With the invention and expansion of the Internet and the outburst in the development of information and communication technologies, our everyday life has changed. Nowadays, we do not need to leave our homes to work, study, communicate, and even do shopping. We are lucky to live in the era of “thorough electronic phenomena, … the introduction of several electronic phenomena, such as e-learning, electronic banking, electronic government, citizen electronics, electronic customer relationship management, electronic procurement and e-commerce, and, finally, electronic life” (Jahanshahi et al. 2013).
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The level of a single individual is not the only one that has undergone evolution. Business is one more sphere of human activities that witnessed drastic changes with the explosive development of information and communication technologies. As the primary objective of any businesses without regard to its size is the entrance to new markets, the Internet has made this task easier to perform leading to the launch of a new electronic phenomenon, electronic commerce.
Definition of E-Commerce
Electronic commerce, or as it is also known e-commerce, in the most general understanding, is carrying out sales operations with the help of the Internet and information technologies. It includes a wide range of the Internet-based actions aimed at performing economic activities from using e-mail to contact the customers and suppliers to promoting the goods and make financial transactions. There are many ways in which e-commerce is beneficial for the world community. As a tool that connects people from different parts of the globe without regard to boundaries, it may become the instrument for reducing technological as well as the socio-economic gap between the developing and developed countries (Awiagah et al. 2015).
Together with that, it transforms existing conditions of competition and makes the global economy more integrated and globalized eradicating the borders not only between the countries but also between the customers and suppliers. What is more, “the advent of e-commerce has generally made it easier to disaggregate the value chain, establishing markets at different points along it, allowing firms to radically rethink of ‘re-engineer’ the way their product/marketing offering is put together” (Burns 2011, p. 309).
Advantages of E-Commerce for SMEs
E-commerce is a tool used by companies of different scales of carrying out business activities and sizes. The objective of the research is to study the influence of electronic commerce on small and medium-sized enterprises (SMEs). One should understand that breaking companies down into groups is based on the number of employees, total net assets, and levels of investment and sales. However, most frequently met criterion is employment because, in fact, it represents the financial and business potential of an organisation. There are many opinions on the quantity of employees working for the SMEs, and they differ from country to country but, in general, the number of workers does not exceed 200 to 250 people who are paid on a regular basis (Gilaninia et al. 2011).
As e-commerce is a robust mechanism for changing the world into an information society, it can offer small and medium-sized enterprises a great number of benefits. First of all, using e-commerce can help in reducing transaction costs. Second, it is an easy way to access the potential end customer of the company’s goods or services as well as the suppliers of the products themselves or raw materials for manufacturing them.
Third, it gives SMEs an opportunity to go global and thus win foreign markets, as with the use of e-commerce, physical borders between countries do not prevent from doing business. What is more, the companies find a way to occupy a suitable niche in geographically dispersed markets that will increase the market share and improve the flow of business (Solaymani et al. 2012). Fourth, entering new markets inevitably leads to increasing sales and profits, so small and medium-sized enterprises get a chance to grow and develop. That means that e-commerce also motivates increasing the companies’ productivity (Jahanshahi et al. 2013).
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Barriers That SMEs May Face in Developing E-Commerce System
E-commerce has proven to have many benefits, but there are some possible barriers that SMEs may face while building up a system of electronic commerce. First of all, developing a productive network that will help achieve all the advantages mentioned above takes time and money not to mention knowledge and sources necessary for maintaining its uninterrupted operating. Very often, small and medium-sized enterprises do not have enough funds or feel the lack of skills and highly professional employees that are necessary for coping with this task.
Second, like any other feature working on the basis of Internet, it may lack security and privacy, so the risks of losing personal data are high. Third, e-commerce is an open system, and that means that the users have an opportunity to compare prices offered by all players on the market. In the case of small and medium-sized, it is not always possible to compete with larger companies that can propose lower prices because of the volumes of their operations.
Fourth, SMEs may find it difficult to enter the markets that already have several big actors operating on them, so they might be forced to design creative strategies for winning customers and competing with the firms that are already popular. Finally, organizations may face external challenges that they cannot deal with by themselves such as underdeveloped information and communication infrastructure or legislation limiting similar business activities (Caskey & Subirana 2007).
Speaking of the ways that small and medium-sized enterprises build-up and exploit e-commerce system and use the Internet and information technologies in maximizing their benefits, there are several groups of SMEs that we can identify. The criterion for this division is the intensity and effectiveness of using information and communication technologies (Stockdale & Standing 2006). The first group is referred to as landlubbers. These enterprises believe in traditional economic activities, and they do not see the need for moving towards information society and using the newest technologies to grow and develop. Such companies do not use computers and the Internet because they feel comfortable on their local markets, and they are sure that trying to enter the distant market is an unjustifiable risk.
The second group is toe dippers. SMEs that have fallen into this category are characterized by a weak desire to grow and win new markets. They have basic skills in using computers and newest technologies. However, they rarely go beyond using e-mail for contacting customers and suppliers. Nevertheless, they believe that online banking is the indispensable part of everyday operations and doing business even though they find IT system overpriced and useless in performing other economic activities such as increasing sales or reducing costs.
Small and medium-sized enterprises named paddlers fall upon the third category of the division. It is the largest group of SMEs. They are eager to learn but cannot overcome the barrier of not believing in the benefits that e-commerce can give them. The companies in this categoric level simply lack skills and confidence to exploit newest information and communication technologies to the maximum extent. They are also known as those who are online but do not use the Internet for making profits.
Next group is known as waders. These are the SMEs that were forced to study how to use the Internet to remain competitive and keep up with the times. In some cases, their trading partners made them join the system. These small and medium-sized enterprises are still learning how to operate on the basis of e-commerce but already enjoy the benefits. Finally, there are those companies known as swimmers.
These are the enterprises that are experts in the exploitation of the newest technologies for making income, as online trading is an inseparable part of their business activities. This group is divided into two subgroups. Enterprises of the first subcategory have moved to e-business though evolving from traditional forms of carrying out economic operations while SMEs in the second one were initially created as online companies so that they work exclusively online (Stockdale & Standing 2006).
On practice, it does not really matter what group of those mentioned above an enterprise belongs to because the pattern of adopting the latest technologies is the same. So, basically, these groups are a demonstration of the companies’ progress in implementing e-commerce steps in work. For the most part, SMEs use e-mail as a tool for contacting customers and suppliers. On the second place is the use of Internet for the purposes of advertising and promoting goods and services or finding necessary information. Third basic exploitation of Internet is accepting or making online payments (Wilson et al. 2008).
As we can see, small and medium-sized enterprises only start adopting e-commerce in carrying out their business operations. It should be said that only 5 percent of total retail sales are made by means of information technologies (Hatten 2016). The reason for such a low index is that SMEs do not have enough resources and skills for exploiting the newest tech to the maximum extent, and they do not have enough sources to compete with big and influential companies. What is more, very often they do not have the infrastructure that is necessary for maintaining their businesses because it is infrastructure that is essential for guaranteeing the continuous development of the company and building up its confidence in economic success (Deakins & Freel 2012).
Impact of E-Commerce on SMEs and the Way They Do Business
Even though the rate of using e-commerce by small and medium-sized companies is low, it changes the way they do business. First of all, they realize that using the Internet for making profit is a promising way of development. That means that they strive for hiring skilled people who can develop needed tools for transforming into an e-commerce enterprise. It should be said that SMEs have an advantage over big companies. Of course, they lack funds and highly professional workers, but it is easier to work on the continuous upgrade of a small company as well as it is easier to launch a small online company. Moreover, it takes less effort to move a small firm into a needed direction if compared to a big one.
Second, small and medium-sized enterprises are aware that if they want to remain competitive and keep afloat, they should grasp every chance of becoming better and evolving. In nowadays world one of the many opportunities to do so is to learn and implement electronic commerce and go global without regard to size and scale of business operations. Finally, SMEs realize that evolving into an online company is more beneficial for them than remaining traditional as they gain the opportunity of growing bigger and becoming more popular and influential because they can exceed the bounds of the local markets.
So, e-commerce is a powerful machine that moves the world towards the information society. It is beneficial for the smallest as well as for the biggest companies up to a whole global economic system. As it was shows, small and medium-sized enterprises face many challenges and barriers in working on the basis of e-commerce, however, it is easier for them to deal with these objections if compared to big companies.
I believe it is true because even though they lack employees and financing, it takes less effort to upgrade them, as the scale of performing economic activities is much smaller. What is more, using e-mail, online payments and promoting their goods and services in the Internet is enough as the initial steps for them because the customers and the community do not expect some impressive developments from them as it is in the case of big companies, so that they have time to redesign their strategy and think out steps for the further evolution.
Awiagah, R, Kang, J & Lim, J I 2015, ‘Factors affecting e-commerce adoption among SMEs in Ghana’, Information Development, vol. 10, no. 1, pp. 1-22.
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Burns, P 2011, Entrepreneurship and Small Business, 3rd edn, Palgrave Macmillan, New York, NY.
Caskey, K & Subirana, B 2007, ‘Supporting SME e-commerce migration through blended e-learning, Journal of Small Business and Enterprise Development, vol. 14, no. 4, pp. 670-688.
Deakins, D & Freel, M 2012, Entrepreneurship and Small Firms, 6th edn, McGraw-Hill Education, Maidenhead, UK.
Gilaninia, S, Danes, S Y S, Mousavian, S J, Amiri, M & Eskandarpour, B 2011, ‘Effective factors on adoption of e-commerce in SME cooperative’, Interdisciplinary Journal Of Contemporary Research In Business, vol. 3, no. 6, pp. 13-21.
Hatten, T S 2016, Small business management entrepreneurship and beyond, 6th edn, Cengage Learning, Boston, MA.
Jahanshahi, A A, Zhang, S J & Brem, A 2013, ‘E-commerce for SMEs: empirical insights from three countries’, Journal of Small Business and Enterprise Development, vol. 20, no. 4, pp. 849 – 865.
Solaymani, S, Sohaili, K & Yazdinejad, E A 2012, ‘Adoption and use of e-commerce in SMEs’, Electronic Commerce Research, vol. 12, no. 3, pp. 249-263.
Stockdale, R & Standing, C 2006, ‘A classification model to support SME e-commerce adoption initiatives’, Journal of Small Business and Enterprise Development, vol. 13, no. 3, pp. 381-394.
Wilson, H, Daniel, E & Davies, I A 2008, ‘The diffusion of e-commerce in UK SMEs’, Journal of Marketing Management, vol. 24, no. 5-6, pp. 489-516.