Muhammad Firdaus Bin Mohd Wazir

Table of Contents
Table of Contents...................................................................................................1 ABSTRACT..............................................................................................................2 INTRODUCTION......................................................................................................2 2.1 E-commerce..................................................................................................3 2.2 Small and Medium-sized Enterprises (SMEs)................................................4 2.3 E-commerce Adoption by SMEs in Malaysia..................................................4 2.4 Inhibitors to e-commerce adoption..............................................................5 METHODOLOGY......................................................................................................8 4.1 Background of the Firms..............................................................................8 4.1.1 Types of Products......................................................................................9 4.1.2 Internet and E-commerce Usage of SMEs Interviewed............................10 4.2 Impediments to E-commerce Adoption......................................................10 4.2.1 Barriers to e-commerce...........................................................................12 4.2.1.1 Lack of External Infrastructure.............................................................12 4.2.1.2 Lack of Time.......................................................................................12 4.2.2 Reasons Why SMEs Lack the Inclination to Adopt E-commerce...............13 4.2.2.1 Concern about Security of E-commerce..............................................13 4.2.2.2 Trusting E-commerce ...........................................................................14 4.2.2.3 High Cost.............................................................................................14 4.2.2.4 Customer-related Constraints..............................................................14 4.2.2.5 Inadequate Support from Government and E-commerce Consultants..15 4.2.2.6 Unclear Benefits of E-commerce..........................................................15 4.2.2.7 Not Interested and Not Relevant.........................................................16 DISCUSSION......................................................................................................... 16 CONCLUDING REMARKS.......................................................................................17 REFERENCES........................................................................................................17

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IMPEDIMENTS OF E-COMMERCE ADOPTION: THE CASE OF SMES
Noor Azuan Hashim School of Business Management Faculty of Economic and Management National University of Malaysia 43600 Bangi, Selangor Malaysia E-mail: [email protected] Tel: +60-89215751 ABSTRACT E-commerce has the potential to accelerate existing trends and introduce new ways of conducting business. It is said that e-commerce has brought undisputed benefits to firms everywhere such as reshaping the customer and supplier relationships and streamlining the business processes. Practitioners and policymakers are told that e-commerce will give a tremendous boost to their firms; businesses that are not involved in e-commerce will be left behind in the global marketplace. Contrary to most industry predictions, however, the smalland medium-size enterprise (SME) market has been relatively slow to adopt these applications. Not many SMEs are keen to conduct business online and only a few have website. In fact, some studies claim that trading online by SMEs in some countries is stalling and in some cases has declined. Drawing on existing research on ICT diffusion by SMEs, this paper presents some issues of e-commerce adoption by SMEs in Malaysia. It highlights findings from a series of semi-structured interviews with the SME managers in Malaysia concerning the impediments of adopting and implementing e-commerce in the organizations. The findings reveal that SMEs do not embrace e-commerce because there are skeptical with some of the e-commerce components. Among the barriers include lack of knowledge in ecommerce; not interested with fancy stuff; irrelevant to their businesses; and influenced by the failure rate of their peers. Results are discussed and some implications for the management are made. Keywords: ICTs, e-commerce, SMEs, diffusion, impediments. INTRODUCTION E-commerce has the potential to accelerate existing trends and introduce new ways of conducting business (Scupola, 2003; Pool et al., 2006; MacGregor and Vrazalic, 2007). Policymakers and practitioners are told that e-commerce has brought undisputed benefits to firms everywhere such as reshaping the customer and supplier relationships and streamlining the business processes. (Daniel, 2003, Pool et al., 2006). E-commerce will give a tremendous boost to their companies, that businesses not involved in e-commerce will be left behind in the global marketplace. In fact, some studies claim that the use of e-commerce is a precondition for a companys success in todays business world, (Porter, 2001; Adham and Ahmad, 2005). Page | 2

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Contrary to most industry predictions, however, the small- and medium-size enterprise (SME) market has been relatively slow to adopt e-commerce (Beveren and Thomson, 2002; Fillis et al., 2004; Grandon and Pearson, 2004; Houghton and Winklhofer, 2004). In the US, Grandon and Pearson (2004) note that e-commerce adoption by SMEs is limited to e-mail and the company web page. In the UK, trading online in small businesses is stalling and in some cases has declined (Booz, 2002). In European countries and in Australia, few SMEs trade online (Beveren and Thomson, 2002; Scupola, 2003, MacGregor and Vrazalic, 2007), while in Asia, few SMEs in Singapore, Thailand, and Malaysia have adopted e-commerce (Kendall et al., 2001; Lertwongsatien and Wongpinunwatana, 2003, Yeung et al., 2003; Hashim, 2009). This result is surprising given the indications that e-commerce may be valuable to SMEs. It is said that the Internet provides a platform for SMEs to compete with large firms because the Internet allows equal access for both small and large firms to explore their potential. The Internet also allows SMEs to conduct their business 24 hours a day and 7 days a week, and also to trade internationally. SMEs today may be become a large firm or multinational corporations (MNCs) in future (Curran and Blackburn, 2001). Thus, why SMEs are reluctance to become e-commerce-capable deserves serious attention (Curran and Blackburn, 2001). To date, there has been very few research that investigate the impediments of ecommerce adoption among SMEs, particularly in developing country like Malaysia. This study seeks to fill this gap to help understand the factors that hinder the adoption of ecommerce by SMEs, particularly in developing countries, such as Malaysia. This article is structured as follows. Section 1 presents the research problem, follows by the literature review in Section 2. Section 3 describes the methodology of the study. Findings and analysis are discussed in section 4. Section 5 presents the discussion, and finally the concluding remarks are presented in section 6. LITERATURE REVIEW 2.1 E-commerce E-commerce is a new phenomenon in business and management era. Thus, there is no agreement on the definition of e-commerce (Kendall et al., 2001; Grandon and Pearson, 2004). Many researchers have came out with their own e-commerce definition based on what they are researching for (Kendall et al., 2001; Grandon and Pearson, 2004; Pool et al, 2006). However, there are two common elements to most definitions. First, e-commerce concerns business activities that occur by electronic means, such as sharing business information, and buying and selling. The second element is the technological means that enable these activities. The difference lies in how some researchers define these two elements. Some define e-commerce broadly, including all business activities carried out over any electronic media (see, for example, Wigand, 1997; Timmers, 1999). Others define e-commerce more narrowly by focusing on certain business activities or technological means (see, for example, Zwass, 1996; Kalakota and Whinston, 1997). In this study, Zwasss (1996) definition of ecommerce is adapted, focusing on Internet-based technology: E-commerce is sharing of business information, maintaining business relationships and conducting business transactions by means of Internet-based technology. This definition has been used by many other researchers, such as Poon and Swatman (1999), Scupola (2003; 2009) and Pool et al. (2006). The literature in e-commerce adoption by organization revealed that there are three main ecommerce components that are used to indicate the prevalence of e-commerce (see Hashim, Page | 3

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2009). These three components are: e-mail, websites and online buying. E-mail is used among firms to communicate with customers and suppliers, usually the prerequisites of online selling and buying. Website is used to indicate online selling. Firms need to invest on websites to sell online, while online buying can be done anywhere and anytime as long as firms are connected to the Internet. These three main e-commerce components are used to investigate the impediments of e-commerce adoption in this study. 2.2 Small and Medium-sized Enterprises (SMEs) SMEs play an important part in the economic activities of most nations (Curran and Blackburn, 2001; Beaver, 2002; Simpson and Docherty, 2004). There are numerous examples in the literature that illustrate the weight that SMEs carry in their own national economies. In most European countries, SMEs constitute more than 90% of businesses (OECD, 1998; 2000; Scupola, 2003). In the UK, for example, there are an estimated 3.7 million businesses of which 99.8% are SMEs (DTI, 2001). In Malaysia, SMEs (commonly called Small and Medium-size Industries, SMIs) account for more than 90% of total businesses (Malaysia, 2004). Each country has its own definition of SMEs and there is no formal categorisation of what constitutes an SME (Ghobadian and Gallear, 1996; Mohd Asri, 1999; Curran and Blackburn, 2001). However, there are two common ways of defining SMEs: definitions based on financial turnover and definitions based on numbers employed (Curran and Blackburn, 2001). Definitions based on financial turnover have been found to be problematic (Curran and Blackburn, 2001) as this is difficult to measure, and varies by sector (Storey, 1994). Definitions based on numbers employed are more popular, and most commonly used by policy makers (Curran and Blackburn, 2001) and researchers (for example, Raymond, 1987; DeLone, 1988; Raymond, 1992; Cragg and King, 1993; Mohd Osman, 2001). For the purpose of this study, SMEs is defined by numbers of employees employed by the firm: SME as a firm employing 10 to 250 employees. More specifically, the definition used by other researchers conducting similar SME studies in Malaysia will be adopted (Mohd Osman, 2001; Ismail, 2004). This is in line with the definitions of SMEs used in other countries (European Commission, 2002). Very small firms (fewer than 10 employees) will be excluded since these are likely to approach IT issues very differently (Hussin et al., 2002) and because their numbers would swamp those of larger SMEs. 2.3 E-commerce Adoption by SMEs in Malaysia Studies showed that SMEs everywhere were not adopting e-commerce readily (Beveren and Thomson, 2002; Lertwongsatien and Wongpinunwatana, 2003; Fillis et al., 2004; Grandon and Pearson, 2004; Houghton and Winklhofer, 2004). In Malaysia too, studies of ecommerce adoption by businesses, particularly SMEs, are mostly limited to awareness and readiness of Malaysian companies. Sulaiman (2000), for example, found that although many Malaysian firms have Internet access, most usage is limited to e-mail (Sulaiman, 2000). Other studies, such as Paynter and Lim (2001); Albert et al. (2002) and Ang et. a.l (2003), also found e-commerce usage by SMEs in Malaysia is still in its infancy. Indeed, many companies, especially SMEs, are reluctant to go online (Karkoviata, 2001). Adham and Ahmad (2005) investigated the adoption rates of website and e-commerce technology by all 562 Malaysian public companies (reputable SMEs and large companies, Page | 4

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listed on the main board of Kuala Lumpur Stock Exchange (KLSE1)). Their study examines company websites for operability and whether these websites incorporate e-commerce systems for online transactions. Only 62% of websites are operable with 96% providing only company and product information and only 4% equipped for e-commerce transactions (Adham and Ahmad, 2005). Surprisingly, even well-known companies in Malaysia with excellent profit track records are yet to use online transactions. Hashim (2009) recently investigated the adoption of e-commerce among SMEs in Malaysia. Her survey includes SMEs that have received government grant to adopt e-commerce. There is a varied exploitation of e-commerce among SMEs in this study. Of 522 SMEs, more than 95% have an Internet connection and have used e-mail. Although e-mail was widely used among SMEs, the usage is limited by the SMEs recognition of the importance of face-toface interaction with their customers and suppliers. Although more than 60% of SMEs have websites, many of these websites were mainly to promote the companys goods and services, and the company itself. Websites with online payment facilities and online buying are rare among SMEs in this study. Online buying is almost unpopular among SMEs in the study. This indicates that SMEs in Malaysia are still not adopting e-commerce as readily as most industry predictions, and as readily as the Malaysian government expected. 2.4 Inhibitors to e-commerce adoption There is not much research that investigates inhibitors to e-commerce adoption, particularly among SMEs. As such, a review of inhibitors to ICT adoption affecting firms was used as a guideline. Among the inhibitors faced by firms include high investment costs and unfavourable financial conditions, shortage of highly-skilled workers, lack of ICT specialists, and insufficient ICT oriented training (Yap et al., 1992 and Chapman et al., 2000). Other inhibitors also include information barriers (reflecting technological uncertainty) and also managerial barriers, such as insufficient awareness of managers (Chang et al., 2003). Table 1 shows some studies on inhibitors of ICT adoption among SMEs. Table 1: Inhibitors of ICT Adoption Among SMEs

As of June 2004, KLSE has officially changed its name to Bursa Malaysia.

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Author Sample size ICT studied Data gathering method Inhibitors

Auger and Gallaugher (1997)

141 SMEs in iMall InternetPostal database based sales questionnaire

Difficult to promote website Lack of company

Chau (2001)

462 SMEs (nonEDI adopters)

EDI

Postal questionnaire

resources Product not well Lack of knowledge suited Unsatisfactory internal ICT support Non-positive attitude Insignificant influence Poor

Thong (2001) Scupola (2003)

130 Singapore SMEs 7 SMEs in Italy

IS Ecommerce

Postal questionnaire Semi-structured interviews

promotion campaign Managerial time Lack of ICT knowledge Unfamiliar with the Internet Fear of the Internet

Drew (2003)

50 SMEs in the East of England

Ecommerce

Telephone interviews

Lack of critical mass Lack of technical skills Lack of knowledge

Simpson and Docherty (2004)

2 UK SMEs

Ecommerce

Case studies

Insufficient knowledge Lack of ICT

Table 1 summarises 6 studies of ICT adoption by SMEs. Among the inhibitors are lack of knowledge (Chau, 2001; Drew, 2003; Scupola, 2003; Simpson and Docherty, 2004), lack of resources (Auger and Gallaugher, 1997; Drew, 2003) and feat of the Internet (Scupola, 2003). The sample sizes of SMEs that have been used in these studies range from 2 to 462. Data gathering methods are mainly postal questionnaires, and semi-structured interviews. Studies using large sample sizes and combining semi-structured interviews with postal questionnaires are rare in the literature.

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METHODOLOGY Semi-structured interviews were carried out with SME managers in Malaysia who did not adopt any of the e-commerce components. Interviews are important to provide a thorough understanding of the most relevant concepts and detailed insights into the issues being studied (Greene et al., 1989; Silverman, 1993; Creswell, 1994). They help the researcher to answer the why questions. Interviews allow researchers to adapt questions when necessary, clarify doubts, and ensure that responses are properly understood (Scupola, 2003). It allows interviewees to talk freely about the subject, thus adding useful information from which it is possible to create new themes (Creswell, 1994). The questions addressed the following: Why SMEs did adopt or use, or stop using e-commerce in their businesses. The interviews were conducted personally face-to-face lasted approximately one to one and half hour. Whenever possible, the companys website was visited to gain better understanding of its use of ecommerce. Twenty-nine SME were chosen from the list of SMEs which did not use or adopt any of the e-commerce components. Twenty-nine pre-interview calls were made with the SME managers to make appointments for full telephone interviews. Pre-interview calls made sure managers spare time to be interviewed so that the conversation would not be interrupted. Only eighteen agreed to be interviewed. The interviews provided an opportunity to explore the non-adopter issues in-depth and gather information on constraints or incentives encountered. findings and analysis 4.1 Background of the Firms In-depth interviews were conducted with SME managers who did not have an Internet connection, did not use e-mail, no longer had firm websites, and also those who did not buy or had stopped buying online. A condition for each firm agreeing to participate in the research was that the information provided would be treated in confidence. Thus, names of the firms and individuals involved in the interviews are disguised.

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4.1.1 Types of Products Table 2: Firms main products and services Fir m A B C D E F G H S J K L M N O P Q R Note: M: S: MS: O: Type of firm Products and services M M M M M M M M M M M M S S MS MS MS O Food and crackers Coconut and palm industries Bakery products, shortening and star fruit Beverages Plastic motor components Automobile manufacturing Elastic bands, knit tape, narrow fabric accessories Electronic alarm system and engineering services Wooden rubber wood furniture Motorcycle spare parts and accessories, motorcycles Building manufacturing Agricultural products and chemicals Imaging technology IT infrastructure and system integration maintenance Gold and jewellery services IS and IT consultancy, and executive desktop Health and food supplements Building and constructions

Manufacturing Services Manufacturing and Services Others

As illustrated in Table 2, the firms are involved in a variety of products and services, and it is difficult to classify their activities into discrete categories. Three firms (A, C and D) were involved in food and beverage production. Three firms (M, N and P) were principally involved in IT services. Two firms (B and L) produced agricultural products. One firm (Q) produced health and food supplements. The remaining firms manufactured finished products and some (firms G and S) were subsidiaries of large organisations.

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4.1.2 Internet and E-commerce Usage of SMEs Interviewed Of the eighteen respondents, two interviewees (A and B) did not have an Internet connection. Two SMEs (C and D) used to have an Internet connection and e-mail in their businesses. Fourteen of the eighteen interviewees had e-mail. Eleven SMEs abandoned their websites, and the other seven still had simple websites. (A simple website displays only information about a firm and its products and services without any price quotations.) Five SMEs had once bought online, but had decided to stop. The remaining firms had an Internet connection and e-mail, but did not have websites and did not buy online (see Table 3). Table 3: Internet and e-commerce usage of firms Have Internet connection before now? ? No No No No Yes No Yes No Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Use e-mail before ? No No Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes now? No No No No Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Have website before ? No No No No Yes No Yes Yes Yes Yes No Yes Yes Yes Yes No No No now? No No No No No No Yes* Yes* Yes* Yes* No Yes* Yes* Yes* No No No No Buy online before ? No No No No Yes No No No No No No Yes No Yes No Yes Yes No now? No No No No No No No No No No No No No No No No No No

A B C D E F G H S J K L M N O P Q R

Note: Yes*: SMEs with simple websites with simple information about the firm and its products 4.2 Impediments to E-commerce Adoption The interviews revealed some evidence why some SMEs did not adopt or use or stop using ecommerce. The analysis provides a detailed evaluation of problems encountered and is divided into a few thematic. The findings from the interviews show that there are two principal reasons why SME managers did not adopt or use or stop using e-commerce. First, some interviewees suffer from constraints to adopt e-commerce. Second, some of them are not inclined to adopt e-commerce due to several reasons. Table 4 displays the summary of the findings. Page | 10

Firm

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Table 4: Non-adopters of e-commerce and reasons found in the study by rank
Dimension of inhibitors Barriers Non adop t ers of email (n=4 3 Rank Nonadopte rs of online buying (n=18) 100% 1 2 % 67% 2 10 % Ran k Nonadopte rs of websit e (n = 11) 7 10 % Ran k

Barriers to adopt ecommerce among SMEs

Lack of time

22% 3 44% 2

50% 2 3

Lack of external 2 infrastructure Technolog y infrastruct ure Basic infrastructure such as transportation and delivery Lack of IT expertise and financial resources Concern about security Lack of trust of ecommerce High cost N/A

36% N/A 5 56% 1 8 57% N/A 8 89% 7 78% N/A 5 N/A 56% 3 10 9 64% N/A 9 4 2 11 79% 86% 3 4 1 11 71% 1 1 1

Reasons why SMEs have lack inclination to adopt ecommerce

CustomerN/A related constraints Inadequate N/A support from government and ecommerce consultants Lack benefits of N/A ecommerce

64% N/A 8 57% 6

Table 4 displays ten inhibitors of why SMEs in this study did not adopt e-commerce. Three of them are the constraints the SME faced to adopt e-commerce while the other seven are Page | 11

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some sorts of reasons that SME managers gave why they are not adopting it. Most of the inhibitors are common among the three e-commerce components. But, most inhibitors were acquired from SMEs that were not using websites. Table 4 also displays these inhibitors according to ranking, i.e. which are the inhibitors that found in most SMEs. Each of these inhibitors is describe below. 4.2.1 Barriers to e-commerce 4.2.1.1 Lack of External Infrastructure Since e-commerce relies on telecommunication networks, a poor telecommunications infrastructure presents a significant barrier to the application of e-commerce technologies (Slyke and Belanger, 2003). In Malaysia, while a reliable telephone service and dial-up to the Internet are commonly available, access to a broadband infrastructure still remains beyond the reach of potential users in many locations. Because of their location in remote areas, many SMEs suffered from poor telecommunications infrastructure. The government said that we are ready to get connected anytime and the Internet is ubiquitous. I dont think we are up to that standard yet. Not everybody can have a broadband facility. SME manager from firm O In addition to the technology services, SMEs managers also claimed the transportation and delivery system for e-commerce in Malaysia was not efficient. Many SME managers said they could not provide prompt delivery to their customers. They still had to use traditional carriers, such as Pos Malaysia Berhad (the Malaysian post office). Although they had alternative ways to send items, such as DHL, they were quite costly. SME managers also said that the traditional carriers did not deliver at the weekend. Most of the time, sellers and buyers needed to go to the post office to send and collect the item. In order for e-commerce to succeed, everything needs to be efficient the order and payment systems, the online tracking system as well as the delivery system. If all these things can be fixed, then we may be ready for online transactions. SME manager from firm L 4.2.1.2 Lack of Time Lack of time to set-up and maintain e-commerce is the major constraint for almost all interviewees. Most SME managers interviewed claimed that they were very busy with their routine business operations. They stated that they were required to do so many things at the same time. They rarely had a normal day, as there was always something urgent to do, an important problem to be sorted out and an order that needed to be dispatched (Hunt, 2003). Most of the interviewees saw e-commerce in their business as yet another task to be done. They already had a great many things to do, and they were not convinced that adding more would be useful. They argued that acquiring websites was not as simple as it was made out to be. Managers needed time, money and effort to maintain and update their websites, especially websites with online transaction facilities. Page | 12

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Time is very precious for SMEs like us. We have so many other things to do rather than sitting in front of the computer. SME manager from firm L Lack of IT Expertise and Financial Resources The other constraint in adopting e-commerce, according to the interviewees, was the limited resources available to SMEs. SME managers said they needed a technical expert who could set-up and maintain the websites for them because they were not able to do that on their own. However, they were not willing to hire dedicated IT expertise or an IT consultant since that would cost too much. SME managers claimed that setting-up a website with online transaction was not easy. They said that e-commerce is not a simple and straightforward process requiring only the installation of hardware and software. We are delighted if government or e-commerce consultants can provide us with training to set-up and maintain the website. We dont need anything fancy; we just want simple and manageable websites. The training package for creating a website is too expensive and too complicated. We dont have resources for that now. SME manager from firm R 4.2.2 Reasons Why SMEs Lack the Inclination to Adopt E-commerce As illustrated in Table 3, most interviewees use e-mail in their businesses, but rarely have websites and buy online. All but three interviewees stated they needed e-mail to communicate with their customers and suppliers. Seven SMEs wanted firm websites, but simple websites with simple information about the firm and its products. Those that bought online before declined to continue the activity. This gives an indication that most interviewees have a good idea what e-commerce all is about. However, many remain disinclined to implement e-commerce, particularly online transactions. 4.2.2.1 Concern about Security of E-commerce Concern about security is also one of the main reasons why SME managers in this study were reluctant to adopt e-commerce. Most of the interviewees were uncertain how secure ecommerce was for online transactions. Some SME managers worried about the possibility of Internet errors in online trading. One SME manager (firm K) had picked up computer viruses that were delivered through the Internet. He had to reformat most of his computers hard disks and this was costly and inconvenient. The interviewed SME managers also argued that it was not secure to disclose credit card information on a website, particularly to those that are not well-known and have no track record. According to the managers, Internet hackers may hack information about their credit cards and use it somewhere else. If I were to buy online in future, I would only buy from large and reputable organisations that promise secure protection on online transactions and also those who would pay me back every single cent of what I have spent if something goes wrong with the delivery or if I were to return their products. SME manager from firm J

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4.2.2.2 Trusting E-commerce Lack of trust in e-commerce is another prominent reason why SME managers were reluctant to adopt e-commerce. SME managers said that e-commerce is not reliable. They claimed that they did not trust e-commerce because they did not trust the Internet. According to the managers, in the Internet world anybody can be a seller and a buyer because nobody knows who is behind the Internet. They were unable to determine genuine sellers or buyers on the Internet. SME managers were also doubtful about having a website with online transaction facilities. If customers were to order and pay online, product and service information, including prices had to be available on the Internet. According to them, this could lead to loss of competitiveness in the marketplace because other firms could imitate them. Trust is still an issue and there is a lot of spin and self-interest out there. SME manager from firm G Online payments need control. Control needs trust, ownership and protection. I dont think this technology will last long. And I dont think people will be able to put their trust in the Internet. SME manager from firm H 4.2.2.3 High Cost Another main reason SME managers were reluctant to have e-commerce in their businesses was the high start-up and maintenance costs, particularly in adopting a website. SME managers said if they were to have a website with online transactions they had to invest more money to buy more advanced machines, hire more people with ICT skills, and send more staff for training. We are SMEs. We are not as rich as large organisations. Our works are on a day-to-day basis. We have got to make sure that our businesses run smoothly in order to survive. How can we compete with large organisations which have a lot of money? With the Internet, the large organisations are the ones who benefit most. Previously, they may have looked for SMEs to sell their products to the local people. However, with the Internet, they can sell directly to the people at a cheaper price without us. SME manager from firm J Some managers claimed that online buying also involved high costs. They needed to do research before buying on the Internet, which was time consuming. Since there is a wide range of websites on the Internet, buying online sometimes takes longer than traditional shopping. 4.2.2.4 Customer-related Constraints Another prominent reason why SME managers were reluctant to have e-commerce in their businesses was that the demand for e-commerce from customers was very limited. SME managers stated that e-commerce needs not only active sellers, but active buyers too. To Page | 14

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capture the attention of customers to buy online, SMEs needed an attractive website, which would take time, effort and money. Even then, this did not guarantee that the SMEs would be able to sell online. I have had online ordering and online payment on the website for nearly two years. I think I did a lot of advertising to promote the website. Not a single buyer has purchased through my website. I would rather use my energy to promote my business and keep my customers with me. SME manager from firm R 4.2.2.5 Inadequate Support from Government and E-commerce Consultants Governments and e-commerce consultants usually act as catalysts to increase the diffusion of e-commerce (Hadjimanolis, 1999; Gladwin et al., 2002; Scupola, 2003). They usually play an important role in influencing SME managers to adopt technologies and ideas. In the process of getting SME managers to adopt e-commerce, both the government and ecommerce consultants made many promises to SMEs. However, most of the SMEs were ignored once they adopted the technology. SME managers suffered with the technology and drifted in their own world without proper direction. The consultants gave us a lot of promises before we used their services to have a website. They came and visited us almost weekly during the trial period to see our progress dealing with the website. After we had signed an agreement with them, we could hardly get in touch with them. We needed to call them several times before they agreed to meet us. They said there were no dedicated consultants for each SME, but one consultant for many SMEs. So, the SMEs in trouble were required to make appointments. It sometimes took weeks and months. SME manager from firm J Most interviewees that received the government grant also regarded the government grant as relatively short-term. They said that the government only gave assistance once to SMEs; however it did not ask any feedback after the grant has been given. The government should follow up with the companies who received their grants. Then they would realize what problems arise after the e-commerce grant has been spent. SME manager from firm L 4.2.2.6 Unclear Benefits of E-commerce Another reason why SMEs did not adopt e-commerce was a failure to gain any advantages from using the technology. SME managers said the benefits of having e-commerce were not clear. Many SME managers in this study who used to have more complex firm websites have scaled down. They hardly sold online and never gained any profit from complex websites. Instead, they needed to invest even more to maintain their websites. All this while, we heard many good things about e-commerce, such as how SMEs can increase their sales and how to save costs using e-commerce. So, we invested in a complex website for online transactions. But, we are only able to look at it, edit it and maybe feel proud of it. That is it. How to make customers buy from it is the biggest problem in ecommerce. SME manager from firm E Page | 15

Muhammad Firdaus Bin Mohd Wazir

Muhammad Firdaus Bin Mohd Wazir

4.2.2.7 Not Interested and Not Relevant Some SME managers in this study stated that they were just not interested in Internet activities. One particular interviewee (firm B) opposed the Internet because of the failure rate of his peers who had adopted the Internet. Two SMEs (firms C and D) used to have Internet connection, but decided to discontinue the Internet connection to cut their operation costs. I only use computers to keep information about my customers and the firm inventory. I have the Internet at home for personal access. But I am not fond of having an Internet connection in my firm because I dont like to spy on my staff. SME managers from firm B Some SME managers also said e-commerce was not relevant in their businesses because they served only local people. They said the nature of their business and the product mix offered needed face-to-face interactions. This, according to the managers, did not come with ecommerce. I have been selling medicine for more than a decade. My firm website is only to display the kinds of medicine we have. We are reluctant to sell online because not all medicine is suitable for everybody. We need to talk to our customers first and give proper advice to them. SME manager from firm Q . DISCUSSION The findings from the interviews give some ideas the barriers and why SMEs are not inclined to adopt e-commerce. Some of the inhibitors that found in this study are similar in other studies. For example, Chappell and Feindt (1999) and Sadowski et al. (2002) found that lack of time is the factor hinder SMEs to adopt ICT, Craag and King (1993) and Purao and Campbell (1998) found that lack of IT expertise is one the major concern for SMEs to use ICT in their businesses, and lack of external IT infrastructure is the one the barrier found in Hadjimanoliss (1999) study. Concern about security (O'Keeffe et al., 1998; Hadjimanolis, 1999; Walczuch et al., 2000; Lawson et al., 2003; MacGregor and Vrazalic, 2007), lack of trust of e-commerce (Paul, 2003; Pease and Rowe, 2003; Scupola, 2003) , high cost (Lawson et al., 2003; Pool et al., 2006), unclear benefits (MacGregor and Vrazalic, 2007), and irrelevant to the business (Beveren and Thomson, 2002; Hughes et al., 2003; Brown and Lockett, 2004) are also among reasons that other studies reported of why SMEs are not adopting e-commerce. In general, this article highlights a few important findings. One important finding in this study was lack of external infrastructure that cause not only by technology but the poor basic infrastructure such as transportation and delivery service systems. A clear message from this study is that the government is yet to provide an appropriate infrastructure. Other reasons that were found in this study of why SMEs were not inclined to adopt e-commerce are customerrelated constraints and inadequate support from government and e-commerce consultants. Many SMEs said that the demand for e-commerce from customers to buy online was very limited, and thus this did not permit them to sell online. The analysis of the interviews also raises questions about the effectiveness of government support. The interviews revealed the evidence that government grants are inappropriate because they are generally too small, and because they are one shot of assistance. The government shows little interest in whether its support brings additionality to SMEs. Page | 16

Muhammad Firdaus Bin Mohd Wazir

Muhammad Firdaus Bin Mohd Wazir

CONCLUDING REMARKS This article presents the findings of the impediments of e-commerce adoption among SMEs in Malaysia. In order to encourage SMEs to adopt e-commerce, all the factors that impede SMEs to adopt e-commerce should be solved. One way is to make SMEs understand what ecommerce is all about. For example, practitioners as well as academicians need not only highlight the important of e-commerce to SMEs; however, they should make SMEs understand what e-commerce is. E-commerce demands a radical change in the companys strategy and logistics. It requires time and resources, which are precious and scarce in SMEs. SMEs need to be aware that they need to take e-commerce seriously if they really want to invest in it. They need to have a clear assessment of the value that e-commerce might bring to their company. SME managers need to be educated about the potential of e-commerce and learn from the experience of others, which may not necessarily be Malaysian-based. They also need to identify which e-commerce activities are appropriate for them. Without adequate information, the anticipated benefits of e-commerce and its development cannot be achieved. For policymakers, they should provide not only the technology infrastructure and services, but an appropriate delivery service and transportation systems coupled with reliable and reasonable technology infrastructure and security systems would enable SMEs to see the ease in e-commerce. REFERENCES Adham, K. A. and Ahmad, M. (2005). Adoption of Website and E-commerce Technology among Malaysian Public Companies, Industrial Management and Data Systems, 105(9), pp.1172-1187. Albert, L. K. P., Chai, A. H. S., Khiang, A. L. B. and Chye, G. N. K. (2002). Information Technology and E-commerce for Successful SMEs, Malaysian Management Review, 37(2), pp.30-38. Ang, C. L., Tahar, R. M. and Murat, R. (2003). An Empirical Study on Electronic Commerce Diffusion in the Malaysian Industry Shipping Industry, The Electronic Journal on Information Systems in Developing Countries, 14(1), pp.1-9. Auger, P. and Gallaugher, J. M., 1997. Factors Affecting the Adoption of an Internet-Based Sales Presence for Small Businesses. The Information Society, 13, pp.55-74. Beaver, G. (2002). Small Business, Entrepreneurship and Enterprise Development, Pearson Education Limited, Harlow. Beveren, J. V. and Thomson, H. (2002). The Use of Electronic Commerce by SMEs in Victoria, Australia, Journal of Small Business Management, 40(3), pp.250-254. Booz, A. H. (2002). International e-Economy Benchmarking: The World's Most Effective Policies for the e-Economy, Information Age Partnership (IAP), London, UK. Brown, D. H. and Lockett, D. (2004). Potential of Critical E-Applications for Engaging SMEs in E-Business: A Provider Perspective, European Journal of Information Systems, 13(1), pp.21-34. Chapman, P., James-Moore, M., Szczygiel, M., and Thompson, D. (2000). Building Internet Capabilities in SMEs, Logistics Information Journal, 13(6), pp. 353-361. Chau, P. Y. K. (2001). Inhibitors to EDI Adoption in Small Business: Empirical Investigations, Journal of Electronic Commerce Research, 2(2), pp.78-88. Chappell, C. and Feindt, S. (1999). Analysis of E-commerce Practices in SMEs, Knowledge and Information Transfer on Electronic Commerce (KITE), Page | 17

Muhammad Firdaus Bin Mohd Wazir

Muhammad Firdaus Bin Mohd Wazir

http://rock.cs.unitn.it/narduzzo/b2b/b2b_Papers/kite.pdf, pp.1-27. Last accessed on 1 June 2009.

Name :Muhammad Firdaus Bin Mohd Wazir Matrix No: A141416

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Muhammad Firdaus Bin Mohd Wazir