INTRODUCTION AND DESIGN OF THE STUDY

1.1 INTRODUCTION

Transformations in the landscape of trade and technology have

fundamentally altered the way in which purchase and consumption of goods and

services are made. As the costs of international communication and transportation

decrease and as the demand for proximity increases, suppliers are increasingly

turning towards Electronic Commerce and other electronic platforms of doing

business as the preferred method for reaching customers. The usage of internet has

turned out to be an extremely imperative modern day technology for business. The

emergence of the internet has allowed businesses to contend effectively and

efficiently in both the national and international markets.

Electronic Commerce is defined as trading in goods and services through the

electronic medium. Electronic Commerce is a way of conducting business by

organizations and their customers, by performing electronic transactions through

computer networks. E-Commerce is viewed from different perspectives by different

person. E-Commerce which got evolved in early 1990’s has taken a great leap in the

world of computers, but there are many facts that hinder its growth. There is a

growing awareness among the businesses about the opportunities offered by E-

Commerce. As the field of E-Commerce is constantly facing new challenges and

new dimensions, there is a wider scope for research on many of its narrow aspects.

Electronic Commerce is fundamentally changing the economy and the way business

is conducted. It has enabled many companies to find new ways to expand the

markets and has made them to restructure their business processes. E-Commerce can

1
help business organizations to cut costs, interact directly with customers, run

smoothly in a judicious manner and it can help an organization outperform its

competitors. The usage and application of internet based technologies in commerce

is claimed to be experiencing astonishing growth, with the World Wide Web

predominantly moving the manner that traditional commerce is undertaken. Hence,

Electronic Commerce is considered as to be a significant contributor of economic

growth especially for developing countries.

The adoption of E-Commerce has been gaining momentum all over the

world. Today, the Small and Medium Enterprises constitute a major and important

segment of the Indian Economy. They play a key role in the progress of economies

with their effective, efficient, business essence in India. It drives the economy of the

country by contributing 17% to its GDP (Sonia Mukherjee, 2017)1.

The opportunities of growth in the SME sector are enormous as it has

boundless potential for a promising stance. For SME, the application of Electronic

Commerce infers to new opportunities, new competitive environment, new

development space and new marketing approach for their progress in business.

Electronic Commerce relies on various Information and Communication

Technologies (ICT) has the potential to increase trade efficiency around the globe

and to incorporate developing countries into the global economy. This has resulted

in a momentous progression of adoption of E-Commerce in developed countries in

the last two decades and more recently in developing countries as well.

1
Sonia Mukherjee. (2017), E-Commerce and SMEs: a Case Study of India, International Journal of
Commerce, Business and Management (IJCBM), 6 (2), 190-198.

2
 The Small and Medium Enterprises has a pivotal role by its increasing

contribution to the economy of India. Among the other sectors that contributes to the

Indian economy, the SMEs have the greatest share. E-Commerce by all means

provides extensive benefits to business, especially in case of SMEs, by way of

improving efficiency in operation and gaining revenue. E-Commerce offers the

creation of opportunities for new businesses. The competitive nature of business

requires that organizations, especially SMEs, to develop and sustain any possible

competitive advantage. Despite this, these benefits are not being realized due to the

lower than expected adoption rate of E-Commerce in SMEs.

1.2 CONCEPT OF ELECTRONIC COMMERCE

There are wide-ranging literatures existing in the arena of Electronic

Commerce depending on the background and research objectives of the research

scholars. Many of the implicit and explicit definitions of E-Commerce depend on the

previous experience rather than on probable futures. The definitions of Electronic

Commerce are many and diverse in nature. There are various ways to define

E-Commerce by different people, different books or different parties.

Electronic Commerce is a concept which infers that the sales, purchase or

exchange of goods and services or information is made by using a computer

network, including the internet. However, in terms of communication concept, it is

perceived as a tool to provide information, services, payment and product using

computer networks, telephone networks and other electronic means. Electronic

Commerce describes the process of buying, selling, transferring, or exchanging

products, services, and/or information through computer networks, principally the

3
internet (Turban, 2004)2. Electronic Commerce can also be defined as “the sharing

of business information, maintaining of business relationships, and conducting of

business transactions by means of telecommunications networks” (Zwass, 2003)3.

Electronic Commerce is also defined as the commercial transaction of services in an

electronic format (Morri, and Siege 2003)4.

Hence it is evident that E-Commerce encompasses many diverse activities

including electronic trading of goods and services, online delivery of digital content,

electronic fund transfers, electronic shares trading, electronic bills of lading,

commercial auctions, online tracking, public procurement, and direct consumer

marketing and after sales services. As per the definition of The World Trade

Organization, E-Commerce includes the producing, marketing, selling and

distribution of goods and services electronically.

1.2.1 EVOLUTION OF ELECTRONIC COMMERCE

The Evolution of Electronic Commerce predates the presence of internet.

Early development of it was in the beginning of 1960s, even though most

applications related with innovations surfaced around 1970s. The use of internet has

resulted in an exemplary shift in the way businesses are practiced and conducted

today. The evolution of E-Commerce is on account of technological innovation.

E-Commerce came into existence way back with the advent of the World Wide Web

and browsers in 1990s. Electronic Commerce was first developed in the early 1970s

2
Turban, E., King, D., Lee, J. and Viehland, D. (2004). Electronic Commerce-A Managerial
Perspective, Pearson Education International, Prentice Hall, Inc.
3
Zwass, V. (2003). Electronic Commerce and Organizational Innovation: Aspects and
Opportunities. International Journal of Electronic Commerce, 7(3), 7-37.
4
Morri, K and Siege, L. N (2003). E-commerce, Journal of Nigerian ComputerSociety.14 pp 60.

4
along with many other innovations like, Electronic Funds Transfer (EFT), Electronic

Data Interchange (EDI) and Inter Organizational System (IOS).

The evolution of Internet has a steered the evolution of E-Commerce.

Internet has incorporated the whole gamut of people into the system through

communication and networking, thereby expanding its reach far beyond the

corporate sector. In the early 1960s, E-Commerce was considered as exchanging

electronic data for long distance by large enterprises. By the early 1980s, Individual

computer users stepped in the e-world by sending e-mails, sharing documents over

networks. The internet took a giant leap into the modern age in 1991 that opened up

the use of this new technology namely E-Commerce. Internet penetration in India

witnessed a growth of 4% in 2007 to 35.03% in 2017, registering a CAGR of

24.23% between 2007 and 2017 (IBEF, 2018)5. The rising internet usage has a

positive relationship with the expansion of commerce in India. With access to

internet, Indian SMEs have started to explore trading opportunities across the globe.

In India, although all SMEs may not have a website, 43% of the SMEs participate in

online sales (Sonia Mukherjee, 2017)6. Such rising internet penetration acts as

stimulus for E-Commerce growth in India.

5
Indian E-Commerce Industry Analysis, Retrieved in May 2018 from [Link]
6
Sonia Mukherjee. (2017), E-Commerce and SMEs: a Case Study of India, International Journal of
Commerce, Business and Management (IJCBM), 6 (2), 190-198.

5
 CHART NO.1.1

INTERNET PENETRATION IN INDIA

40
34.8 35
35

30 27
25
Percentage

20 18
15.1
15 12.6
10.1
10 7.5
4.4 5.1
4
5

0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Year

Source: Economic Times, Live Mint, Aranca Research

From its humble beginning in the year 1995, E-Commerce has become the

fastest growing area of business with constant growth over the years. Hence, this

study is on E-Commerce adoption factors and its impact on Business Performance

with respect to small and medium sized organizations.

1.2.2 ELECTRONIC COMMERCE ADOPTION

Information and Communication Technologies (ICT) play a prominent role

in the field of commerce and trade. The large enterprises have adopted and accepted

the advancement in technology, but the same level of adoption is not evident among

SMEs. The reason behind this is many factors that act as stimulus in the adoption of

6
Electronic Commerce applications among SMEs. Poon and Swatman (1999)7

found that perceived impact and benefits are the key factors for organizations to

adopt and continue to use a new technology. The perception of long-term potential

benefits and business opportunities drives the small businesses to go online. Cloete

(2002)8 stated that, the adoption of E-Commerce into SMEs is heavily reliant on the

people’s acceptance of the technology. Most of the previous studies revealed that the

SMEs initiate E-Commerce adoption by creating a website primarily to advertise

and promote the products and services. Subsequently, these enterprises begin to

generate traffic, inquiries and, eventually, sell through their websites.

1.2.3 ELECTRONIC COMMERCE ADOPTION AND BUSINESS

PERFORMANCE

Electronic Commerce tends to vividly influence the processes of the

business. SMEs ought to make a huge investment in E-Commerce applications

which may lead towards the organizational achievements. Adoption of Electronic

Commerce applications like internet, electronic mail, video conferencing and fax

change the nature of the business and the way of its operations. These applications

lead towards the substantial changes in traditional businesses. Many enterprises are

trying to explore and measure the impact of Electronic Commerce in order to make

judicious decisions regarding their operations. Most of the business houses have

transformed to Electronic Commerce to increase the overall operational efficiency.

Emergence of Electronic Commerce has led to the overall organizational

7
Poon, S. & Swatman, P. M. C. (1999). An exploratory study of small business Internet commerce
issues. Information Management, 35(1):9-18.
8
Cloete, E., Courtney, S., & Fintz, J. (2002). Small businesses' acceptance and adoption of E-
Commerce in the Western Cape Province of South Africa. The Electronic Journal of Information
Systems in Developing Countries, 10.

7
effectiveness and enterprises get competitive advantage through adopting the

Electronic Commerce applications.

In this study, it is proposed to find the relationship between Electronic

Commerce and Business Performance. The Enterprises that adopt E-Commerce have

remarkable benefit in quality, cost and profit. (Richard et. al., 2009)9 has also

observed that there is a significant improvement in the way, many of the functions of

the Organization like marketing, finance, manufacturing, selling and administration

are carried out.

1.2.4 PRESENT SCENARIO OF ELECTRONIC COMMERCE IN INDIA

The concept of Electronic Commerce is fast developing as a new trend in

world economy. SMEs should use this to get direct access to the global markets.

India will have 450-465 million internet users by the end of the year 2016, the main

reason being attributed to Demonetization which led to digitization of most of the

transactions (Chopra, 2017)10. The study by the Internet and Mobile Association of

India (IAMAI) in the year 2016 has found that at a CAGR growth rate of about

30 percent between December 2011 and December 2015, Indian Digital Commerce

stands at Rs.1,25,732 crores. The report estimated that the growth rate will hit

Rs.2,11,005 crores in the year 2016-2017.

9
Richard, P. J., Devinney, T. M., Yip, G. S., & Johnson, G. (2009). Measuring organizational
performance: towards methodological best practice. Journal of Management, 35(3), 718-804.
10
Chopra, A. (2017, March 01). Number of Internet users in India could cross 450 million by June:
report. Retrieved November 09, 2017, from [Link] /Number-of-
[Link]

8
 Snapdeal, India’s largest online company made a study in partnership with

KPMG titled ‘Impact of E-Commerce on SMEs in India’ in the year 2015. The

study has revealed the progression of SMEs in India on account of E-Commerce. It

has identified the persistent gaps in the system that needed to be worked on, in order

to facilitate adoption of E-Commerce by SMEs. With the introduction of Electronic

Commerce, the belief was that these millions of small enterprises could participate

and practice abundance of online commerce to mark a difference. Indian

E-Commerce sector will be worth $80 billion by 2020, and $300 billion by 2030.

(Snapdeal & KPMG, 2015)11.

As per the ASSOCHAM report, 201612, E-Commerce market in India is

likely to witness and touch $38 billion mark in 2016, an enormous increase of 39

percent over the $23 billion revenues of 2015. This has resulted in an exceptional

progression of 52 percent in 2015 and is observed to be one of the rapidly growing

sector. The purchasing behaviour is also observed to have a substantial upward

movement due to aggressive online discounts, widespread and abundant choices

online. Further, in India, roughly 60-65% of the aggregate sales are being produced

by mobile devices and tablets, which has increased by 50% in comparison with the

year 2014 and this trend is likely to grow. The prominent brands in the market has

tied up with the E-Commerce retailers and are involved in marketing their products

through internet.

11
Snapdeal & KPMG, (2015, October 7). Snapdeal-KPMG report: E-Commerce sector powering
India’s SME growth.
12
E-Commerce Industry will cross $38 bln mark by 2016; Indian e-commerce market set to grow by
67% in 2016: study. (n.d.). Retrieved October 25, 2017, from
[Link]

9
 The Federation of Indian Chamber of Commerce and Industry (FICCI) in

collaboration with the United Nations Industrial Development Organization

(UNIDO) has been paying attention on the development of E-Commerce technology

in SMEs of the BRICS countries (Brazil, Russia, India, China and South Africa)

(UNIDO, 2017)13. The challenges such as reachability and expansion to global

markets is reduced to a greater extent by stimulating E-Commerce adoption for SME

development.

TABLE NO. 1.1

E-COMMERCE MARKET SIZE IN INDIA: PRESENT AND FUTURE

Size of the Market Estimated Size of the

Organization
(in 2016) Market in 2020

KPMG (2016) USD 27.5 billion USD 80 billion

India Brand Equity Foundation

USD 15 billion USD 64 billion
(2017)

Confederation of Indian Industry

Not Applicable USD 100 billion
(CII) (2016)

Boston Consulting Group and

USD 16-17 million USD 60-70 billion
Retailers Association of India
(in 2014) (in 2019)
(2015)

Federation of Indian Chambers of

Commerce and Industry (FICCI) Not Applicable USD 100 billion
(2017)
Source: Compiled from various Industry reports.

13
E-Commerce fueling optimism among SMEs in BRICS countries. (2017, January 12). Retrieved
August 31, 2017, from [Link]
smes-in-brics-countries/

10
1.3 EVOLUTION OF SMEs IN INDIA

In the Indian context, the Small and Medium Enterprises (SME) sector is a
broad term that includes Small Scale Industrial (SSI) units and Medium Scale
Industrial units. The Micro, Small and Medium Enterprises Development
Organization which was formerly known as Small Industries Development
Organization (SIDO) was established in the year 1954 as an apex body for sustained
and organized growth of Micro, Small and Medium Enterprises (Micro, Small and
Medium Enterprises in India, An Overview, MSME Government of India,
2009)14. With the advent of planned economy from 1951 and the subsequent
industrial policy proposed by the Government of India, small scale industries and
medium scale industries play a special role in the Indian economy.

1.3.1 OVERVIEW OF SMALL AND MEDIUM ENTERPRISES

Small Enterprises has always been a significant and integral part of the
economic development of India even before the First Five Year Plan, dating back to
1938. After Independence and subsequent to the Liberalization of the Government in
1991, the SME sector witnessed tremendous growth providing huge employment
opportunities. However, there were few hindrances affecting the performance of
these industries like poor credit availability, low levels of technology, and
inadequate infrastructure (Das, 2007)15. The Ministry of MSME was established in
the year 1999 to provide focused attention to the development and promotion of the
MSME sector. The new policy introduced in the year 2000 sought to address some
of the problems relating to credit, infrastructure and technology more effectively.
Subsequently, Small and Medium Enterprises sector became a vibrant and lively
sector of the Indian economy. These SMEs provide more employment opportunities

14
Ministry of Micro, Small & Medium Enterprises. (n.d.). Retrieved January 5, 2017, from
[Link]
15
Das, K. (2007). SMEs in India: issues and possibilities in times of globalization. Asian SMEs and
Globalization, ERIA Research Project Report, (5), 69-97.

11
when compared to large organizations. They also provide assistance to the
government in industrialization of rural & backward areas for equal distribution of
National income and wealth.

Government of India was notified by the MSMED Act in 2006, to address

policy issues with regard to SMEs on the coverage and investment ceiling limit. The
MSMED Act 2006, which came into force with effect from 2nd October 2006,
defines the Micro, Small, and Medium Enterprises. As per the Act, the activities are
classified into Manufacturing and Service Category. The Act provides the legal
framework of the term "Enterprise" which comprises of both Manufacturing and
Service units. The criteria for investment in Plant and Machinery for Manufacturing
enterprises and investment in Equipments for Service Enterprises is shown in table.

TABLE NO. 1.2

INVESTMENT IN PLANT AND MACHINERY FOR
MANUFACTURING ENTERPRISES
Description INR
Micro Enterprises Upto Rs.25 Lakhs
Small Enterprises Above Rs.25 Lakhs and Upto Rs.5 Crores
Medium Enterprises Above Rs.5 Crores and Upto Rs.10 Crores
Source: [Link]

TABLE NO. 1.3

INVESTMENT IN EQUIPMENTS FOR
SERVICE ENTERPRISES

Description INR
Micro Enterprises Upto Rs.10 Lakhs
Small Enterprises Above Rs.10 Lakhs and Upto Rs.2 Crores
Medium Enterprises Above Rs.2 Crores and Upto Rs.5 Crores
Source: [Link]

12
1.3.2 E-COMMERCE AND SMEs

Adoption of Electronic Commerce is significant for the development of

SMEs. The growth of E-Commerce industry in India denotes an unprecedented

opportunity for SMEs. The business environment of SMEs has also witnessed a

drastic change witnessing new trends as a result of globalization of economic

activity. Many research studies have revealed that SMEs are the fast changing sector

and quick adopter of innovations. As the internet is becoming an indispensable tool

for SMEs, they strive hard to overcome the technological, organizational and

environmental challenges. However, there are various reasons for SMEs to use

internet to expand their businesses. It offers comparatively low-cost communication,

promotes the business, search information on potential customers and extends

market across geographical borders. The Electronic Commerce applications can be

range from having an e-mail, website and blog to high end adoption such as

purchase, sales, and payments through online mode and other customer services.

Invariably, the SMEs adopt E-Commerce in stages, owing to the high cost

requirement of it. As the SMEs move up in the ladder to adopt various aspects of E-

Commerce, they witness new changes exploring new business strategies thereby

improve business efficiencies. Though SMEs can overcome some of the challenges

that comes its way by the changing business environment, few challenges like high

cost of technology, lack of infrastructure, legal and regulatory frameworks still stand

as a hindrance factor.

13
1.4 BACKGROUND OF THE STUDY

Developments in Information and Communication Technologies and the

emergence of the internet have revolutionized business activities enabling new ways

of conducting business referred to as Electronic Commerce (Turban, King, Lee, &

Viehland, 2004)16. E-Commerce is trading electronically, that is transactions

involved with buying and selling products/services and exchange of information

through a network. E-Commerce allows automation and mechanization of the

operational processes, such as account management, logistics, selling and

distribution, after-sales services and inventory management. In this background, the

present study focuses on the factors that influence E-Commerce adoption and its

impact on Business Performance of SMEs in Chennai.

Indian Government through its “Make in India” initiative, has strived to

boost the level of online activities in the Manufacturing sector. The role of the

Government to promote business friendly environment has to be paralleled by the

business sector by updating itself on modern business practices to prepare for the

future. The Micro, Small and Medium Enterprises, form the fortification of Indian

Manufacturing sector. They account for 45% of total manufacturing output and

around 40% of total exports. They contribute around 8% of GDP of the economy

and is the second largest employment generating sector after agriculture with around

6 crores direct employment spread over 2.6 crore registered SME units.

([Link])

16
Turban, E., King, D., Lee, J. & Viehland, D. (2004). Electronic Commerce 2004: A Managerial
Perspective, Pearson Education International, Prentice Hall, Inc.

14
 SMEs in China, Indonesia and in some African countries have greatly

advanced by adopting E-Commerce technologies. In India, international

E-Commerce players like Alibaba, e-bay, Flipkart, Amazon, etc. have geared up

global marketing opportunities for many SMEs. More than 30,000 sellers (inclusive

of SMEs) sold to around 4 million customers across 3,311 cities in India through E-

Commerce sites. Also, more than 15,000 SME sellers export variety of products

from India to around 112 million customer in over 190 countries across the world

(PTI, 2015)17. Alibaba and Confederation of Indian Industry (CII) have recently

signed an agreement to provide Indian SMEs a bigger global coverage. A BCG

study also confirmed that SMEs with high-web existence, registered growth rates of

around 19% over 3 years as compared to only 13% for low-web SMEs. (Amitayu

Sengupta, 2016)18.

1.5 SIGNIFICANCE OF THE STUDY

Small and Medium Enterprises is an imperative sector to the economies of

all countries, including the developing ones owing to its contribution to the Gross

Domestic Product. They cannot be left behind and many are already demonstrating

their entrepreneurial strength by grasping opportunities offered by Electronic

Commerce. Therefore the cutting edge for business today is Electronic Commerce.

The driving forces of Electronic Commerce have been internet, growing standards of

living, availability of wide range of products, busy lifestyle of people, evolution of

17
Press Trust of India (2015, January 20). CII, Alibaba tie up to provide global platform to Indian
SMEs. The Hindu Business Line. Retrieved from [Link] [Link]/info-
tech/cii-alibaba-tie-up-to-provide-global-platform-to-indian-smes/[Link]
18
Amitayu Sengupta (2016, April 28). SMEs and E- Commerce: Challenges and the way forward.
Retrieved from [Link]
amitayu-sengupta

15
online market places like Amazon, Flipkart, Snapdeal, etc. With the rapid

advancement in the internet and the infrastructure, Electronic Commerce is

becoming more and more popular. The arena of E-Commerce covers a wide range of

applications, such as electronic marketing, customer support services, electronic

ordering and electronic payment systems. E-Commerce enhances efficiency of

business activities and hence it is perceived as a new business approach towards

profitability and extended market reach. E-Commerce has gripped significant

importance in the recent years. This significance has led to vital progress towards

strategies, requirements, growth and development of E-Commerce applications. It

was stated in the National Report on E-Commerce Development in India during the

year 2017, MSMEs which adopted advanced level of digital engagement has

experienced annual revenue growth which was 27% higher than those of offline

businesses.

This study is of great importance considering that E-Commerce has become

a necessity in the SMEs to remain competitive. Customers will be able to know the

developments in SMEs and they can be part of the future developments in the

industry by actively sharing their feedback. Also, they can enjoy the benefit by

making use of the promotional products being offered by the online platform

through the SMEs websites. Technological advancement has become the strength of

a dynamic economy. The recent development of E-Commerce has provided suitable

ground for improvement of the SMEs’ performance. Enterprises are reaping the

paybacks resulting out of E-Commerce as they enlarge the geographical coverage

ensuring a larger potential marketplace into which they can sell their products and

services.

16
1.6 NEED FOR THE STUDY

The contribution of the SME sector is high in domestic production and

export earnings with low investment requirements. It also facilitates high

employment opportunities and effective contribution to foreign exchange earning

with low import-intensive operations. Hence, it is considered to be the backbone of

industrial development for both developed and developing countries.

E-Commerce is bringing changes in the business process of many

organizations and is set to have substantial sociotechnical implications (Al-Qirim,

2003)19. As a result of which, many researchers hold the view that E-Commerce has

positive influence on business operations. Policy makers and managers are firm that

E-Commerce brings a gamut of benefits and enterprises that are left behind in

adopting this, cannot contend favorably in the global markets. Some business

entities that have implemented E-Commerce have reaped benefits such as, efficient

business operations, enhancement in income, accessibility to global markets,

improvised relations with suppliers and vendors, value-added customer services,

flexibility in administration of business, updated information, reduction in

transaction costs, new tie ups and relationship with large enterprises

(Vaithianathan, 2010)20.

According to de Alarcon (2005)21, the actual cost per transaction decreases

substantially with the adoption of E-Commerce based transactions as opposed to

19
Nabeel Al-Qirim, (2003). E-Commerce in the aerial mapping industry- A New Zealand case study.
Journal of Systems and Information Technology, 7, 67-92.
20
Vaithianathan, S. (2010). A review of e-commerce literature on India and research agenda for the
future, Electronic Commerce Research, 10(1), 83-97.
21
Alarcon, R. (2005). Electronic commerce applied to tourism. August de.

17
traditional ones. Online promotions are not only cheaper than traditional, such as

advertising in television, radio and newspapers, but their interactivity and prospect

of personal touch also makes them more effective. In addition to all these factors,

adoption of E-Commerce applications tend to eliminate the middleman /agent,

thereby enabling saving of 5-25% commission that are charged by them. E-

Commerce will allow the SMEs to manage customer and supplier relationships more

effectively than ever before, allowing them to build a sustained relationship with

supplier/customer, brand loyalty and perpetual contracts of sale that result in

increased and sustained profitability.

Most of the earlier studies on E-Commerce adoption was on large

organizations and in developed countries. There are very few studies that centers on

SMEs in developing countries. Extensive research has been done on E-Commerce to

demonstrate the tremendous benefits it offers to businesses. However, SMEs

especially in developing countries have not completely adopted E-Commerce

solutions. E-Commerce in developing countries, especially in India, has not been

sufficiently researched. Despite the fact that considerable research has been

conducted on the performance of Small and Medium Enterprises and their E-

Commerce adoption in their businesses, studies have largely focused on examining

them separately rather than incorporating them in a single model along with the

Impact of E-Commerce adoption on Business Performance. Previous studies that

have been conducted in the area of E-Commerce did not focus on E-Commerce

adoption of Small and Medium Enterprises and failed to establish the relationship

between E-Commerce adoption and Business Performance. Further, in India, there is

no research on the analysis of factors that influence E-Commerce adoption and its

18
impact on Business Performance of Small and Medium Enterprises in India

particularly in Chennai. Thus, there is a need for research to improve the

understanding of the factors that influences the E-Commerce and also identify the

impact of E-Commerce adoption on the Business Performance of Small and Medium

Enterprises in Chennai.

1.7 STATEMENT OF RESEARCH PROBLEM

For many decades, organizations have used various communication tools to

conduct different kind of business transactions. Now-a-days it has become relevant

and significant to adopt E-Commerce in terms of information of products or

services, advertisement and order, procurement and payment for products and

services. E-Commerce has drastically reduced locational importance. SMEs are now

able to sell their products all over the world. This has the potential to increase their

revenue and customer base drastically. This is particularly necessary for Small and

Medium Enterprises. The SMEs lack resources to mark a web presence.

Nevertheless they need to adopt and implement E-Commerce applications because it

is essential for their survival and their business performance. It improves the

capability to compete with the larger organizations.

Industrial sector is one of the key sector of economic activity in the world.

Like other sectors, this sector has large, medium and small firms that compete with

each other for success. Small and Medium Enterprises have a large share in the

industrial activity in different countries. Presently, these enterprises have many

organizational, legal, technological, financial and other hitches that hinder their way

to produce competitive products in world market. It is however apparent that

19
E-Commerce is one of the strategies to improve the status of these Small and

Medium Enterprises to compete in global markets. It is imperative that the SMEs

need to adopt E-Commerce for their survival in the global competitive environment.

A conscious awareness of the influencing factors of E-Commerce adoption also

becomes vital for business organizations to suitably address the pertinent issues and

to move forward in order to identify the impact of E-Commerce on businesses

performance. In addition to this, E-Commerce applications proves to be an economic

affair for SMEs to run their business, support new products, develop networking,

collect information, timely and effective deliver of products and services and to

identify potential business opportunities. The present study is an effort to analyze the

factors that influence E-Commerce adoption and its impact on Business

Performance of SMEs in Chennai.

1.8 RESEARCH QUESTIONS

The following Research Questions were framed during the course of this

research.

1. What are the existing practices of SMEs in adoption of Electronic

Commerce?

2. What are the factors influencing the adoption of E-Commerce?

3. What are the challenges faced by the SMEs in adopting E-Commerce?

4. What is the impact on Business Performance of SMEs on adoption of

E-Commerce?

20
1.9 OBJECTIVES OF THE STUDY

The broad objectives of this research are as follows:

1. To analyze the Organizational factors that influence the adoption of

E-Commerce in SMEs in Chennai.

2. To analyze the Technological factors that influence the adoption of

E-Commerce in SMEs in Chennai.

3. To analyze the Environmental factors that influence the adoption of

E-Commerce in SMEs in Chennai.

4. To assess the level of E-Commerce Adoption in SMEs in Chennai.

5. To study the impact of E-Commerce Adoption on Business Performance in

SMEs in Chennai.

1.10 SCOPE OF THE STUDY

The focal point of the study is to analyze the factors influencing the adoption

of E-Commerce and study the impact of E-Commerce adoption on Business

Performance of Small and Medium Enterprises in Chennai. The study is limited to

the perception of Proprietors/Owners who are running SMEs in Chennai. The scope

of the study is confined within Chennai district. This study is conducted in selected

SMEs in Chennai district.

The research area focuses on adoption level of E-Commerce and the various

applications used for E-Commerce. It also studies the impact of E-Commerce

adoption on Business Performance of SMEs. The practical implications of this study

may be useful to policy makers, Government, SMEs and those who are interested in

studying about SMEs. The study, analysis, findings, suggestions and conclusion

proposed, would be of immense use for future research in the SME sector.

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1.11 RESEARCH METHODOLOGY

The Research Methodology adopted for the study is both analytical and

descriptive. It is analytical, as the information, facts, and figures are analyzed and

evaluated. It is descriptive, as the study highlights the current state of affairs in

E-Commerce adoption by the SMEs. In the descriptive type of study, the techniques

used are observation method, personal interview method and survey. The research

instrument for the survey is a well-structured printed questionnaire. The

questionnaire is developed out of an extensive literature review.

1.12 RESEARCH DESIGN

The research design provides a framework for obtaining and analyzing

research data, while the research method focuses on methods of collecting the data.

The research study initially describes the objectives of the study and problem

undertaken. Review of the relevant literature is then collected for finding factors

influencing E-Commerce adoption in SMEs and its impact on Business

Performance. For data collection, qualitative and quantitative procedures were used

to meet the objectives. The questionnaire was circulated among the SMEs in

Chennai. Subsequently, interviews were conducted with the Owners/Managers of

SMEs to gather inputs and opinions in order to validate the factors that arise from

the questionnaire. The data thus collected was then used to develop holistic adoption

model for E-Commerce.

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1.13 SAMPLE DESIGN

In Pilot study and Primary data collection, Convenience sampling was

adopted for this empirical research to collect the responses with regard to

E-Commerce adoption of the Small and Medium sized enterprises from various parts

of the Chennai city. To collect empirical data, a survey research design was used, in

which questionnaires were either mailed or personally handed over to the

respondents. The quantitative survey was targeted at Owners, Proprietors, Chief

Executive Officers, Managing Directors, Managers, of SMEs.

1.14 QUESTIONNAIRE DESIGN

NO. OF
PART DESCRIPTION
QUESTIONS
Part A Demographic Profile of SME Owners/Managers 11
Part B E-Commerce Data of SMEs 5
Part C E-Commerce Application used 10
Part D Level of Usage of E-Commerce 10
Part E Factors influencing adoption of E-Commerce 48
Part F E-Commerce Adoption 5
Part G Impact of E-Commerce adoption on Business 20
Performance

The questionnaire consists of 7 parts. The first part deals with Demographic

Profile of SME Owners/Managers. The second part deals with the Electronic

Commerce usage data of the SMEs. The third part deals with the current level of

E-Commerce applications used in the SMEs, followed by the extent of its usage in

the fourth part. The questions relating to the factors influencing the adoption of

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E-Commerce is dealt in the fifth part. The sixth part of the questionnaire covers

questions relating to E-Commerce adoption and the seventh part covers the impact

on Business Performance. The questionnaire from the fourth to seventh part was

prepared using five point Likert Scale.

1.15 TOOLS AND TECHNIQUES USED FOR DATA COLLECTION AND

ANALYSIS

Questionnaire, Personal Interview and Observation techniques have been

used to collect the Primary data relating to the factors that influences the adoption of

E-Commerce and its impact on Business Performance of SMEs in Chennai. The

duly filled in questionnaires were scrutinized in accordance with the requirements of

the objectives and hypothesis. Based on this, various tables (Frequency, Percentage,

etc.) and charts were prepared. The data, after collection, was classified, scrutinized

and analyzed through various statistical tools to get the results with reference to the

objectives and hypothesis. The data processing was carried out using the SPSS

software, version 20. The data analysis techniques used for the purpose of the

research study are:

 Descriptive Analysis
 Independent-samples t-test
 One-way ANOVA
 Pearson Correlation
 Multiple Regression
 Factor Analysis and
 Structural Equation Model (SEM)

These analysis techniques were considered the most appropriate to answer

the research questions and hypotheses.

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1.16 HYPOTHESIS OF THE RESEARCH

1. There is no significant difference among the demographic and E-Commerce

related variables of SME with respect to the Organizational factors that

influence E-Commerce Adoption – Objective 1.

2. There is no significant difference among the demographic and E-Commerce

related variables of SME with respect to the Technological factors that

influence E-Commerce Adoption - Objective 2.

3. There is no significant difference among the demographic and E-Commerce

related variables of SME with respect to the Environmental factors that

influence E-Commerce Adoption - Objective 3.

4. There is no significant difference among the demographic and E-Commerce

related variables of SME with respect to the E-Commerce Adoption

- Objective 4.

5. There is no significant difference among the demographic and E-Commerce

related variables of SME with respect to the impact of E-Commerce

Adoption on Business Performance - Objective 5.

6. There is no significant relationship E-Commerce Adoption and Business

Performance - Objective 5.

1.17 SOURCES OF DATA

A) PRIMARY DATA

Primary data was collected through Convenience Sampling technique. The

list of SMEs were obtained from business directories and databases of Chamber of

Commerce and Industries. SME contacts were also obtained from TANSTIA (Tamil

Nadu Small and Tiny Industries Association).

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B) SECONDARY DATA

Secondary data was obtained from various sources including, Government

publications and Websites, Journals, Books, Newspapers, and Magazines. Concepts

and theories were referred from text books and research journals. Current industry

scenario and trends were collected from Magazines, Reports, Websites and

Newspapers.

1.18 DATA COLLECTION

The study was conducted in the city of Chennai in three phases. The first

stage involved preliminary investigation. This investigation was made with

Proprietors/Owners/Managers of SMEs to get a direction for the proposed research

study. A pilot test was undertaken subsequently. For the purpose, a survey

instrument with questions and multiple-item scales was prepared and pilot-tested to

identify the factors influencing the adoption of E-Commerce in SMEs. This was

carried to assess the reliability of the attributes, and to ensure that the

wordings of the questionnaire were clear. 40 filled up questionnaires were used

for Pilot Study. Profiles of few SMEs were collected from two ‘SME Meets’ that

were conducted at Chennai Trade Centre, Nandambakkam, Chennai and Kamarajar

Arangam, Teynampet, Chennai. Few suggestions were obtained with regard to the

wordings and simplifications required for the questions. Hence, some minor

revisions were made.

The third phase was a questionnaire survey. The questionnaire was revised

based on the feedback from the pilot study. The study was conducted through survey

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and personal interview method. This was carried to collect data from a sample of

SMEs, to test the research model and associated hypotheses proposed in the study.

Further, the criteria for choosing a SME was, the selected enterprise must have

adopted at least one of the E-Commerce applications for business purposes. The

adoption of E-Commerce involves substantial amount of funds and since it is an

investment decision, questionnaire was given to either the Proprietor/ Partner of a

firm/ Business Manager, or their representatives. Around 450 SME

owners/managers were contacted. The collected questionnaires were scrutinized on a

condition that the SMEs selected needed to have adopted at least one of the

E-Commerce application viz., Website, Blog or E-Commerce Websites. Filled up

Questionnaires were received from 427 respondents in the areas like Ambattur,

Thousand lights, Guindy and Ekaduthangal which are considered as major SME

hubs in Chennai. From the 427 collected Questionnaires, 47 Questionnaires

comprised of blank columns and insufficient information which was considered as

not suitable for further analysis. Hence the study was carried out keeping in view,

the opinion of the remaining 380 respondents. During the pilot study, data was

collected from 40 SME respondents. These responses are also included in the sample

for the main study.

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 TABLE NO. 1.4
METHODOLOGY OF RESEARCH

Research type Descriptive and Analytical Research

Population Small & Medium Enterprises

Sample size 380

Sampling Area Chennai

Sampling Method Probability Sampling – Stratified Random Sampling

Research Method Survey

Data type Primary (Majority of the data) and Secondary Data

Sources of Primary Data Questionnaire, Personal Interview and Observation

techniques

Sources of Secondary Data Newspapers, Journals, Magazines, Reports, Books,

Research Articles, Internet, etc.

Research instrument Structured Questionnaire

Validity and Reliability of Pilot Study was conducted in the month of January
Questionnaire 2017
(Overall Cronbach’s Alpha value = 0.000)

Software used for analysis SPSS (Version 20)

The detailed methodology of the research has been described on the basis of

research design, sampling design, data collection method and analysis. From the

view point of function, it is a descriptive as well as analytical research, as the

research covers SME’s perception on various dimensions of E-Commerce adoption

and their impact on Business Performance.

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1.19 RELIABILITY ANALYSIS – CRONBACH’S ALPHA STATISTICS

Reliability analysis was considered for the scale in total and for each factor.

The calculation of a scale’s reliability is based on Cronbach alpha, a widely used

method to test the reliability. The Cronbach’s Alpha indicator has to be atleast 0.70

for a scale to be considered as a reliable one. The Cronbach's Alpha describes the

consistency of each research factor. Values close to 1 indicate reliability of a factor,

while Cronbach’s Alpha values of 0.70 or above are preferable for research use.

TABLE NO. 1.5

RELIABILITY ANALYSIS

S. NO. OF CRONBACH’S ALPHA

NAME OF THE ITEMS
No. ITEMS VALUE

1. Level of Usage of
10 0.846
E-Commerce

2. Organizational Factors 16 0.910

3. Technological Factors 16 0.898

4. Environmental Factors 16 0.882

5. E-Commerce Adoption 05 0.743

6. Impact of E-Commerce Adoption on

20 0.917
Business Performance

TOTAL VALUE 5.196

AVERAGE VALUE (5.196/6) 0.866

From the table depicted above, all the Cronbach’s Alpha values are greater

than 0.70. This shows, the measurement scale has good internal consistency. Hence,

the scale can be considered reliable with the sample.

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1.20 STRUCTURE OF THE THESIS AND ORDER OF PRESENTATION -

CHAPTER OUTLINE

The study has been structured in seven chapters in order to reflect the main

aim and the research objectives.

CHAPTER ONE – INTRODUCTION AND DESIGN OF THE STUDY

Chapter one outlines the background of the study, research problem, the

main objectives, significance and scope of the research. It provides an overview of

the Research Methodology - research design, sampling design, questionnaire design,

data collection methods, research questions, hypotheses formulated, statistical tools

used, limitations of the research, the process of data analysis and interpretation, the

research methods used to achieve the research objectives, concepts and the structure

of the thesis.

CHAPTER TWO – REVIEW OF LITERATURE

This Chapter comprises of a brief review of the available literature, related to

the Adoption of E-Commerce and its impact on Business Performance.

CHAPTER THREE - E-COMMERCE ADOPTION AND BUSINESS

PERFORMANCE - A THEORETICAL FRAMEWORK

In this chapter, a detailed study about the E-Commerce and overview of

SMEs is described. This chapter provides an overview of theory aspects relating to

the factors influencing E-Commerce Adoption and the impact of E-Commerce

adoption on Business Performance.

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CHAPTER FOUR - DATA ANALYSIS AND INTERPRETATION

The chapter analyses the primary data collected through the questionnaire

relating to the factors of E-Commerce adoption and its impact on Business

Performance by applying Descriptive and Inferential Statistics and interpretation is

provided.

CHAPTER FIVE –SUMMARY OF FINDINGS, SUGGESTIONS AND

CONCLUSION

This chapter presents the findings that was derived from the analysis and

concentrates on the conclusion drawn from both the qualitative and the quantitative

research conducted over the period of this thesis. It provides useful insights on the

implications of the study relating to academic and management practice. It also

provides the directions for further research.

1.21 LIMITATIONS OF THE RESEARCH

The outcome of this research has given valuable feedbacks to researchers.

However, these outcomes were accompanied with some limitations.

1. The population of SMEs surveyed is limited to Chennai City.

2. Some of the respondents were not enthusiastic to participate and convincing

them to share the information was not an easy task.

3. The present study has relied largely on quantitative methodology of data

collection and is therefore restrictive. The methodological assumption is

that all respondents will have the same exposure to the intervening external

variables, which may not be true in practice

4. It is important to note that respondents’ perception on Adoption of

E-Commerce in SMEs may vary from time to time.

31