ORIGINAL PAPER
E-commerce adoption by SMEs in developing
countries: evidence from Indonesia
Rita Rahayu
1,2
•
John Day
1
Received: 31 July 2015 / Revised: 1 December 2015 / Accepted: 17 January 2016 /
Published online: 24 March 2016
The Author(s) 2016. This article is published with open access at Springerlink.com
Abstract This study aims to provide an overview of e-commerce adoption by
SMEs in developing countries and, in particular, the extent of the adoption of
e-commerce by Indonesian SMEs. It identifies the e-commerce benefits realized by
these SMEs and investigates the relationship between the levels of e-commerce
adoption and the benefits thus realized. The study was motivated by the limited
studies related to e-commerce adoption by SMEs, especially in developing coun-
tries. In addition, it seems that most e-commerce studies are focused more on
upstream issues: to see the factors that facilitate, or barriers faced regarding
e-commerce adoption, rather than downstream issues: to see post-adoption benefits.
This certainly limits our understanding about e-commerce adoption by SMEs in
developing countries, as well as the post-adoption benefits of e-commerce.
Indonesia was chosen as the place in which to conduct the study. A survey of 292
SMEs shows that the majority of them are still at an early stage in their adoption of
e-commerce. Their use of e-commerce is dominated by marketing and purchasing
and procurement activities. ‘‘Extending market reach’’, ‘‘increased sales’’, ‘‘im-
proved external communication’’, ‘‘improved company image’’, ‘‘improved speed of
processing’’, and ‘‘increased employee productivity’’ are reported as the top six
e-commerce benefits perceived by these SMEs. This study also shows that SMEs at
the higher level of e-commerce adoption experience greater e-commerce benefits
than those at other levels of adoption.
Keywords E-commerce SMEs Benefits
& Rita Rahayu
aretrahayu@gmail.com; u1067812@hud.ac.uk
1
University of Huddersfield, Queensgate, Huddersfield HD1 3DH, UK
2
Andalas University, Padang, Indonesia
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Eurasian Bus Rev (2017) 7:25–41
DOI 10.1007/s40821-016-0044-6
1 Introduction
It is widely recognized that e-commerce technology offers many potential
advantages for businesses. The key advantages revealed by the extant e-commerce
literature are reduced cost, increased sales, increased productivity, reduced time
processing, extended market reach and increased customer loyalty (see, Turban
2010). The advantages offered by e-commerce are believed to be one of the factors
that have made e-commerce popular for businesses and this can be seen from the
significant growth of e-commerce users year to year. According to the IDC report
(2011), in 2009, 624 million internet users had made online purchases with revenue
nearly $8 trillion in total; and that number was predicted to have increased by year-
end 2013 to more than $16 trillion of transactions. Such significant growth is also
seen in Asia. Based on d ata reported by The Interne t World Statistics (2015), the
number of internet users increased dramatically from 2000 to 2015. In June 2015,
there were 1.56 billion people in Asia using the internet, whilst in 2000 the number
of internet users was only 114 million.
However, the increase of e-commerce use by businesses is mostly being driven
by large companies. In comparison with larger companies, the adoption of
e-commerce by SMEs relatively lags behind (Govindaraju et al. 2015; Alam et al.
2011; Chiliya et al. 2011).
Researchers have identified many inhibiting factors for the adoption of
e-commerce by SMEs, particularly in developing countries. The lack of human
resources; internal resistance; unready customers; lack of support; security issues;
unready business partners; internal constraints; a lack of IT resources and lack of
support were identified by Dubelaar et al. (2005) as major impediments factors of
B2C e-business adoption by small businesses. Kotelnikov (2007) also revealed that
poor communication infrastructure; lack of ICT knowledge; lack of IT resources;
the lack of financial resources and a poor legal infrastructure are some factors that
lead to the low adoption of ICT by SMEs in developing countries. A recent study by
Jahanshahi and Zhang (2013) also found that security and privacy issues; lack of
knowledge and understand ing of e-commerce; and high maintenance cost were the
main barriers faced by SMEs in three developing countries (Iran, Malaysia and
India) in adopting e-co mmerce. This condition requires attention from many parties,
including researchers, given the important role SMEs play in the economic
development of a country. They contribute not only in terms of their numbers but
also to job creation and poverty reduction (Wit and Kok 2014; Ayyagari et al. 2011;
Neumark et al. 2011; Kotelnikov 2007). Therefore, the development of SMEs in a
country would have a positive impact on the economic growth of the country, and
vice versa.
It is undeniable that there have been many studies conducted regarding
e-commerce adoption. However the majority were conducted in developed countries
(Kurnia et al. 2015; Williams et al. 2009; Parker and Castleman 2007), and only a
few focused on SMEs and in developing countries. This certainly limit s the
understanding of e-commerce adoption by SMEs, especially in developing
countries. In addition, the majority of these previous studies focused predominantly
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on upstream issues where studies tend to report the factors that facilitate (or the
barriers faced in regard to e-commerce adoption), rather than downstream, that is
those studies that focus on post adoption benefits (Molla and Heeks 2007). Knowing
the factors that encourage or inhibit adopt ion, particularly for SMEs, is important,
but under standing how such adoption is beneficial for business performance is also
equally important. Salwani et al. (2009) offered three main reasons why SMEs were
still reluctant to adopt e-commerce technology, these being the lack of success
stories, not having knowledge in e-commerce and lack of information about the
potential impact of e-commerce implementation on business performance. Simi-
larly, Kartiwi and MacGregor (2008) reported that one of barriers mentioned by
Indonesian SMEs in regard to e-commerce adoption was that ‘‘e-commerce does not
offer any advantage s to our organization’’. These reasons make many SMEs,
especially in developing countries, fearful to invest their resources in this
technology.
Therefore, in order to fill this gap, this study aims to provide a better
understanding about the adoption of e-commerce by SMEs in developing countries,
identifies the e-commerce benefits realized by these SMEs and investigates the
relationship between the levels of e-commer ce adoption and the benefits realized.
Indonesia was chosen as the country in which to conduct the study. There are four
reasons for this choice. Firstly, Indonesia is one of the developing countries in Asia
and has a large population being the fourth largest population in the world and the
largest in Southeast Asia, so therefore, Indonesia might reflect other developing
countries in Asia, particularly in Southeast Asia. Secondly, Indonesia is also
recognized as the biggest archipelago country in the world, consisting of more than
13 million islands. The huge population and the vast and fragmented geography
offer a good reason for businesses in Indonesia, especially SMEs, to adopt
e-commerce. Yet, and as commonly found in most developing countries, the
adoption of e-commerce by Indonesian SMEs is still lagging behind counterparts in
developed countries (Kartiwi and MacGregor 2008). Thirdly, Indonesia is at the
heart of Southeast Asia, neighbouring alongside Malaysia, Singapore, China, Japan,
and Australia. Finally, Indonesia has recently been identified as one of countries that
will become one of the economic powers in this century, together with Mexico,
Nigeria and Turkey, popularly known as ‘‘MINT’’ countries (Mexico, Indonesia,
Nigeria, and Turkey). MINT was initially popularized by Jim O’Neil in 2013 as a
companion to his BRIC countries (Brazil, Russia, India and China) . As a country
that has been recognized as an important player in the economic world, it is
particularly interesting to study e-commerce adoption in this country.
2 Literature review
There is no single definition of e-commerce with various definitions being offered
by several authors. Turban (2010) defined e-commerce as ‘‘the process of buying,
selling, transferring, or exchanging products, services, and/or information via
computer networks, mostly Internet and intranets ’’. While, Tagliavini et al. (2001)
argued that any economic activity conducted via the internet can be called
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e-commerce. In more detail, Clarke (2005) elaborated the detailed elements of
e-commerce as: ‘‘support services for trading… encompass(ing) inter-organizational
email, directories, trading support systems for commodities, products, customized
goods and services, management information, and statistical reporting systems’’.
Even though the definitions vary in exact detail, it can be seen from the definitions
above that the use of ICT, particularly internet technology, is a main compon ent of
e-commerce. Hence in this study the definition of e-commerce refers to the use of
networked information and communication technologies (ICT), especially Internet
technology, in any business activities.
According to Turban (2010), the transition of traditional commerce to electronic
commerce depends on the level of digitisation of the products/services sold, the
process, and the delivery methods. If the digital element is found in any one of those
then it can be said that the e-commerce exis ts, but only partial e-commerce. Whilst
if all of these elements are digital, then it is considered as pure e-commerce. Buying
a mobile phone from http://www.apple.com is one example of partial e-commerce,
because there are physical dimensions to this transaction which are product and the
delivery method. However, buying software from http://www.amazon.com is the
example of pure e-commerce, because all of dimensions are digital (product, pro-
cess and delivery method).
It cannot be denied that the e-commerce technology was originally developed to
meet the needs of large enterprises in developed countries. However, the application
of e-commerce is still suitable for SMEs in developing countries. E-mail, websites,
internet, intranet, extranet, Electronic Data Interchange (EDI), Electronic Fund
Transfer (EFT) and barcode are some of basic e-commerce technologies that are
most likely relevant for the SME (Kurnia et al. 2015; Morteza et al. 2011; Mustaffa
and Beaumont 2004; Abell and Lim 1996).
The use of these technologies by SMEs is variable. Abell and Lim (1996) found
that SMEs in New Zealand used the internet in order to communicate with internal
and external parties, get information from suppliers, provide information, conduct
R&D activities, to be seen at the forefr ont of technology, to do market and product
research, place orders to suppliers, and take orders from customers. Drew (2003)
found also that e-mail and intranet applications were used by SMEs for internal
communication; whilst web sites were used to advertise, promote, recruit, and for
procurement. In addition, Daniel and Wilson (2002) mentioned that e-commerce
technologies assist SMEs in a wide range of activities, which are: providing
information about the company, providing information about goods and services
offered, taking and placing orders, receiving payment, delivering goods and
services, after sales service or contact, identifying suppliers, purchasing inventory
and non-inventory, communicating with internal and external parties, exchangin g
document and design with customers or suppliers, searching the information,
advertising and recruitment activities. The breadth of e-commerce use in business
activities reflects the level of e-commerce adoption where the wider the use of
e-commerce the higher level of e-commerce adoption. The wider the scope of
e-commerce use in businesses, the more likely the realization of even greater
commerce benefits (Zhu and Kraemer 2005).
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In order to explain the level of e-commerce adoption, the concept of ‘‘stage of
growth’’ or growth models are often used in previous studies. This concept
recognized that information system(s), including e-commerce, in an organization
are not fixed but experience several levels of development. Information System
literature recorded several growth models developed by previous researchers. The
first growth model was developed by Richard L. Nolan during the 1970s, which is
well known as ‘‘Nolan’s stages of growth model’’. In this model, there are six stages
faced by the firm in respect of information system usage, namely: initiation,
contagion, control, integration, data administration and maturity. Each stage has
different features, and all of them will exist together.
Then, Rao et al. (2003) proposed four stages—presence, portal, transaction
integration, and enterprises integration, to illustrate the evolution of e-commerce in
an organization. Each stage has different characteristics and different problems, and
Fig. 1 shows the detail of this model.
In this model, the subsequent stage is better than previous stage. Even though the
evolution is described sequentially, there is no necessity for a business to start from
the beginning stage (presence stage). Business can start from any stage.
In line with this, Prananto et al. (2003) also proposed six stages of e-commerce
development (see Fig. 2), which are no presence, static online, interactive online,
e-commerce, internal integration, and external integration. This model links the
level of e-commerce adoption with the investment required and its potential
benefit.
Consistent with Rao et al. ( 2003) and Prananto et al. (2003)alsomentioned
that the characteristics of each stage are different and business can start the
adoption in any level of the stages. Figure 2 above shows that a higher level of
e-commerce adoption will require greater investment and that more benefits will
be gathered.
Fig. 1 Stages model. Source Rao et al. (2003)
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