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Exploring E-Commerce Benefits for Businesses

in a Developing Country

Article in The Information Society · March 2007

DOI: 10.1080/01972240701224028 · Source: DBLP

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EXPLORING E­COMMERCE BENEFITS FOR BUSINESSES IN A DEVELOPING

COUNTRY1

Alemayehu Molla (PhD) (Corresponding Author)

School of Business Information Technology
RMIT University
239 Bourke Street, Melbourne, VIC 3001, Australia
Tel: +613 9925 5803
Fax: +613 9925 5850
[email protected]

Richard Heeks (PhD)

Development Informatics Group, IDPM
The University of Manchester
Oxford Road, Manchester M13 9QH, UK
Tel: +44­161­275 2870
Fax: +44­161­273 8829
[email protected]

Abstract
Developing countries are home to more than 80% of the world’s population, and are the site
for growing use of e­commerce. There are theoretical claims that e­commerce could bring
significant benefits to firms in developing countries, but we know very little empirically about
the actual outcomes of e­commerce implementation. Our paper addresses this gap in
knowledge through a survey of 92 businesses in South Africa, all of which have moved
beyond the basic stage of e­commerce. The findings indicate that e­commerce benefits are, by
and large, limited to improvements in intra­ and inter­organizational communications. More
strategic benefits relating to market access, customer/supplier linkages or cost savings were
not found in the majority (more than 80%) of organizations surveyed. This therefore limits the
likelihood of broader benefits such as incorporation into global supply chains,
disintermediation, and improved competitiveness. Turning this somewhat disappointing e­
commerce picture around requires a multi­prong strategy aimed at building the resources and
capabilities of businesses, developing electronic­mediated business routines with partners and
customers, and addressing national e­readiness and global trade regulation issues.

Keywords: E­Commerce, E­Commerce Benefits Evaluation, Developing Countries, South

Africa

Running Head: E­Commerce Benefits in a Developing Country

1
An earlier (and shorter) version of this paper was presented at the Fourth International Conference on
Electronic Business, Beijing, China, December 5­9, 2004.

1
INTRODUCTION

There is tremendous potential for e­commerce in developing countries. While the base of
Internet use in these countries has been relatively low, the rate of growth has been high.
Between 2000 and 2005 developing countries’ Internet user population grew by more than
300% to roughly 400 million, increasing their global share of all Internet users from 25% to
40% (InternetWorldStats, 2005; UNCTAD, 2005). Internet bandwidth has also been
expanding at a fast pace, with growth rates in developing regions roughly twice those in the
developed world during 2003­2005 (TeleGeography, 2005). What this growth means for e­
commerce uptake is difficult to gauge because the data for developing countries is "virtually
non­existent" (UNCTAD, 2005:19).

Papers on e­commerce in developing countries are often purely conceptual, lacking an

empirical base. They tend to assume that Internet access will enhance e­commerce in
developing countries because of greater access to global markets, easier incorporation into
global supply chains, cost savings, and disintermediation (Goldstein and O’Connor, 2000;
Heeks, 2000; Singh and Tanburn, 2001; UNCTAD, 2004). Critics point out these papers
ignore local realities in developing countries such as norms, resources, infrastructure and
culture (Hempel and Kwong, 2001; Ho and Chen, 1999; Odedra­Straub, 2003). However,
such critiques have themselves tended to be conceptual rather than based on empirical
analysis. Even the little empirical work that exists on e­commerce in developing countries has
tended to focus on “upstream” issues such as factors that enable or constrain adoption of e­
commerce rather than researching “downstream”, post­adoption benefits (Molla and Licker,
2005; Murillo, 2004; Paré, 2003).

This paper seeks to start filling this gap by examining empirical evidence on the benefits of e­
commerce in developing countries. The study is exploratory in nature and is not intended to
support any specific theory or model. Rather, the aims of the paper are: (i) to explore the
benefits of e­commerce through a survey of business organizations, (ii) to assess if the
achieved benefits match the potential described in current literature, and (iii) to discuss some
broader issues related to e­commerce in developing countries. Beyond contributions to the
literature and the policy­making process, the paper seeks to inform practitioners
contemplating e­commerce investments about what benefits to realistically expect.

The paper is organized in four sections. In the next section the theoretical foundations of e­
commerce research in general and developing countries in particular are reviewed and the
research questions of this study discussed. After a description of the research methodology,
the results of the field survey are presented. Analysis of the results is then followed by a
conclusions section.

THEORETICAL FOUNDATIONS
E­commerce literature has tended to rely on: (1) transaction cost theory and (2) strategic
management perspectives. We will start by reviewing these two perspectives.

Transaction Cost Theory

Transaction cost refers to the cost of coordination in the production and marketing of a
product (Malone et al., 1989; Wigand, 1995, Robins, 1987; Williamson, 1985). It includes the
specific search costs of gathering information about an item to be exchanged (its design, price,

2
quantity, delivery details, etc.), the broader search costs of finding and finding out about
buyers or suppliers, and the costs of coordinating the people and processes involved in actual
production and exchange and in managing the exchange relationship (Benjamin and Wigand,
1995; Sarkar et al., 1995). According to the transaction cost perspective, the use of e­
commerce can potentially reduce transaction costs because of electronic coordination of
transactions (automating transaction processes) and disintermediation (removing transaction
processes).

Many authors working out of the transaction costs framework confirm the expectations of
lowered costs. For instance, Malone et al. (1989) observe that digital information and
communication networks improve the speed and cost of communicating the same unit of
information. Potential e­commerce cost savings are expected from reductions in search costs
such as the cost of identifying a market (buyer or supplier) and/or a product or service
(Malone et al., 1989). In particular, electronic networks can reduce information asymmetries
between buyers and sellers. Not only does this make the process of exchange itself more
efficient in time and financial terms, it can also assist identification of lower­cost inputs
(Barua et al., 2004; Malone et al., 1989).

When transactions are coordinated through the use of intermediaries, there is always the
danger of intermediary opportunism (Robins, 1987). They could use their market position,
experience and power to extract opportunistic “rents,” typically to the detriment of upstream
suppliers. To mitigate this threat, businesses need to invest in ex­ante safeguards and ex­post
enforcements, adding to transaction costs. Using network applications, such as middleware
and electronic markets, organizations can internalize and automate activities that in the past
have been performed by intermediaries (such as wholesalers, retailers, agents, distributors,
brokers, warehousing operations, and forwarders). This can reduce producer—intermediary
and intermediary—producer costs, and minimize the danger of intermediary opportunism
(Bakos, 1998; Barua et al., 2004).

Strategic Management Perspectives

According to strategic management perspectives, businesses that use e­commerce can
potentially increase their market reach and at the same time implement mass customization
strategies that suit the needs and preferences of individual consumers. For instance, e­
commerce can minimize the trade­off between “richness” and “reach” (Evans and Wurster,
2000). Richness refers to the quality of information in terms of accuracy, currency,
customization, interactivity, relevance, etc.; reach measures the number of people who can be
contacted with that information. Traditionally, the greater the investment in richness, the
fewer contacts could be reached; conversely, the greater the attempted reach, the less rich the
information flows that were possible. E­commerce allows both supplier­ and customer­side
digitization and customization and can enable businesses to differentiate their offering and
develop better relationships with customers and suppliers (Barua et al., 2004). This can
improve customer retention and loyalty.

Further, organizations that build an “online informational capability” (Barua et al., 2004) can
bypass (even if not to completely eliminate) some, if not all, of the intermediaries and hence
overcome market impediments related to intermediary reach, cost, and delay. Organizations
can also use e­commerce to reengineer their selling and distribution processes and eliminate
some of the intermediary activities to develop direct contact with their customers. This allows
locking­in of customers, improving their relationship with the business, and developing their

3
loyalty. As a result, e­commerce might contribute to improving the business bottom line and
to promoting competitiveness.

Research Questions
Research on the potential benefits of e­commerce in developing countries has also been rooted
in these theoretical frameworks. Of the various potential benefits derived from these
frameworks in the literature on e­commerce and development, four broad and interlinked
themes can be identified: improving market efficiency, improving operational efficiency,
market access, and linkage. We review each theme in turn.

Market Efficiency. Most businesses (including those involved in agriculture; typically a

developing country’s key economic sector) depend on long supply chains and on one or more
intermediaries to market their products and to purchase required inputs (Dolan and Humphrey,
2001). More often than not, the intermediaries demonstrate opportunism by taking the lion’s
share of profits, and by deciding which products are to be delivered to the market and from
which supplier to purchase equipment and other necessary inputs: so­called “biases of
dealers” (Kebede, 2001). They also add to the cost of input materials and finished products.
For firms in developing countries, then, any disintermediation effect of e­commerce could
deliver significant benefits. By enabling direct marketing of goods to clients (including those
in global markets), direct purchasing from suppliers, and better sharing of information with
partners, e­commerce could not only reduce costs but also significantly increase firm control
over its place in the supply chain.

The question to be asked in relation to this area of potential benefits is:

“Has the use of e­commerce enabled firms in developing countries to improve their
market efficiency?” (Question 1)

Operational Efficiency. It has been argued that businesses in developing countries incur
particularly high costs in coordination of their economic activities because of inefficient
systems of procurement, communication, inventory control, and operation (Mann, 2001;
Murillo, 2004). Traditional data communications infrastructure in these countries is also
expensive to access and use. Such high costs normally add to the market price of products and
adversely affect the competitiveness of developing countries’ products in the global market.
Using transaction cost theory, one can argue that developing country businesses’ use of e­
commerce could reduce the costs of intra­firm coordination, thus also addressing some of the
inefficiency problems these firms face (Moodley, 2003). As well as improving cost
competitiveness of their products in local and global markets, any e­commerce­induced
reduction in transaction costs could also reduce the costs of engaging in partnerships and
strategic alliances, and reduce the perceived and actual barriers to trade.

The question to be asked in relation to this area of potential benefits is:

“Has the use of e­commerce enabled firms in developing countries to achieve
operational efficiency?” (Question 2)

Market Access. Enterprises in developing countries have been characterized by absolute

levels of “information poverty”, and by location­based constraints to accessing information
about markets and, hence, to accessing markets (Duncombe and Heeks, 2002). The
networking capacities that underlie e­commerce have the potential to enable these businesses
to overcome their informational barriers by increasing the speed, richness, and volume of

4
information flows between a given enterprise and other market actors. The outcome of this
should normally lead to better inter­firm information flows and increased market reach.

The question to be asked in relation to this area of potential benefits is:

“Has the use of e­commerce enabled firms in developing countries to improve their
market access?” (Question 3)

Linkage. Market access is often conceived in relation to greater access to customers but –
given that global business is increasingly organized around commodity chains and supplier
networks – it more generally means an ability to link with and integrate into global supply
chains (Dolan and Humphrey, 2001; Gereffi, 2001). At present, most businesses in
developing countries are excluded from such chains but e­commerce offers the potential to
change this. This could increase the visibility of firms in developing countries. Linkage to
supply chains could also support diversification by opening up new technology­enabled
opportunities with digital data flows, such as business process outsourcing and hence, increase
overall firm competitiveness (Palvia et al., 1996; UNCTAD, 2005).

The question to be asked in relation to this area of potential benefits is:

“Has the use of e­commerce enabled firms in developing countries to improve their
competitiveness?” (Question 4)

From the review above, we can see a range of potential benefits from e­commerce; benefits
that are generic to business but which have particular values to firms in developing countries
(DCs) given the exclusions, costs, asymmetries, and other challenges that firms in these
countries face. As noted, though, existing empirical data on the actual achievement of such
benefits is very limited, with the few studies that exist tending to focus more on e­commerce
adoption and use. In seeking answers to the above four questions, we have also explored the
possible impacts of firm size, industry sector, and e­commerce capability on realized e­
commerce benefits. Figure 1 lays out the conceptual framework of the study reported here.

5
Figure 1: Research Framework

E­commerce
capability

Market efficiency
Expected e­ Operational efficiency Realized e­
commerce Market access commerce
benefits in DCs Linkage benefits in DCs

Theories Firm size,

Industry

RESEARCH METHODS
The data reported in this paper are extracted from a survey of 150 South African businesses
conducted as part of a broader research project during 2001 and 2002. Outline of the survey
method is provided here, with further details reported in Molla and Licker (2004).

Operationalization of Constructs
From the literature discussed in the theoretical foundations section, we drew 15 e­commerce
benefit statements related to market efficiency, operational efficiency, market access, and
linkage (Appendix A). Drawing from the e­commerce success literature (Delone and McLean,
2003; Molla and Licker 2001), an additional item “we are satisfied with the overall
performance of our e­commerce application” was used to assess the overall success of e­
commerce.

To analyze the business value of e­commerce, it was critical that we select businesses with
demonstrated e­commerce use. The level of e­commerce use can be measured by using an e­
commerce capability indicator. Of the various models available in the literature, we used a
six­point e­commerce capability indicator (Molla and Licker 2004):
· No e­commerce indicates a company without e­mail or an Internet connection.
· Connected e­commerce represents a company that has an Internet connection and e­mail.
· Informational e­commerce indicates a company using a Web site to publish basic
information about the company and its products/services in a static manner.
· Interactive e­commerce refers to the ability of users to search the company’s product
catalogue, make queries, and enter orders.
· Transactional e­commerce allows online selling and purchasing of products/services
including online payment and customer service.
· Integrated e­commerce means that the company’s e­commerce systems are integrated with
suppliers, customers, and other back office systems allowing most business transactions to
be conducted electronically.

Instrument Design
All the items related to e­commerce benefits are based on a five­point Likert scale ranging
from 1 (strongly agree) to 5 (strongly disagree). These measures are thus self­reported

6
perceptual measures. In the information systems (IS) literature, both primary and secondary
attributes of the implementation and benefits of IS have been recognized. Primary attributes
refer to objective and quantitative measures of benefits whereas secondary attributes refer to
perception­based measures. Some authors mistrust the subjectivity of perceptual measures
(Seddon, 1997) but, because of the correlations between the two attributes (and the difficulty
of obtaining economic and quantitative measures of benefits), perceived measures have been
widely accepted as conceptually meaningful and usable proxies of actual IS benefits (Grover
et al., 1998; Mirani and Lederer, 1998, Saarinen, 1996). Further, Delone and McLean (2003)
note not only the use of secondary attributes but also the specific applicability to e­commerce
of general approaches to IS benefit measurement. Therefore, the use of perceptual measures as
a proxy to gauge real e­commerce benefits is both conceptually and methodologically tenable.

Data Collection, Extraction and Analysis

South Africa was chosen for the study not because it represents all types of developing
countries but because it is one of the developing countries with a reasonable level of e­
commerce adoption – a pre­condition for the study of e­commerce benefits. Table 1 provides
a comparison of South Africa with some other developing countries. South Africa may be
seen as more representative of middle­income countries than of all developing countries,
including those low­income countries that form the majority of other African nations.

Table 1: A Comparison of South Africa with Selected Developing Countries

Criteria Nigeria India Egypt China South Brazil Mexico

Africa
Income category a Low Low Middle Middle Middle Middle Middle
Income Income Income Income Income Income Income
Gross domestic 393 560 1,040 1,096 2,293 2,864 6,328
product (US$ per
capita)a
Internet users (% 1.1 3.6 6.0 7.9 9.9 12.3 16.4
population)b
No. of Internet 0.08 1.3 0.5 1.2 78 193 145
hosts (per 10,000
population) a
Network readiness 86 39 57 41 34 46 60
ranking c
Digital access 0.15 (low 0.32 0.40 0.43 0.45 0.50 0.50
index (DAI) d access) (middle (middle (middle (middle (upper (upper
access) access) access) access) access) access)
Source: a= ITU (2005); b= InternetWorldStats (2005); c= Dutta and Lopez­Claros (2005); d=
ITU (2003)

Because the nature of the research required responses from executives who could make an
overall assessment of e­commerce benefits for their firms, we specifically sought out the
CEOs, general managers, and managing directors of organizations to respond to the survey
questions. For more details about the data collection protocol, refer to Molla and Licker
(2004, 2005).

7
To select the data for the purposes of this paper, the e­commerce capability of the businesses
was used as a data extraction criterion. In order to talk about e­commerce benefits, we
assumed that the businesses needed to have at least an informational e­commerce capability,
given that this represents the foundational level at which an organization has digitized at least
basic information for exchange and transaction (Barua et al., 2004). On the basis of this
criterion, 92 of the total 150 responding businesses were selected: those that had attained an
informational or interactive or transactional or integrated e­commerce capability and that had
completed the e­commerce benefits part of the questionnaire. For the purpose of analysis, we
referred to this subset as e­commerce users and the remaining respondents as e­commerce
non­users.

A range of demographic characteristics was analyzed from the extracted data subset (Table 2).
The majority of the respondents held a job title of managing director or CEO or general
manager. The surveyed firms represent a fairly broad range of economic sectors, albeit with
some emphasis on service firms. Most were large2 businesses operating for more than ten
years. A comparison of the e­commerce users with e­commerce non­users indicates that the
two groups were significantly different only in terms of size (t­value 2.93; p= 0.004, df=148),
not in terms of sector or number of years in business. The data therefore reflect the
experiences of larger­than­overall­sample­average firms; something which might not be
unexpected given the greater constraints that small and medium enterprises have faced in
adopting e­commerce (Tucker and Lafferty, 2004).

2
According to Statistics South Africa and the South African National Small Business Act 102 of 1996,
businesses with 50 or fewer full­time employees’ size (FTES) are considered small. Those with 50 to 100 FTES
(maximum limit of 200 in mining, manufacturing and construction) are medium, and the rest are considered
large.

8
Table 2: Characteristics of Firms in the Sample

Characteristics E­Commerce E­Commerce

Users (n= 92) Non­Users (n= 58)
No. % No. %
Respondent’s Job Title
Managing director or CEO or general manager 66 72% 30 52%
Finance director 10 11% 12 21%
IT director 9 10% 9 16%
E­commerce director 4 4% 2 3%
Marketing director 3 3% 1 2%
Not specified ­­ ­­ 4 7%

Business Size
Small and medium 16 17% 22 38
Large 76 83% 36 62

Sector
Service (financial, consulting, media, 36 39% 13 22%
marketing & tourism)
Manufacturing 20 22% 19 33%
Primary (agriculture, construction and mining) 16 17% 9 16%
Trade (wholesale and retail) and transport 11 12% 10 17%
ICT (computers and communications) 9 10% 7 12%

Number of Years in Business

1­10 16 17% 8 14%
>10 76 83% 50 86%

E­commerce Capability
No e­commerce ­­ ­­ 24 41%
Connected e­commerce ­­ ­­ 29 50%
Informational e­commerce 19 21% 3 5%
Interactive e­commerce 43 47% 2 3%
Transactional e­commerce 24 26% ­­ ­­
Integrated e­commerce 6 7% ­­ ­­

The data were further analyzed using exploratory statistical techniques such as analysis of
variance and factor analysis. The results of all analyses are presented next.

FINDINGS

Descriptive Results
In order to assess the benefits of e­commerce to the firms, we counted the number of
respondents who agreed or strongly agreed and compared it with those that disagreed or
strongly disagreed on each of the survey items. The results are summarized in Table 3 and the
comparison (which excluded the respondents who neither agreed nor disagreed) is plotted in
Figure 2.

9
Table 3: Responses on E­Commerce Benefits

Mean Standard
Number of respondents that deviation
Strongly agree Neutral Disagree and
and agree strongly disagree
Increased revenue 14 5 73 3.44 1.06
Reduced operation costs 15 5 72 3.43 1.04
Reduced costs of purchasing and procurement 16 6 70 3.36 1.06
Increased customer loyalty and retention 20 5 67 3.13 0.97
Reduced marketing costs 21 6 65 3.29 1.03
Improved supplier relationship 22 6 64 3.15 0.97
Overall satisfaction 30 5 57 2.94 0.91
Reduced cost of maintaining information 30 5 57 2.95 1.07
Product/service differentiation 34 5 53 2.79 0.94
Improved customer relationship 36 5 51 2.76 0.93
Improved competitive position 37 5 50 2.82 1.05
Extending firms’ reach (market) 42 5 45 2.62 1.03
Improved process speed 43 6 43 2.67 1.03
Improved external communication 57 5 30 2.31 1.00
Improved company image 62 5 25 2.25 0.85
Improved internal communication 67 5 20 2.08 0.95

Figure 2: Chart of E­Commerce Benefits

Increased revenue
Reduced operation costs
Reduced costs of purchasing and procurement
Increased customer loyalty and retention
Reduced marketing costs
Improved supplier relationship
Overall satisfaction
Reduced cost of maintaining information
Product/service differentiation
Improved customer relationship
Improved competitive position
Extending firms’ reach (market)
Improved process speed
Improved external communication
Improved company image
Improved internal communication
0 20 40 60 80

Strongly Agree and Agree Disagree and Strongly Disagree

Examination of Table 3 and Figure 2 indicates that e­commerce benefit is seen as largely
limited to internal (77% of respondents either strongly agreeing or agreeing) and external
(71%) communications improvements. The only other benefits supported by a greater or equal

10
number to those disagreeing are improved company image (65%) and improved process speed
(50%). Thus e­commerce did not appear to enable most of the businesses in the survey to
reduce the cost of operations (83% disagree or strongly disagree), of purchasing and
recruitment (81%), of marketing (76%) or of maintaining information (66%). Further, 84% of
respondents did not appear to realize increased revenue as a result of e­commerce. Another
74% and 72% of respondents respectively either disagreed or strongly disagreed with the
improved supplier relationships and the customer loyalty and retention benefits of e­
commerce. Overall, just 30% of the respondents were satisfied with the performance of e­
commerce. These findings are explained later in the discussion and conclusion section.

E­Commerce Benefit Constructs

Exploratory factor analysis was used in order to identify underlying constructs and investigate
relationships among the 16 items used to assess e­commerce benefits. Consistent with the
exploratory nature of the study, the factors were extracted using an iterative sequence based
on the principal components extraction technique. To facilitate interpretability, this was
followed by varimax rotation. The criterion used for assigning an item to a factor was a
minimum factor loading of 0.5. In each cycle of the iteration, we retained only factors with
eigenvalues greater than one. In addition, single item factors, items with factor loadings less
than 0.5 on any one factor, and items with a factor loading greater than 0.5 on two or more
factors were excluded from subsequent iterations. The final factor structure with three factors
containing 12 items was obtained after the third iteration (Table 4). In addition, Cronbach’s
alpha was calculated; the scores (0.87, 0.71 and 0.78 for factors 1, 2 and 3, respectively) were
above the acceptable level (Cronbach, 1979).

Table 4: E­Commerce Benefits Factor Analysis

Factor Loadings (Varimax Raw) E­

Commerce Benefits
Extraction: principal components (loadings
Variable are all >0.5)
Factor 1 Factor 2 Factor 3
Extending firm’s reach (market) 0.840
Product/service differentiation 0.846
Increased customer loyalty and retention 0.809
Improved revenue 0.596
Improved competitive position 0.620
Improved customer relationship 0.733
Improved internal communication 0.859
Improved external communication 0.906
Improved process speed 0.588
Reduced operation cost 0.735
Reduced cost of purchasing and procurement 0.833
Improved supplier relationship 0.736
Eigenvalue 5.142 1.768 1.280
Total variance explained 42.85% 14.73% 10.66%
Cronbach's alpha 0.87 0.71 0.78

As can be seen in Table 4, three main categories of benefits are identified from the data
(factors 1, 2 and 3). Cumulatively, these three main factors explain 68% of the variance in the

11
data. The factor loadings indicate the degree of correlation that exists among the items
grouped under the same variable, implying that the items under each block can be used to
measure three categories of e­commerce benefits. Cronbach alpha values show the reliability
of the measure.

Examination of the results of factor analysis in Table 4 indicates that the first factor with six
items accounts for 42.9% of the variance in the data. This means the benefits grouped under
this factor explain more of the variations in responses than any other group. This factor is
related to both the linkage and market access benefits of e­commerce and we labeled it here as
the market performance gains of e­commerce. The results of our survey (Figure 33) indicate
that market performance e­commerce benefits among the South African businesses generally
fall short of the potential indicated in the literature. Therefore, based on the evidence in this
study, the answer to questions three and four above appears to be generally negative: use of e­
commerce in this developing country has typically not enabled firms to improve their linkages
and market access.

Figure 3: Status of E­Commerce Benefits

3.4

3.2
Mean Perceived Benefit

3.0

2.8

2.6

2.4

2.2

2.0
Market Performance Transaction Cost Reduction
Communication

The second factor, with two items, accounts for 14.7% of the variance and is labeled
communications improvement benefits of e­commerce. Communication is one dimension of
e­commerce (Kalakota and Whinston, 1996). Use of e­mail, intranets and extranets might help
organizations to improve the reach and richness of the information to be communicated. In
addition, as noted above, such networks can improve the speed and cost of communicating the
same unit of information and enable the design and deployment of strategic linkages among
market players (Malone et al., 1989). Our findings (Figure 3) indicate that this is one area in
which there is more sign of businesses benefiting from e­commerce. We might thus modify
the answer to questions three and four: while recognizing no strong sign of outcomes such as
market access or competitiveness or diversification there are signs of improvements in the
communications that underlie linkages.

The third factor, with four items, accounts for 10.66% of the variance. This factor is related to
the efficiency (market and operational) theme identified in the literature review and is labeled
here as the transaction cost reduction benefit of e­commerce. The items under factor three
appear to relate to both hierarchy (operational) and market transaction cost savings. Such
savings are expected from reductions in operating costs (such as personnel, rent, and order
3
The y­axis of Figures 3, 4, 5 and 6 indicates average perceived benefits. Note that the scale used is 1=strongly
agree … 5= strongly disagree. Thus, lower average values mean higher benefits.

12
processing), supply acquisition and supplier management costs, and improving internal
processes. However, such benefits of e­commerce appear to have rather eluded our
respondents (Figure 3). This leads to a negative answer to questions one and two: firms in this
developing country have typically not achieved market or operational efficiency gains through
use of e­commerce.

The three factors extracted above demonstrate some inter­relationship (Table 5). Particularly,
there is a relatively stronger relationship between market performance and transaction cost
reduction than between the other factors. This implies that if a business is not successful in
reducing transaction costs, then it is unlikely for that business to perform better in the market,
which means it would find itself at a competitive disadvantage.

Table 5: Correlation Coefficients

Correlations: E­Commerce Benefits

All correlations are significant at p < 0.05
Variable Market Communication Transaction Cost
Performance Reduction
Market Performance (1.00) 0.29 0.54

Communication (1.00) 0.35

Transaction Cost (1.00)

Reduction

Impact of Demographic Variables

To explore differences in e­commerce benefits between small and medium and large
enterprises, the size­wise mean score values of the three factors were plotted (Figure 4).
Examination of Figure 4 indicates a more or less consistent pattern across enterprises. In both
small and medium and large size groups, improvements in internal and external
communications were reported by most organizations while cost reduction and market
performance benefits remained the least experienced. The graph also indicates relatively
better e­commerce benefits for small and medium enterprises in the first two factors, i.e.,
market performance and communications. However, on further testing of this difference using
a one­way analysis of variance (ANOVA), it was not found to be significant (Wilks
lambda=0.97, F(3, 83)=0.96, p=.417).

Figure 4: E­Commerce Benefits by Business Size

3.4

3.2
Mean Perceived Benefit

3.0

2.8

2.6

2.4

2.2
Large
2.0 SME
Market performance Transaction cost reduction All Group
13
Communications
In addition to size, e­commerce benefit variations due to sector differences were tested. The
sector­wise mean benefit scores are plotted in Figure 5. The result has not produced a single
pattern indicating one particular sector benefiting more from e­commerce than other sectors.
The ANOVA test (Wilks lambda=0.88, F(12, 211.95)=0.84, p=0.6102), produced an
insignificant result, reinforcing this finding.

Figure 5: E­Commerce Benefits by Sector

3.4

3.2
Mean Perceived Benefit

3.0

2.8

2.6

2.4
Primary sector
2.2 Service sector
Manufacturing
2.0 ICT
Market performance Transaction cost reduction Trade and Transport
Communications

We anticipated that the e­commerce capability of businesses – captured in terms of the

informational or interactive or transactional or integrated status attained – would have some
impact on e­commerce benefits. The mean plot (Figure 6) appears to indicate a distinction in
terms of benefits between businesses with informational e­commerce capability and those that
have developed integrated e­commerce capability. As would be anticipated, businesses that
have developed integrated e­commerce capability seem to have obtained greater benefit from
their e­commerce investment in all the three areas. However, the ANOVA test did not
produce a statistically significant result for these differences.

Figure 6: E­Commerce Benefit by E­Commerce Capability

3.6
3.4

3.2
Mean Perceived Benefit

3.0

2.8
2.6

2.4
2.2
Informational
2.0 Interactive
1.8 Transactional
Market performance Transaction cost reduction Integrated
Communications

14
Finally, in order to benchmark the impact of demographic variables reported here, we
compared the results on firm size, industry sector, and e­commerce capability with the
Globalization of E­Commerce study (Kraemer et al ., 2002). Our two studies used different
instruments and different sample populations, so direct comparison is not possible. However,
the summary in Table 6 indicates that the findings of our study more or less conform to
Kraemer et al.’s (2002) results. One difference is the effect of e­commerce capability on e­
commerce benefits. While the current study shows a statistically insignificant relationship,
Kraemer et al. found a strong positive association (although not causality) between these two.
Possible explanations for such differences could be the mediating role of the globalization of
the firm (a variable we have not studied) and significant inclusion of experience of firms from
industrialized countries in Kraemer et al.’s analysis.

Table 6: Benchmarking E­Commerce Findings

Item Present Study Kraemer et al. (2002)

No. of Single country – South Africa Ten countries, of which only three
countries (Brazil, China, and Mexico) are
covered developing countries.
Effect of Firm size has no significant Firm size was unrelated to efficiency,
firm size on impact on differences in market coordination and commerce
e­commerce performance, communication and performances of businesses (p.18)
benefit transaction cost reduction
benefits of e­commerce
Effect of Sector differences have no Industry sector was unrelated to
sector on e­ significant impact on variations efficiency, coordination and
commerce in e­commerce benefits. commerce performances of
benefit businesses (p.18)
Effect of e­ Organizations with higher e­ The level of e­commerce adoption
commerce commerce capability seem to had strong positive impacts on all
capability have obtained greater benefit three types of firm performance.
on e­ from e­commerce. However this (p.19)
commerce was not statistically significant.
benefits

DISCUSSION AND CONCLUSION

Our findings about the benefits of e­commerce for businesses in South Africa suggest that, by
and large, the potential for e­commerce in developing countries – as summarized in the
section on theoretical foundations – is not being realized. As noted earlier, there is very little
empirical evidence till date on e­commerce benefits in developing countries, but our work is
in line with the two field studies that have been reported (Humphrey et al., 2003; Moodley et
al., 2003). While they focused on individual sectors and a limited range of benefits only, they
did report a lack of evidence of disintermediation, trade/reach facilitation, or reduction in
transaction costs.

Our study has been more comprehensive in both conceptualization of benefits and breadth of
sectoral coverage. In relation to the literature­based conceptualization, we find the majority of
businesses do not appear to have obtained e­commerce benefits in terms of expanding their
access to markets, improving their reach or linkages to customers or suppliers, or in relation to

15
cost savings or other efficiency gains. Our field data suggested a slightly different
conceptualization of benefits may be useful for those working on e­commerce. Again, though,
the story on benefits was much the same: overall market performance and reduction of
transaction costs was typically not seen. Firms only reported basic communications
improvements; a significant shortfall from the promise of e­commerce. This also implies that
the findings here do not support the transaction cost and strategic management theses of e­
commerce benefits. Nevertheless it has to be noted that the results are based on a synchronic
single country survey and cannot be generalized.

We can also step back to look at some of the broader economic benefits identified in the
theoretical development section. These saw e­commerce as potentially valuable in addressing
challenges that negatively impact business in developing countries: information poverty and
asymmetry, exclusion from global supply chains, loss of profits and control to intermediaries,
and poor cost competitiveness. We find no strong evidence from this survey that e­commerce
is delivering the precursory benefits necessary to address these challenges. These findings
therefore contradict the optimism surrounding e­commerce in developing countries expressed
by some authors identified in the introduction. E­commerce may be producing some limited
communicational benefits but there is no evidence that it is systematically delivering strategic
business benefits. Our finding seems to suggest that a realistic view on e­commerce benefits
in developing countries (at least in the short to medium­ term) will not necessarily be an
optimistic one. This is of particular concern if set alongside evidence that some firms in
industrialized countries do appear to be achieving such benefits (Fitzgerald et al., 2005;
Soliman and Youssef, 2003). This raises the possibility that foreign firms may be able to use
the benefits of e­commerce to penetrate markets in developing countries while firms in
developing countries may not be able to counter­penetrate industrialized country markets.
Hence, e­commerce may be part of a broader historical pattern that has seen new technologies
tend to increase global inequalities (Heeks and Kenny, 2002).

Our focus in this paper has been on reporting the extent to which e­commerce is producing
benefits for businesses in one developing country. However, we also feel it would be
appropriate to comment on an issue that – while not the core focus for conceptualization or
data­gathering – is very much related: the issue of why such limited benefits have been seen.
The most obvious explanation would be one that calls implicitly on a chronological picture,
with developing countries being further behind on a timeline than industrialized countries.
This could be seen as a timeline of e­commerce capabilities, with arguments that – as
businesses progress along the six capability categories from no e­commerce to integrated e­
commerce – they achieve greater e­commerce benefits (Barua et al., 2004; Kraemer et al.,
2002; Zhu and Kraemer, 2002). Hence, the argument would run, developing countries see
fewer benefits from e­commerce because they have more lower­level capability firms and
fewer higher­level capability firms. Further, these findings could arise because e­commerce in
developing countries is still developing and has yet to achieve full traction (Dutta and Lopez­
Claros, 2005).

However, we would just note some caveats thrown up by this research and other sources.
First, there seems to be strong evidence from developing countries of a pattern of many more
lower­level than higher­level capability firms: not just from this research but also other
studies in Brazil (Tigre, 2003), China (Tan and Ouyang, 2004), Malaysia (Le and Koh, 2002),
and Mexico (Palacios, 2003). However, that is equally the pattern seen in industrialized
countries (Brousseau and Chaves, 2005; Kraemer et al., 2002). Second, there is some
discounting of any effect in the current research because the first two capability categories –

16
more than one­third of surveyed businesses – were excluded from statistical analysis. In turn,
this analysis, while showing a pattern of higher benefits related to higher capability levels,
failed to identify this pattern as statistically significant.

All this at least suggests we might look for other explanations, and these have been offered
within another timeline concept: that of e­readiness. Here, the suggestion would be that
businesses in developing countries reap comparatively fewer benefits from e­commerce
because they lag behind industrialized countries in contextual enablers such as technological
infrastructure, human infrastructure, institutional support, and legislative framework (Mansell,
2001; Patterson and Wilson, 2000). This may be a more robust explanation but it lies beyond
the scope of evidence in this paper. We do, though, note one final point – one cannot assume
that it is simply a matter of time before developing countries “catch up” in e­readiness terms
and, hence, in terms of e­commerce benefits. There are arguably structural features of
globalization, of national economies, and of business characteristics that maintain
infrastructural inequalities and institutional and organizational differences that may serve to
maintain the uneven benefits pattern found in this paper (Molla and Licker, 2005; Schech,
2002; Sutz, 1989)

Therefore, to turn the somewhat disappointing realized e­commerce benefits around, there
needs to be a multi­prong strategy aimed at reducing the many facets of technological divides
and improving the local and international institutional arrangements that support the conduct
of business. This requires a public­private partnership to develop the resources and
capabilities of businesses and improve the national e­readiness factors. It also requires
developing country firms to constantly improve their e­commerce capabilities in both down­
stream functionalities and up­stream integration. Further, favourable international trade
regulations have to be negotiated at a global scale. There may well be some merit in these
ideas that would warrant further investigation.

To summarize, we have shown the reality of e­commerce benefits in a developing country to

contrast sharply with some of the dominant theoretical perspectives and the more optimistic
literature that seems rooted in potentiality rather than actuality. Our cross­sectoral study has
investigated a range of benefits and strikes a cautionary note for practitioners: expectations
should be muted about what e­commerce can deliver for developing country firms. This must
be particularly true of expectations about returns on e­commerce investments, given that costs
of information systems implementation in developing countries are higher than global
averages (Heeks and Kenny, 2002). This is not to suggest that practitioners – business staff,
consultants, business advisors, even policy­makers – should turn against e­commerce.
However, they do need to stay aware of its opportunity costs, and see it as one business
improvement initiative among a number of options rather than as “the solution”.

We hope, too, that we have provided a contribution for researchers and to knowledge in the e­
commerce literature. At root, this has been an addition to a very limited data pool on e­
commerce benefits in developing countries but it has also outlined a data­led categorization of
those benefits into three core areas of impact, and an instance in which three factors – sector,
size, even level of e­commerce capability – did not demonstrate a statistically significant
relation to benefits.

Of course, we must avoid being too sweeping in the generalization of these results. They
come from a survey of mainly large firms in just one country that, as noted earlier, is at best
representative of only one tranche of developing countries. Given the general lack of data on

17
impact of e­commerce in those nations that are home to more than 80% of the world’s
population, we will end by a call for much more survey data on e­commerce in developing
countries. Such further research can focus on the extent of benefits but also, as noted, on
investigation of the antecedents of e­commerce benefits in developing countries, including the
key issue of whether or not current global inequalities are likely to be reduced.

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21
 APPENDIX A: SURVEY ITEMS USED TO COLLECT E­COMMERCE
BENEFITS DATA

The following statements indicate possible benefits of e­commerce. Please indicate the extent
to which your organization has experienced these benefits by expressing your degree of
agreement or disagreement.

Strongly Strongly
Agree Disagree
1 2 3 4 5
1. Reduced operation costs (personnel, rent, order ¡ ¡ ¡ ¡ ¡
and payment processing)
2. Reduced marketing costs (communications, ¡ ¡ ¡ ¡ ¡
interactions and managing customer information
and bypassing intermediaries)
3. Reduced costs of maintaining up­to­date company ¡ ¡ ¡ ¡ ¡
information
4. Reduced costs through Web­based purchasing ¡ ¡ ¡ ¡ ¡
and procurement
5. Extending firm’s reach (market) ¡ ¡ ¡ ¡ ¡
6. Product/service differentiation ¡ ¡ ¡ ¡ ¡
7. Increased customer loyalty and retention ¡ ¡ ¡ ¡ ¡
8. Improved process speed ¡ ¡ ¡ ¡ ¡
9. Improved customer relationship ¡ ¡ ¡ ¡ ¡
10. Improved supplier relationship ¡ ¡ ¡ ¡ ¡
11. Improved company image ¡ ¡ ¡ ¡ ¡
12. Improved internal communication ¡ ¡ ¡ ¡ ¡
13. Improved inter­organizational communication ¡ ¡ ¡ ¡ ¡
14. Increased revenue ¡ ¡ ¡ ¡ ¡
15. Improved competitive position ¡ ¡ ¡ ¡ ¡
16. We are satisfied with the performance of our e­ ¡ ¡ ¡ ¡ ¡
commerce application

22

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