978-1-4244-2900-4/08/$25.00 ©2008 IEEE. ICIAFS08

Abstract – Although research indicates e-commerce offers

viable and practical solutions for organizations to meet challenges of a predominantly changing environment, the few available studies related to SMEs in developing countries reveal a delay or failure on the part of SMEs in adopting e-transformation technologies. The various factors identified as causes for the reticence can be broadly classified as Internal Barriers and External Barriers. The SMEs require support to overcome the barriers, some of which may be provided internally and some with the help of external interventions or both. With pilot exploratory interviews and a survey with SME organizations in Sri Lanka it was revealed that SMEs adopt the technologies in small but progressive steps. This created sub stages within the main stages of the roadmap. The sub stages were identified depending on the availability of technology infrastructure and applications, and also the extent of features adopted by SMEs. These findings led to the development of a model “the eSME roadmap” towards et transformation of SMEs in developing countries..

This paper highlights efforts towards the eSME roadmap for SMEs in developing countries taking Sri Lanka as the test bed. In addition, barriers to adoption of ICT and e-commerce and the necessary support for SMEs in a developing country context were identified. A practical, yet an efficient framework to identify the SMEs level of ACT sophistication is proposed.

Keywords: E-commerce, SMEs, adoption, developing countries, barriers

I. INTRODUCTION Developing countries have the potential to achieve rapid

and sustainable economic and social development by building an economy based on an ICT enabled and networked SME sector capable of applying affordable yet effective ICT solutions [1].

A significant contribution to the national economy is made by the SMEs sector in terms of wealth created and generating employment [2]. With the development of ICT and the shift to a knowledge-based economy e-transformation and the introduction of ICT are becoming increasingly important tools for SMEs. eTranformation facilitates the SMEs to reinvigorate corporate management and promote growth of the national economy. However, SMEs appear to face significant and unique challenges in

adopting new technologies [3], thus impeding the SMEs in developing countries specifically.

Review of literature illustrates many studies carried out in developed countries on factors inhibiting adoption of ICT and e-commerce. These studies have looked at organizational perspectives, owner/manager perspectives and environmental perspectives [4],[5]. Among these are studies that investigate the facilitators/ inhibitors affecting adoption [6],[7],[8],[2],[9]. Some barriers are specific and more pronounced with the SMEs in developing countries. To better understand the lack of, or slow adoption of ICT and e-commerce technologies with SMEs, it is appropriate to look at the environment in which they operate. Many constraints inherent with SMEs in developing countries, subscribe to barriers: internal and external to the organization, making it essential to examine them in depth.

The impediments within the organization hinder the SMEs in adopting technologies - Internal Barriers. Other impediments outside the organization related to infrastructure, political, legal, social, and cultural barriers are External Barriers. For a SME to successfully adopt the technologies and eTransform these barriers need to be addressed. Internal barriers may be resolved within the organization, but external barriers, which are beyond their control, may require government intervention. Hence, it is imperative to understand the barriers that inhibit SMEs in developing countries and how these could be overcome, if they are to benefit from ICT and e-commerce.

There is an interesting and growing number of studies addressing e-commerce adoption within the specific context of SMEs (for example [10], [11], [12], [13]). However little research has been conducted in developing countries. This paper, attempts to fill this gap and understand the factors that inhibit e-commerce adoption by SMEs in developing countries. It also explores how best they can be overcome. This paper outlines the current research into adoption of ICT and e-commerce in developing countries, and discusses the various categorizations of barriers to adoption identified in previous studies. Then it proposes a new practical yet an efficient way of identifying the barriers and the support

A Model to eTransform SMEs in Developing Countries

Mahesha Kapurubandara, Department of Computing and Mathematics

School of Health and Science University of Western Sydney, Australia

Email : mahesha@scm.uws.edu.au Telephone: (61) 2 96859065, Fax: (61) 2 96859556

necessary to overcome them. This is followed by presenting the framework established, which will address the internal barriers and also work within the constraints and boundaries of the external barriers for successful eTransformation of SMEs in developing countries. Lastly it discusses the research methodology, the results, and is followed by the conclusion..

The Sri Lankan wishes to enjoy a leading position on the electronic highway. This is included in the ‘e-Sri Lanka’ program, which should provide Sri Lankan SMEs ‘a ramp to the digital highway’ and stimulate e-commerce.

II. BACKGROUND

A. Barriers to ICT and E-commerce Adoption by SMEs

Based on the number of employees the World Bank defines enterprise size in Sri Lanka. For this study we consider enterprises with 10-250 employees as SMEs [14].

Previous studies which investigate barriers that affect SMEs adoption of ICT and e-commerce have identified a variety of factors, which can be grouped into several categories. A number of authors ([7], [12]) group factors into three major categories: owner/manager characteristics, firm characteristics, costs and return on investment.

Owner/managers play an important role in decision making in SMEs. The owner’s lack of awareness of the technology and perceived benefits is a major barrier to a take up of e-commerce [10]. The lack of knowledge on how to use the technology and low computer literacy are other contributory factors [11]. Mistrust of the IT industry and lack of time are two other factors that affect the adoption of e-commerce [11]. SME owners, concerned about a return on their investments are reluctant to make substantial investments particularly since short-term returns are not guaranteed [11]. Other factors related to the characteristics of the organization, such as the current level of technology usage within the organization also affect adoption of e-commerce, [10]. The OECD [12] has identified that: lack of awareness; uncertainty about the benefits of electronic commerce; concerns about lack of human resources and skills; set-up costs and pricing issues; and, concerns about security as the most significant barriers to e-commerce for SMEs in OECD countries. Low use of e-commerce by customers and suppliers, concerns about security, concerns about legal and liability aspects, high costs of development and computer and networking technologies for e-commerce, limited knowledge of e-commerce models, and unconvincing benefits to the company are among the factors also found [13]. SMEs definitely have limited resources (financial, time, personnel). This “resource poverty” has an effect on adoption [7].

B. Barriers to e-commerce in Developing Countries

SME studies of e-commerce issues in developing countries ([15], [12]) indicate that issues faced by SMEs can be totally different. Organizations adopting ICT and e-commerce in developing countries face problems like: the lack of telecommunications infrastructure, lack of qualified staff to develop and support e-commerce sites, lack of skills among consumers needed in order to use the Internet, lack of timely and reliable systems for the delivery of physical goods, low bank account and credit card penetration, low income, and low computer and Internet penetration [11],[4],[16].

Lack of developed legal and regulatory systems also would inhibit the development of e-commerce in developing countries. A study of SME adoption of e-commerce in South Africa found that adoption is heavily influenced by factors within the organization [6].

In a study of Sri Lankan SME capability to adopt e-commerce conducted by the Sri Lankan Business Development Centre in 2002, the key factors inhibiting the adoption of e-commerce by SMEs identified were: lack of knowledge and awareness about the benefits of electronic commerce, current unprepared-ness on the part of the SMEs to adopt e-commerce as a serious business concept, lack of exposure to IT products and services, language barriers and lack of staff with IT capability, Web-based selling was not seen as practical as there is limited use of Internet banking and Web portals, as well as inadequate telecommunications infrastructure [17].

The various significant factors affecting the adoption of e-commerce technologies as revealed in literature can be categorised into groups to develop a framework for investigations. The following framework is applied for this purpose, with internal and external barriers.

Internal Barriers: SMEs have control over the internal barriers..They can be further categorized into Individual (owner/manager) and Organizational barriers.

External Barriers: SMEs have no control over these constraints. These factors may need governmental intervention to resolve them.

III. RESEARCH METHODOLOGY

A. Research Approach

Colombo District was chosen for the empirical research as it has the highest density of companies using ICT. The selection necessitated an employee strength of 10–250 employees; not totally immature in the use of ICT and e-commerce technologies.

The study was conducted in two stages: In the first stage preliminary pilot interviews, were conducted and this was followed by a survey. A multi-method approach allows for the combination of benefits of both qualitative and

quantitative methods, and permits empirical observations to guide and improve the survey stage of the research (Gable 1994; Gallivan 1997).

The preliminary pilot interviews identified the barriers imperative to SMEs. Face-to-face semi-structured interviews were conducted to gather qualitative empirical data and provide flexibility (Sekeran, 2000) as they allow researchers to explore issues raised by respondents, generally not possible through questionnaires or telephone interviews. This was followed by the survey.

Stage 1- Pilot Exploratory Study with SMEs

Focusing on perceptions of the facilitators and inhibitors of adoption of ICT and e-commerce technologies face-to-face semi-structured interviews with 17 SME owner/managers were conducted. Barriers, supporting activities and the general experience the organization faced during or prior to the adoption were discussed. Respondents, while providing descriptions of their ICT and e-commerce activities, contributed opinions regarding reasons for current usage levels along with perceptions of issues or factors acting as barriers to extend the use of ICT and e-commerce.

All respondents received the same set of open-ended questions a week before the interview. This method allows for maximum autonomy in expressing views and to prepare for the interview. One-hour long interviews were audio recorded and transcribed for analysis. Data were organized in a spreadsheet to conduct Cross-case analysis.

Out of the 17 SMEs, manufacturing companies made up 23% percent of the participants. The remaining 77% were service oriented companies. 35 % had a static website mainly used for advertising even though not regularly updated; none of the SMEs used it for buying or selling. 76% had Internet and e-mail facilities. 52% use the Internet for browsing and searching. E-mail was the preferred medium for overseas communication, with 62% on ADSL connections and 25% dial-up connections. Only 43% allow everyone to access the Internet. All owner/managers were male. 80% had tertiary or professional qualifications.

Stage 2 - Survey of SMEs using Questionnaire

A survey instrument with questions using a 5-point likert scale was developed, pilot tested by 3 SME owner /managers in Sri Lanka which helped in refining the instrument. It covered: information about barriers internal and external to the organization for lack of or not extending the use of ICT and e-commerce. It also gathered information on support; internal and external -required by the organizations; usage of ICT and company demographics.

The questionnaire was administered in Colombo. Overall, 625 questionnaires were personally addressed to the owner/managing director. The respondents were randomly

selected from a database maintained by the Department of Census and Statistics in Sri Lanka. Follow-up efforts to non-respondents were made through phone calls and post, three weeks after the mail-out. Out of 168 total responses received 139 usable responses provided a response rate of 23.8% considered adequate for the analysis and comparable to response rates in IS literature (Pinsonneault et.al, 1993). Comparison of the analysis between the first and second round of respondents did not show any statistically significant difference. Thus it can be safely assumed that non-response error is not present.

IV. RESULTS DISCUSSIONS This section discusses findings of the interviews and the survey.

A. Barriers - Pilot Interviews

A majority (88%) of respondents ranked lack of awareness the highest barrier. This was considered significant as the majority of owner/managers, described themselves as basically computer literate. Their knowledge of available e-commerce technologies or suitability for effective use towards improved productivity for benefits was negligible. They appear confused with the multitude of choices in software/hardware. Computers, were underutilized with adhoc purchases and isolated implementation shadowing ICT strategy; a major concern, being decision makers. Next, on the list was cost of Internet, equipment and e-commerce implementation. Inadequate telecom infrastructure chosen by 83% was the third most frequently cited barrier chosen by the SMEs more advanced in usage of ICT using e-mail and Internet, more likely to have experienced problems. Unstable economy, political uncertainty, lack of time, channel conflict, lack of information about e-commerce and lack of access to expert help, were cited as impeding factors by 70% of respondents

B. Analysis of Survey Data Nearly 80% of the respondents were either professionally qualified or graduates. T-test analysis of the survey data showed no significant difference on gender and level of education. There was consensus among the SMEs for support in various forms and directions to address the barriers faced in adopting ICT and e-commerce technologies.

C. Barriers and Support for SMEs

Analysis of survey results revealed that lack of skills, lack of awareness of benefits and return on investments prevent SMEs from adopting ICT and e-commerce technologies. This is reinforced by “awareness and education” ranking top for support by nearly 90% of the respondents, not surprising for a developing country like Sri Lanka trying to implement technologies. It reflects on other internal barriers too.

“Lack of popularity in online marketing” and “low Internet penetration” rate high in the list of external barriers. Improving ICT diffusion in Sri Lanka can address this problem. ‘Inadequate infrastructure’ impedes SMEs. This is reinforced by their request for “improvement of national infrastructure” ranking very high on the support needed. SMEs in Sri Lanka are adversely affected by the high cost and unreliable infrastructure services such as electricity and telecommunications. Lack of legal and regulatory framework and policy inertia also rank high and enforce constraints on SMEs. An appropriate legal and regulatory framework would ensure that SMES operate on a level playing field.

Social barriers come next. This can be resolved by a one-stop shop facility which can help SMEs access information, technology, markets, and the much needed credit facilities. This concept, implemented for export-oriented foreign direct investments (EOFDI) by the Board of Investments (BOI) found it to be successful. Being policy makers working towards progress of SMEs, senior management lacking in ICT knowledge is identified as an important constraint directly impacting operational efficiency of SMEs. SMEs place a very heavy reliance on external advice and support. However such support and advice seem unavailable.

The analyses of the interview and survey revealed that the barriers faced by SMEs in developing countries are significantly different from those faced by developed countries.

V. THE ESME ROADMAP FOR SMES IN DEVELOPING COUNTRIES

Data was further analyzed to recognize level of IT sophistication with internal and external business processes of SMEs and determine their position on the e-transformation road map [18].

The original Roadmap was extended to incorporate the new stages surfaced in data analysis . Some stages consisted of multiple stages within. The Majority fell into two middle stages, a few into the least and most sophisticated stages. Figure 1 shows the extended road map for a Sri Lankan SME. Figure 2 depicts multiple sub stages that can exist within a level. The analysis of data also revealed that none of the SMEs has moved into the stage of convergence or beyond.

The Initial eSME Roadmap has four basic stages on each process arms. It is possible for a SME to be at different stages on External and Internal processes. The characteristics of each stage are described in Table 1.

Figure 1: Initial eSME Roadmap for SMEs in Developing Countries

The newly developed Initial eSME Roadmap assumes that the normal progression is from less to increasing sophistication over time. Another important feature is that an organisation can be in different levels of maturity with respect to its internal and external processes. For instance an organisation can be in stage 3 with respect to internal processes and stage 1 with respect to external processes. These features are in common with the other stages of growth models[19] .

Detailed eSME Roadmap for SMEs

Further analysis of the survey data revealed that some of the SMEs do not exactly fit into the descriptions provided above. They do not possess all the characteristics pertaining to a stage, but are equipped with subsets of the features. This was more evident with stages 2, 3 and 4 of the internal and external processes of the Initial eSME Roadmap. It was the author’s view to differentiate these partial or sub stages within a stage as they were found to be important. SMEs are taking small steps towards eTransformation. This led to the identification of sub stages within the main stages of the initial eSME Roadmap. Depending on whether the SME has access to e-mail and Internet, depending on the availability of IT infrastructure (technology and applications) and also on the extent of features adopted, two sub stages within each stage on the internal processes were classified.

In Sri Lanka, e-mail and Internet are considered costly

affairs [17]. Where the SMEs are saddled with many other pressing concerns, adoption of e-commerce is given a lower priority which is not surprising given the expenditure involved [20, 21]. Moreover, SMEs do not believe that e-mail and Internet are important or essential for their businesses. Furthermore, in an atmosphere that shows serious limitations regarding awareness and perceptions of the benefits of e-commerce, SMEs see no motivation towards embracing Internet and e-mail.

Depending on the availability of IT infrastructure

(technology and applications) and extent of features the SMEs have adopted in each stage, two distinct sub stages within each of the stages on the external process arm were identified. It can be concluded that the SMEs’ lack of awareness of e-commerce and the costs associated with of hardware/software led to the partial adoption. Previous studies have identified lack of awareness as a significant factor impeding the SMEs adoption [22, 23]. It could also be attributed to cost, lack of finances [21] and lack of readiness of the SME for e-commerce. It could also be argued that these sub stages are just the beginning towards a process, which had either to be postponed or abandoned due to many barriers impeding SMEs. Whatever the cause, it was heartening to note some effort had been made, however, small. Figure 2 shows the detailed e-SME Roadmap with the sub stages.

Figure 2 - Detailed eSME Roadmap

Table 1, describes the sub stages within each stage and

their characteristics. It illustrates the commonalities and differences between the sub stages.

External Stages

Stages within

No Computer Basic Web Site Promote company

Promote company and products Interactive Website

Has email link to contact company (one way) Has 2 way communication, email and facility for structured queries

E-commerce Site

Some e-commerce excluding financial transactions Full fledged e-commerce site

Internal Stages

Stages within

Manual Effective Individual

Use of Productivity Software Use of Productivity Software and email /Internet

Effective Team Use of Networked applications, share databases Use of Networked applications, share databases, use email / Internet

Effective Enterprise

Some enterprise wide integrated applications Full use of enterprise wide integrated applications

Table 1: Stages of the eSME roadmap

Challenges facing SMEs in Developing Countries

The study was carried out to understand and determine the importance of internal and external barriers facing the SMEs; and the support required to overcome them. The high ranking of barriers shows that SMEs are extremely hindered by external barriers. The consensus for internal and external support required reveals that there is a strong reed for it.

The difference in adoption patterns between the developing and the developed countries focuses on support activities needed with the developing. Another difference centres on the external barriers identified, such as the need to improve the national telecommunications infrastructure where as in the developed countries these facilities are taken for granted.

An important factor identified in this research is the absence of a government and industry coordinated approach to providing support for SMEs. It also reveals that the problems are not addressed at a grass-roots level.

VI. CONCLUSION AND FUTURE RESEARCH This empirical study provides an in-depth understanding

of the challenges faced by SMEs in the adoption of ICT and e-commerce in developing countries. Assessing and determining current levels of ICT and e-commerce sophistication of SMEs it examines barriers impeding SMEs, while identifying support required for eTransformation. The initial eSME roadmap identifies the SMEs level of sophistication with ergard to ICT and e-commerce on the eTransformation roadmap assuming that the normal progression is from less to increasing sophistication over time. s SMEs can be at different levels of sophistication with respect to internal and external procuress. It also illustrates the various substages within a particular level implying that SMEs in developing countries tend to take small measures in the eTransformation process. The sub stages were determined based on the availability of technology infrastructure and applications, and also the extent of features adopted by SMEs. Taking small steps in adopting technologies is attributed to the various barriers the SMEs are faced with and also contributes to the fact the

support is not readily available to overcome the challenges. These findings led to the development of “the detailed eSME roadmap” towards eTransformation of SMEs in developing countries.

The outcomes of the research should prove of interest and value to SME owner/managers, government, and industry seeking to implement strategies for adoption to enable rational, informed decisions regarding uptake of ICT and e-commerce. Findings from this study should be broadly applicable to most SMEs .

Promoting Mutual Corporation and trust among SMEs with clustering and collaboration provide specific support to SMEs to overcome some Internal Barriers and improve operating environment for more competition, transfer skills, and technology and access wider markets. This concept is not popular in Sri Lanka, is ad-hoc and limited. Suitable

policy interventions from government and active support from the private sector and the donor community are needed to address this issue (White paper, 2002). The government needs to take leadership to facilitate a regulatory environment, improve national infrastructure and continue to help with ICT education.

Next on the agenda is identifying the stage determinants. It is important for an SMEs to identify the stage that he is in on the eSME roadmap; for which it is necessary to distinguish a set of features that would help determine the level of sophistication of an SME. This will be followed by trialling the eSME roadmap with SME organizations in Sri Lanka.

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