeking answers to common problems, identifying good practices, and
co-ordinating domestic and international policies of its members.
PC – Personal Computer
PDA – Personal Digital Assistant

PO - Purchase order
RFID - Radio Frequency Identification
SME - Small to medium-sized enterprises
SMEDA - Small and Medium Enterprises Development Authority
TELESERVICES
Is a specialised call centre provider offering a variety of service solutions to businesses and
organisations
UCC - Uganda Communications Commission
UMA - Uganda Manufacturer Association
UNCTAD - United Nations Conference on Trade and Development
UNIDO (United Nations Industrial Development Organization)
Is a specialized agency in the United Nations system, headquartered in Vienna, Austria. Its primary
objective is the promotion and acceleration of industrial development in developing countries and
countries with economies in transition and the promotion of international industrial cooperation.
VAN (virtual area network)
Is a network on which users are enabled to share a more visual sense of community through
high band-width connections
VAT – Value Added Tax

Table of Contents
Chapter 1 ............................................................................................................................................... 16
1.0 Introduction ............................................................................................................................... 16
1.1 Growth of internet ..................................................................................................................... 19
1.2 Aims and Objectives ................................................................................................................. 20
1.2.1 Aims ...................................................................................................................................... 20
1.2.2 Objectives ............................................................................................................................. 21
1.3 Chapter summary ...................................................................................................................... 21
Chapter 2 ............................................................................................................................................... 22
2.0 Literature Review ...................................................................................................................... 22
2.1 Ecommerce ............................................................................................................................... 22
2.2 Ecommerce Classification ......................................................................................................... 27
2.2.1 Electronic markets: ............................................................................................................... 27
2.2.2 Inter Organisational systems: ................................................................................................ 28
2.2.3 Customer service: .................................................................................................................. 28
2.2.3.1 Inter organizational Electronic Commerce: .......................................................................... 28
2.2.3.2 Intra organizational commerce .............................................................................................. 29
2.2.3.3 Consumer-to-Business Electronic Commerce ...................................................................... 30
2.3 Challenges to Ecommerce ......................................................................................................... 32
2.3.1 Unsuccessful Business Models ............................................................................................. 32
2.3.2 Channel Conflicts .................................................................................................................. 32
2.3.3 Legal Issues ........................................................................................................................... 32
2.3.4 Security & Privacy ................................................................................................................ 32
2.4 Elements of payments in Ecommerce ....................................................................................... 34
2.4.1 Payment gateway .................................................................................................................. 34
2.4.2 Internet banking .................................................................................................................... 34
2.4.3 Paypal .................................................................................................................................... 34

2.4.4 Electronic cash ...................................................................................................................... 35
2.4.5 Electronic cheques ................................................................................................................ 35
2.5 Small and Medium Enterprise (SME) ....................................................................................... 35
2.5.1 Who are SMEs ...................................................................................................................... 38
2.6 SMEs and Ecommerce .............................................................................................................. 38
2.6.1 Summary of Use Patterns in SME and Ecommerce .............................................................. 40
2.6.1.1 Description of Internet Users ................................................................................................ 41
2.6.1.2 Prospective Users .................................................................................................................. 41
2.6.1.3 Traditional Companies .......................................................................................................... 41
2.6.2 Ecommerce Readiness: What SMEs Need to Know? ........................................................... 42
2.7 Importance of SMEs to countries’ economies .......................................................................... 42
2.8 Benefits of Ecommerce to SMEs .............................................................................................. 46
2.9 Opportunities and Threats faced by SMEs................................................................................ 49
2.9.1 Strengths of Uganda’s SMEs in ICT outsourcing Services: ................................................. 51
2.9.2 Problems facing the Outsourcing Industry in Uganda: ......................................................... 51
2.9.2.1 Bandwidth Cost: .................................................................................................................... 51
2.9.2.2 Low Bandwidth frequency .................................................................................................... 52
2.9.2.3 Absence of the local IXP ...................................................................................................... 52
2.9.2.4 Taxation on ICT Products ..................................................................................................... 52
2.9.2.5 Productivity: .......................................................................................................................... 53
2.9.2.6 Pricing: .................................................................................................................................. 53
2.9.2.7 Limiting factors in the financial systems .............................................................................. 53
2.10 Global Trading .......................................................................................................................... 54
2.11 Threats caused by Ecommerce to SMEs ................................................................................... 55
2.12 Chapter summary ...................................................................................................................... 57
Chapter 3 ............................................................................................................................................... 58
3.0 Research Methodology ............................................................................................................. 58

3.1 Research Strategy ...................................................................................................................... 58
3.2 Step by Step Methodology ........................................................................................................ 61
3.3 Questionnaire Design ................................................................................................................ 61
3.4 Chapter summary ...................................................................................................................... 62
Chapter 4 ............................................................................................................................................... 63
4.0 Case Study: Hello Uganda dotcom ........................................................................................... 63
4.1 Introduction ............................................................................................................................... 63
4.2 Ecommerce in Uganda .............................................................................................................. 63
4.3 Ecommerce market share in Uganda ........................................................................................ 66
4.4 The future of Ecommerce in Uganda ........................................................................................ 67
4.5 PESTEL analysis of the Uganda Ecommerce ........................................................................... 68
4.5.1 Political Factor ...................................................................................................................... 68
4.5.2 Economic Factors .................................................................................................................. 68
4.5.3 Social Factors ........................................................................................................................ 69
4.5.4 Technological Factors ........................................................................................................... 69
4.5.5 Environmental Factors .......................................................................................................... 70
4.5.6 Legal Factors ......................................................................................................................... 70
4.6 Background of Hello Uganda dotcom ...................................................................................... 71
4.6.1 Ecommerce products and services offered by hellouganda.com .......................................... 71
4.6.1.1 Gifts and Flowers .................................................................................................................. 71
4.6.1.2 Tourism ................................................................................................................................. 71
4.6.1.3 B2B ....................................................................................................................................... 71
4.6.1.4 Electronic Vouchers .............................................................................................................. 72
4.6.1.5 Life styles .............................................................................................................................. 72
4.6.1.6 Music down loads ................................................................................................................. 72
4.6.1.7 Hello Uganda School Fees .................................................................................................... 72
4.7 The competitive environment (Porters Five Force Framework) ............................................... 73

4.7.1 Threat of new entrants........................................................................................................... 74
4.7.2 Bargaining power of suppliers .............................................................................................. 74
4.7.3 Bargaining power of buyers .................................................................................................. 74
4.7.4 Threats of Substitutes ............................................................................................................ 74
4.7.5 Competitive rivalry ............................................................................................................... 75
4.8 SWOT analysis for hello Uganda dot com ............................................................................... 75
4.8.1 STRENGHTS ....................................................................................................................... 75
4.8.2 WEAKNESSES .................................................................................................................... 76
4.8.3 OPPORTUNITIES ................................................................................................................ 77
4.8.4 THREATS ............................................................................................................................. 77
4.9 Chapter summary ...................................................................................................................... 78
Chapter 5 ............................................................................................................................................... 79
5.0 Research Analysis ..................................................................................................................... 79
5.1 Research Analysis and Presentation ......................................................................................... 79
5.2 Consumer Survey Analysis ....................................................................................................... 79
5.3 Organisational Survey Analysis ................................................................................................ 92
5.4 Chapter summary ...................................................................................................................... 98
Chapter 6 ............................................................................................................................................... 99
6.0 Discussion and Conclusion ....................................................................................................... 99
7.0 References and Bibliography .................................................................................................. 104
8.0 Appendices .............................................................................................................................. 116
8.1 Appendix A: Consumer Questionnaire ................................................................................... 116
8.2 Appendix B: Organization Questionnaire ............................................................................... 124
8.3 Appendix C: Gantt chart ......................................................................................................... 126

List of figures
Figure 1: An example for small medium enterprise Presence in Uganda ............................................. 37
Figure 2: Internet usage as per the population in Uganda ..................................................................... 64
Figure 3: Uganda Internet Usage and Population Statistics (Per Capita GDP in US dollars) .............. 67
Figure 4: Porters Five Forces Framework ............................................................................................. 73
Figure 5: SWOT Analysis of Hello Uganda dot com ........................................................................... 75
Figure 6: Respondents’ response on how often they do buy products online (the figures are in
percentages) .......................................................................................................................................... 82
Figure 7: Kinds of shopping modes and the percentages of the respondents ....................................... 83
Figure 8: Respondents’ interest in purchasing online products and services ........................................ 91
Figure 9:Respondents in percentage ..................................................................................................... 92
Figure 10: Number of Employees in different company categories ..................................................... 93
Figure 11: Companies established since ............................................................................................... 94
Figure 12: The status of companies’ information department systems ................................................. 95
Figure 13: Website ................................................................................................................................ 96
Figure 14: Awareness of Technologies ................................................................................................. 97
Figure 15: Limitations ........................................................................................................................... 98

List of tables
Table 1: Examples of Ecommerce Techniques across Business Processes .......................................... 24
Table 2:Electronic Commerce Techniques and Underlying Technological Options ............................ 26
Table 3: ISP: Uganda Telecom Online Cost of internet Bandwidth per month .................................... 52
Table 4:ISP: MTN (U) Ltd Cost of internet Bandwidth per month ...................................................... 52
Table 5: Current Internet Usage in Uganda for private and public business community ..................... 65
Table 6: Response from participants on those who like/prefer Internet shopping ................................ 84
Table 7: Responses from participants who are motivated by Internet shopping .................................. 86
Table 8: Responses from participants on how they value features on internet shopping websites ....... 89

Chapter 1
1.0 Introduction
In the past years big organisations realised the growing impact of the new and cutting edge
technology. Clark (1989) used to emphasise on the importance of technology to obtain a
competitive advantage and also he warned that there will be a challenge in building and
maintaining such a competitive advantage.
Internet has enabled organisations and their management to join the better quality information
and decision making. White (1997) added that internet is very effective in attraction of
computer literate people. Internet has made fecund attraction on the business world. Internet
has turned into an area where clients can find what they need [Amor, 2002]. This is
understandably apparent by the growth of internet in the past decades.
New technologies have brought about many opportunities and easiness to accessibility of
products to clients at anytime and anywhere in the world [McKenna, 2002].The new
technological innovations have given a chance to organisations to conduct businesses in a
completely new style by using online electronic transaction mechanisms and the concept of
Ecommerce evolved [Gunasekaran & Love, 1999; Westland and Clark, 1999].However, in
most developing countries, the SMEs sector suffers from inadequacies in the provision of
business information, which is only available from stand-alone institutions; is often slow
and cumbersome to access; is limited in scope; and is not provided in an integrated manner
[UNIDO 2005]. SMEs need tailor-made information solutions - i.e. business information
services that assess, verify and apply information to a specific business problem.
Today in Uganda most of the commerce and business sector, IT has taken the form of
Ecommerce. The establishment of an active SMEs sector and the effective utilization of
quality business information have been identified as crucial in attaining long-term and
sustainable economic growth for developed and developing countries, a like [Corps 2005]
In Uganda like in many developing countries, Small and Medium Enterprises (SMEs) is the
engine of the national economy [Vincent K. Musubire, 2008]. It is estimated that about
800,000 Ugandan firms in the SME category employ more than 90% of the total non-farm
economically active population.

The SMEs which are engaged in Internet based services are a new breed resulting from the
digital era of the information societies whose entrepreneurship is knowledge based as
opposed to being production focused.
Within the phenomenon of the Information and Communication Technologies (ICTs), the
internet has made revolutionising impact on the globalisation agenda of the 21st Century. The
digital revolution has made the seemingly abstract conceptualisation of Sir Marshall Mac
Luhan’s “Uganda village” a reality with a world of no frontiers. This ground levelling effect
of the internet provides immense opportunities to SMEs in the Least Developed Countries
(LDCs) like Uganda which hitherto have felt constrained because of being land-locked
[Vincent K. Musubire, 2008].
The internet makes SMEs in developing countries competitive to render both “offline”
teleservices such as data entry and “on-line” teleservices such as call centres.
About 30 Ugandan SMEs are focusing on developing a private-sector led outsourcing

services industry in the country to take advantage of the liberalised communication services.
However, one of the constraints is that commercial banks have not yet re-oriented their
lending assessment of the balance sheet “asset” items in evaluating securities of “Knowledge-
based” companies.
Between 2000 – mid 2001, Infodev (World Bank) funded a Canadian firm, Perwit
International, to nurture pilot projects in electronic commerce in Uganda [UNCTAD, 2002].
This initiative was building on earlier studies, as well as work commissioned by the World
Bank, the UN Economic Commission for Africa (ECA) and the International Development
Research Centre (IDRC) of Canada in other African countries [SME Conference Business
Symposium,2000].
The projects initiated in Uganda are focusing on creating a nucleus of SMEs to establish an
industry to exploit market opportunities in North America for what are termed “off-line”
teleservices. One such example is data entry from North America forwarded over the internet
to Uganda. The Ugandan firms enter the data, using software provided by the North
American Company. The information is then sent back to the client over the internet
[UNCTAD, 2002].
This service has been provided on a pilot scale for several months. Two months ago, Perwit
identified and brought to Uganda one significant client who is in the process of forging

business relationships with over 20 SMEs to provide initially for 240 data entry operators.
This number is expected to grow considerably if conditions prove favourable. A successful
development would have three major outcomes, with significant benefits for Uganda.
i) Gradual progress up the “value added” chain, in terms of more sophisticated services,
with consequent increases in remuneration at the Uganda end.
ii) Expanded growth of other types of off-line and on-line teleservices.
iii) Substantial growth in income generation, employment and export earnings.
The use of the Internet along with a range of other information and communications
technologies (ICT) is transforming how business is done locally in Uganda. The effects are
sometimes dramatic in developed countries. There are even a growing number of examples of
the use of ICT for electronic commerce (Ecommerce) in Uganda. The effects to date, though,
are small compared to what is expected to occur in the next decades. Forecasters all agree
that how business is done will be profoundly affected by ICT; they do not agree on what the
exact effects will be [Judith E. Payne, 2002]. We do know that there are many ways
businesses can benefit from electronic commerce from serving current customers better and
finding new customers and suppliers to improving the efficiency of their business processes
[Judith E. Payne, 2002]. Businesses are also finding ways to expand the products and services
they sell, how they sell them and how they charge for them.
Small and medium enterprises (SMEs) in Uganda do face obstacles and constraints which
they operate such as higher costs to access the Internet and language barriers. A recent survey
by the OECD found that one of the major obstacles to using electronic commerce was lack of
understanding of electronic commerce techniques and the technology needed to use it [Tigre,
Paulo Bastos and D. O’Connor, 2002]. This paper helps address this critical obstacle.
Figuring out electronic commerce is not optional for growing SMEs in Uganda. It is
becoming a prerequisite for competing well in markets, for dealing with other business
partners and customers [Castle Asia, 2002]. Customer (business or consumer) expectations
are changing. These effects may be less apparent in Uganda today, but are stark business
reality in the markets in which businesses in Uganda strive to participate. Even domestic and
regional markets in developing countries are beginning to feel these effects.

The purpose of this paper is to present to development professionals how they can help SMEs
in Uganda become “E-ready” learn what they need to know to leverage the potential of
electronic commerce technologies and tools to improve business performance, grow and
thrive.
1.1 Growth of internet
Electronic commerce it’s a conception which has gained the industries worldwide inclusive
the small and medium industries, in Uganda, the SMEs occupies a small part of the economy,
currently the EDI and the electronic data interchange are not mainly used by the SMEs to
further up their business. There is lack of transparency in the whole framework used by the
SMEs although they are contributor to the national economy. There are no enough
administrative and legislative support from the government, there are problems around the
financial resources available to keep the SMEs from progressing. On the side of the business,
these enterprises lack the proper management force, knowledge, style and the skills in
handling complex and innovative developed technologies, which are flooding the markets.
This is what the SMEs have to know in order to compete in the environment. SMEs have no
single development systems which can protect their interest. They need to have and
integrated approach which has three levels, strategic, enterprise and institutional.
The private/public and government sector, they need to provide support to fulfil this long
term strategy, which eventually will turn the SMEs into a profitable centre. Electronic
commerce has both advantages and disadvantages to SMEs and this project is to develop
deeper understanding and even learn more into the effects of the technical innovations in
Ecommerce on SMEs [Kyiv, 1997].
This study tries to put more on the existing literature by looking at how the SMEs should
incorporate the Electronic commerce into their business strategies or how they can improve
their current approach. This study will also try to judge the consumer experiences on online
shopping and how Ecommerce has affected their expectations and this will also go on to
propose how to improve the online stores, if they are to meet the new expectations.

1.2 Aims and Objectives
1.2.1 Aims
The main aim of this project is to explore how the SMEs are important to the Uganda‘s
economies and how Ecommerce can assist them acquire better positions in terms of
profitability and growth. The research context is based on SMEs in Uganda to acquire an
even background to this research questions. Since it’s known that both technology and
innovation are repercussions, this project shows how SMEs deal with the disadvantages and
turn them into viable benefits after doing a thorough exploration.
This project has tried to find out the extent to which small firms use Ecommerce in their
business processes and after the adoption of Ecommerce what are the barriers faced? Clients
in addition with organisation’s perspective towards Ecommerce were discovered. Side by
Side, the study found out how much electronic transactions have managed to influence the
small scale industry? In addition this dissertation provided accurate, updated, research based
information about possible future trends in the Ecommerce. And finally suggestions and
recommendation to be considered for the improvement of Ecommerce for small firms to
develop ideas for further research in this context were also provided by the research. This
study also portrayed and even helped to understand the issues under a magnifying glass when
faced in certain sectors like manufacturing, this was on SMEs under different situations and
circumstances.
A summary of some of the questions that were addressed through this research are as
follows:
i) What is the status of SMEs in today’s Uganda business environment?
ii) What is the donation of the SMEs in the Uganda economies?
iii) How the innovations like the Internet in Ecommerce support the businesses in
SMEs develop and become more profitable ventures?
iv) What are the mistakes/problems in the Ecommerce strategy acquired in general by
small firms in Uganda?

v) Which problems are faced by the clients and organisations while dealing on
internet?
vi) Which factors influence the development of Ecommerce?
vii) Does Ecommerce in Uganda open up new markets for small scale industries?
1.2.2 Objectives
i) Critically assess the relevant literature on small firms, usage/importance of the

internet and examples of successful approaches already in use for such capacity
building
ii) Suggest specific areas of training that are needed by SMEs, including how to
identify Ecommerce opportunities, implement them, and monitor their effects;
business practices and pitfalls to avoid; how E-government initiatives may be
leveraged by SMEs; how to adapt the techniques for Ecommerce to their business
environment.
iii) Understand small firms’ barriers and problems to the use of Ecommerce through
surveys, articles, interviews and newspapers
iv) Gain specific knowledge of internet usage for small firms in business through
interviews, publications and company information.
v) Provide recommendations to improve the usage of internet as a competitive tool.
vi) The advent of the Ecommerce, its advantages and disadvantages in the sector of
commerce and trading.
1.3 Chapter summary

Chapter one has given a brief introduction on the dissertation, this has also given a brief on
the internet growth in Uganda and it has also gone deep in mention the aims and objectives of
this dissertation.

Chapter 2
2.0 Literature Review
2.1 Ecommerce
According to [Rhee and Riggins, 1998, p.90], Ecommerce may be defined as “The sharing of
business information, maintaining business relationships, and conducting business
transactions by means of Internet-based technology”. Alternatively basing on [Sullivan, 1998,
p .24] he defined Ecommerce like this “Anything that enhances your relationships with an
existing customer and increases the revenue you get from the customer.” Ecommerce and
internet have turned the world market into a smaller place for trade. Many possibilities of
running and organising an online business have been opened up by Internet. Internet has
created a universal platform for selling and buying of goods which in return resulted in
reduced transaction costs and faster transaction times .According to Colin Turner (2000), he
talked about Ecommerce business strategies and accomplishment and this was in his book on
information of Ecommerce. Ecommerce has its shortcomings and benefits, along with this
belief; the companies are also battling with the pressures of information technology
revolution coming to an end. According to Janet and Fuatai (2004) this what they said
“Despite all the hype surrounding electronic commerce, and the recent failure of many of the
dot com companies, it does present real opportunities to small entrepreneurs in many
countries.”
[Roundtable 3, Bologna 2000 SME Conference Business Symposium, 2000]Ecommerce is

any use of information and communications technology by a business that helps it improve its
interactions with customers or suppliers.
A narrower definition of electronic commerce might be to limit it only to the electronic

exchange of business transactions themselves, e.g., orders and invoices (with or without the
use of a website). In fact, businesses in developing countries may be able to reap significant
benefits from Ecommerce defined more broadly even when legal, regulatory or infrastructure
constraints may make it difficult or impossible for them to actually transact business
electronically. For example, a business in a developing country might be able to use an E-

marketplace or even Internet searches to figure out market prices for one of its products so it
can compete better and win new customers.
Many SMEs can also gain a competitive edge by using the Internet well to do market
research, find information on competitors and track down leads for new customers, or
provide better customer support. These activities all fall under the broader definition of
electronic commerce and could be termed “E-business”.

Table 1: Examples of Ecommerce Techniques across Business Processes
Business Process Sample Sub-Processes Examples of E -Commerce Techniques
Marketing and Market research -- learn more Web searches; examination of competitors’ sites regarding
Sales about potential customers and pricing, problems, hiring, press releases, news articles, key
competitors management; information gathering from your Website
visitors
Various marketing techniques Website; email follow up to website visits; prospect database.
- reach more customers (or Web-based trade lead services. Links with other sites.
partners) Joining, creating E-marketplace. Web events. One-to-one
marketing techniques. Registering in directories; alliances
with intermediaries, including re-sellers.
Generating a sale – customer The Web or email: advertisements; product catalogues;
ready to buy descriptions of services, credentials, current customers
Order placement Electronic transaction processing
Payment Invoicing Electronic transaction processing
Settlement Electronic settlement technique; third-party service
Product/ Service Set up Electronic mail, electronic transaction. Shipment notification.

Delivery Directly or via third party service or partner.
Actual delivery For electronic goods and services, electronic transmission
Customer Post-sales support including Web-based FAQs (Frequently Asked Questions) and
service add-on sales database; Web-form; email.
Production Creating the product or service For documents or electronic goods, Web-based collaboration,
Sold. document sharing; email. Computer-aided
Enhance or offer new product, Design or remote production services.
Service.
Buying materials (“direct” Variety of E-procurement techniques including catalogue

procurement) orders; auctions, Requests for Information; tenders
Back-office Buying supplies and services Variety of E-procurement techniques including catalogue
(“indirect” procurement) orders; auctions, Requests for Information; tenders
Financial Management Web-based computer application, either in-house or via a

third party provider
Payroll/Personnel
Data source:SMEF survey of six sectors ‐ Last updated 2006/07

What: Electronic Commerce Techniques to Consider
Question: What underlying technologies for electronic commerce techniques are available to
me either directly or on a shared basis?
This content area provides information on the types of technologies available today for
conducting electronic commerce as we define it in this paper.
Table 2 below provides an overview of this content. This content can be delivered in varying
levels of detail.

Table 2:Electronic Commerce Techniques and Underlying Technological

Options
Electronic Commerce Internet Instrument for Access

Technique Access
Slow Medium Computer Mobile PDA

to Fast (PC) Phone (Personal
Digital
Assistant)
Electronic mail – simple

OK OK OK OK OK
Email – complex (e.g., attachments) Maybe

OK OK
Newsgroups, bulletin boards, chat Maybe

OK OK OK OK
rooms
Information database (stand-alone Maybe if Maybe of

OK OK OK
or simple adapted adapted
updates from time to time)
Software applications (stand-alone Unlikely Unlikely but

OK OK OK
or simple possible
updates from time to time)
Website (brochure ware, simple) Maybe if Maybe

OK OK OK
adapted
Web-based applications (e.g., Maybe if Maybe

OK OK
product ordering, adapted
shipment tracking)
Voice over Internet (Voice over IP) Maybe Maybe

OK OK

Potential Gains from Ecommerce to SMEs:
SMEs can benefit from electronic commerce techniques. They can use these techniques to:
i) Find new customers and partners and suppliers domestically and

internationally
ii) Serve current and new customers better, hence offering more value to
them
iii) Improve the efficiency of their business processes
iv) Develop new products and improve existing ones.
v) Offer entirely new services and products – even start entirely new
businesses.
2.2 Ecommerce Classification

Basing on the nature of transaction or applications of Ecommerce, Turban et al (2000)
categorised Ecommerce in three categories of applications:
2.2.1 Electronic markets:
This is the selling and buying of services and goods from an electronic market place, which is
a network based location business centre not a physical building. The market deals will all the
necessary transaction including, purchase acknowledgement, response to information
requests, serve/purchase delivery, shipping notice, acknowledgement of payments, and the
transfer of the money between banks. With this electronic market it’s hardly that the principal
participants know one another. The interconnection means vary within parties and they can
change between the same parties, and from event to event.

2.2.2 Inter Organisational systems:
These systems are helping the intra and inter-organisation flow of communication,
collaboration and information. The Inter organisational information systems (IOS) take the
information flow between two or more organisations. IOS’s major importance is the
efficiency of information and transaction processing. All relationships are just executed since
they are predetermined and there’s no negotiation. Typically IOS includes a company and its
customers or/and suppliers. Through IOS, sellers and buyers arrange everyday information is
exchanged over communications networks using formats which have been prearranged and
business transactions. IOS’s main types Extranets, Electronic data interchange (EDI),
electronic forms, electronic fund transfer, supply chain management, shared databases and
integrated messaging.
2.2.3 Customer service:
This is a kind of service with a series of activities planned to help customers to resolve
problems they encounter in any stage of processing purchase, raise the level of customer’s
satisfaction. Ecommerce acts a double purchase in customer service. First, it assists in online
transactions. Second, it assists in customer service to completely offline process. There are a
number of customer services and these include proving search and comparison capabilities,
answering customer inquiries, allowing customers to track order status, providing technical
information to customers and allowing customers to place online orders. According to
Whinston and Kalakota (1997), satisfied that there are three different general classes of
Ecommerce applications
2.2.3.1 Inter organizational Electronic Commerce:
Like Turban et al above, Whinston and Kalakota consider that Ecommerce can be enforced in
the following inter-organizational business:
i) Supplier management: Electronic applications help to facilitate business

partnerships by reducing purchase order (PO) processing costs and cycle
times, and companies to reduce the number of suppliers and by increasing the
number of POs processed with fewer people.

ii) Inventory management: It helps to minimise on the time of order ship bill
cycle and time of transmitting information. It also helps businesses to track
and ensure the receipt of their documents, hence improving on the auditing
capabilities and reducing of inventory levels. Inventory management is an
enhancement of inventory turns and the elimination of out of stock occurrents.
iii) Distribution management: It’s easier to transit shipping documents when using
an electronic application, this facilitates transmissions such as purchase orders,
bill of landing, manifests claims and advanced ship notices, and it also ensures
accurate data by enabling better resource management.
iv) Channel management: It’s easier when it comes to changing information about
operational conditions to trading partners when using electronic application.
This helps to eliminate thousands of labour hours and ensures accuracy when
it comes to electronic information sharing.
v) Payment management: It enables online payment both sending and receiving.

This helps to link companies both the distributors and suppliers. With
electronic payment, it increases the speeds of computing invoices between
companies, reduces clerical errors, and also lowers transactional costs and
fees.
2.2.3.2 Intra organizational commerce
The intention of intra organisational applications is to assist in the maintenance of

critical relationship to the company’s superior customers and below is the different
applications:
i) Workgroup communications: it encourages better informed employees via

managers communicating to their employees with help of video conferencing,
bulletin group and electronic emails. This kind of communication increases
information dissemination.
ii) Electronic publishing: Thorough World Wide Web, electronic publishing

enables companies to disseminate, organise and publish human resource manuals.

This helps to reduce the costs for distributing and printing of documentations,
reduction of outdated information and faster delivery of information
iii) Sales force productivity: This application betters the information flow between
sales and production forces, and also between customers and firms. The main end
of this application is to allow the firms to thoroughly analyse and collect quickly
the market intelligence.
2.2.3.3 Consumer-to-Business Electronic Commerce
iv) Social interaction: Users can communicate with each other through news group,
e-mail and videoconferencing etc.
v) Personal finance management: Electronic applications enable users to manage

personal finances and investments using online banking.
vi) Purchasing products and information: users can discover new

services/products and online information about existing and.
Turban et al (2000) describes ecommerce based on the types of transactions
known as:
• B2B (Business-to-Business): Most of Ecommerce today is of this type. It

includes electronic market transactions and the IOS transactions amongst
organisations. e.g., buys products to resale or where one business buys
supplies from another.
• B2C (Business-to-Consumer): These are marketing dealings with

individual shoppers.
• C2C (Consumer-to-Consumer): , there are many sites offering free

classifieds, auctions, and forums where individuals can buy and sell thanks
to online payment systems like PayPal where people can send and receive
money online with ease. eBay's auction service is a great example of
where person-to-person transactions take place every day since 1995

• C2B (Consumer-to-Business): a consumer posts his project with a set

budget online and within hours companies review the consumer's
requirements and bid on the project. The consumer reviews the bids and
selects the company that will complete the project. Elance empowers
consumers around the world by providing the meeting ground and
platform for such transactions.
• G2B (Businesses to Government): where perhaps businesses conduct

transactions electronically with government regarding various business
licensing or reporting requirements or where businesses sell products or
services to governments.
Companies using internal networks to offer their employees products and

services online not necessarily online on the Web, are engaging in B2E
(Business-to-Employee) ecommerce.
• G2G (Government-to-Government), G2E (Government-to-Employee),

G2B (Government-to-Business), B2G (Business-to-Government), G2C
(Government-to-Citizen), C2G (Citizen-to-Government) are other forms of
ecommerce that involve transactions with the government from
procurement to filing taxes to business registrations to renewing licenses.
There are other categories of ecommerce out there, but they tend to be
superfluous.
The “E” part of the definition we also broadly define, given the variations in technical and
telecommunications infrastructure in developing countries. We will include the use of the
Internet and websites powered by computers, but also the use of radio, mobile phones
(sometimes used in what is referred to as “M-commerce”), voice-over-IP, CD-ROMs and
even computer applications with no telecommunications component. All of these can and are
being used in innovative ways by businesses in developing countries.
One final point related to definitions: The definition encompasses both domestic and
international business. SMEs may find beneficial ways to use Ecommerce to enhance
relationships with their domestic customers and suppliers as well as internationally.

2.3 Challenges to Ecommerce
Whilst the Internet renders a great deal of advantages to businesses and electronic commerce,
it also renders a number of disputes. Some of these disputes as referred by Turban et al
(2000) are discussed below:
2.3.1 Unsuccessful Business Models
Note that it’s not a must that all companies that enforce ecommerce make profits. It’s too
expensive to change ultimately with the pace of Technologies hence it can lead to failure in
results.
2.3.2 Channel Conflicts
At times you find that some companies use more than one distribution channels i.e.
traditional and also online channels, to sell their services and products and this can result into
conflicts amongst the traders since it’s vital for such cases to maintain a balance amongst the
different channels. For instance it’s possible for a peculiar firm to sell at a reduced price with
a discount on products sold online and keep the original costs on the offline products; this
inequality usually leads to problems.
2.3.3 Legal Issues
Laws do confuse and more so those of internet and which most don’t exist. It’s difficult to
apply laws on internet since it’s used globally and users come from different countries hence
making it difficult to decide.
2.3.4 Security & Privacy
This is so vital when it comes to online businesses and transactions. Valuable data such as
debit/credit card details and vital information, business plans and other company data and

personal information can easily be hacked by internet hackers. Due to the existence of
security risks with online payments, that leads to less growth of online businesses.
Other challenges which SMEs may face relative to larger businesses are SMEs tend to have
more difficulty finding the capital needed to invest in new technology and diverting the staff
time needed to figure out what aspects of electronic commerce make sense for them.
Internet access and costs may differ significantly in urban and rural settings. Rural training
may need to focus on lower bandwidth16 usage of the Internet and more shared access,
although businesses in urban areas may benefit as well from such approaches.
As for any training in urban settings, it may be much easier for SMEs to join together for
periodic training sessions. In contrast, an approach for rural settings may best piggyback on
other reasons businesses meet or congregate or more intensive training may be appropriate to
minimize travel.
Do not hesitate to incorporate the use of radio and CD’s into the E-readiness approach. These
maybe most readily used in rural areas where telecommunications access and pricing is
usually much more of a challenge than in urban areas. These two media can also have
training material in local (Putting SME Ecommerce Readiness in Context). SMEs in
developing countries face more challenges when trying to gain from electronic commerce
than businesses in developed countries. This context includes constraints related to technical
infrastructure (access and pricing), laws and regulations, limited logistics systems (roads, rail,
and air), and more. SMEs in rural areas face an additional set of obstacles as do women-
owned SMEs. The dissertation addresses each of these constraints and suggests ways to adapt
an E-readiness initiative accordingly.
A recent survey by the OECD4 found that one of the major obstacles to using electronic
commerce was lack of understanding of electronic commerce techniques and the technology
needed to use it. This dissertation helps address this critical obstacle.
Figuring out electronic commerce is not optional for growing SMEs in developing countries.
It is becoming a prerequisite for competing well in markets, for dealing with other business
partners and customers. Customer (business or consumer) expectations are changing.

2.4 Elements of payments in Ecommerce
When a buyer procures goods or services electronically from a merchant, the method of
payment is Electronic Payment Systems. Authentication, integrity, authorization and
confidentiality are the basic security requirements that must continue to be met when
payments are made electronically for such procurement.
2.4.1 Payment gateway

Payment gateways handle all the payments operations that are needed for operating multiple
payment mechanisms including debit cards and smart cards in Ecommerce sites. The servers
on these sites have to be secured and duly certified by a certifying authority. Normally, there
are two functions within payments gateway software. These are:
i) The authorization function which performs certification and issuance of

digital identification to the entities that would be interacting with the
payment gateway.
ii) The settlement function which facilitates the carrying out of actual inter-
banking transactions.
2.4.2 Internet banking

With the expansion of the internet, more and more banks and financial institutions are using
the internet and the Web to offer an additional channel for their services as well as to improve
communication with their customers. Convenient and safe ‘anytime anywhere’ banking can
be carried out over the Internet.
2.4.3 Paypal
PayPal, an eBay company, has a unique payment model wherein can be sent to anyone who
has an e-mail address. Customers of PayPal are allowed to move money electronically from
their bank account to other PayPal account holders, unlike traditional banks wherein such
transfer requires cheques. Account holders can send money to non-account holders by
creating a virtual account attached to an e-mail address.

2.4.4 Electronic cash

Electronic or digital cash (E-cash) facilitates the execution of cash payments for transactions
on the Internet. Electronic cash refers to prepaid, stored value that can be used for electronic
purchases in lieu of cash. It is easily exchangeable in an electronic format and is tamper-
resistant.
2.4.5 Electronic cheques

An electronic cheque is yet another mechanism for Internet payments. This facility is the
Internet version of Financial EDI systems which have allowed these functions to be
performed over VANs. The electronic cheque provides Internet websites the ability to
perform various financial functions.
2.5 Small and Medium Enterprise (SME)
Countries differently define Small medium enterprises in a number of ways. According to

Burn and Tetteh (2001), they defined SME as "firms with less than 500 employees". This
definition went further to divide the firms into micro companies, which consist of 5
employees and less, small firms which consist of employees between 5 to 20 and medium
firms, consist of employees in between 20 and 50. From the other point of view, UK
Department of Trade and Industry [DTI, 1999] defined SMEs as firms with 250 employees or
less. The European Commission (2003) defined SMEs like: "micro enterprises are enterprises
with a maximum number of 10 employees, a maximum turnover of 2 million euros and a
maximum balance sheet of a total of 2 million euros. While small enterprises are enterprises
with a maximum number of 50 employees, a maximum turnover of 10 million euros and a
maximum balance sheet of a total of 10 million euros. Finally medium enterprises are
enterprises with a maximum number of 250 employees, a maximum turnover of 50 million
euros and a maximum balance sheet of a total of 43 million euros".
According to Duncombe (1999), he pointed out that a number of fields of studies have been
attempted to collect the information on the make-up of the SME sector in Botswana, by
conducting field surveys in connection with various research projects and accessing official
statistics. According to the report, he defined enterprises according to the annual turnover,

level of formality and number of employees. There is no real universally standard definition
for Small firms. According to the study carried out by the ILO, more than 50 definitions were
identified in 75 different countries, with considerable ambiguity in the terminology used. For
the purpose of this study the author will go with the definition of Small firms which defines
Small firms as firms with 49 or fewer employees. From the foregoing definition of small
medium enterprises (SMEs) by unlike research workers, it can be seen that the number of
turnover and employees are the causal factors in the definition of SME, but, the standard is
different from country to country.
However, what exactly an SME or Small to Medium Enterprise is depends on who’s doing
the defining. Industry Canada uses the term SME to refer to businesses with fewer than 500
employees, while classifying firms with 500 or more employees as "large" businesses.
Breaking down the SME definition, Industry Canada defines a small business as one that has
fewer than 100 employees (if the business is a goods-producing business) or fewer than 50
employees (if the business is a service-based business). A firm that has more employees than
these cut-offs but fewer than 500 employees is classified as a medium-sized business.
Microbusiness is defined as a business with fewer than five employees. In its on-going
research program that collects data on SMEs in Canada, Statistics Canada defines an SME as
any business establishment with 0 to 499 employees and less than $50 million in gross
revenues.
Different countries define SMEs differently, In the EU; a similar system is used to define
Small to Medium Enterprises. A business with a headcount of fewer than 250 is classified as
medium-sized; a business with a headcount of fewer than 50 is classified as small, and a
business with a headcount of fewer than 10 is considered a micro business. The European
system also takes into account a business’s turnover rate and its balance sheet, for instance
having a standard SME definition makes gathering and analysing statistical information about
businesses easier.

Figure 1: An example for small medium enterprise Presence in Uganda

2.5.1 Who are SMEs

Different countries use different definitions, there’s lack of consistent cross-country data.
International Finance corporation (IFC) definition SMEs as below
Mi (Micro enterprise)
(a) Employees < 10
(b) Total Assets < US$ 100 000
(c) Total Annual Sales < US$ 100 000
S (Small enterprise)
(a) 10 < Employees < 50
(b) US$100 000 < Total Assets < US$ 3 million
(c) US$ 100 000 < Total Annual Sales < US$ 3 million
M (Medium enterprise)
(a) 50 < Employees < 300
(b) US$ 3 million < Total Assets < US$ 15 million
(c) US$ 3 million < Total Annual Sales < US$ 15 million
Data source: World Bank, Importance of SMEs and the Role of Public Support in Promoting
SME Development ‐ Last updated 14‐16,2003
2.6 SMEs and Ecommerce

Before designing an approach to increasing or create Ecommerce readiness in a specific area,
it is critical that the development professional consider the context for the initiative along
several dimensions. This context setting applies to the way E-readiness is delivered (e.g.,
what technology and mode of delivery to use) as well as the content of the training and
support provided. Without carefully considering these two dimensions of context, an
Ecommerce readiness initiative can fail or fall short of its potential benefits.
Internet turned to be a good way in marketing the business. Being that internet is one of the
main effective media globally; it makes it compulsory to be used in marketing as a channel.
Most small firms find it a problem to enter in to an already exiting market for strong
companies and the exiting small firm. These small firms have to establish their personal

identity in the market as an enterprise in spite of the rivalry and the troubles of domain name,
web design, site security responsibilities to the customers and so on. These firms have to
create awareness to the consumers that they also exist and they also use internet as an
efficient in business. Moreover, there reason cost advantages which come with Ecommerce in
the market entry. Since the small firms are new in the market, they need a lot to do to grow in
the market; they do try their best to limit on the costs as to increase on the investments. With
the help of internet, small firms use it in their market activities. It still difficult for small firms
to enter into market or reach customer in both the markets regional or local and international
or national .In an existing fierce rivalry, Ecommerce appears to be the most efficient way to
acquire success for small firms.
According to Baldwin (2001), he says that small firms generally provide the majority of the
jobs and are a significant contributor towards the national economy. In Uganda the Small and
medium scale enterprises are considered to be the core of the economy. According to Smith
et al (2000) 99% of the business firms can be categorised as small businesses and they
employ up to 58% of the total workforce. Therefore small firms are highly important in
Uganda’s government and the economy expends considerable resources to affirm this sector.
The government of Uganda admits that small firms are and left behind and neglected while
the larger companies getting advantage over small businesses in the Ecommerce world
[Simpson; Docherty, 2004]. Thus it is very vital to study the barriers and problems met in
taking on a new economy cycle by the sector, which represents the majority of the countries
businesses. According to Sadowski et al (2002), he notes that even after the widespread use
of internet technologies in the corporate world, the amount of Internet usage changes to a
great extent in the small scale sector. Mehrtens et al (2001), states the adoption of any new
technology in this sector is influenced by the several variables. These factors may include the
influence it has on third parties in the decision process, the characteristic of the firm, the
characteristic of the new technology itself, the management strategy and its competitiveness.
All these factors lead company to strategic advantage if they used as they should be. It is vital
that the company sustains strategic advantage from Ecommerce. Basing on Hidding (1999),
he stated that competitive business environment makes this matter more important. As long
as the company provides well designed website that suits with the requirements of the
business, then strategic advantage can be sustained.
Thomas H. Davenport (1993), in his book, ‘Process Innovation – Reengineering work
through information technology talks about, how a revolutionary approach to information
technology and its integration in our business processes can change the scenario. This can

dramatically change the way business is conducted in small and medium enterprises also
improve the performance keeping in view the competitive environment. New technologies
and process innovation brings a new the characteristic of the new technology itself and
commitment and strategic to these enterprises. Resources like Ecommerce and information
technology are largely untapped by the SMEs but one time that scenario changes; there will
be a lot of improvisations and growth avenues. Basing on Mandel (2001), he says that every
discovery and technological innovation finally has it downtrend. When these new
opportunities like Ecommerce into existence, you will find that businesses will want to share
the market. In their hurry to acquire more profits, the investments are so heavy and lacking
direction that constantly leads to a loss since the economy infrastructure cannot support it.
This has been proven with the doom and dot com burst. According to some authors, these
SMEs can actually use the innovation of Ecommerce so that they can be able to compete with
in the economies. Due to their sizes they lack the financial initiative power to go all out and
compete in dissimilar markets, Ecommerce can be a remedy for SMEs’ marketing gaps,
which has held them back from succeeding
2.6.1 Summary of Use Patterns in SME and Ecommerce

Once isolated and heavily reliant on buyer visits, export-oriented SMEs are now using the
Internet to reach out to new overseas buyers, maintain contact with existing buyers, and learn
about market trends and opportunities. While the range and sophistication of use varies
widely, there is a distinct pattern in the degree and effectiveness of SME Internet usage.
The results of this survey suggest three phases in the evolving use of Internet by SMEs, each
of these phases represented by a company type: 1) SMEs which use the Internet; 2) SMEs
which are preparing to use the Internet in the near future; and 3) SMEs which know very
little, if anything, about the Internet and have no plans to use it in the future. The labels
"Users", "Prospective Users" and "Traditional Companies" are used to classify these three
types of SMEs.

2.6.1.1 Description of Internet Users
Successful SME Internet users tend to be further advanced in production management,

production capacity, capital accumulation, accounting, marketing and English
communication than the average company. On the management side, the owners often have
post-high school degrees, or they have acquired management and marketing skills through
long-term experience in their industries. While this is not the case for all SME users, there is
an undeniable link between the education and experience of business owners and managers
and the effectiveness of their Internet usage. However, there are also numerous cases of
business owners who hired outsiders who were skilled in accounting, English and computers
to support Internet activities. Additionally, there are many SMEs that do not use the Internet
effectively, and this is often due to weaknesses in their businesses as a whole.
2.6.1.2 Prospective Users
These companies are working towards more professional management standards, but are still
struggling with internal issues. We found that many prospective users have mastered
production management; they can produce large orders on time but they are often weak in
accounting, marketing and English skills. More often than not, these companies struggle with
credit issues, are less capable in financial management and often face difficulty in obtaining
short-term loans to fund production of increasingly large orders. One feature common to
these SMEs is an awareness of the importance of marketing and the need to reach out to
buyers rather than simply waiting for them to show up on their doorsteps.
Related to this, these companies often realize the importance of Internet for communication
and promotion but are not yet ready to go on-line because they have not overcome various
internal constraints.
2.6.1.3 Traditional Companies

These companies are labelled as traditional due a passive approach to doing business. Such
companies typically focus most of their efforts on production and do little to reach out to their
markets other than sometimes setting up a retail outlet for their goods and simply relying on
passing trade. These companies typically know very little about the Internet and show limited
interest in using it in the future.

2.6.2 Ecommerce Readiness: What SMEs Need to Know?
The paper suggests that any e-readiness initiative address nine topic areas framed as questions:
i) Why might I want to use Ecommerce? What benefits might I achieve?
ii) How do I determine if I can use electronic commerce to improve my business?
iii) In what part(s) of a business’s processes might Ecommerce be incorporated?
iv) What electronic commerce techniques should I consider and use?
v) What elements of my context affect how I can successfully use Ecommerce?
vi) How can I figure out whether the benefits outweigh the costs?
vii) What will it take to succeed?
viii) How can I monitor results to know I am achieving the benefits I expect?
ix) What is my concrete action plan to achieve the results?
2.7 Importance of SMEs to countries’ economies

According to Barakat (2001), he reported that with evidence Small Medium Enterprises play a vital
role in encouraging the national economic development of any country. SME produce much of the
creativity and innovation that fuels economic progress and also create a lot of new jobs. 90 % of the
total number of companies is comprised of Small medium enterprises in most countries, which
provides an average 70% of job opportunities [OECD, 1997]. 35% of Asia's export and 26% of
OECD exports are directly developed by small medium firms as suggested by Tandon (2002).
From the past literature, it shows that different studies have shown that Small medium Enterprises
worlds wide have found Internet usage to be an important aspect to their business. Basing on Porter
(2001), he supports this view and suggests that companies of all sizes should have a strategic
reaction to their competitors and also encourage the adoption of the Internet technology; this
will lead to an increase in the competition within the markets. He farther details that
"Ecommerce reduces the difference among competitors' offerings and frequently migrate
competition to price rather than products features or brand perceptions". He also proposes
that smaller businesses could better their business competitiveness with either other larger

companies or small businesses by adapting to Ecommerce. Porter (2001) is backed up by an

earlier study (Dowsland and Jacobs 2000). They proposes that "smaller businesses have, in
particular, been boosted to adopt Ecommerce as a means of improving their competitiveness,
either with other small medium enterprises or with larger companies, where they have been
promised that Ecommerce can level the playing".
According to Wilson and Daniel (2002), small and medium-sized enterprises are now
increasingly making use of Ecommerce. Daniel farther suggests that “responding to
competitive pressure was the main reason leading to companies to adopt Ecommerce.
Information sharing and communication between employees within the firm were found to be
the Ecommerce activities where firms are actualising the greatest benefits". Thus, though the
future of Ecommerce is even irregular, it is vital in developing countries, their governments
and businesses should prepare for these new developments.
According to Bashir Ahmad Fida from the free online library (2008) he states that one of the
important features of a growing and flourishing economy is the flourishing and flourishing
small and medium sized enterprise sector. In the development of the country’s economy
small and medium enterprises play a vital part .Economic development in the rural and urban
areas is mainly provided by SMEs, through the creation of employments labour force,
provision of desired sustainability and innovation in the whole economy .On top of that a
bigger number depends directly or indirectly on the SMEs.
Mostly all larger enterprises usually they come from small and medium enterprises. Small
and medium enterprises are divided in three main aspects namely; evolution, uncertainty and
innovation. The SME sector is classed into three and these are; micro enterprises, small
enterprises and medium enterprises. Towards industrialisation in economy development, the
starting point is from SMEs. Still SMEs have big impact on tax revenue, income distribution,
employment, stability of family income and efficient resource utilization. According to the
United Nations Industrial Development Organization UNIDO (2005), for developing
countries to integrate into the global economy via economic deregulation, democratization,
and liberalization is seen as the paramount way to triumph over poverty and inequality. What
is so vital in this process is the development of an animated private sector, in which SMEs
can play a fundamental role.
Large enterprise have a less propensity to employ more labour intensive production processes
as compared to Small and medium enterprises. Accordingly, they provide importantly to the

supply of productive employment opportunities, the step down of poverty and propagation of
income.
According to Bashir Ahmad Fida (2008), in industrialized countries, small medium sized
enterprises they do contribute a lot to the private sector employment. Empirical analyses have
revealed that small medium sized enterprises, contribute to over 50% of GDP and over 60%
of total employment in high income countries. Small medium sized enterprises and informal
enterprises, they contribute about 65% of GDP and 90% of total employment in middle
income countries, and also account for over 55% of GDP and over 65% of total employment
in low income countries.
Small medium sized enterprises perform a vital donation in the passage of agriculture led
economies to industrial ones providing plain opportunities for processing activities which can
give sustainable source of income and heighten the development process. Small medium
sized enterprises prop up the enlargement of systemic productive potentiality. They do assist
to add to the formation of flexible economic systems in which small and large firms are
interlinked and also to engage the productive resources at all levels of the economy. Such
linkages are very essential for the drawing of foreign investment. Investing transnational
corporations look for sound domestic suppliers for their supply chains.
Small and medium enterprises are the major developing drive behind the fastest developing
economy of China, in terms of donation to the national GDP (responsible for 35%), the
variegation of products, and the foundation of employment and scale of assets [Bashir Ahmad
Fida 2008]. Similarly, the role of small medium sized enterprises is well recognized in other
countries like Korea and Japan and so many other industrialized economies in terms of
eradicating poverty, creating employment and changing the welfare of the society.
Economists and Experts are solid about the importance and the role of small and medium
enterprises in the growth of Uganda‘s economy. The empirical studies and statistical data
about small medium sized enterprises high spots the big share of small medium sized
enterprises in the economies. According to Bashir Ahmad Fida (2008), the Small and
Medium Enterprises Development Authority (SMEDA), “In Uganda nearly 85% of all the
enterprises is constituted by small medium sized enterprises; non-agricultural labour forces
employ 75%; and approximately 35 % share in the annual GDP”

In Uganda different factors are responsible for the existence of small medium sized
enterprises. First, small medium sized enterprises put forward suppleness and also bolster an
entrepreneurial spirit in the economy. Second, small medium sized enterprises give forth the
fastest growing export subsectors, such as surgical instruments and cotton weaving. Third,
they can support the poverty relief endeavours through creation of employments. Most
importantly basing on the social point of view, small medium sized enterprises are more
effective in the allocation of resources as compared to that of large scale industry. SMEs
facilitate and provide to more number of people as compared to that of the large scale
industry.
It is level-headed to say that Uganda's economy is an economy of small medium sized

enterprises. The most important role of small medium sized enterprises is obviously indicated
by statistics and the research. Nevertheless, restrictions had been put on the efforts of
focusing on the large enterprises, and leaving out small and medium enterprises which are the
main back bone of the economy. For example, institutions founded to help business activities,
like Export Promotion Bureau (EPB), Board of Investment (BOI), Central Board of Revenue (CBR)
etc., have been focusing their attempts on large scale industry.
Small medium sized enterprises require an attention since their typical backbone to the
economy. With the present evidence, it shows that there’s discrimination between small firms
against relatively large firms. Large scale firms can solve their hurdles and cope due to
financial position and possessing sound experience. Small medium sized enterprises due to
the resulting peculiarities and their small size, they are carrying on successful business and
far less capable of adjusting. While administrative discrimination or spared direct statutory,
small medium sized enterprises remain subject to unequal treatment, which distorts the
competitive environment for the businesses
There are also some apparent and hidden blocks in the path of development SMEs in Uganda.
The most important are; regular information exchange mechanism among institutions
,political instability, lack of coordination ,law and order situation, energy crisis, taxation
problems, financial constraints ,labour issues and political instability etc.
What is required is to engage the regulatory reforms and precise policies to turn Small
medium sized enterprises into an effectual instrument for the enhancement of employment
and economic growth. In addition, the surroundings for Small medium sized enterprises are
always changing, mostly in the scenario of openness of the economies and globalization.

Hence, the course of action for Small medium sized enterprises should always be set for a
long run period thus keeping in mind the predictable behaviour of all stockholders
Harrison (1994) has argued that the role of SMEs has been overestimated, and that MNEs
have been able to prosper in the new global environment by combining four basic building
blocks: returning to their core competencies; using new information technologies; forming
strategic alliances; and eliciting more active collaboration from their workers. However, this
view overlooks the synergy between large and small firms, the strong attachment of small
firms to their local economies, the role of small firms in technological change, and the role
they play in the growth and evolution of industries [Acs, 1995]. In fact, there is ample
evidence that small and medium sized enterprise (SMEs) have not only flourished in
domestic economies, but that their international presence has grown as well [UNCTAD,
1993;Masataka, 1995a and 1995b; Admiraal, 1996; and Buckley et al., in press].
2.8 Benefits of Ecommerce to SMEs
A number of progressing organizations have implemented Ecommerce with the intensions of

improving customer satisfaction levels, lowering costs and decision making. One of the major
benefits of Ecommerce is cost step-down as Tagliavini et al (2001) pointed out "a correct
adoption of Ecommerce could lead to a reduction of transaction costs and coordination
costs". Also Garcia and Davies (1999) argue that the benefits for SMEs are effective
dissemination and collection of information, faster communication and closer relationships
throughout the supply chain. Arnett and Liu (2000) suggested that “Ecommerce can help
business organizations cut costs, interact directly with customers, run more smoothly and in a
timelier manner, and even better, it can help an organization outperform its competition".
Other forcing factors of Ecommerce for SMEs are also mentioned by Gallaugher and Auger
(1997) as below: lower Information Dissemination Costs, access to an Affluent Customer
Base, broader market reach, lower transaction costs, additional channels for customer
feedback, market research and increased service.

Better communication with customers, reducing costs, extended market and access to larger
customer are the major benefits when using Ecommerce and this was agreed by a number of
authors.
Below are the detailed summarized benefits of Ecommerce to the SME;
i) Shift in value added and content components of what is made and sold;
ii) Untying work functions from specific locations and time constraints;
iii) Commercialization of in-house content and know-how;
iv) Flattening and disaggregating of organizational structures;
v) Innovative products, better services and exploring new market opportunities;
vi) Changes to economies of scale and the traditional barriers and advantages of large
enterprises;
vii) Scope for customization at low cost;
viii) Find new customers and partners and suppliers domestically and internationally;
ix) Serve current and new customers better, hence offering more value to them;
x) Improve the efficiency of their business processes;
xi) Offer entirely new services and products even start entirely new businesses and;
xii) Develop new products and improve existing ones.
Nevertheless, a study carried out by Poon (1999), discovered that the benefits of internet
commerce can be classified into short-term and long term benefits, indirect and direct
benefits. He advised that you can achieve the short-term benefits just in a few months
whereas the long term benefits in a long time which is not predictable. Using the Ecommerce
can benefit the SMEs in terms of reducing costs and access to larger clients’ base in the short
term, and business transformation in the future. The use of Ecommerce will have a great deal
of effect on the SMEs business activities as Tagliavini et al. (2001) indicated that
"Ecommerce has an important influence on SMEs; range of activity, providing increased
competition on a global scale and allowing them to access wider markets".
From the literature above, it could be rightly said that Ecommerce adoption is an essential
business strategy for SMEs to obtain competitive advantage.
In the research conducted, it showed that the promotion tool feature dominated again when we
asked SMEs with websites about the benefits of their site, with 67% citing it as the main benefit.

17% said their site brought the company credibility. 14% said their site did not bring the company
any significant benefits; however, this was often because the website was not registered on search
engines
Many SMEs can gain a competitive edge by using the Internet well to do market research, find
information on competitors and track down leads for new customers, or provide better customer
support. These activities all fall under the broader definition of electronic commerce and could be
termed “ebusiness”.
Ecommerce can give SMEs a better chance to compete in their markets and, indeed, in some
cases, is or will soon become a competitive necessity for survival. (Curry, James, O. Contreras,
and M. Kenney, 2002) The potential benefits of Ecommerce to “level the playing field” for SMEs
allowing them to compete better are critical for them to understand and sort out
The internet makes SMEs in developing countries competitive to render both “offline”
teleservices such as data entry and “on-line” teleservices such as call centres. About 30 Ugandan
SMEs are focusing on developing a private-sector led outsourcing services industry in the country
to take advantage of the liberalised communication services. However, one of the constraints is
that commercial banks have not yet re-oriented their lending assessment of the balance sheet
“asset” items in evaluating securities of “Knowledge-based” companies
Convenience and speed and are justified as the main cause for the sudden force of Ecommerce.
Unfettered by boundaries of language, geography and other barriers, web sites can remain open
24/7. More and more opportunities are given birth, when accesses are just a few clicks away and
the providing services.
Nevertheless absorbing the technology and its usage is a reminder to us that everyone on the
global has the accessibility on the technology. It’s again the human mind, which will determine
how harness the technology. Uganda’s domain’s expertise is so crucial that entrepreneurs give a
way to new entrepreneurs

2.9 Opportunities and Threats faced by SMEs

"There are major opportunities for new entrepreneurs and small-to- medium-sized businesses to
flourish in the maturing of Ecommerce” [Drew, 2003]. A number of benefits for SMEs have been
provided due to the use of Ecommerce as well as a number of potential opportunities. “The
Internet is usually presented as an opportunity for smaller firms because it helps reduce
transaction costs and level the playing field” [Evans and Wurster, 1997].
Among the opportunities for SMEs, there are wider and richer communications, expanding scope
of marketing, partnering with suppliers and reducing cost of operations [Drew, 2003]. With the
report produced by Prerost (1998), there are many various opportunities added to SMEs,
including productivity and efficiency for business process and development of new market
opportunities (B2C and B2B) likewise access to global market. Ecommerce gives SMEs
opportunities to overwork competitive and know how benefits as suggested by Tagliavini et al.
(2001). However, how to use Ecommerce as an opportunity to SMEs usually depends on the firm
and business factors [Drew 2003]. These influenced factors may include; Internet knowledge;
smaller firm's technical and the pace of innovation and change in the industry; the rate at which
the market is growing; the structure of the industry in which the firm competes; the sources of
competitive advantage for the smaller business; the strategic intent of the larger competitors; and
the technical and Internet strengths of the larger competitors.
In general, macro-environment, the market and industry structure will be the major influenced
factors that decide the threat for SMEs or Ecommerce as an opportunity. As a result while it’s not
doubt that Ecommerce has provided a big opportunity for SMEs in the range of business
activities, internal and external factors which must be considered strategically while adopting
Ecommerce. Nevertheless, Tagliavini et al (2001) argued, "the real opportunity of Ecommerce
adoption for SMEs is still unclear"[p.211].
Drawing the growing base of Internet and web users to participate in online shopping and trading
activities is a significant opportunity for Ecommerce [Green1999]. On-line research capabilities
range greatly among SMEs and are closely linked to the educational background of users.
University-educated users are more likely to use the Internet to obtain information on production
technologies, examine market trends and opportunities, assess the activities of domestic and
international competitors, and locate potential suppliers. The survey shows that while a
significant number of SMEs use the Internet for research, the degree and depth of research
capability is limited. However, for the few companies which do use the research function
extensively, there is a clear impact on sales.

Creating awareness of the new opportunities generated by ICT is still necessary in some developing
countries, as well as in many of their enterprises. In particular, small- and medium-sized enterprises
(SMEs) are not yet familiar with these opportunities. Nevertheless, several developing countries have
already started to benefit from ICT opportunities. Outsourcing using new technologies such as IT
outsourcing and BPO is a business-driven phenomenon. This section reviews the history of BPO and
it focuses on the reasons that lead to some enterprises to outsource, in particular to India [Gupta
2002].
The rapid growth of the internet, albeit limited penetration ratio in the least developing
countries including Uganda, offers opportunities to SMEs in LDCs to compete in the global
job market for outsourced teleservices.
Some of the services provided by the outsourcing industry may include:
i) Accounting and book-keeping
ii) Customer services
iii) Tele-marketing
iv) Call Centres
v) Software development.
vi) Web site design and construction.
vii) Web site maintenance
viii) Inventory Control
ix) Translation services
x) Audio transcription

2.9.1 Strengths of Uganda’s SMEs in ICT outsourcing Services:

In addition to liberalised telecommunication networks with two national operators, Uganda
offers the following conducive environment:
i) A democratically elected stable government

ii) A liberalised predictable economic policy
iii) A competitive investment climate
iv) A free market foreign exchange system
v) Very low labour costs
vi) An excellent and productive workforce
vii) Excellent command of English language amongst the employable workforce.
viii) Increasing literacy rates through a universally free education policy for the primary
education age-groups.
2.9.2 Problems facing the Outsourcing Industry in Uganda:
2.9.2.1 Bandwidth Cost:

The costs of bandwidth are not yet favourable for competitive pricing. The industry requires a
company offering the outsourced services to be able to access a dedicated link of at least
64kbps using broadband wireless technology or leased line access or better still high speed
Integrated Services Digital Network (ISDN) lines. The quoted costs from two of the leading
internet service providers namely Uganda Telecom Online and Mobile Telephone Network
(MTN) are still high.

Table 3: ISP: Uganda Telecom Online Cost of internet Bandwidth per

month
Cost of wireless Antennae + Router + installation US$ 3,400

Cost of 64/4 kbps/month US$ 185
Cost of 64/8 kbps/month US$ 355
Cost of 64/16 kbps / month US$ 675
Cost of 64kbps/dedicated/month US$ 1,900
Data source: UNCTAD ‐ Last updated 2002
Table 4:ISP: MTN (U) Ltd Cost of internet Bandwidth per month
Cost of wireless Antennae + router US$ 2,000
Cost of installation charges US$ 2,000
Cost of 64 kbps bandwidth/month Dedicated US$ 1,890
Cost of 128 kbps US$ 3,490
bandwidth/month dedicated
Data source: UNCTAD ‐ Last updated 2002
2.9.2.2 Low Bandwidth frequency

The current 2.4GHZ allocated to the majority of ISPs is never kept free from interference and
creates interruptions in the data traffic. However, the Uganda
Communications Commission (UCC) intends to upgrade frequency allocation to
5GHZ which will improve the situation
2.9.2.3 Absence of the local IXP

At the moment there is no local Internet Exchange Point (IXP) in Uganda. This creates traffic
jams, delayed connection and higher cost, since all traffic has to pass through services hosted
overseas. However, UCC is handling this matter.
2.9.2.4 Taxation on ICT Products

Although Uganda does not levy import duty on ICT hardware and electronic data processing
products yet there is a 17% V.A.T and 4% withholding tax as well as an additional 2%

Import licence commission charges. These taxes make overall cost of computers and
telecomm hardware expensive.
2.9.2.5 Productivity:
The human pool to do the work is not experienced and will need sometimes to progressively
gain proficiency and speed to handle work. However, this problem is being aggressively
addressed through tailored training for data entrants.
2.9.2.6 Pricing:
Because of constraints in bandwidth and connectivity, infrastructure improvements have to be

done to make competitive pricing.
2.9.2.7 Limiting factors in the financial systems
The SMEs in Uganda wishing to engage in internet-based services especially in outsourcing

services require heavy capital investment to establish the necessary infrastructure. A
company would at least require a minimum of 50 PCs with appropriate network. In addition
working capital would be required for running expenses. The financial sector in Uganda is
still limited in scope to offer the required funding for “dotcom” start-up companies.
i) Banks are still very conservative as regards extending loans and financing
teleservice companies. There is yet no innovative appreciation to use
alternative yardsticks to evaluate the balance sheet asset items of knowledge
based companies. This historical “brick and mortar” security consideration by
the financial sector gives no room for forward looking consideration for SMEs
in the internet-based ventures.
ii) The products of the traditional banking services still lack digital menu such as
electronic payments, credit/debit cards and electronic funds transfers.
iii) The banking sector is still too conservatively reserved to embrace ICT as
fundamental tools to drive E-banking and attendant E-payments.

iv) The financial sector is still too risk avert towards the internet especially as
regards possible legal issues. Instead of making appropriate legal reforms in
the Laws of Banking, the banking industry has opted to play it safe to the
detriment of developing a vibrant Ecommerce sector.
Uganda and other developing countries stand a good chance to be competitive in the global
market for rendering teleservices through their SMEs. The internet has opened new
opportunities by leveling the playing ground since it creates equality to all players.
However, financing for startup and operating capital is one of the biggest constraints that face
those SMEs that would wish to engage in internet-based services. Financial institutions are
still very conservative in their assessment of the teleservice companies which are knowledge
based as opposed to the brick and mortar companies. In addition, the banking industry has not
yet established digital products such as credit cards and e-payment systems to support
teleservices operations in particular and Ecommerce in general. The Uganda government,
however, has singled out ICT as one of the sectors to consider for government intervention
and ICT exportable services are the ones focused on.
This commitment by government is bound to make the necessary impact which will
eventually infiltrate the conservative nature of the financial institutions.
2.10 Global Trading
The important chance for SMEs is to turn the current market to an international market, this
has been addressed by a number of authors [webb and Sayer, 1998; OECD, 1998; Tiessen et
al, 2001 and Walczuch et al]. Tiessen (2001) remarks “the twin phenomena of globalization
and Ecommerce introduces new challenges and provide competitive opportunities for large
and small firms alike”. It’s an imperative chance for SMEs to be able to access the global
market, this is the most important feature achieved by Ecommerce to reach the global market,
and this was stated by Laudon (2001).
Hence, Ecommerce leads the exiting market into globalization and this is one of the
expectations to SMEs. Undoubtedly, internet has provided an opportunity for SMEs to entry
barrier and decrease the costs into global trading market as "electronic commerce offers

companies the possibility to sell internationally, effectively removing constraints of time and
location and substantially enhancing their competitiveness", and this is the most imperative
chance for SMEs to rise the capacity and productivity to the entry markets and also discover
business partners globally [OECD, 1998].
So, the reach of the global market is an existing chance for SMEs to grow in terms of the
company size and the competitive advantage. Nevertheless Jutla et al. (2002) exclaims that
“globalization pressures arising from Ecommerce operations often mean that SMEs have to
acquire international trade knowledge”. Bring the company’s website online is so easy,
contrary merchandising in the market globally is not a simple thing for any SMEs. As Burn
and Tetteh (2001) details out that "the challenge for SMEs are more difficult to be analyzed
since its framework is not clearly defined for the entire processes of strategy building,
implementation and management with an expression of global information economy ".
Nevertheless, Ecommerce provides a great chance for SMEs to gain competence with larger
firms in a variety of business opportunities as well as a chance to broaden trading
geographically. The various chances provided by Ecommerce are the important riving factors
to boost a firm to adopt Ecommerce as its business operation.
2.11 Threats caused by Ecommerce to SMEs
Even though Ecommerce usage has provided a big opportunity for SMEs in the aspect of
business activities, during the trial of exploring various opportunities, Ecommerce might
become a threat to SMEs. Drew (2003) indicates that there are a number of threats caused by
Ecommerce for SMEs and these may include increasing competition from larger firms "the
new technology of ecommerce, it allows larger firms to mimic the traditional strengths of
SMEs in attending to niche markets, exploiting local knowledge and developing customer
intimacy ", and " for a regional firm, which previously may have had little local competition,
may be faced with new threats from across the country or the globe" [Drew, 2003]. Garcia-
Sierra and Davies (1999) pointed out that SMEs had fewer resources compared to larger
firms as it’s the fact that larger firms have a high competitive advantage than the small firms.
By OECD (1998) conducted a survey which found out that "it is more difficult for SMEs to
reach the Benefits of Ecommerce than for larger firms". This may be due to SMEs having
fewer resources than larger firms.

There are great potential benefits but there are also pitfalls of going into Ecommerce. They
are the financial costs, the business 'opportunity costs' and the dangers of failure. These are
detailed below:
i) Ecommerce will bring extra costs as well as potential cost savings. The start-up costs
(initial investment in a computer/network connection, etc.) will be high and there
will be additional running costs.
ii) Ecommerce activity will need to run in parallel with existing business methods. For
example, you will need to continue to produce paper-based marketing material
(brochures, stationery, leaflets, etc.) as well as building up your web presence.
This will duplicate some activities adding to overall costs.
iii) Ecommerce may divert attention away from more important offline activities. It is
important that online and offline efforts are not in competition with each other
within a business. In fact, for most MSEs, offline activities (such as face-to-face
meetings and personal networking) will remain far more important than online
communication.
iv) An Ecommerce venture may well fail completely like any new business venture. This
highlights the importance for small businesses of not throwing all their eggs into
the Ecommerce basket.
However, there are also risks of ignoring Ecommerce! Technology and innovation can bring
positive changes to your business – which can improve the way you do business in the future.
The risks of not effectively embracing technology may be felt throughout your business in
years to come. For example:
i) Having no website, or a badly designed or marketed website, may put your business at
a disadvantage as compared with your competitors, particularly if you are an exporter
or a tourism business.
ii) Unsuitable or inadequate technology can mean that your enterprise is without the
communications systems that it needs to compete efficiently.

iii) Increasingly, enterprises that lack a customer and sales database may find it difficult
to carry out the regular and effective direct marketing and communication that
competitor’s conduct, and which customers expect.
Hence, the opportunity provided by Ecommerce might present in different results between
larger firms and SMEs. For SMEs, due to lack of necessity knowledge on the online business
and resources, Ecommerce might become a threat. Ecommerce provides chances and benefits
for SMEs, contrary there threats which are produce when ecommerce is used.
2.12 Chapter summary
This chapter has re-examined and combined all the existing relevant literature on the two
subjects ecommerce and small-medium enterprises, the ecommerce industry in Uganda has
not been included in this chapter since it’s included in chapter four which is the case study.
This chapter went ahead to spell out all the potentials of ecommerce to the small-medium
enterprises, this was followed by the classifying the categories of ecommerce and the
challenges which have mainly faced ecommerce and SMEs.
The same chapter presented the extent to which SMEs are important to the economies of the
countries; benefits of ecommerce to the SME industry were also remarked. Finally the
chapter highlighted the opportunities and the threats which mainly affect the SMEs and
ecommerce.

Chapter 3
3.0 Research Methodology
3.1 Research Strategy

A good methodology for a research , it's when , it has a general plan for researchers on how
they will go about answering research questions and how they will consider the sources for
data collection and the constraints , they might have (location and money, time, ethical issues
,access to data etc.). This methodology should ponder the fact that the researcher has
idealized carefully about why a particular strategy has been applied. This research was
carried out using a collection of methodologies. Both the secondary and the primary research
were used for this purpose.
Primary research is an original research which gives firsthand information on a topic. This
research (such as a diary, a person, or an event) informs you directly about the topic, rather
than through another person’s explanation or interpretation. The most common forms of
primary research are observations, interviews, surveys, experiments, and analyses of original
documents and artifacts. The primary research is conducted by the researcher herself/himself
and it’s not based on other people’s work. There are a few approaches to the primary
research and there are; Interviews, focus groups, experiments, surveys etc. This research is
very costly as compared to the secondary research. [Research]
Secondary research is the second-hand information on your topic, information at least once
removed from the original. This information has been complied, summarized, analyzed,
synthesized, interpreted, and evaluated by someone studying primary research. Journal
articles, libraries, web, publications, magazines, newspapers, encyclopedia entries,
documentaries, and non-fiction books are typical examples of such secondary sources.
Secondary research is cheaper than the primary research; it’s not as useful, accurate, as
specific, primary research. [Research]
The first phase of the research constituted of collecting secondary data from the literature
review, According to Howard and Sharp (1996), there are two main reasons for looking back
into the literature, first the preliminary search assists in generating and refining the research
ideas. And secondly, a critical review is part of the research process. Likewise to most
research projects, literature review is the early activity in their researches; the same applies to

this, after the first literature search, the researcher was able to redefine the parameters more
exactly and undertook further searches, keeping in mind research goals and objectives. The
literature review helping in coming up with a good insight and an understanding into the
previous research done on to the trends and this topic which have emerged.
The next phase of the research constituted of short listing of the small firms where the survey
had to be carried out. Companies which have an online business as well those which run
offline business. I.e. which operate in “shopping and delivery services” was selected. The
main idea of the research was to find out the overall E-business transition process of the small
firms who have are undergoing the change to achieve it and those who have already achieved
it. And the roadblocks to the adoption of the Ecommerce in small firms were identified.
The method which was used in the interviewing of the small groups (unstructured interviews)
is that of the two stage triangulation research method, this was followed by a detailed
questionnaire, testing quantitatively a much larger sample of employees and consumers. This
method of quantitative method, was recommended by Grove and burns (1997), it’s a
relatively a new approach and is often called the triangulation method. Interviews will be
used to gather reliable and valid data relevant to the research objectives.
Interviews may be categorized in to three categories [Saunders et al, 2003].
i) Structured interviews - It involves the use of the questionnaires which are based on a
predetermined and identical set of questions.
ii) Semi structured interviews - Here the researcher has a list of themes and topics to cover,
though these may vary from interview to interview depending upon the organizational
context. The order of questions may also be varied depending upon the flow of the
conversation. Some new questions may also be raised basing on the discussions. It also
involves tailoring to specific research protocols and also used to assess and rate the
abilities of potential research participants in four areas that represent part of the standard
of competence to consent in many jurisdictions
iii) Unstructured interviews - Here there are no predetermined list of questions hence being
an informal interview, with this form of interview the interviewee is free to talk about the
Behaviour, events and beliefs in relation to the research subject. Being that this type
interview is mainly based on the interviewee perceptual experience, it’s the reason as to
why it’s known as informant interview and also known as in depth interview because it’s

used to explore the deepness of the general area in which the researcher is interested.
In this research both the structured and unstructured interviews were integrated, which
assisted in ensuring a friendly and smooth atmosphere while taking the interviews. After the
analysis the interviews were then coded and again analyzed to produce a set of questionnaire
with reduction of categories to a smaller number of dimensions.
In Triangulation the main emphasis is on the combination of methods, for instance survey
questionnaire with in depth interviews. The main idea of taking two kinds of data collection
methods is that if it divers in the kinds of data support, are the same in conclusion, then
confidence in the conclusions is increased.
The overriding advantage of the interview is its adaptability. An adept interviewer can follow
up probe responses, up ideas and investigate motives and feelings which the questionnaire
can never do. The way in which a reply is made can reveal valuable information [Bell, 1987].
There are a few disfavors as well. Interviews are expensive, small number of the people can
be interviewed with in arrange of time and they are also time consuming [Bell, 1987; Hussey,
J. and Hussey, R., 1997].
Questionnaires are the less expensive, most popular methods of collecting data and les time
consuming than conducting interviews and very large samples can be obtained.
Hence, a survey was carried out and a set of questionnaire was also fixed to collect the
primary data. Bell (1993) says that surveys can provide answers to questions like What,
Where, When, And How. It tries to elaborate the problems of ‘representative nesses from
other approaches like case studies or most of the qualitative approaches. This approach can
be termed as fact finding mission and may contribute little towards the development of a
shaping theory or hypotheses.
The effects from the survey can definitely be used to test a theory or hypotheses. The data
here is primarily quantitative but may also be qualitative in nature as it represents peoples’
views about an issue. Questionnaires are mainly used for the purpose of data collection. Other
different distribution techniques were also followed as described by Hussey and Hussey
(1991). The questionnaires were circulated to the employees and consumers through
Telephone, Post, Group and individual email distribution. Hussey and Hussey (1997)
identified some important factors to be considered while using questionnaire and these are;
Types of questions, Sample size, Wordings, including instruction, Design, Method of
distribution and return, Wording of any accompanying letter, Method of collecting and

analyzing, Actions to be taken if questionnaire is not returned. All the above factors were
considered during the preparation of the final set of questionnaire.
3.2 Step by Step Methodology
i) Literature Review - This constituted of collecting secondary data from the literature
review and also generated and refined the research ideas.
ii) Short listing - The next phase of the research constituted of short listing of the
institutions/small firms where the survey/case study will be carried out.
iii) Structured and Unstructured interviews – The next phase was of data collection
which comprised of thorough interviews with customers and representatives across-
section of employees who disclosed variables to be tested at the next stage of the
research project.
iv) Questionnaire – At this phase, questionnaires were sent to the consumers and
employees for feedbacks
v) Analysis – The quantitative data was analyzed in-depth.
3.3 Questionnaire Design

The data which is needed to be collected and how it should be analysed is very crucial to the
determination of the questionnaire design. Dissimilar to interviews, the asked questions in the
questionnaire need to be precisely defined prior to data collection. According to Dillman
[1978 cited in Saunders et al., 2000, p.285], There are four distinguishable types of variables
that can be collected via the questionnaire; Attributes, Attitude, belief and behaviour. Attitude
variables these contain data about the respondents’ characteristics. Attitude variables indicate
how respondents feel about something. Belief variables record what respondents consider or
believe is true or false. And behaviour variables indicate what people did in the past, do now
or will do in the future. In this case two sets of questionnaires were prepared to gather
primary data (survey and interviews questionnaire) about the organizations’ behaviour and
customers towards Ecommerce.

The questionnaire design differs in relation to how it’s going to be administered, for instance
the amount of time the researcher will spend with the respondents. In this aspect, the
questionnaire design can be divided into categories.
i) Self-administered: Respondents do complete these questionnaires without the

invention of the researcher. These questionnaires are delivered to respondents via
email and post and then finally they are returned accordingly.
ii) Interviewed administered: Interviewers record in the questionnaires basing on the

respondents’ answers. For instance the structured interviews in which researchers
meet the respondent face to face and ask questions and the telephone questionnaires
where telephonic interviews are conducted.
In this research, the choice was determined by a number of factors such as the financial
implications of data collection and entry, availability of interviewers and ease of
automating data entry, the time available to complete the data collection. Keeping all
these factors bearded in mind, self –administered questionnaire was chosen to be
circularized to the sample via email, post, telephone and internet.
3.4 Chapter summary

This chapter gives elaborative detailed information about the methodologies which were
employed in order to achieve the objectives of the study, by coming up with the research
strategy, identifying the various step by step methodologies and also coming up with the
questionnaire design. Furthermore, interviews were categories in three levels as defined
by [Saunders et al, 2003]. The next chapter is dedicated to the case, where various
analytical tools will be employed in order to determine the position of ecommerce in
small-medium sized enterprises in Uganda.

Chapter 4
4.0 Case Study: Hello Uganda dotcom
4.1 Introduction
The main intention of this section is to define thorough the study of this project. This section
will give a general summary of the Ecommerce in Uganda. To a greater extend the study
focused on Hellouganda.com company was carried on through the use of SWOT and PEST analysis
with the intention of rendering recommendations which are firmly base on the present features
and the position of Ecommerce services.
4.2 Ecommerce in Uganda

The expansion and development of ecommerce and internet has really changed the way
transactions have been made in Uganda, this has helped companies to acquire new markets,
profits and reduction in costs [Bidgoli, 2002]. According Tambe and Hitt (2007), stated that the
growth of internet usage leads to good and improved quality of life via lowering communication
costs, convenience and efficient access to information. Ecommerce does represent the selling and
buying of online goods and services as a complementing and supplementing of the physical store
[Sahney, 2008].
In Uganda ecommerce development is imputed to as a result of accessibility to broadband
internet, increased acceptance of internet transaction and low number of smartphone users as its
stated in the previous literature [Mintel, 2010]. The level of activities carried out on internet has
been increased due to broadband development hence leading to activities to no more dependence
on the venue and time of the day, people’s home and offices have become centres. In Uganda the
major age bracket which is responsible for the growth of Ecommerce is between 25 to 35 years,
the reason being is that they are the main internet users and since one of the pre-requisites of
ecommerce is internet.

Figure 2: Internet usage as per the population in Uganda
Data source: World Bank, World Development Indicators - Last updated 2010
The above figure represents the internet usage in Uganda for the period of fourteen years from
1995 to 2008. Being that there was a supersonic growth in the internet usage from 2004 to 2008,
there are high chances for the growth of ecommerce in Uganda.

Table 5: Current Internet Usage in Uganda for private and public business
community
Sector Institutions % basic % Fiber

Access connection
speed (256)
Education Universities 35 40
NTCs, TCs, Mgmt Institutes etc. 15 5
Primary Schools 5 2
Secondary Schools 10 2
Health Hospitals 10 1
Health Centre IV- II 2 0
Agriculture National Research center 10 2
Extension offices 1 0
Government District Administrations 15 2
Sub county Administrations 1 0
Govt Ministries & parastatals 60 50
Private ICT related business institutions 25 10
sector Multi nationals and Corporate institutions 50 30
Registered business and SMEs 10 5
Public Access points 25 10
Households Households <1% <1%
Data source: Uganda broadband infrastructure strategy national position paper - Last updated
2009
As shown in the above table, only 35% of universities have accessibility to internet of which
those who can access broadband they are only 40%. Those with primary schools are less than 5 %
and for secondary school they are only 10%. With healthy centres IV-II those connected to
internet they are less than 2 %. Exertions have been made to connect government ministries and
government parastatals under the Electronic government projects; and connections have remained
low at local administration and district level.
According to the report from Mintel (2010), the main players in Ecommerce are classified into
five categories as named below,

i) Grocers – These players consists of clicks and bricks merchants like Tesco and J
Sainsbury who do provide products and use more than one channels to market their
products. These can be via online or stores.
ii) Other store based merchants – These do provide ecommerce services to client via
indirectly or directly.
iii) EBay – EBay has been classified directly due to its controversial nature, it deals with
both second hand and new products.
iv) Pure play merchants – These players only trade on internet.
v) Off shore merchants- These are players outside Uganda but have online presence in
Uganda e.g. ebay.com
4.3 Ecommerce market share in Uganda
According to GSPAY Limited (2009), today’s Internet is viewed as a huge market with potential
capabilities of covering the population of the whole world. This is why ecommerce is so attractive for
many traditional businesses. The penetration and increase of internet usage in Uganda will also
increase the potential market size for businesses on the annual basis. Online population can attribute
to an expected growth in internet commerce [MachroTech 2009].
According to ITU (2009), Uganda internet users were 2,500,000 from 2,000,000 in 2008; this led
to an increase of 7.7% of the population.
Uganda’s online retail population is expected to increase by an estimate of 12.2% [ITU 2009].
There are 0.5 million small companies in the Uganda; with 16% of these in the retail trade and
30% of all small companies have an online presence - potential market size for our service is
upwards of 200,000 companies [ITU 2009].
Online shopping population will grow from 2.5 million in 2009 to an expected figure of 3
million in 2010 since the population of Uganda has also gone to 40 million people% [ITU 2009].
Annual spending per buyer increased from $280 in 2007 to $300 in 2009, which is expected to
increase to $450 in 2011 [ITU 2009].

Figure 3: Uganda Internet Usage and Population Statistics (Per Capita

GDP in US dollars)
YEAR Users Population % Pen. GDP p.c.* Usage Source

2000 40,000 24,400,000 0.1 % US$ 410 ITU
2006 500,000 28,574,909 1.7 % US$ 280 ITU
2007 750,000 30,262,610 2.5 % US$ 280 ITU
2008 2,000,000 31,367,972 6.4 % US$ 300 ITU
2009 2,500,000 32,369,558 7.7 % US$ 300 ITU
Source: United Nations Department of Economic and Social Affairs - Last updated 2009
4.4 The future of Ecommerce in Uganda
Ecommerce is anticipated to grow faster annually than other businesses in the next 5 years and
this will be at the rate of 7% annually. Today as the same applies to Uganda, the population
between 25 and 35 years are the most consumers in adoption of Ecommerce in the SMEs [Mintel
2010].
In spite of the fact that Ecommerce in Uganda is still growing in SMEs, it’s anticipated that
ecommerce will still obtain many clients in the next coming years.
The modernization of Uganda will be a long process and is expected to increase in terms of
ecommerce, since many companies have started to recognize the potentials of internet business to
an extent that people have realised that with the sophisticated phones likes Xperia, IPhones etc.
consumers can still transactions irrespective of their location.
With the ecommerce contribution to the marketing sector, it’s the time that companies start
emphasising on customization and differentiation of products than having only promotional
websites, if they are to compete in this era.
According to Chaffey et al (2009), ecommerce market size will always be determined by the
consumer demand for internet shopping and this will be factored basing on the accessibility of
internet, benefits likely to affect the development and success of ecommerce and the
technological art of major players in the industry.

4.5 PESTEL analysis of the Uganda Ecommerce

According to Ko Ellay (2006), PEST analysis is similar to or the same as External analysis of SWOT.
Such external factors usually are beyond the firm's control and sometimes present themselves as
threats or opportunities for the firms. PEST analysis is an example that studies the Political,
Economic, social and Technological elements of the external environment which keep changing due
to the outside forces which organisations have limited control over it, yet these elements do affect the
success or development of the organisation either indirectly or directly [Alkahafaji, 2003].
4.5.1 Political Factor

The legislative and political factors are the main influential factors of ecommerce in Uganda as it
is in other countries. Uganda has exempted double taxations from overseas businesses
functioning in Uganda hence attracting foreign investment as a result of the tax allowances
offered by the government which are considered to add value to the economy. In addition foreign
investors have been given authority to buy properties in Uganda. A part from the above
mentioned factors, there are other factors such as climate change, there is an act which stresses
the need to reduce carbon dioxide discharge by 26% before 2010. There are many more political
issues which might affect ecommerce and the cost.
4.5.2 Economic Factors

These factors are so important and they are the main determinants of the price, demand, costs and
profits in almost all business. The big influential factor to the economy of Uganda is the
unemployment problem which has impacted the demand for both the production and goods.
Another factor which has influenced ecommerce in Uganda is the reversal of VAT from 18% to
21 % which has led to new prices between the competing organisations. These economic factors
which are external and are not controlled by the online sellers, there's a big possibility that
revenues for the companies are likely to be affected in the next coming years though there's
contributions coming from internal businesses , mainly from countries where labour is cheap.

4.5.3 Social Factors
According to the British Retail consortium (2010), the population of senior citizens is expected to
grow by 40%; this is also evidenced by the current trends in Uganda where consumers are now
very sensitive to prices due to the unemployment. The number of older consumers may have less
interest in the latest design or fashion and technology, which is expected to increase, factors like
population size and age distribution to a certain extent, they are capable of inclining the market to
a certain consumer segment and as such companies like Hellouganda.com and other SMEs need
to incline their product and service offerings to provide to such customer segments.
4.5.4 Technological Factors
Technology plays an important role in the performance and the growth of Ecommerce in Uganda.
The new developments which have led to an easy internet access has helped the companies in
gaining new markets and making convenience to consumers and this can be done via activities
like repeat purchasing that save time. Due to the use of Electronic shelf labelling, Radio
Frequency Identification (RFID), Enterprise resource planning (ERP) etc., services have gone
down in terms of cost hence indicating technological development. This has also improved the
distribution activities and efficiency of inventory management and the increment of customer
order processing from multiple channels. Ecommerce is the less affected channel when it comes
to economic downtrend as consumers keep using the internet for price bargaining and comparison
search by just clicking on a button. With technology it affects the businesses in a number of ways,
in Uganda the marketing industry where ecommerce is vastly contributing to the performance of
companies. Technological advancement can also be seen as sophisticated equipment in both
marketing and research. Technological advancement will also increase high expectations from the
consumers due to the exposure of such new technologies that will produce ease and convenience,
hence leading to a struggle to meet the consumer requirements with the efforts of gaining
productivity and market share.

4.5.5 Environmental Factors

The general increment in the degree of consumer awareness in consideration to the saving the
environment by carbon dioxide discharge, recycling, environmental pollution, the use of friendly
environmental products (like components and raw materials) waste management and monitoring
issues concerning ecological damage etc. is the factor which will affect the marketing activities in
Uganda. The estimated number of plastic bags given to Ugandan consumers in year is very big,
though the average time for one plastic bag to fully decompose is 1000 years [Euromonitor
2009]. The government of Uganda and UMA (Uganda Manufacturer Association) are trying so
much to get the alternative way of preserving the environment while carrying various activities.
What is more is that there is a global concern on how they can stop or end the ecological damage
and the misuse of resources. In most cases the level of environment pollution caused by
industrial chemicals is a distressful phenomenon that can send a packing company dependable on
how environmental awareness is basing on the host nation. The environmental preservation can
still be determined by the government coming up with policies on how the external environment
affects businesses. Accidents and natural disasters are also environmental occurrences that are
part of the factors affecting the external environment especially in terms of site locations. A
manufacturing sites located in Uganda is less likely to be hit by natural disasters like typhoon and
earth quakes than that located in China.
4.5.6 Legal Factors

Laws to prevent manufactures from engaging in acts like child labour, exploitation of labour,
harsh working conditions and discrimination which are commonly in Third world countries, are
already catered for in Uganda [Finance Times, 2008]. Such laws determine the obligations of the
parties’ involved and contractual relationships how it should look at. Other legal issues of
quality/standards of imported goods into the host communities are companies importing from
third countries where labour is cheap such as china should be cheap. Legal issues surrounding the
external environment based on the fact authorities are always witting of the type of goods being
brought in Uganda as imports, this is formed in the important laws.

4.6 Background of Hello Uganda dotcom
Hello Uganda dotcom is a web portal which embraces both delivery services and online shopping
primarily targeting people living outside Uganda looking for sending support to their loved ones
back home in Uganda. It enables its customers to enjoy wide range of products for instance
shopping vouchers, music downloads, school fees vouchers and many more products. Hello
Uganda finally sets preparations to do the delivery of the products/items directly to their
customers’ nominated recipients - usually within 24 hours of receiving a complete order
[Gateway Technologies 2008].
In addition you can buy a number of uniquely Ugandan items from them – they can then arrange
to deliver those products to any address in Uganda or elsewhere in the world. They have
partnered with leading courier companies to offer reliable and cost effective express delivery
services [Gateway Technologies 2008].
4.6.1 Ecommerce products and services offered by hellouganda.com
4.6.1.1 Gifts and Flowers
The company offers the service of Gifts and Flowers where it eases the service of gifts
giving, consumers can choose from a wide range of high quality gifts such as flowers, gift
hampers, perfumes, chocolate and various works of art.
This service is open 24/7, you can order up to the last minute, gifts are ever available and
then delivered to your loved one in time [Gateway Technologies 2008].
4.6.1.2 Tourism
It offers tourism services across a variety of avenues ranging from Accommodation which comprises
of real time online booking for Hotels, Apartments, Lodges, Cottages to mention but a few. The tits
and safaris section is also part of the tourism section; it encompasses National Game Parks, Gorilla
Tracking to mention but a few. The food and fun section is another one, it includes Restaurants,
Dancing Clubs, Live theatre and cinema to mention but a few [Gateway Technologies 2008].
4.6.1.3 B2B
The B2B profiles is a platform on Hello Uganda dot com which brings all businesses together to have
the same platform to talk about businesses and to make important consultations on any paramount

issues regarding businesses in any form [Gateway Technologies 2008].

This kind of platform has been designed with a feeling that all businesses will be able to communicate
thoroughly with others; disseminate information to all stake holders in the business fraternity.
Therefore a B2B profile is such an amazing pillar which guarantees a smooth conduct of business
among business partners [Gateway Technologies 2008].
4.6.1.4 Electronic Vouchers

The Hello Uganda Electronic vouchers simply ease buying services and commodities for its beloved
ones no matter where they stay, these vouchers can be used to pay goods from supermarkets,
construction materials, payment in pharmacies and clinics to mention but a few [Gateway
Technologies 2008]. This feature is just paramount as it takes little time and guarantees trust on
behalf of people in the Diaspora and their families here in Uganda that whatever money sent is put
into its actual intended use.
4.6.1.5 Life styles

The Hello Uganda life styles is a social place where friends and families can meet, interact, chat on
line, have voice opinions, viewing of the latest fashions, fun, hot artists & cultural events and all
happening places in Kampala. With the Hello Uganda Life styles, a lot is put in place for a variety
targeted audiences and as such everyone has a chance to enjoy this marvellous and wonderful feature
4.6.1.6 Music down loads

Hello Uganda music down loads section is an online store of music from all the Uganda’s leading
artists. One will be able to down load a desired song to his or her storage device. This increases the
will of those in the Diaspora to enjoy the music of their countrymen which has not been possible for
some time [Gateway Technologies 2008].
4.6.1.7 Hello Uganda School Fees

The Hello Uganda school fees has been designed to create a conducive environment of paying school
fees in Uganda, it’s a simple and easy way because it will involve members of its families paying fees
on line and again anyone with an Internet access will be in position to pay his/her fees online for any
school, university or tertiary institution [Gateway Technologies 2008].
According to gateway technologies, (2008) Hello Uganda has promised a delightful and safe
web portal for use. In addition to that, it has enriched its web portal, it has partnered with

PayPal to ensure that it conducts an online payments in a safe and secure environment. It has
no access to your credit card details - as you enter them directly into the PayPal secure server.
4.7 The competitive environment (Porters Five Force

Framework)
Figure 4: Porters Five Forces Framework
Data source: Porters Five Force Framework - Last updated 2002
According to Scholes and Johnson (2002), the presence of a very fierce competition between
firms as a consequence of technical advancement and market globalization in the likes of
information and communication technology is one of the most dominant attributes of today’s
market led economies. It’s not typical to see companies struggling to create one form of
competitive advantage or the other in order to provide for the requirements of consumers with in
their industries. Porter’s five forces framework is a model that is directed at furnishing firms with

valuable means of assessing an industry in order for the porter’s five forces to be believed as
instrumental in shaping competition within an industry [Alkahafaji 2003]
Porter’s five forces constitute of the following;
4.7.1 Threat of new entrants
According to Keller and Kotler (2006), the attractiveness of a market segment, depends on the
height of the entry and exit barriers, where the most attractive segment is the one with the highest
entry barriers and low exit barriers. In Uganda the threat of the new SMEs entrants in ecommerce
industry is high since the industry is still in maturity stage.
4.7.2 Bargaining power of suppliers

In Uganda there’s an intense competition in the ecommerce industry and there’s a low fear of
suppliers integrating into the industry because of factors like sourcing cheaper deals from abroad
large companies.
4.7.3 Bargaining power of buyers

With the recent global financial crunch, Uganda was among the countries which their economies
was affected, therefore Uganda is just recovering from the effects of that economic recession,
which triggered the consumers to become price conscious and hence companies got involved
into price wars, discounting and it’s true that the bargaining power of buyers is high. The
existence of many companies and price comparisons on the websites has made prices wars
between businesses and hence giving consumers more power of choices. An example Hello
Uganda’s less commission deductions has made it stay in business [Gateway Technologies 2008].
4.7.4 Threats of Substitutes
Basing on Rutherford (2002), any service or good that consumers consider serving as the same
purpose as the other is called substitute. In Uganda there’s a high threat of substitution in
ecommerce with the broad companies which seem to have better substitution products online.
Buyers like comparing prices from one website to another before they can have what to purchase.

4.7.5 Competitive rivalry

Hello Uganda is faced with tough competition with other companies both local and external e.g.
amazon etc. Many SMEs in Uganda are becoming more aware of the advantages of internet. The
competition is expected to rise when more players come into the game and improve, update their
products on the internet. The result of the five forces on the hello Uganda dot com is that there’s
bound to be more competition as the existing and the new comers into the online business will be
working to build more attractive and customer friendly websites that will be targeted for
consumers searching for goods at the lower prices.
4.8 SWOT analysis for hello Uganda dot com
SWOT analysis provides a study on the strengths and weaknesses of Hello Uganda in relation to
Opportunities and threats that can happen in the industry. This analysis tool helps the company to
take its measures to the weaknesses, threats and the opportunities before concentrating on its
strengths.
Figure 5: SWOT Analysis of Hello Uganda dot com

STRENGTHS WEAKNESSES
i) Penetration of International markets i) Delay in distribution of goods
ii) Discounting strategies
iii) Leading Market Position
OPPORTUNITIES THREATS
i) Ecommerce Activities i) Intense competition
ii) Broadband Expansion in the Uganda after the ii) Low demand of non-food products due to
establishment of seacom recession
4.8.1 STRENGHTS
Penetration of International Markets
Hello Uganda dot com has tried to penetrate into the international market by registering it website
with Google so that it can be placed on the first page when consumers do a search for online
commodities via Google website. This has helped it to penetrate into the markets and secondly

being that it has identified the customer needs and it does offer products in line with low prices as
the same at the international market .Hello Uganda doing this it helped it to stand a better chance
to gain more market share locally in Uganda.
Discounting Strategies
This move of Hello Uganda providing affordable priced products to its clients, this made the company
to gain broad appeal at most clients, and this made them to buy products that match their budgets
without compromising on quality and choice [Gateway Technologies 2008]. This move has enabled
the company to sell its products online without much competition.
Market Leadership
Hello Uganda’s electronic market position in Uganda has given it a powerful bargaining position; this
has given it a good future growth and sustainability. Hello Uganda is one of the most experienced
ecommerce service providers in Uganda and it has been successful due to the early adoption and
consistence in innovation.
4.8.2 WEAKNESSES
Delay in distribution of goods
Hello Uganda being that it has acquired a big market share, many Ugandans abroad buy online
products/services off it’s website for their loves in Uganda may order for the delivery of the
goods/services, but normally the delivery for these goods takes some time, since when an order is
got, they also go and buy the product and then finally deliver it to the right address were directed,
but it consumes time.

4.8.3 OPPORTUNITIES
Ecommerce Activities
According to Gateway Technologies (2008), hello Uganda’s websites has earned it much money
from the variety of the products and services rendered to its customers. The company’s online
presence is perceived to be the cheap way of reaching its customers.
Broadband Expansion in the Uganda after the establishment of seacom
The existence of fibre after the establishment of seacom, Internet has been expanding in Uganda
hence giving hello Uganda a good opportunity to increase and maintain its market share in terms
of ecommerce, This Company is one of the leading companies in Uganda in online business
4.8.4 THREATS
Intense competition
Because of a stiff competition in this sector of ecommerce, Hello Uganda has been faced with a
very high competition from other companies under the same sector who have been gaining the
market share gradually. With this sector in Uganda, the market has been saturated and extremely
competitive, since many online businesses have joined the same market
Recessionary Climate
With the recent economic global recession which also affected Uganda, this left many consumers
without disposable income and hence led to reductions in the consumers spending. With issues
related to declining income and increased unemployment, companies cost cutting by cutting off
employees etc. This in all led to consumers having less income and resulting in less spending on
essential commodities as a result of shaken consumer confidence. The company’s products in the
non-food segment declined massively in the sales as a result of hard economic times that affected
the country.

4.9 Chapter summary

This chapter has gone ahead to give an overview of the ecommerce activities in Uganda. It also
went further to give the background of the case study from the strategic position of ecommerce in
both the Uganda SMEs sector and the case, via the use of PESTEL analysis, Porters five forces
framework and a SWOT analysis, with a view of providing a thorough understanding of the
present and future state of ecommerce within the case and the industry.

Chapter 5
5.0 Research Analysis
5.1 Research Analysis and Presentation
The data which will be collected from any research, it will need to be analysed for the
researcher to come up with a sound conclusion. Qualitative analysis is a process which
involves looking back, synthesizing and interpreting of data to explain and describe the
phenomena or the social worlds being studied. According to Tesch (1990) he states that the
differing analytical procedures can be aggrouped into content, discovery and meaning
focused approaches. Regardless what approach is used, it’s just like data collection methods,
and the asperity of the analytical procedures is dependable on the transparency and adequacy.
The qualitative research findings are presented as textual descriptions that light up the
subjective meanings of the social world or phenomena , being analysed , but this should also
place the findings in the context [Popay et al, 1998], and then to represent the real world of
those analysed and in which their lived experiences are enclosed.
The aims/objectives and the process of the research methodology for this case study have
been talked about in the previous chapters. The aim of this chapter is to analyse and present
the data gathered with the survey tools. The accomplished work will be presented in a good
structured report format using the visual aids such as tables and pictures. The author of this
report has tried to put all the possible attempts to keep this report without technical jargons.
5.2 Consumer Survey Analysis
Questionnaires were sent electronically to students in Makerere University Uganda, and these
emails were describing the purpose of the survey and how these questionnaires should be
answered, and further an emphasis was made for those who have received the questionnaire
to distribute also to their friends and family members. There was a reminder email sent to all
those non responsive individuals after a period of one week. Amongst the 40 questionnaires
sent, 32 responses were received back.

The sample consisted of workers who are full time, part time workers and students at
Makerere University and the sample consisted of the majority as men and their ages ranged
between 25 to 35 years. Questionnaires to these sample people were sent via emails and the
responses were sent back via emails, which were collected and analysed.
The questionnaire had five different sections and these were ; Internet self-capacity, Internet
shopping, Limitations or Barriers of purchasing online products, Motivation of online
purchasing , Perceived web security and other features valued by customers and about
yourself. The final results shows several trends including everything, were perceived as being
of use to the online shoppers. Finally the overall questions were organized and used in the
presentation of data.
Section A: Internet Self Capacity (Confidence, Experience, Access to Email, Computer

Training)
This section addressed areas on the accessibility and availability of Internet as well as
confidence in using it.
i. How often do you use Internet?

ii. How confidently are you when using Internet?
iii. For how long have you used Internet?
For the last decade there has been a significant development in Internet usage, almost more
than 50% of the sample have been using internet in the last 3 to 4 years.
Since the majority of the respondents were Makerere University students, most of them said
that they use the internet at least twice a day and more than 60 Per cent were convinced in
using it
iv. How frequently do you use the following on the Internet?
For the purpose of finding the respondent’s current online activities and the extent to which
he/she does Internet shopping, the respondents were asked to state what primarily drives them
to use the Internet. This question had multiple answers basing on the multiple options which
were given. These options included; Reading newspapers/articles, researching topics, Internet

shopping, looking for Jobs, Planning Travel and finding about careers, obtaining information
about products.
The results of this study show the big number of the respondents used internet for gathering
information on jobs/careers followed by planning travels. According to the results they show
that about 20 per cent of the overall respondents said they use internet for shopping, and the
50 per cent use it for shopping and the rest 30 per cent are not so much interested on Internet
shopping.
Section B: Internet shopping
Internet shopping offers additional and new marketing communications techniques which
have help the clients to get the information about the products and also assisting them in
making decisions. It’s so vital for internet merchants to brainstorm into the clients’ tastes for
different online marketing communication accesses. Therefore Internet shopping can employ
the most effective approaches and the appropriate way to attract consumers and also facilitate
their purchase decision making. Authors like [Hagel and Armstrong, 1996; Chaffey et al,
2000] suggested that building virtual communities of the most involved and loyal customers
would be the key to success for internet retailing. Nevertheless, most of the community
efforts have less commercial abilities. Gily and Wolfinbarger (2001) argue that a high-
involved product area or products with an enthusiast base will draw a related community that
may be commercially possible.
This part mainly involved questions on the usage and usability of internet as well as
preference towards traditional and online transaction. This section also intensions to analyse
the online purchaser’s attitude and behaviour towards internet retailing, most particularly,
their perceptual experience on the vital factors that support their Internet shopping decision
making at different stages.
v. Have you ever purchased a product through Internet?
Participants which are more than 60% had once ever purchased services or products through
the internet Li et al. (1999) concluded that “consumers who buy online are better educated
than those Internet users who do not, and income is higher for web buyers than non-web

buyers.”
vi. If yes, how often do you buy product on the Internet?
Of the 37 respondents who indicated that they buy online product, 26 of them buy products
once a year online and 12 of them once a month. Amongst all none buys the products every
week online (Below is a figure illustrating more)
Figure 6: Respondents’ response on how often they do buy products online (the figures
are in percentages)
vii. In general, what kind of shopping modes do you prefer/like?
When the above question was asked, the study showed that around 23% of the participants
like Internet shopping, 40% like traditional shopping and the rest like a mixture of the two
(See figure 6 below)

Figure 7: Kinds of shopping modes and the percentages of the respondents
Section C: Barriers or Limitations of purchasing online products.
This part of the questionnaires intended to find the limitations and barriers of online purchase
and the following question was asked the respondent.
viii. Reasons, why you do not like/prefer Internet shopping (tick only one option for each
reason)?
With this question, it was requested for all those participants who said that they prefer
Internet shopping were asked to skip it, since it was irrelevant to them. With this question 44
respondents responded.
Here more than 80 % of the respondents disaccord the statement that they don’t have access
to internet or they don’t know about the facilities of internet shopping. Most of the
participants disagree with the statement that “I prefer to talk to sales staff before buying any
product”
The most fearfully reason for why some participants don’t like Internet shopping, which was
mostly voted was the lack of confidence and privacy/security in the quality of the product
being delivered. A good percentage of participants preferred seeing the product first before

buying because they believe Internet shopping is undependable and there’s wastage of time in
delivery. (Look at the response as shown in the given below figure)
Table 6: Response from participants on those who like/prefer Internet shopping
Topic Strongly Agree Agree Neutral Disagree Strongly Disagree
I do not know about the 3 4 0 35 1

facility
I do not have accessibility to 0 0 12 31 0
Internet
I find it difficult to navigate 8 5 17 6 7
smoothly.
I feel Internet accessibility is 1 11 12 16 3
still expensive.
I find the traditional way of 6 15 15 6 1
shopping more convenient.
I prefer to see the product first 19 11 5 8 0
before buying.
I prefer to go out shopping 5 17 8 12 1
with my friends and I like to
take their advice before buying
anything.
I do not get enough product 13 14 6 10 0
information online.
Internet shopping seems 22 9 2 10 0
unreliable to me.
Quality of product, after-sales 9 21 2 9 2
service and the credit of the
retailer cannot be guaranteed.
Inconvenient payment system. 11 8 21 2 1
Delivery is time wasting. 20 11 5 3 4
I prefer to talk to sales staff 1 11 4 21 6
before buying any product.

I do not feel secure using my 22 11 5 2 3

credit card information online.
I feel loss of privacy in an 3 28 6 6 0
online transaction/medium.
I feel I would be bombarded 12 6 0 21 4
with updates and other notices
if I register online on any
website.
Shopping on street is more 6 11 14 12 0
enjoyable than doing it online.
Section D: Motivation of online purchasing
This part targeted at finding out the advantages and motivation of online purchasing. The
following questions were asked the respondents.
ix. Reasons, why do you like/prefer Internet shopping (tick one option for each reason
below)
For all the participants who preferred traditional shopping were not considered since this
question would be irrelevant to them. There were 35 respondents who responded to this
question.
Amongst the reasons given about the likeliness of Internet shopping (relaxing shopping
experience, efficient and fits in well with the work schedule, convenient and accessible, less
time consuming), the most two voted reasons were less time consuming of (29/35) and the
convenient and accessible which was 82 % . mostly the respondents who were either neutral
or disagreed with the statement that they like Internet shopping because they don’t consider
safety travelling to and from the store. Many think that Internet shopping conforms to their
working schedule. (Look at the response as shown in the given below figure)

Table 7: Responses from participants who are motivated by Internet shopping
I prefer to do shopping 11 9 2 12 1
anytime at home or office
without going outside
Convenient and accessible 17 12 2 3 1
all the time
More relaxing shopping 21 7 3 4 0
experience.
Internet shopping is easier 10 19 4 2 0
and less time consuming.
Fits in well with my work 7 16 3 9 0
schedule.
The shopping complex 5 12 14 3 1
(city centre) is far away
Using the World Wide
Web enables me to shop
more efficiently.
I do not have to consider 0 2 23 8 2
safety travelling to and
from the store.
I prefer to shop alone and 5 8 14 4 4
Internet gives me the
option for that.
In Internet shopping there 2 17 2 13 1
is convenience of delivery
I can do comparison at 4 23 4 3 1
home or office without
going to different actual
shops

The above figures manifest that internet users are more time saving, convenient oriented,
effort saving and wide range of offerings provided by the web environment which is
attractive for them. Convenience is the frequently mentioned reason for those who prefer
Internet shopping. Gilly and Wolfinbarger (2001) assort online shoppers into two groups:
convenience-oriented buyers or goal, and experience-motivated shoppers. Convenience-
focused consumer behaviour is paramount on the Internet. Li et al. (1999) also found that the
utilities in communication, distribution, and accessibility with Web shopping are more highly
perceived by consumers who make online purchases than those who don’t t. hence it is vital
for Internet retailers to focus on the easy access and organization of information provided.
Section E: Perceived Web security and other features valued by customers
Ecommerce is basically changing the customer shop ways and services or products. Some
consumers Internet shopping has become part of their daily activities, while others are just on
the way to consider it. It’s very vital for internet merchants to click the factors which may be
determining the internet online purchasing. This part of the questionnaire covered questions
on the web security and other features on an Internet shopping website valued by customers
x. Do you feel secure sending personal/financial info across the Web?
The big percentage of the respondents accepted that they feel insecure sending their
personal/financial information on the web, therefore the online merchants need to enhance
payment security on behalf of their clients.
xi. When visiting an Internet shopping website, which of the following features do you
value?
Internet marketing websites must fully support the customer needs at all stages of
decision process. Once the most important factors at each stage are identified by their
promotional customers, then online marketers will be able to focus manoeuvre to those
factors, to support customer decision making. It‘s evident that different factors had
different important levels at each phase. As a result the overall values are likely to
undervalue some significant factors at different phases. I will be of values and appropriate
to evaluate the most vital factors at each stage. On the Internet shopping website,
amongst the many features available (Contact Address through email, Company Profile,

24 Hour Customer Service, Security Certificate, , Free shipping and Handling, Policy
Notes, Hyperlinks to other related information, Protection of personal information ), The
most useful and popular one ,valued by the respondents was the ability to track the order
placed. Post purchase services are more vital for online marketers to keep their customers
gratified. Srinivasan et al. (2002, p.43) indicates that service failures are likely to affect
the business in future due to weakening the customer company bonds and lower
perception of service quality.
The policy note and large selections of merchandise were the features which didn’t seem
important to the respondents. The appealing website design and functionality also not
very important .Due to widespread availability of information, internet customers their
search costs are dramatically reduced. The online marketers should organize the
information in logical manner which is organized and easy to navigate. (Look at the
response as shown in the given below figure)

Table 8: Responses from participants on how they value features on internet shopping
websites
Company Profile and overall 7 26 18 5 0

Brand equity.
Security Certificate. 18 13 24 1 0
24 Hour Customer Service 29 17 3 7 0
Large selection of merchandise. 3 9 21 21 2
Detailed product Information. 22 27 7 0 0
Policy Notes 0 3 28 17 8
Free shipping and Handling. 19 30 7 0 0
How clearly the Return Policy 21 18 15 2 0
is explained
Delivery within a specified time 28 17 9 2 0
frame (Guaranteed delivery)
Simplicity of process. (How 7 19 13 15 2
simple it is to buy something
online.)
Tracking (Does the site provide 7 43 6 0 0
any feedback or a confirmation
number once the order is
placed.)
Protection of personal 5 21 12 11 4
information.
Speed (How quickly each page, 3 26 12 11 4
text and images appear.)
Functionality (Overall, how 5 12 28 6 5
well the site seems to work.)
It was detectable that a store’s company profile/reputation was named as a vital factor for
choosing a particular website. The danger associated with online transaction and shopping is
still very high. Online consumers consider many factors in order to decrease the risk involved

when making a buying decision, this is just an addition to the product attributes such as
quality and price. For the internet users, online marketers’ reputation is very vital. Trust is
associated with a lower perceived risk of Internet shopping, and a consumers’ perception of
the Internet retailer’s reputation and size is expected to affect their trust of the retailer
[Jarvenpaa et al., 2000]. Hence, online marketers are supposed to impress the prospects of
these two aspects with relevant marketing communications efforts. According to Haubl and
Trifts, (2000), Approaches to comparison matrix (CM) or comparison shopping are
considered to have a substantial impact on consumer decision making, and are able to
increase the quality of consumers’ evaluation [Haubl and Trifts, 2000]. Security of
confidential 1nformation /security certificates was another vital factor during the actual
transaction stage. The Internet shopping is always available for 24/7, customer service and
the protection of customer information is always considered to be important. Online
transaction security dominates the discussion on internet commerce [Szymanski and Hise,
2000]. Also credit card security is emphasized as one of the most important things to
consider by the internet shoppers when deciding either to purchase or not. Security and
privacy have greater impact on the online purchase intention of the consumers that the
information content and design of a retailing website [Ganapathy and Ranganathan, 2002].
Hence, online marketers must make adequate and necessary protection mechanisms to ensure
security of transaction and sensitive information for their customers. Other two important
factors are the ease of handling orders and availability of online interactivity. According to
Gilly and Wolfmbarger (2001) many online buyers complain that they cannot accomplish
their transaction and websites keep failing to provide necessary help and interactions. Though
internet consumers do enjoy the freedom and the convenience of Internet shopping, they also
need help to complete the online purchase.
Online marketers are supposed to support and offer a wide range of online interactive
channels, for instance Web chat, email, FAQs and call- backs.
xii. Do you intend to purchase products from the internet in the near future?

Figure 8: Respondents’ interest in purchasing online products and services
The graph above shows that 45% of the respondents intended to purchase products from the
internet in future, 32 % were not interested buying the products online and 23 % were not
sure whether they will or not.
Section F: About Yourself
This section consisted questions which helped to gather information on the females and males
in the survey including their occupation and age.
xiii. What is your gender?

xiv. How old are you?
xv. Are you a student?
The questions were vital to show if the gender, occupation and age do affect the choice of
Internet shopping or not. The sample consisted of both males and females the total
respondents were 56 in number. (Questionnaires were distributed via emails to students and
they were also supposed to circulate them to their friends and family members).

Figure 9:Respondents in percentage
The results above showed that more males participated than the females. The results showed
that female preferred traditional shopping than Internet shopping; both females and males
preferred a mixture of both traditional and Internet shopping
5.3 Organisational Survey Analysis
The results from the questionnaire helped in the gaining of the organizational position about
the innovations of the Ecommerce in the SME sector, these questionnaires were analysed in
this section. Through emails and posts to several companies, questionnaires were
disseminated and the senior managers were requested to complete the questionnaires. 100
companies were randomly selected from the yellow pages. The selection was based on the
reality that out of 100 companies, 99 are small or medium scale companies (SBS, 2005).
Unluckily the surveys needed a lot of opinions and time which was limited. Therefore,
responses which were valid were limited to twenty. Nevertheless, this small sample provided
results which in sighted about the trend of Ecommerce in this SME sector.

Section A: Organization’s background
The questionnaires were anon and it was of importance for the company’s background to be
collected from the participants. The questions below were asked from the participants.
i) Company size ,Total number of employees

ii) Organization’s Annual turnover
iii) How long has your company been established?
iv) Company location
Amongst all the respondents, around 85% were from small and micro categorized companies
and the 15 % came from the medium scale companies. The biggest number of the companies
which participated was established at least in 3 years and above, 10 % of these were
established in the last 2 years and 5 % were established at least in 1 year and below. The
figures below demonstrate the above statement.
Figure 10: Number of Employees in different company categories

Figure 11: Companies established since
Section B: Information Technology
The questions below were asked from the participants in this section.
v) Does your company have an Information Systems Department?

vi) Are your company’s computers networked?
vii) Number of Computers in your company?
This survey showed that 65% of the participated companies didn’t have any information
department and 35% had, this same survey showed that at least every company had one
computer irrespective the size and almost all companies had an internet connection as well.
(Figure 10 shows the status of companies’ information department systems)

Figure 12: The status of companies’ information department systems
Section C: Adoption of Ecommerce
With this section, the questionnaire was meant to see how companies do implement or adopt
the Ecommerce system. The questions below were asked in this phase
viii) Has your Company established a website?
Among the responses which were received, 85% of the respondent employees said their
companies owned websites and the rest didn’t. (Below is a figure illustrating more)

Figure 13: Website
Using the websites as a source of information (service and product information) got the
biggest percentage which was followed by promotional purposes.
ix) What percentage of sales is currently generated / achieved using the Internet?
x) Is it anticipated that this percentage will increase during the next year?
xi) Is IT considered as integral to company strategy?
xii) Does your company train employees in the use of IT?
The employees who participated in this survey 75% of them felt that 1 to 9 % of the sales are
acquired via internet whereas 3 of the participants said no percentage of sales is acquired via
internet in their companies. 60% of the participants said that the percentage in the coming
year will not increase. The respondent companies which didn’t consider IT to be an integral
part to the company strategy were 70 %. The respondent companies where employees were
not given any training in IT were 75%.
xiii) Which of the following are used to inform management of emerging technologies?
70% of the respondents stated that managements are informed of the emerging technology
from attending trade fairs and these are followed by those making consultation with IT
specialist with 30%.

Figure 14: Awareness of Technologies
Section D: Future Intentions
xiv) What do you consider to be the major factor that will limit further expansion of
Internet technology usage?
80% of the participants were concerned about the risks of frauds through internet as the major
limiting factor towards further expansion of internet technology and 55% of those
participants who closely followed by the reason that perceived benefits without warrant and
those who lack IT specialists were 45%. (Below is figure 10 showing the limitations of
Internet technology)

Figure 15: Limitations
5.4 Chapter summary
This chapter has presented, carried out analyses and discussion on the findings from the
research. The research worker was able to derive to how the respondents sensed out the
benefits and issues with regards to the use of ecommerce in the small-medium sized
enterprises in Uganda. The next chapter, which is the concluding and discussion section of
the study, will therefore relate these findings to both the objectives and the research questions
of this research with a view to proffering suitable recommendations for the case.

Chapter 6
6.0 Discussion and Conclusion
A big number of participants were very friendly to Ecommerce; this means they were able to
realize the significant benefits of ecommerce adoption. On the opposite side it could also be a
feeling of an excitement for the ballyhoo about the Ecommerce and internet. The evaluation
of valued data indicates that the interviewees think, the use of ICT will help the SMEs to
reach new markets and also be able to break through geographically. It’s easier to transact
directly with overseas customers and also attract global market via Ecommerce. With
Ecommerce offers potential economic growth to enterprises by reducing the substantial role
played by intermediaries and also by interacting directly with the customers on the
internet/online. The survey conducted shows that there was a relationship between the use of
Ecommerce and accessibility of internet and the organization size. For the medium
enterprises they do access the internet and they do own their own websites. More than half of
the small sized enterprises do have computing facilities and internet access but they don’t
have Ecommerce presence. The consumer survey showed that most consumers don’t mind
much on the presence of website security presence and most of these firms had websites in
form of static. This survey found out that there was a consistence in the results with that of
the previous study where the presence of a privacy seal was not so vital to the sample. Very
few users would trust a site with a third party seal. This research also confirms the
researchers’ conclusion which stated that trusted brands have some trust building of their own
[Kuchinskas, 1999]. After then, surveys showed an overwhelming support for the third party
verification concerned, this survey still emphasizes that the potential of the seals has not been
realized. While the security features were rated to be the most important via sampling, with
privacy and security seals all security statement highly correlative , respondents showed that
the requirements for the features on the website leads to a desire for others as well. SMEs
consider the following points while implementing or enhancing Ecommerce in their
companies, this is based on the consumer survey conducted.
i) Increase the ranges of product categories (if possible) and definitely improve product
quality.

ii) Put emphasis on the publicity and their reputation. "Online retailers should promote
their reputation and deliver a reliable image to consumers."
iii) Enhance credibility of product information and marketing promotions. Some
respondents complained that there was a gap between the received product and
that advertised.
iv) Provide efficient delivery and enhance post-purchase services. "Post-sale services
must be guaranteed to maintain consumers’ satisfaction; otherwise this could lead
to their suspicion of Internet retailing"
v) Accommodate secure and convenient payment alternatives.
vi) Improve website design and update information instantly. "The process of online
transaction should not be complex"
According to the organizational survey, the potential to expand the customer base into new
markets, this encouraged the firms to use the Ecommerce hence being an important
opportunity. This study after qualitative examination, it found out that ecommerce and
internet chances were only vital for firms in manufacturing and retail sectors. This opinion
was due to the quality of the products they do sell as compared to the professional services,
business services and the construction industry which require physically the clients to go, for
the transaction to be processed .for instance repairing a car, a mechanic cant until the car
physically is there. Where the manufactured and retailed good don’t require physical meeting
of the buyer and seller hence, such goods can easily be sold over an expanded geographical
area, but the providers have failed to realize that internet and ecommerce usage can help the
firms in gaining competitive advantage through increasing the customer base. For instance
the mechanic can only advertise his offers via a website, just to show that he/she has similar
services to that of ‘nationwide auto centre’. The extra mile the mechanic can move is to
provide an online booking and also customers being able to make payment advancements for
the services requested. Lack of this knowledge was the most important factor that
discouraged SMEs from using Ecommerce. Because of the nature of their products, many of
these SMEs in the service sector, they thought Ecommerce was not of use to them. Due to
face to face contact needed in such kind of services, they didn’t use Ecommerce to expand
their customer base. Being that the government has done little to increase awareness of
Ecommerce, Ecommerce can be used as an advertising medium to attract more businesses
locally and with high opportunities of reducing cost. A few of the small retail firms referred

to lack of Ecommerce as the result of developmental barriers since many opportunities comes
when ecommerce is applied and still internet usage can expand the customer base or increase
profits by reducing costs. Amazingly some firms believe that introducing electronic
communication in replacement of direct human contact is a threat to customer relationship.
The literature referred to cost reduction as a key opportunity of ecommerce for small firms,
though the research findings were mixed. All firms wanted to become more competitive by
becoming efficient in their price reductions. Nevertheless most firms introduced ecommerce
with a perception that they would lose their clients to their competitors with websites if they
don’t act. This fear was found in SMEs that dealt with B2C commerce, where some clients
requested them to go the Ecommerce way. Mainly firms adapted to Ecommerce with a worry
of not being left behind. The B2B firms where enforced into the ecommerce business with the
pressure from above since they were part of the supply chain of larger organizations. These
firms were demanded to implement the Ecommerce or lose their contract. For B2C firms,
Ecommerce would be and additional services were clients would be placing their orders.
Owner managers failing to understand what Ecommerce is , it’s benefits and how it can be
applied to businesses , this contributed as a barrier to the introduction of ecommerce.
Through HelloUganda.com ad small business service, the government of Uganda has tried to
tackle the problem by giving free advice to SMEs. Many firms which found the advice very
helpful went on to establish the web presence and many firms which were not proactive were
ignored and many of them were unaware of such services, this was because advice agencies
only advise firms which come to them. But if the advice agencies were proactive, they could
contact the firms directly than them waiting for them coming to them after getting an interest
in ecommerce. This will be more successful in promoting ecommerce within the SMEs. From
the micro firms, the mangers were found to be running the companies day to day, with little
time for long term strategic planning and often felt no immediate time was there t be spent on
immediate matters like establishing web presence.
Ecommerce along with internet gives a chance of cheap accessibility of information and also
gives access to global network. Still the cheap information and better access doesn’t create
opportunities for the business. This research tried to show that it’s very vital for SMEs to take
on Ecommerce correctly in order to over their dangers and stay in the competition. The
success of SMEs from using Ecommerce will depend on a combination of ingredients
because the surrounding of Ecommerce is far from the ground in the stone. This study
spotlighted the inequalities between the understanding and the knowledge of specific

technologies at the high management levels as to compared to the lower levels. The writer of
this report has an opinion that the following details could help the small Medium Enterprises
in taking good decisions of either improving or incorporating ecommerce as part of an IT
strategy. First and foremost the management of the company should be aware of the current
technology plus its benefits that can be achieved from these technologies. Secondly
comprehensive examination of performance, price and cost issues should be considered to
determine which technology provides a good ratio. The government should consider
proactive measures by making the companies aware of the latest technology so as to boost the
ecommerce all over Uganda.
With the present resources and time, there are a number of weaknesses which have been
affected by this study. First during the study, the sample was limited and very small to a few
limited firms in Uganda. In Uganda Ecommerce in SMEs is differently practiced as
compared to the world elsewhere, this could be due to some elements of geographical bias or
possibly the different barriers or different opportunities faced due to locations. Adding to this
there’s also an element of non-response bias since of all firms contacted, only a few
responded to the research meaning all firms which didn’t respond possibly all have similar
characteristics, hence leading to misleading results. Nevertheless, the possibility of this is
Very unlikely since the un-respondents consisted of all industrial sector and age groups.
Basing on the above constraints, there are chances that a bigger study will still be conducted
on the use of Ecommerce by SMEs. The study should find out whether firms can manage to
translate the current opportunities into real opportunities since there has never been a large
scale study on this subject to date. In addition to this, apparently the research shows that a
large number of opportunities of Ecommerce belongs to firms in manufacturing and retail
sectors. Previously a large number of researchers on the use of Ecommerce in SMEs mainly
focused on sectors like industrial sectors particularly the service sectors. Affirmed research
needs to be done focusing on how Ecommerce can be used by the firms within the retail and
manufacturing sectors. Finally in future research, it should be looked into if firms after
introducing Ecommerce in their systems they get disadvantaged.
Inclusion I do say that there are a number of strategic directions to be taken up by

organizations to achieve success and there’s no single path to success. The selected path
should base on the requirements and the company structure along with the dominating market

conditions. Basing on the fact that technology keeps changing, this is the most reason for this
and hence the evolution rules will always be rewritten.

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8.0 Appendices
8.1 Appendix A: Consumer Questionnaire

This questionnaire is aimed at gathering data to be used in a dissertation that is in relation to the
innovation of ecommerce in small and medium-sized enterprises in Uganda. Please take time to
complete it.
SECTION A: INTERNET SELF CAPACITY
This section addresses an area on the accessibility and availability of Internet as well as
confidence in using it.
1. How often do you use Internet? ( Please tick only one)
Once a Week or more Once or two times a Month Once a year or less often Do not use
ο ο ο ο
2. How confidently are you when using Internet? ( Please tick only one)
Very Confident Confident Quite Confident None
ο ο ο ο
3. For how long have you used Internet? ( Please tick only one)
2 years and more 1 to 2 years 1 to 11 months Never Used
ο ο ο ο

4. How frequently do you use the following on the Internet? (Shade one option for each reason
below)
Task Once a 2 to 3 Every 2 to Once a Do not use

week or times a 3 month year or
more month less often
Reading newspapers/articles ο ο ο ο ο
Researching topics ο ο ο ο ο
Online shopping ο ο ο ο ο
Looking for Jobs ο ο ο ο ο
Planning Travel and finding ο ο ο ο ο

about careers
Obtaining information about ο ο ο ο ο

products.
SECTION B: INTERNET SHOPPING
This section involves questions on the usage and usability of internet as well as the
preference towards traditional and online transaction.
5. Have you ever purchased a product through Internet? ( Please shade only one)
Yes ο No ο
6. If yes, how often do you buy product on the Internet? ( Please tick only one)
Once a year Once in a half year Once a month Once a week
ο ο ο ο

7. In general, what kind of shopping modes do you prefer/like? ( Please tick only one)
Internet Shopping Traditional Shopping Mixture of the two
ο ο ο
SECTION C: BARRIERS OR LIMITATIONS OF PURCHASING ONLINE PRODUCTS.

This part of the questionnaires intends to find the limitations and barriers of online
purchase.
8. Reasons, why you do not like/prefer Internet shopping (Shade only one option for each
reason)?
Task Strongly Agree Neutral Disagree Disagree

Agree Strongly
I do not know about the facility ο ο ο ο ο
I do not have accessibility to ο ο ο ο ο

Internet
I find it difficult to navigate ο ο ο ο ο

smoothly.
I feel Internet accessibility is ο ο ο ο ο

still expensive.
I find the traditional way of ο ο ο ο ο

shopping more convenient.
I prefer to go out shopping ο ο ο ο ο

with my friends and I like to
take their advice before buying
anything.
I do not get enough product ο ο ο ο ο

information online.
Internet shopping seems ο ο ο ο ο

unreliable to me.
I prefer to see the product first ο ο ο ο ο

before buying.
Quality of product, after-sales ο ο ο ο ο

service and the credit of the
retailer cannot be guaranteed
Inconvenient payment system. ο ο ο ο ο
Delivery is time wasting. ο ο ο ο ο
I prefer to talk to sales staff ο ο ο ο ο

before buying any product.
I do not feel secure using my ο ο ο ο ο

credit card information online.
I feel loss of privacy in an ο ο ο ο ο

online transaction/medium.
I feel I would be bombarded ο ο ο ο ο

with updates and other notices
if I register online on any
website.
Shopping on street is more ο ο ο ο ο

enjoyable than doing it online.

SECTION D: MOTIVATION OF ONLINE PURCHASING

This part targets at finding out the advantages and motivation of online purchasing
9. Reasons, why do you like/prefer Internet shopping (Shade one option for each
reason below)

Agree Strongly
I prefer to do shopping anytime ο ο ο ο ο

at home or office without
going outside
Convenient and accessible all ο ο ο ο ο

the time
More relaxing shopping ο ο ο ο ο

experience.
Internet shopping is easier and ο ο ο ο ο

less time consuming.
Fits in well with my work ο ο ο ο ο

schedule.
The shopping complex (city ο ο ο ο ο

centre) is far away
Using the World Wide Web ο ο ο ο ο

enables me to shop more
efficiently.
I do not have to consider safety ο ο ο ο ο

travelling to and from the store.
I prefer to shop alone and ο ο ο ο ο

Internet gives me the option for
that.

In Internet shopping there is ο ο ο ο ο

convenience of delivery
I can do comparison at home or ο ο ο ο ο

office without going to
different actual shops
SECTION E: PERCEIVED WEB SECURITY AND OTHER FEATURES VALUED BY CUSTOMERS

This part covers questions on the web security and other features on an Internet
shopping website valued by customers
10. Do you feel secure sending personal/financial info across the Web? ( Please shade only one)
Yes ο No ο
11. When visiting an Internet shopping website, which of the following features do you
value? (Shade one option for each reason below)

Agree Strongly
Company Profile and overall ο ο ο ο ο

Brand equity
Security Certificate. ο ο ο ο ο
24 Hour Customer Service. ο ο ο ο ο
Large selection of ο ο ο ο ο
merchandise.
Detailed product Information. ο ο ο ο ο

Policy Notes ο ο ο ο ο
Free shipping and Handling. ο ο ο ο ο
How clearly the Return Policy ο ο ο ο ο

is explained
Delivery within a specified ο ο ο ο ο

time frame (Guaranteed
delivery)
Simplicity of process. (How ο ο ο ο ο

simple it is to buy something
online.)
Tracking (Does the site provide ο ο ο ο ο

any feedback or a confirmation
number once the order is
placed.)
Protection of personal ο ο ο ο ο
information.
Speed (How quickly each ο ο ο ο ο

page, text and images appear.)
Functionality (Overall, how ο ο ο ο ο

well the site seems to work.)
12. Do you intend to purchase products from the internet in the near future?
Yes ο No ο Not sure ο

SECTION F: ABOUT YOURSELF
This section consists of questions which will help to gather information on the females
and males in the survey including their occupation and age.
13. What is your gender? Male ο Female ο

14. How old are you? ……………………………
15. Are you a student? Yes ο No ο
Thank you for taking time to fill this questionnaire

8.2 Appendix B: Organization Questionnaire

This questionnaire is aimed at gathering data to be used in a dissertation that is in relation to the
innovation of ecommerce in small and medium-sized enterprises in Uganda. Please take time to
complete it.
SECTION A: ORGANIZATION’S BACKGROUND
This section is for the company’s background.
16. Company size ,Total number of employees ( Please shade only one)
Small and Micro ο Medium scale ο

Total number of employees: ……………………………….
17. Organization’s Annual turnover
…………………………………………………………………………………………….
18. How long has your company been established? ( Please shade only one)
3 years and above 2 years 1 year and below
ο ο ο
19. Company location: …………………………………………….
SECTION B: INFORMATION TECHNOLOGY
20. Does your company have an Information Systems Department? ( Please shade only one)
Yes ο No ο
21. Are your company’s computers networked? ( Please shade only one)
Yes ο No ο
22. Number of Computers in your company? ………………………………….

SECTION C: ADOPTION OF ECOMMERCE

This section, shows how companies do implement or adopt the Ecommerce system
23. Has your Company established a website? ( Please shade only one)
Yes ο No ο
24. What percentage of sales is currently generated / achieved using the Internet? ……
25. Is it anticipated that this percentage will increase during the next year? ( Please shade only
one)
Yes ο No ο
26. Is IT considered as integral to company strategy? ( Please shade only one)

Yes ο No ο
27. Does your company train employees in the use of IT? ( Please shade only one)
Yes ο No ο
28. Which of the following are used to inform management of emerging technologies? ( Please
shade only one)
Trade fairs ο IT Consultation ο
SECTION D: FUTURE INTENTIONS
29. What do you consider to be the major factor that will limit further expansion of Internet
technology usage? ( Please shade only one)
Risks of frauds via internet ο Perceived benefits without warrant ο Lack of IT specialists ο
Thank you for taking time to fill this questionnaire


8.3 Appendix C: Gantt chart

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A study on the innovation of Ecommerce in small and medium‐sized enterprises (SME) in Uganda

A STUDY ON THE INNOVATION OF

The work contained within this document has been submitted

A STUDY ON THE INNOVATION OF ECOMMERCE

Author Kamya Julius

Inclusion I do say that there are a number of strategic directions to be taken up by

Date 24 September 2010 (Kamya Julius)

Chapter 2 – Literature Review

Chapter 3 – Research Methodology

Chapter 4 – Case Study

Chapter 5 – Research Analysis

Chapter 6 – Discussion and Conclusion

BOI - Board of Investment

CBR - Central Board of Revenue

DTI - Department of Trade and Industry

ECA - Economic Commission for Africa

ECASH (Electronic Cash)

ECOMMERCE – Electronic Commerce

EDI (Electronic Data Interchange)

E-GOVERNMENT - Electronic government

EPB - Export Promotion Bureau

ERP - Enterprise resource planning

FAQ – Frequently Asked questions

G2B - Businesses to Government

GDP (Gross domestic product)

Is a measure of a country's overall official economic output

ICT - Information and Communication Technology

IDRC - International Development Research Centre

IFC - International Finance Corporation

ILO - International Labour Organization

IOS - Inter organisational information systems

ISDN - Integrated Services Digital Network

ITU - International Telecommunication Union

IXP - Internet Exchange Point

LDC (Least Developed Country)

M-COMMERCE (Mobile Commerce)

OECD (Organisation for Economic Co-operation and Development)

Is an international economic organisation of 32 countries . It defines itself as a forum of

PDA – Personal Digital Assistant

SME - Small to medium-sized enterprises

SMEDA - Small and Medium Enterprises Development Authority

UCC - Uganda Communications Commission

UMA - Uganda Manufacturer Association

UNCTAD - United Nations Conference on Trade and Development

UNIDO (United Nations Industrial Development Organization)

VAN (virtual area network)

VAT – Value Added Tax

1.1 Growth of internet ..................................................................................................................... 19

1.2 Aims and Objectives ................................................................................................................. 20

1.3 Chapter summary ...................................................................................................................... 21

2.0 Literature Review ...................................................................................................................... 22

2.2 Ecommerce Classification ......................................................................................................... 27

2.2.1 Electronic markets: ............................................................................................................... 27

2.2.2 Inter Organisational systems: ................................................................................................ 28

2.2.3 Customer service: .................................................................................................................. 28

2.2.3.1 Inter organizational Electronic Commerce: .......................................................................... 28

2.2.3.2 Intra organizational commerce .............................................................................................. 29

2.2.3.3 Consumer-to-Business Electronic Commerce ...................................................................... 30

2.3 Challenges to Ecommerce ......................................................................................................... 32

2.3.1 Unsuccessful Business Models ............................................................................................. 32

2.3.2 Channel Conflicts .................................................................................................................. 32

2.3.3 Legal Issues ........................................................................................................................... 32

2.3.4 Security & Privacy ................................................................................................................ 32