Sri Lanka Adoption of Information and Communication Technology in Small and Medium Enterprises- A Synthesis of Literature

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Shefali Nandan

Abstract

Small and Medium Enterprises (SMEs) are an important component of the economy of a country.

Information and Communication Technology (ICT) offers tremendous opportunities for the

growth and development of SMEs. A number of researchers have tried to explore and investigate

issues related to the adoption of ICT. This paper reviews the studies that emphasize the need to

adopt ICT in SMEs, benefits of ICT in SMEs, identifies problems in adoption and offers suggestions

for overcoming barriers to adoption. An attempt has been made to link various recent researches

to present an integrated picture and identify the gaps in the existing research. The study also

provides a direction for future researches.

Key Words : e-business, Information and Communication Technology (ICT), Small and Medium

Enterprises (SMEs).

1. Introduction

Small businesses make substantial contributions to national economies and are estimated to

account for 80% of global economic growth (Jutla et al., 2002). Small and Medium Enterprises

(SMEs) are seen as a critical component in the economic growth of

developing countries because they are a major source of income,

promote entrepreneurship, and provide employment. For this reason,

considerable attention is paid to positioning SMEs to capture emerging

business opportunities that have been created by the emergence of

knowledge-based societies. Many of them are already demonstrating

their potentials and capabilities by grasping the opportunities offered

by Information and Communication Technology (ICT). Luetkenhorst(2004) found that on average, they represent over 90% of enterprises

and account for 50-60% of employment at the national level. He further

argues that SMEs are particularly important in supporting economic

Adoption of Information and Communication

Technology in Small and Medium Enterprises:

A Synthesis of Literature

Dr. Shefali Nandan

Faculty, School of

Management Studies

Motilal Nehru National

Institute of Technology,

Allahabad-211 004

India

Email:

[email protected]



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growth and livelihoods in developing countries because they (inter alia):

• tend to use more labour-intensive production processes than large enterprises, boosting

employment and leading to more equitable income distribution;

• provide livelihood opportunities through simple, value-adding processing activities in

agriculture-based economies;

• promote entrepreneurship; and

• create linkages between small and large enterprises, and hence support the building

up of systemic productive capacities and the creation of resilient economic systems.

Despite their potential to contribute to economic growth, Medium and Small Enterprises

(SMEs) are unable to compete well due to exogenous and endogenous constraints (Harvie

and Lee, 2002; Kirby and Watson, 2003; Brown, Earle and Lup, 2005; Fogel, Hawk, Morck and

Yeung, 2006). Institutional analysis has been used in a variety of ways to diagnose and offer

remedies for functional, performance and competitiveness issues associated with SMEs (Basu

1998; Busenitz, Gomez and Spencer, 2000; Carlsson, 2002; Carney and Gedajlovic, 2002). Thispaper draws upon the recent literature to identify the needs and benefits of ICT adoption in

SMEs, factors influencing ICT adoption, barriers faced and finally the solution offered. An

attempt has been made to identify the lesser explored areas, which can have a substantial

impact upon the adoption of ICT by SMEs.

2. Meaning of SMEs

SME's are usually defined as enterprises that employ no more than 250 employees. The

definitions of "small" and "medium" sized enterprises differ from one country to another. SMEs

have been defined against various criteria such as the number of workers employed, the

volume of output or sales, the value of assets employed, and the use of energy. The EU defines

a micro-organization as employing up to nine workers, the small enterprise having between10 and 99 employees and the medium-sized enterprise having 100-499 employees. The US

defines small businesses as having up to 500 employees. In the Asia-Pacific region, SMEs are

defined based on employment, assets or a combination of the two. The most common range

in many countries is from 50-200 employees. Other definitions are based on whether the

owner of the enterprise works alongside the workers, the degree of sophistication in

management, and whether or not an enterprise lies in the "formal" sector. For example, the

Organisation for Economic Cooperation and Development (OECD) defines establishments

with up to 19 employees as "very small"; with up to 99 as "small"; from 100 to 499 as "medium";

and with over 500 as "large".

The most widely accepted definition is still one based on the ideas of the Bolton committee

(1971). The committee identified the following three important factors of an SME:

• they have a relatively small share of their marketplace;

• they are managed by owners or part owners in a personalized way, and not through

the medium of a formalized management structure;

• they are independent, in the sense of not forming part of a larger enterprise.

Adoption of Information and

Communication Technology in SMEs



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In India the Micro, Small and Medium Enterprises Development Act, 2006, defines SMEs on

the basis of investments in plant and machinery. For enterprises engaged in the manufacture

of goods:• Micro - Investment in plant and machinery is less than Rs 2.5 mn

• Small - Investment in plant and machinery is over Rs 2.5 mn but not exceeding

Rs 50 mn

• Medium - Investment in plant and machinery is in excess of the SSI limit but less than

Rs 100 mn

For enterprises engaged in providing or rendering services:

• Micro - Investment in equipment does not exceed Rs 1 mn

• Small - Investment in equipment is over Rs 1 mn but not exceeding Rs 20 mn

• Medium - Investment in equipment is in excess of the SSI limit but less than Rs 50 mn

Thus, there seems to be no universal definition of SMEs but most of the definitions seem to be

based upon the number of workers employed. Table 1 captures the definitions of SMEs in

selected countries.

Table 1: Definition of SMEs According to Number of Workers Employed

3. Need for Integrating ICT and SMES

SMEs inherently are small in size and in investment, due to which it is essential for them to be

able to deliver quality products and services at reduced cost. Businesses can reduce operational

costs by decreasing material, procurement and transaction costs, resulting in lower prices for

intermediate and finished goods, and they can also use more and better information to

improve the value of their output, in order to gain competitive advantage. The researches onICT assimilation in SMEs have mainly focused on the need to do so in the changing global

business environment. The emergence of the Internet and developments in ICT have opened

new markets and considerably altered existing ones (Brynjolfsson & Kahin, 2002). The

Defining country/

body

EU

US

Thailand

S. Korea

OECD

Bangladesh

Lebanon

Pakistan

Syria

Micro

Enterprise

Up to 9

-

-

-

Upto 19 (very small)

-

-

-

-

Small

Enterprise

10-99

500

-

-

Upto99

Less than 50 workers

5-8 workers

1-9 workers

1-40 worker

Medium

100-499

-

-

-

100-499

51-200 workers

10-30 workers

10-300 workers

40-200 workers

SME

-

Less than 50

Less than 300

-

-

-

-

-

Sri Lankan Journal of Management

Volume 14, Number 2



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emergence and ongoing development of new forms of communication have benefited

traditional markets by bringing efficiencies in cost of goods and services (Chaston, 2001;

Matlay & Addis, 2002). ICT can also facilitate global connectivity, resulting in new ways of

creating and delivering products and services on a global scale. New business models and

market configurations enabled by ICT, including business process outsourcing and value chain

integration, provide SMEs with access to new markets and new sources of competitive

advantage, to drive income growth. The efficiency and effectiveness of the delivery system

can be achieved through the utilization of Information and Communications Technology

(ICT), which integrates SMEs into the global supply chain. Developing countries have the

potential to achieve rapid and sustainable economic and social development by building an

economy based upon an ICT enabled and networked SME sector, capable of applying affordable

yet effective ICT solutions (UNDP, 2004). Duncombe & Heeks (2001) have discussed the

opportunities that ICT provides for SMEs in developing countries.

Due to the opportunities offered by ICT, virtual companies and electronic markets were

proposed as new models of organization and transactions, where ICT is considered as thedriver of a firm's competitiveness (Kelly, 1998; Malone & Laubacher, 1998; Davidow & Malone,

1992; Malone et al., 1987; Malone et al., 1989; and Hagel & Singer, 1999).

Large firms vs. Small firms

Most researches in this area seem to have focused upon big enterprises. This view is supported

by Scott Morton (1991) and Drew (2002), who believe that researches have mainly addressed

the impact of ICT on the evolution of big corporations. Many studies have derived their critical

factors from macro perspectives at country level and have not considered the important

factors at micro level for SMEs in an integrated way.

There are many differences in every aspect in the adoption of ICT by small and big firms. The

purpose and extent of ICT adoption may differ in both type of firms, as both have differentcharacteristics. Storey (1997) identifies three key areas where small firms differ from the large

firm: (1) Uncertainty: the small firm tends to have a limited customer base and product line and

there is a greater diversity of owner-objectives. The motivation of the owner is a key influence

on small firm performance; (2) Innovation: Small firms tend to be more likely to introduce

essentially new innovations and are less committed to existing practices and products;

(3) Evolution: small firms are more likely to evolve and change than the large firm, which may

be due to the existence of a more flexible culture within the firm.

According to Deschoolmeester, Vanpoucke & Willaert (2004), larger companies are less

sensitive for investing in e-business than SMEs, because larger companies are mainly driven

by cost cutting to implement e-business and see more opportunities in translating their e-

business strategy into a formal long-term plan. Yet, large firms have exploited the opportunities

offered by ICT and redesigned their organizational models around technologies. Those firmshave been able to achieve efficiency through applications aimed at increasing process

integration and automation (i.e. enterprise resource planning), which are important goals for

large companies (Venkatraman, 1994; Bradley et al., 1993).





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Technology has improved internal co-ordination among scattered employees and teams

through electronic infrastructures for communication, document sharing and co-operative

work (workflow management) (Sproull & Kiesler, 1991; Fulk & Steinfeld, 1990). Business-to-business (B2B) technologies have been predominantly exploited by larger firms downstream

in the supply chain rather than by upstream SMEs (Hawkins & Prencipe, 2000). Thus, big

corporations have taken advantage of network technologies to support their communication

and manufacturing processes, and also to increase the value of their internal knowledge and

competencies (Davenport & Prusak, 1998; Scott Morton, 1991).

From the 1990s, new solutions built around the Internet network have been tailored specifically

to small businesses. In particular, researchers and analysts have emphasized the opportunities

for firms to manage transactions directly through electronic commerce, by enhancing the

reach and richness of the firm's connections with the market (Kalakota et al., 1999; Bakos &

Brynjolfsson, 2000; Evans & Wurster 2000). Traditionally, research on ICT has studied implications

for firms through an evaluation of technological solutions available in the market, in order to

explain how such applications could satisfy the firms' needs based on the perspective of technology suppliers (Goldman Sachs, 2000).

Zheng et al. (2004) believe that it is possible to obtain a complete understanding of the real

present and future impact of ICT on firm processes only through a buyer-side analysis, by

exploring how SMEs refer to technological solutions to support or transform their business

strategies.

Though the benefits of embracing technology as competitive advantage and the opportunities

resulting from globalization were identified by Levitt (1983), and despite e-business technology

facilitating improved business practice (Whitely, 2000), a number of small firms have not

capitalized on this approach (Smyth and Ibbotson, 2001). Big businesses identified the need

for integrating ICT with their processes and successfully did so. Small businesses also need to

understand the benefits of integrating ICT, from their perspective. Cooper & Burgess (2000)

identify that there has been limited academic investigation into the evolutionary processfollowed by SMEs into their use of ICT.

Thus, researchers and practitioners (SMEs) both seem to have a kind of disinterest in

understanding the need for integrating ICT in SMEs.

4. Benefits of ICT for SMEs

Researchers have tried to identify the benefits of ICT for SMEs. Small businesses can leverage

inherent strengths to incorporate ICT enabled practices. The size of small businesses enables

them to be more adaptable and responsive to changing conditions than larger organizations

and to further benefit from the speed and flexibility that the electronic environment offers

(Arbore & Ordanini, 2006).

Wattanapruttipaisan (2002-03) identifies the opportunities as inter-firm linkages for enhanced

collective efficiency, technological and innovation capabilities, and hence competitiveness,


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subcontracting and outsourcing relationships, which cover processing and manufacturing

activities and services of high value-addition .

Appropriate ICT can benefit SMEs in cost cutting by improving their internal processes,

improving their product through faster communication with their customers, and better

promoting and distributing their products through online presence. (Small and Medium

Enterprises and ICT/SME Adoption, n.d.). In fact, ICT has the potential to improve the core

business of SMEs at every step of the business process.

With the use of ICT, networking with other firms, which was previously not possible due to

high co-ordination costs or high transaction risks, may become feasible. SMEs attach, next to

cost-savings, high importance to cooperation between their suppliers and clients.

Evans and Wurster, (1997) believe that ICT provides the ability to reduce transaction costs, the

development of a more level playing field with larger firms, being able to extend marketing

efforts, improve communications, identify and develop new markets, cost reduction anddeveloping relationships with suppliers . Improved procurement procedures and staff

recruitment are also identified as benefits (Taylor, 2001).

Fillis & Wagner (2005) have categorized perceived benefits as direct short-term,

(communication cost savings) indirect short term, (possible business and marketing

opportunities), long-term direct benefits, (customer retention and the development of business

relationships) and long-term indirect benefit (development of new business initiatives). Tse &

Soufani (2003) identify the benefits resulting from virtualization, or the electronic transaction

process as communication with a large number of customers, in a variety of geographical

settings, and distribution of product information to them and information can be accessed to

the same degree as in the large firm.

The potential benefits of e-business have also been recognized as improved communication,

establishing competitive advantage, marketing and sales promotion, and improved informationsearch (Ellsworth & Ellsworth, 1995; Poon & Swatman, 1999; Sterne, 1995). Enhanced

internationalization of business and being able to function 24 hours per day are further benefits,

as the owner-managers of these face-to-face and online software-training organizations

demonstrate (Hamill & Gregory, 1997; Quelch & Klein, 1996).

Thus, researches indicate that ICT can enable SMEs to improve the quality of services, operations,

efficiencies, employee management and customer satisfaction. Table 2 summarizes the

benefits of ICT adoption in SMEs. The benefits explored are from the perspective of various

operational efficiencies and customers. Not much has been explored from the perspective of

employees. This gap needs to be filled.





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Table 2: Benefits of ICT to SMEs

5. Factors Determining ICT Adoption in SMEs

Despite the proven need for adoption of ICT and various benefits highlighted by various

studies, the adoption may not be very easy. Commitment to e-business adoption is influenced

by many factors. Level of adoption of IT among SMEs was not found to be of the same level as

is advancement in IT (Marshall & McKay, 2000). This low level of adoption particularly impedes

SMEs in developing countries. Since the 1980s, researchers, for example, Davis (1989, .haveattempted to investigate factors that influence the adoption of IT.

Adoption has been viewed as an outcome of a complex process of evaluation of various

internal and external factors, which may act as enablers or barriers to adoption (Cragg and

King, 1993; Dandridge and Levenburg, 2000; Lefebvre et al., 1991; Mehrtens et al., 2001;

Walczuch et al., 2000; Windrum and De Berranger, 2003).

Durkin & McGowan (2001 a, 2000b) believe that in order to develop e-business in the

entrepreneurial small firm, this must be contingent on the degree to which competencies

such as vision, value, technical ability and control can be developed. The owner-manager

must possess innovative, opportunity-focused characteristics and be open to change. Qirim

(2007) found that CEO's innovativeness was the only determinant of external-email adoption.

CEO's involvement was found to be the only determinant of Intranet adoption in New Zealand.

Bayo-Moriones & Lera-López (2007) have highlighted the need to study the importance of establishment size, multinational ownership, and a high-skilled workforce in ICT adoption.

Quality control systems and team-based organization of work were also found to play a

relevant role in the diffusion of certain elements of ICT within firms. Internal factors are

Benefits Authors

Leveraging inherent strength (size)

Improved communication, establishing

competitive advantage, marketing and sales

promotion, and improved information

search, cost cutting

24-hour service

Improved customer service

Improved procurement procedures and staff

recruitment

Supplier management

Inter-firm linkages, value addition to services,

manufacturing

Arbore & Ordanini, 2006

Ellsworth & Ellsworth, 1995; Sterne, 1995; Evans

& Wurster, 1997; Poon & Swatman, 1999; Fillis &

Wagner, 2005

Quelch & Klein, 1996; Hamill & Gregory, 1997

Evans & Wurster, 1997; Zineldin, 2000; Tse &

Soufani, 2003; Fillis & Wagner, 2005

Taylor, 2001

Evans & Wurster, 1997; Zineldin, 2000

Wattanapruttipaisan, 2002-03


Volume 14, Number 2



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important for the small business, where organizational and managerial factors seem to integrate

due to the high locus of control exerted by the key decision maker (Boone et al., 2000) .

The determinants of the intention to use an information technology such as the Internet were

established by Chang & Cheung (2001) and complexity and long-term consequences were

not found to influence the intention to adopt the Internet/WWW. Mirchandani & Motwani(2001) investigated the factors that differentiate adopters from non-adopters of e-commerce

in small businesses and found that factors such as compatibility, perceived usefulness, externalpressure, perceived ease of use, and organizational readiness were found to be statistically

significant as determinants of e-commerce adoption. Compatibility between e-commerce

and the firm's culture, values, and preferred work practices as well as consistency with the

existing technology infrastructure turned out to be the most influential ones as perceived bytop managers. (Grandon & Pearson, 2002).

Subramanian & Nosek (2001) and others (e.g. Barua, Kriebel, & T. Mukhopadhyay 1995; Tallon,

Kraemer, & Gurbaxani, 2000) have attempted to identify the strategic value of certain

information technologies (IT) as seen by top managers and others (e.g. D Adams, Nelson, & Todd, 1992; Lederer, Maupin, Sena, & Zhuang, 2000), primarily through the Technology

Acceptance Model . A vast number of studies regarding the strategic value of IT have been

carried out over the last decade. These studies have typically focused on the relationship

between IT investment and the firm's performance. For example, Hitt & Brynjolfsoon (1996)investigated how IT affects productivity, profitability, and consumer surplus. They found that IT

increases productivity and consumer surplus but not necessarily business profits. Barua et al.(1995) concluded that there are productivity gains for firms from IT investments.

Tallon et al. (2000) argued that executives rely on their perceptions in determining whether

or not a particular IT investment creates value for the firm. Amit and Zott (2001) have focused

on identifying the perceptions of top management regarding the strategic value of

e-commerce.

Subramanian and Nosek (2001) created an instrument to validate the strategic value that an

Information System (IS) may provide by testing three factors that were found to create strategic

value in IS: operational support, managerial productivity, and strategic decision aid.

Beatty et al. (2001) found that the factors involved in the corporate website adoption process

differ depending on the time in which the technology has been adopted.

There is research in SME e-adoption and IS management, but little on SMEs e-adoption in thecontext of supply chains. A number of issues emerge from research in SME e-adoption and

supply chain management. SME e-adoption approaches appear to be different to those usedby large firms ( Cox et al., 2001). Levy & Powell, 2001 demonstrate that the introduction of

ICT into SMEs is fragmented, based around operational support and transactions processing.

Typically, owner-manager interest and enthusiasm drive ICT adoption, though often in an

unplanned fashion. Customer pressure is one of the main factors in SME e-adoption.

Various models that address the appropriate use of e-commerce and IT-induced business

transformation have been proposed. Yet, these models tend to be derived from research in





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large firms; and there is little investigation of the applicability of e- across all businesses in

supply chains. For example, approaches used in managing websites with IT developed for

large firms may not be applicable to many SMEs ( Tesar & Moini, 2001). The problemsencountered by SMEs are often different from those of large firms and require different

approaches ( Blili & Raymond, 1993). Some of these models have been developed by Garcia-

Dastugue & Lambert (2003); Kraljic (1983) with their focus on contingency and (Willcocks et

al. (2000) and Venkatraman, 1991), with their focus on development. The SME focus-dominance

model ( Levy et al., 2001) addresses both the contingent and development issue. The Internet

adoption model with its focus on factors that influence SME decisions was given by Mehrtens

et al., (2001) . The e-marketplace model was given by Kaplan & Sawhney (2000).

Recent work focuses on issues such as the service sector, e-opportunities and barriers where

e-business models are formed on a network perspective (Ramsey et al., 2003) .

There are differences across industries in terms of the ability and willingness to develop

e-business and, industry-specific competencies are often needed in order to grow the business(Carson & Hill, 1992; Drew, 2003; Poon, 1998; Ramsey et al., 2003).

Firm size, degree of exporting, awareness of benefits and customer type appear to dictate

how information communication technology (ICT) strategies develop in the small firm (Lauder

& Westall, 1997). In order to encourage the use of e-business opportunities, Government

programmes of assistance are offered (Jutla et al., 2002). Matthews (2007) has identified key

variables and challenges facing SMEs in harnessing ICT for growth, and indicated a need for

more general support to the sector to accompany government subsidies.

Although studies on the adoption of e-commerce by SMEs are relatively recent, research

antecedents are well established. Rogers' (1995) work highlights the important roles of

change agents (intermediaries) in influencing innovation decisions, including developing a

need, establishing communication, diagnosing problems, creating an intent to change and

then action. Intermediaries may also act as a means to facilitate the adoption of ICT asobserved by Swan & Newell (1995) and Newell et al. (1998, 2000).

Within the specific domain of ICT adoption by SMEs, recent studies utilizing Rogers'(1995)

model of innovation include Kendall et al. (2001) and Mehrtens et al. (2001). Technology-

push and need-pull models of technology innovation adoption in information systems (IS)

(Zmud, 1984; Chau & Tam, 2000) have been proposed. These models typically identify 'push'

factors or facilitating forces such as government initiatives or technological drivers, and 'pull'

factors or restraining forces such as organizational crises. Redoli, García-Díez and López-

Coronado (2008a) proposed a model that helps to understand how an enterprise is using

information and communication technologies (ICTs) and "how" and "when" a company should

incorporate new technological elements. The model can also be applied to marketing research

to understand the small and medium enterprises (SMEs) emergent market related to ICTs and

to plan government policies devoted to fostering ICT introduction in SMEs.

There has been emphasis on the strategic logic in the decision to adopt ICT (Blili and Raymond,

1993; Daniel et al., 2002; Kowtha and Choon, (2001); Sadowski et al., 2002). Blili and Raymond


Volume 14, Number 2



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(1993) concluded that Information Systems planning needed to be integrated with business

strategy. Hagmann and McCahon (1993 found that few SMEs plan their adoption of IS and that

the limited planning that was evident was focused on operational improvements and was not

concerned with competitiveness. Thus, there seems to be a lack of overall effective planning

for all the aspects of business. Southern and Tilley (2000) observed that there is an incremental

build up of knowledge and expertise in ICT to be established within the firm. This may be due

to problems in adopting increasingly complex e-business applications. This view appears

highly pertinent. Lockett, Brown (2006) emphasize the need to analyze social factors before

the initial decision to adopt by SMEs can be made as these can identify the antecedents that

need to be satisfied.

The researches have focused upon various factors including those relating to owner-skills and

vision, technology innovation, government assistance, intermediaries, operational support

and so on. A wide spectrum of issues has been considered in this area (Table 3).

Table 3: Factors determining adoption of ICT in SMEs

Factors Authors

CEO's innovativeness, perceptions

Orgaisational competencies (vision, value,

technical ability and control)

Vision, value, technical ability and control

Compatibility, perceived usefulness, externalpressure, perceived ease of use, and

organizational readiness

Strategic value of information technologies

(IT)

Productivity, profitability, and consumer

surplus

Time of adoption

Operational support and transactions

processing

Storey, 1997;; Tallon et al.,2000; Amit & Zott, 2001;

Levy & Powell, 2001; Knol, WHC & Stroeken, JHM,

2001; Grandon & Pearson 2002; Quirim, 2007

Poon, 1998; Carson & Hill, 1992; Durkin &

McGowan, 2001 a, 2000b; Drew, 2002; Drew,

2003; Ramsey et al., 2003

Bayo-Moriones, Lera-López , 2007

Mirchandani & Motwani, 2001; Cox et al., 2001;Grandon & Pearson , 2002

Subramanian & Nosek, 2001; Barua, Kriebel, &

Mukhopadhyay, 1995, Tallon, Kraemer, &

Gurbaxani, 2000; Adams, Nelson, & Todd, 1992,

Lederer, Maupin, Sena, & Zhuang (2000); Amit

& Zott, 2001; Blili & Raymond, 1993; Daniel et al.,

2002; Kowtha & Choon 2001; Sadowski et al,

2002

Brynjolfsoon, 1996

Beatty et al., 2001

Levy & Powell, 2001





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Customer pressure

Role of intermediaries

Appropriate business model development

Size and other characteristics of SMEs

Government assistance

Technology innovation

Lauder & Westall, 1997; Levy & Powell, 2001

Rogers 1995; Swan & Newell, 1995 & Newell et

al., 1998, 2000.

Kraljic 1983; Willcocks et al. 2000; Venkatraman,

N. 1991; Levy et al., 2001; Mehrtens et al., 2001;

Kaplan & Sawhney, 2000); Ramsey et al., 2003;

Levy & Powell, 2003; Garcia-Dastugue & Lambert,

2003; Redoli, , García-Díez & López-Coronado,

2008

Lauder & Westall, 1997; Storey, 1997; Boone et

al., 2000; Bayo-Moriones, Lera-López , 2007

Jutla et al., 2002; Matthews, 2007

Chau & Tam, 2000; Kendall et al., 2001; Mehrtens

et al., 2001; Zmud, 1984; Drew, 2002

6. Barriers in Adoption

A number of studies have been conducted to identify the barriers in adoption of ICT by SMEs.One reason which inhibits adoption is the perception by SMEs that they obtain fewer benefitsthan anticipated (Cox et al., 2001). Access to finance is also a major difficulty for some smallfirms (Doole and Lowe, 1999; Thong, 2001; Fillis & Wagner 2005).

The use of Information Communication Technology (ICT) is low in SMEs because of lack infrastructure, high cost Internet connection and lack of skill in ICT use. For example, 70 % of

SME in Indonesia lack skill in ICT use. ( Setyawati 2008). SMEs in the Asia-Pacific region havebeen slow to adopt ICT due to poor telecommunications infrastructure, limited ICT literacy,the high cost of ICT equipment, and incomplete government regulations for e-commerce(Vadim) . Ninety percent of Thai SMEs still use basic communication technology such as fixedphone line and fax, and only 1 percent use CRM software. The PricewaterhouseCoopers(1999) Report contains a useful survey of the main issues and options relating to e-commerceand SMEs in the Asia Pacific Economic Cooperation (APEC) region. The United NationsConference on Trade and Development (UNCTAD) (2001) gave an analysis of e-commerce inthe context of low-income countries and economies in transition, specifically China. In India,the majority of Small and Medium scale categories are still in the nascent stages of ICTadoption. They lack the knowledge of business performance improvement potential of ICT.ICT is used as office administration and accounting automation tools at best. One cause of limited adoption is the lack of dynamism between ICT firms and SMEs outside the ICT sector.ICT firms have not provided goods and services tailored to SMEs in the past because demand

from SMEs has been low. However, their demand is low in part because ICT products availablein the market are too complex and expensive. The result is a vicious cycle of limited supplyand limited demand that ultimately excludes SMEs from the benefits of ICT. (Small and

Medium Enterprises and ICT/SME Adoption, n.d. )


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Although SMEs have the advantages of flexibility and rapid response to change, there are also

disadvantages due to their absolute size limitations, which may have increased due to

increased global competition (Narula, n.d.). According to the OECD (1998), there is a positivecorrelation between adoption of ICT and firm size. SMEs in all sectors in the prosperous

regions of the UK, France and Italy use ICT, but only in a rudimentary fashion (Baptista, 2000).

Many small firms are failing to develop an appropriate strategy and have not, as yet, realized

the cost and time benefits of e-business (Quayle, 2002). There is a degree of dissatisfaction

with the perceived failure to deliver the early promises of the new business approach (Wallace,

2000). This is accompanied by a lack of research in the area of small firm e-business

development and an under-estimation of the importance of the small firm in general (Quayle,

2002). Challenges for SMEs to harness ICT also include high initial set up costs , problems in

the payment mechanism, low usage of credit cards, and lack of strategic focus that could

build upon power on ICT, amongst others ( Bhattarai).

Knol, & Stroeken, (2001) found that a number of factors that affect the adoption of e-commercerelate to owner/manager characteristics, including the lack of knowledge of how to use the

technology and low computer literacy. Mistrust of the IT industry and lack of time are two

other factors that affect the decision to adopt e-commerce and SME owners' concerns about

return on their investments (Akkeren, J. & Cavaye, A.L.M., 1999). Kapurubandara and Lawson

(2006) have classified the various factors identified as causes for the reticence about internal

barriers, which can be resolved within and by the organization and external barriers, which

need to be addressed either by government intervention or by collaboration of SMEs. The

challenges faced by the SME sector in adopting ICT could be listed as follows (Veerawalli,

2008):

• Cost of investment in ICT infrastructure, software and application packages;

• Low PC penetration in semi urban / rural areas (In the four most populous regions in

Asia -India, China, Indonesia and the Philippines- about 75% of small businesses thatemploy under 100 staff were not found to own any computers (Raymond Tan);

• Communication network and bandwidth availability;

• Availability of funding for the initiatives;

• Lack of awareness / appreciation of the benefits of automation;

• Confusion regarding choice of right products;

• Problems in acquiring and retention of technical personnel to manage ICT.

There is also limited knowledge, awareness and skills on the part of SMEs concerning the

promise and requirements of ICTs as well as e-business. Moreover, significant barriers exist in

the form of insufficient access of SMEs to ICT infrastructure, hardware plus software of suitable

quality, and at affordable cost in terms of time and money.

Potential barriers include increased competition with the larger firms as they attempt to

follow small firm strengths such as flexibility and closeness to the customer (Kleindl, 2000).

The technical and Internet-specific knowledge and competence of the smaller firm, the rate





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of market growth, the rate of specific industry innovation, competitive technologicalcompetencies and industry structure also have a considerable impact on how e-business

develops (Drew, 2002).

ICT adoption among small businesses in India is less than 30%, and if the IT firms in the SMEsegment are not considered, the number will be significantly less. The main reasons for lowadoption are: reluctance to adopt technology, high cost of enterprise solutions and unsuitabilityfor Indian markets, low level of telecom density especially in rural and semi-urban areas andlack of funds.

Owners and managers suffer from various apprehensions like low benefits, high costs, mistrustof IT industry and so on, which may be due to lack of proper information and awareness. Table4 summarizes the barriers identified by various researches.

Barriers to adoption in developed and developing countries may be different . There seem to

be very few or no researches on studying this difference.

Table 4: Barriers in adoption of ICT in SMEs

Barrier Authors

Perception of low benefits

Finance

High cost internet, lack of skill and knowledge

of IT, poor infrastructure

Lack of customized ICT products for SMEs

Small size

Inability to realize the cost and time benefits

of e-business

Lack of research in the area

Non attainment of expected benefits

Lack of strategic focus

Mistrust of IT industry

Classification as Internal barriers (within

organization) and external barriers (outside

organizations)

Competition with the larger firms

Cox et al., 2001

Doole & Lowe, 1999; Thong, 2001; Fillis &

Wagner, 2005; Veerawalli, 2008

Akkeren, & Cavaye, 1999; Drew, 2002; Setyawati,

2008; Veerawalli 2008 ;

Vadim; Small & Medium Enterprises & ICT/SME

Adoption; Bhattarai, n.d.

Small & Medium Enterprises & ICT/SME

Adoption , n.d.

Narula; OECD, 1998; Drew, 2002.

Akkeren & Cavaye, (1999); Quayle, 2002

Scott Morton, 1991; Burgess, 2000; Quayle, 2002;

Fathian, Akhavan & Hoorali, 2008

Wallace, 2000; Veerawalli, 2008

Bhattarai

Akkeren & Cavaye, 1999

Kapurubandara & Lawson, 2006

Kleindl, 2000


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7. Suggestions

Many suggestions have been offered, and models have been proposed to improve and

optimize the assimilation of ICT in various SME operations.

For the growth of SMEs, Poon (1998) identified the importance of the interplay between

market conditions, supply chain issues, industry characteristics, particular style of management,

innovation ability and entrepreneurial thinking. Jones et al (2003) developed a model of

Web-based commerce adoption. Lohrke et al. (2006) highlight the benefits of reducing SME's

transaction costs. Gupta (2007) proposed a cooperative model of learning to make each

enterprise more competitive.

Initiatives like the "VIKAS" Project in India (collaboration between NMCC and Microsoft India),

which aims at stimulating ICT absorption in the manufacturing sector may be a positive step

in that direction. (http://www.projectvikas.com/)

Business process re-engineering (BPR) is recognized as a means of either improving efficiency

or of enabling full value-added changes to be achieved , within the small- and medium-sized

enterprises (Levy and Powell, 2005).

Wong & Lu (2005) identified the key factors of successful computerization in SMEs, which

include focus on allocating their limited resources in implementing information systems

efficiently. Setting up a good plan is a critical step, and the success of information systems

strongly depends on external information technology expertise, the cost incurred to improve

the environment within an enterprise for implementing information systems, and the support

of chief executive officers. SMEs adoption of e-business is different to that of large firms. The

implication is of a need for a contingent, SME characteristic-based approach to determining

how SMEs employ ICT, rather than a 'one size fits all' solution (Zheng etal, 2004).

Bhattarai suggests that competitiveness of SMEs in the emergent business environment may

be increased by price restructuring, customized services to IT product/ service users, cultural

and intellectual shifts, among other measures. Managers need to align ICT adoption and the

strategic focus of the firm more consistently (Bayo-Moriones, Lera-López 2007).

Poon and Swatman (1999) identified the importance of entrepreneurship and managerial

support as the way in which sustainable advantage can be obtained. As the small firm moves

from traditional business to e-business, this must be accompanied by the development of

appropriate knowledge and competence among the employees. e-business competitive

advantage can be achieved through the exploitation of relevant hard and soft competencies.

Fillis and Wagner (2005) believe that it can be achieved by thinking entrepreneurially about e-

business issues. The internal competencies of the organization are central to the efficient

production of products and services through the construction of profitable relationships with

customers (Schuppel et al., 1998). The small firm grows through its ability to exploit its internalknowledge competencies and the entrepreneurial small firm is best placed to do so with its

higher levels of creative thinking (Blackle, 1995; Fillis, 2002r). Thus, there is a need to view

SME e-business development in terms of how well the owner-manager and related key





- 32 -

decision makers can develop and exploit an appropriately built competency portfolio (Fillis

and Wagner 2005).

Though many suggestions have been offered in the form of business models, restructuring

and optimum utilization of firm resources and employee training, researches need to provide

specific solutions for problems in developed countries and in developing countries.

Differentiation may also be made on the basis of location, for example, rural area and urban

areas. The same solution may not fit problems everywhere.

8. Conclusion and Implications for Future Research

Researches have identified SMEs as a driver in boosting the economy of a country. Researches

have emphasized the need for adoption of ICT by SMEs in today's globalized world. Its

adoption is still low, particularly in developing countries. Researches in the recent past explored

various dimensions of application of ICT in big firms only, but now researchers have begun toexplore the implications of adopting ICT in small firms also. There are a number of factors that

affect the decision of owner-managers of these enterprises to adopt ICT. These factors are

internal and external, some are related to owners while others are related to employees.

Studies have also explored the barriers to adoption and ways have been suggested to overcome

these barriers. Various business models have been developed and critically analyzed. Though

differences between small and large firms have been studied, differences between developing

and developed countries also need to be identified in the context of ICT adoption. Models

also need to be proposed for problems arising from issues, which are specific to developing

countries. Researchers also need to focus on sector specific (for example, garments and food

processing) issues of SMEs in ICT adoption, which seems to have caught little interest.

Another issue that seems to be little explored is whether the gender of the owner-manager

has any impact on ICT adoption by SMEs.

The studies clearly indicate that ICT adoption is still very low in SMEs, but whether the increased

adoption of ICT by SMEs will result in increased researches in this area or whether the increased

researches will lead to increased adoption of ICT by SMEs remains to be explored.

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Volume 14, Number 2

Sri Lanka Adoption of Information and Communication Technology in Small and Medium Enterprises- A Synthesis of Literature

Documents