Sme Organization In Hong Kong Commerce Essay

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The competition of the Hong Kong market has become increasingly intense since the number of SME organizations has grown tremendously in recent decades. Managers in search of ingredients for competition capabilities have found supply chain integration beneficial. True supply chain integration is only possible through the use of enterprise systems. However, the impact of the adoption of enterprise systems in SME organizations has not been examined thoroughly. Thus, there is a pronounced need for academic research in this area. Accordingly, the purpose of this dissertation is to investigate the adoption of enterprise system for a SME organization in Hong Kong.

Based on the literature review, a proposed research model and six hypotheses have been developed. A mail survey resulted in 116 paper and supplies complete answers Hong Kong, SME organizations in their important service level, which resulted in a response rate of 38%. Most respondents were wholesale. The hypotheses were analyzed using structural equation modeling. Furthermore, the effects of moderation and mediation were tested.

The results revealed that an increase in anticipated benefits and access to new markets leads to the adoption of ENTERPRISE systems. Further, the technology plays a significant role in supply chain integration, and improving that integration enhances competition capabilities. Moreover, the findings demonstrated that competition capabilities relate significantly and positively to firm performance. Finally, it was found that enterprise systems do not have a direct relationship with firm performance; however, their relationship was mediated by supply chain integration and competition capabilities.

The results revealed that an increase in the expected benefits and access to new markets leads to the adoption of enterprise systems. In addition, technology plays an important role in integrating the supply chain and improving the integration competence improves. Moreover, the results showed that competitive capabilities are related significantly and positively to business results. Finally, it was found that enterprise systems do not have a relationship with firm performance, however, their relationship was mediated by the integration of the supply chain and competitiveness.Acknowledgements

Table of Contents

List of Tables

List of Figures


The first chapter analyzes the growth of service industries in recent decades. In addition, readers familiar with the definitions and discussions of the capacity of competition, the integrated strategy of supply chain, the adoption of enterprise systems and drivers of enterprise systems. Thereafter, a brief review of literature is presented, followed by an overview of the research gaps, causing the research problem. Finally, constraints, and expected contributions are presented, and the chapter concludes with a summary of the contents of the dissertation.


The service sector accounts for 92.9% of gross domestic product (GDP) of Hong Kong in 2010 (HKTDC 2010). As service industries have grown enormously in recent decades, competition in this sector has become more intense. This draws the attention of managers and researchers to the marketing of services.

Services are defined by Grönroos (2007, p. 180) as "the processes that consist of a set of activities that take place in interactions between a client and people, goods and other material resources, systems and / or infrastructure that is service provider and possibly involving other customers, which aims to solve customer problems. "It is essential to mention that the differences between goods and services are not white and black, by any means (Wilson et al. 2008) . On the other hand, said that service-based companies that gave the opportunity to differentiate the marketing of goods and services across many problems and not over time. This highlights the fact that it is essential for managers to understand the unique characteristics of services to manage and market them effectively (Wilson et al. 2008).

The following features separate the service industries manufacturing counterparts: the immaterial production, variable, high customer contact, perishable, inseparable from service delivery, decentralized, consumed more frequently, easily emulated (Fitzsimmons and Fitzsimmons, 2008). However, these features cannot be applied universally to all service industries, as they are varied and very different (Fitzsimmons and Fitzsimmons, 2008). For example, some service sectors, such as laundry and cleaning are very tangible, while others, like public relations or advertising, produce results that are difficult to define and measure (Fitzsimmons and Fitzsimmons, 2008).

Whatever the nature of a business, the focus of the marketing strategy is to create a sustainable competitive advantage (Carpenter et al., 1997). The differences between the results of companies in hundreds of activities and processes to create, produce, sell and deliver their products or services. Consequently, according to the premise of strategic positioning (Porter, 1996), companies need to perform these activities better than rivals or provide similar activities in different ways to stay ahead of the competition. Thus, managers seek different strategies to compete with rivals in the market. Porter (1996) defined strategy as "creating a unique and valuable position, involving a different set of activities."

One of the essential ingredients of competitive advantage has been recognized as the degree of integration of an enterprise of coordination with suppliers and customers (Frohlich and Westbrook, 2001). Porter (1998) has introduced the theoretical foundation for the integration of the supply chain as Value Chain Model. This model has been widely used by scholars, and will be explained in the next chapter.

Integrated Supply Chain Strategy

The management of the supply chain term was introduced in the 1980s, and since early 1990, scholars have tried to give it to the structure and the definition (Lambert et al., 1998). Since then, he has been given many definitions, however, has the parallel theme underlying the integration of internal and external processes of the company with suppliers, distributors and customers (Akkermans et al., 2003). The most frequently cited definition is that "the management of the supply chain is the integration of key business processes from end user through original supplier that provides products, services and information that add value for customers and other stakeholders".

Both conceptual and empirical studies demonstrate the benefits of implementing management systems in the supply chain, such as increased revenue, increased productivity, and reduce inventories (Frohlich, 2002a). The practices of the supply chain cannot individually improve their own efficiency and effectiveness, as can be achieved through the interaction of different members of the supply chain (Dawe, 1994; Kim, 2006b). Today, the most successful competitors are described as those that integrate with its customers and suppliers (Frohlich and Westbrook, 2002).

There is a growing body of literature that focuses on the importance of the strategy of integrated supply chain (Frohlich and Westbrook, 2001). This strategy creates value for customers of a company and draws vendors and customers in the value creation process (Tan and Kannan, 1998). The integrated supply chain has been recognized as the key to remain competitive in the market (Birou and Fawcett, 1998).

The integration of the supply chain was not really practice before the advent of the Internet and new communication technologies (Frohlich and Westbrook, 2002). Other means, such as telephone and fax numbers, not provide true real-time access to information (Frohlich and Westbrook, 2002). The integrated supply chain actually became practical with the advent of enterprise systems that organize and integrate the flow of materials, information and finances of each part of the network of supply chain (Dehning et al., 2007; Slone et al., 2007).

Enterprise Systems

Systems software, hardware and communications that enable companies to integrate and standardize the data used in the company are known as enterprise systems (ES) (Davenport, 1998). The enterprise systems increase the level of integration, flexibility and degree of customization in the supply chain (Akkermans et al., 2003). Enterprise systems have become the major contributor to business skills and performance (Bardhan et al., 2006). For example, it is hard to imagine that companies like DHL can remain competitive in the global market without adopting advanced technologies based integrated systems (Ellram et al., 2004).

The literature does not provide a specific list of systems known as enterprise systems (ES). However, several studies mention the following systems as part of the ES category: enterprise resource planning (ERP), Electronic Data Interchange (EDI), Customer Relationship Management (CRM), Product Data Interchange (PDI), finance, payroll processing, human capital management and decision support systems (Hendricks et al 2007; Ramasubbu et al., 2008; Vickery et al., 2003).

Enterprise Resource Planning is a very well-known among professionals and academics. In the 1990s, ERP systems are seen as the most important development between enterprise systems (Hatzithomas et al., 2007). This study focuses on ERP systems because of its importance and the wide range of business applications worldwide. A more recent system that offers greater control over inventory management throughout the supply chain is the Radio Frequency Identification (RFID). Currently, this technology is still in its infancy, therefore there is an urgent need to study their history and influence in the company.

The Enterprise Resource Planning System

The ERP system is known primarily as a system of software modules or suite that automates all business processes of the company. It increases transparency throughout the supply chain by integrating all departments and functions across the enterprise and supply chain (Akkermans et al., 2003; Beheshti, 2006; Chand, 2005; Dawson, 2002; Hendricks et al., 2007; Jacobs and Weston, 2007).

ERP systems integrate cross-functional applications, improve and integrate information technology (IT) architecture, and improving inefficient business processes (Chand, 2005; Velcu, 2007). The main benefits of this system is that it reduces delays and data reporting errors, helps to minimize inventory, transportation costs, and administrative costs, and improves the response time of customers (Chand, 2005; Hendricks et to 2007; Velcu, 2007).

However, this system is very expensive and complicated (Dawson, 2002). In addition, implementations fail to earn enough profit and the expected results (Dawson, 2002).

Radio Frequency Identification

RFID promises to create a revolutionary change in the management of the supply chain, especially in the retail sector (Luna and Ngai, 2008). Wilkoff (2004) reported that among 878 companies that were surveyed in North America, 51% of manufacturing firms, 49% of the finance and insurance companies, and 43% of retailers and wholesalers plan to increase their use of RFID in 12 months. These numbers indicate that the manufacturing and SME organizations will promote the use of RFID.

The RFID system consists of three basic components, namely, the RFID tag (transponder), which is usually attached to the product, a reader (transceiver), which can read the information in the RFID tag, and a database and computer processing system that stores the information (Moore, 2006).

In a study, Wamba and Boeck (2008) revealed that members of a supply chain competition raised the level of "string against string" by implementing RFID systems. RFID systems allow companies to reduce paperwork, electronic documents, improve productivity, improve visibility and tracking of products throughout the supply chain, improving the accuracy of forecasts of inventory, and lower labor costs (Attaran, 2006). RFID systems show the highest degree of accuracy (99.8%) to perform real-time inventory compared to other technologies such as bar codes (Dawson, 2002).

However, there are some disadvantages in using these systems, including privacy concerns because RFID tags have large amounts of data (Wu et al., 2006). Günther and Spiekermann (2005) demonstrated empirically that among 129 German consumers, 73% preferred products with RFID tags are deactivated at the point of departure. Their findings show that consumers have significant concerns about the information stored in RFID tags.

The other disadvantage is the lack of standard data format RFID tags, which can cause problems when the products pass through different systems along the supply chain (Wu et al., 2006). This lack of standardization can result in incorrect information in databases held by members of the supply chain (Wu et al., 2006).

Drivers of Enterprise Systems

There is strong theoretical evidence that firms adopt enterprise systems, both for efficiency reasons rational and go with the flow (Abrahamson and Rosenkopf, 1993). The rational efficiency theory holds that if more firms adopt a technology, then, more knowledge and benefits are created (Abrahamson, 1996). By sharing this information among businesses in the long term, a growing number of not taking rationally adopt the concept (Frohlich and Westbrook, 2002).

The literature suggests two efficiency rational explanations for the adoption of enterprise systems. The first driver is increased access to new markets. Enterprise systems are perceived as facilitators for companies to access new markets through them (Frohlich and Westbrook, 2002). The second conductor is expected performance. Better coordination means less variability and eliminates non-value added activities, which leads to better performance (Frohlich and Westbrook, 2002).

External pressure is the other main driver of the adoption of new practices, and explains the domino theory. This theory says that firms adopt new technologies due to external pressure applied by those who have already adopted this technology (Tolbert and Zucker, 1983). Some companies adopt a new technology, even if such approaches appear to be inefficient for the company (Abrahamson and Rosenkopf, 1993).

Problem Area

Technological innovations have advanced at breakneck speeds. However, the adoption of new technologies often involves many more difficulties than expected (Slone et al., 2007). The decision to adopt an integrated supply chain companies not necessarily translate into a successful implementation and failure rates are high (Tan, 2002). Despite the growing adoption of enterprise systems by professionals and the presence of an integrated supply chain, the theoretical and empirical research on these innovations remains limited and fragmentary (Hendricks et al., 2007).

As facilitators of integrated supply chain, enterprise systems have been studied mainly in manufacturing firms (Dehning et al., 2007), usually by using case studies (Boeck and Wamba, 2008) or secondary data (Hendricks et al., 2007; Nicolau, 2004). Because of the importance of the service sector has increased rapidly, the need to conduct research on supply chain services is growing significantly as well (Sengupta et al., 2006).

Despite significant growth in services in recent years, the academic literature has not always recognized its value (Palmer, 2008). Supply chains and manufacturing services are not exactly the same. Both groups have the same fundamental factors such as demand management, relationship management, customer and supplier relationship management (Sengupta et al., 2006). However, the differences between service and manufacturing supply chains have not been clearly examined (Ellram et al., 2004).

A limited number of studies in the literature have focused on competitive capabilities within SME organizations. The relationship between these capabilities and technology has been reviewed by Tracey et al. (1999) and within manufacturing companies. They found that the relationship between these two areas is statistically significant and positive. He also said that high levels of competitive ability to carry higher levels of business performance. Although we have known about the theoretical benefits of the competitive for many years, the author's knowledge, there have been no studies to submit to the capabilities of competition in SME organizations to rigorous empirical evaluation.

The Case of SME Organizations

In this research, the main focus of the service industries is in the industries of retail and wholesale. This classification was adopted in an effort to reduce significantly the range of businesses in the service sector and find useful information about the service supply chain (Ekeledo and Sivakumar, 1998). The unit of analysis used in this study is considered the greatest service provided by the companies that make up a significant proportion of their income, usually 15% or more.


Due to the nature of supply chain integration and capabilities of the competition is not possible to carry out an investigation with all in a single study. As Miller and Dess (1993) cited, "not a single research effort can fully satisfy all possible criteria." Therefore, the following constraints are considered for this study.

The lack of academic research on the services sector motivates this study to focus on SME organizations. In addition, Hong Kong is a key player in the provision of services globally. Moreover, Hong Kong has a 26.9% employment in the services sector between (HKCSD 2011).

Objectives and Outline of the Dissertation

The main objective of this research is to contribute to the body of existing literature. It will do in three areas: (1) identifying the background to the adoption of enterprise systems, (2) speaks of the influence of enterprise systems in SME organizations, and (3) provide guidance for academics and managers in service sectors on the benefits of supply chain integration and adoption of enterprise systems.

To meet the above objectives, the thesis is divided into six chapters, as described in Figure 1-1.

The first chapter introduces the underlying logic of the research by presenting background information and definitions of the main buildings of the study followed by its scope and boundaries. A summary of the thesis is offered as the chapter concludes.

Chapter two describes the theoretical and the main buildings of the investigation. A review of relevant literature leads to the identification of research gaps.

The third chapter presents the conceptual framework of this thesis, and the proposed research model and hypotheses.

Chapter four describes and argues the reasons behind the research design, focus and strategy. As concluded, the issues of validity and reliability are addressed.

The fifth chapter analyzes the evidence of the process of data analysis, validity and reliability, hypothesis testing, and the effects of moderation and mediation.

Finally, chapter six discusses the findings, theoretical implications and management, the study's limitations and suggestions for future research.

Chapter 1: Introduction

Chapter 2: Literature Review

Chapter 3: Hypotheses and Research Model

Chapter 4: Research Methodology

Chapter 5: Data Analysis and Results

Chapter 6: Conclusions and Implications

Figure 1-1: Organization of chapters in this dissertation

Chapter summary

This chapter will present and discuss the main concepts of the study. Thereafter, the importance of research in this area and the associated research gaps addressed, which led to the research question. It was mentioned that despite all the benefits that come with enterprise systems, the failure rate in implementing these systems is high. Factors that may inhibit the success of the enterprise adoption are discussed in chapter two. Thereafter, the main purpose of the study was described as an investigation into the relationships between enterprise systems, supply chain integration and performance of the business within SME organizations. Subsequently, contributions and expected constraints were mentioned. Finally, the contour of the speech was described.

Literature Review

The aim of this chapter is to comprehensively review the literature on service industries, the competitive, the integration of the supply chain, the adoption of enterprise systems and business systems background. The literature review will provide an overview of what has been done before, and identifies research gaps in these areas.

Service Industry

These numbers indicate that the service sector has become more dominant force in national economies. Even manufacturing companies are recognizing the opportunity to grow through services (Sawhney et al., 2004). A large number of products are based on activity-based services such as delivery, financing, insurance, and maintenance benefits, to increase the value of the goods and to obtain and maintain a commercial advantage over competitors (Palmer, 2008, p. 3).

SME organizations are often seen as companies whose main product is a service. The service sector includes a diverse set of activities such as consulting, advertising, construction and maintenance. Some SME organizations can be considered pure services such as transportation, housing, financial services and health care (Zeithaml et al., 2009).

Intangibility is the main determinant of whether an offer is a good or service (Wilson et al., 2008). As the spectrum of tangibility is shown in Figure 2.1, the pure products, such as "salt" and "soft" appear on the left side for what it represents manufacturing companies, while "teaching" in the right side represents pure SME organizations.

The difference between manufacturing and services sectors are not necessarily black and white (Wilson et al., 2008). For example, the automotive industry are classified in the manufacturing sector, however, provides many intangibles, such as transport (Wilson et al., 2008). When moving toward the right side in the Figure, the increase of services. At its midpoint, the fast food industry includes both tangible and intangible components, such as food and packaging despite being classified as a service (ibid). Retail stores and wholesale also reside in the center of the spectrum to coordinate and manage tangible assets even though organizations are considered SMEs.

Figure 2-1: Tangibility Spectrum

Source: Adapted from Shostack 1977

SME organizations are increasingly adopting IT-based services to improve service quality, customer satisfaction and financial performance (Karimi et al., 2001). Moreover, computer-based services will allow SME organizations to offer new ways to deliver services that are more accessible, convenient and productive (Wilson et al., 2008).

Various technologies such as bar codes and tracking of goods by Radio Frequency Identification (RFID) have achieved remarkable success in spreading and storage of product information (Palmer, 2008). These technologies allow administrators to check the status online stock of all its products. This allows them to buy stock direct replacement, so empowering them to reduce storage space and at the same time achieve a reliable level of availability of goods to final consumers (Ibid).

SME organizations face special challenges in adopting new technologies, particularly in providing front-office services, as customers are part of their overall process. As a result, acceptance of technology affects the success of technological innovation (Fitzsimmons and Fitzsimmons, 2008). Some customers are not interested or ready to use technology as a means of interaction with business. Others are concerned about privacy and confidentiality issues as companies try to learn more about their customers and contact them directly (Wilson et al., 2008).

Even the back-office innovations that do not directly affect customers may pose problems for SME organizations. For example, an innovative technology that operates between banks could be adopted by all banks that working together, however, if only one bank adopts technology, it would be beneficial to the bank (Fitzsimmons and Fitzsimmons, 2008). In addition to the above concerns, the return associated with investment in technology is often uncertain (Wilson et al., 2008). These problems are difficult and often prohibited successful adoption of IT in many services, such as industry, health care (ibid).

Despite the importance of IT services with views both managerial and theoretical, in the service sector, the IT field is still in its infancy (Tsikriktsis et al., 2004). This means the need for research on the outcome of the adoption of information technology in SME organizations.

In conclusion, the service sector is a vital economic force for the prosperity of nations. Service industries were represented in the spectrum of the tangible, and the role of information technology and its associated problems in the service sectors were discussed. The next section reviews the literature on competitiveness.

Competition Capabilities

In today's competitive marketplace, companies are constantly competing over various aspects of competition (Swafford et al., 2006). Since many services are easier to emulate, SME organizations have more difficulties with the competition that make manufacturing firms (Palmer, 2008). In recent years, for example, we have seen banks entering the area rent a car or a grocery store to become an Internet service provider (Palmer, 2008).

For all industries, the five competitive forces are recognized as the rules of competition (Porter, 2004). These five forces are the entry of new competitors, threat of substitutes, the bargaining power of customers, bargaining power of suppliers, and rivalry among existing components (Porter, 2004). The collective strength of these five competitive forces determines the position of the company in the market (ibid).

In the competitive market, companies always tend to acquire different competitive advantages to deter potential new entrants to compete with rivals (Hoffman, 2002).

Competitive strategies influence various aspects of a company, such as prices, the cost of advertising, and sales force.

There are three generic competitive strategies of cost leadership, differentiation and focus strategy introduced by Porter (2004). For example, a system of low cost of physical distribution can lead to cost the lead, or of a superior product design can lead to differentiation (ibid). A company can use the strategy and its competitive approach by selecting a segment or segment group in the industry and looks at your service in particular, to the exclusion of other sectors (Porter, 2004).

The source of the competitiveness of an enterprise is based on all the activities, which are represented by the model of the value chain (Porter, 2004). The components of the value chain are grouped into primary and support activities (see Figure 2-2). The components of the primary activities are inbound logistics, operations, outbound logistics, marketing and sales and service. The components of the support activities are recruitment, including information systems, technology development and human resource management (Porter, 2004).

Figure 2-2: The generic Value Chain

Source: Porter 2004, p. 37.

Each activity has its own cost structure, which may be affected by interactions with other activities, both inside and outside the company (Porter, 2004). Companies can achieve cost leadership by competition to minimize the cumulative cost of these activities (Porter, 2004).

The differentiation strategy is not limited to distinguish a company in terms of physical products, services or marketing practices, but includes the differentiation at any point in the value chain (Porter, 2004). This differentiation is considered competitive if customers value the uniqueness of supply (Porter, 2004).

The third generic strategy is the strategy of focus. A company can achieve this by implementing the strategy of cost advantage or differentiation in a specific segment or segment group (Kumar et al., 1997).

Porter (2004) believes that the differentiation is usually costly, therefore mutually exclusive with the cost leadership strategy. However, a group of researchers have found that the use of both strategies is not only feasible, but can also be profitable in some situations.

Customer service is the result of all internal functions and external supply chain (Stevens, 1989). It can be done on the site (such as when an employee to a customer find an item in a retail store or answers to a question), phone (call center), or through Internet (Zeithaml et al., 2009).

The last dimension of the competitive marketing is innovative. The role of marketing innovation was introduced by Alderson (1965). Traditionally, the concept of a marketing company focusing on marketing paradigm is in the 4 Ps (product, price, place and promotion) or 7Ps adopted by the marketing of services (the 4Ps plus people, processes and physical evidence). By contrast, employers in promoting stress, mouth to mouth, and personal contact with customers and focus on the 4 Do (information, identification, innovation and interaction) (O'Dwyer et al., 2009). Firms compete through innovative marketing strategies, especially small businesses that cannot compete on economies of scale. So compete with innovative products or processes that are based on market needs and customer information (O'Dwyer et al., 2009).

The use of information technology leads to a company to beat a competing network (Poirier, 1999). Since the 1990s, the relationship between technology and competition has become much stronger (McAfee and Brynjolfsson, 2008).

In conclusion, the directors of the competitive capabilities have been mentioned in this section. It has also been reported that based on the resources, skills, environment, and industry, companies seek pure forms or more of the competitive strategies. Moreover, the review of the literature revealed that the technology has a strong relationship with the capabilities of the competition. The next section presents a literature review that focuses on the integration of the supply chain as an enabler of competitive capabilities.

Supply Chain Integration

The integration of the supply chain has been recognized as a facilitator of the capabilities of the competition for professionals and academics (Simchi-Levi et al., 2003). Due to advances in information technology and communication, the electronic management of the supply chain has enabled companies to use its network of supply chain as a competitive weapon (Barlow and Li 2007). This is the era of competition in the supply chain, i.e. competition today is based on supply chain versus supply chain instead of business compared to firms (Lee 2005).

The supply chain functions carried out physical and market mediation which generally focus on inventory management, logistics, and the corresponding supply and demand (Fisher, 1997). Therefore, manages and coordinates the financial information and material flows between network members supply chain, including suppliers, manufacturers, distributors, retailers and customers (Akkermans et al., 2003).

Each of the above flows between members of the supply chain moves in both directions (Min and Mentzer 2004) and represents specific activities at the operational level (Akkermans et al., 2003). Financial flows represent activities such as payment schedules, credit terms, and ownership arrangements, information flows to monitor the management and transmission, and the flow of materials into account the physical product flows from suppliers to customers, as well as reverse flows for product returns, servicing, and recycling (Akkermans et al., 2003).

Processes, organizational structures, and technologies to support the supply chain network and are known as pillars of the network. Processes include capabilities of the company in knowledge management, logistics and new product development, organizational structures and management approaches include performance measurement and reward systems, and technologies that include information technology and processes (Akkermans et al., 2003) ..

An integrated model of a supply chain is shown in Figure 2-3. The objective of this system is to improve and sustain the activities between the different members of the network, while support and coordination of the pillars of the network.

Figure 2-3: An integrated model of the supply chain

Source: Akkermans et al. 2003, p. 286.

Services operating in the minds of customers (eg, education), organs (eg health care) and property (eg, banks) have a different supply chain. This is because these services acting on the elements provided by the customer, where customers act as both suppliers (Fitzsimmons and Fitzsimmons 2008).

Some scholars believe that the relationship of supply of services is more as a center of a chain where the service provider performs as an agent for the client external supply management (Fitzsimmons and Fitzsimmons 2008). In this case, the difference between the hub and the chain is that information spreads faster in the centers, therefore fewer opportunities for delays exist (Ibid).

Another difference between service and manufacturing supply chain is the need to predict the customer waiting time associated with capacity levels (Fitzsimmons and Fitzsimmons 2008). This waiting time and consumption of services can vary from year (for example, the decision to build a hotel) to minutes (eg, a call center) (ibid). Therefore, SME organizations should have strategic plans for the management of their capabilities (ie, facilities, equipment, and employers) in relation to customer demand, which is very challenged because of the open nature of the services (ibid).

Companies use different integration strategies, regardless of their activity as a service or manufacturing company. The following levels of integration are based on company strategies for integration. At the first level, an undertaking is made internally, on the second level, the company is integrated with its suppliers, on the third level, the firm integrates with customers, and in the end, the company is fully integrated with suppliers and customers. Each of these strategies are discussed in the following sections.

• First level: Businesses are integrated internally

A company in divisions or departments are not integrated and where each one has its own information system independent of the other company is considered a non-integrated (Simchi-Levi et al., 2003). In these companies, the information flow is slow, the systems are highly inefficient, and sometimes the same information stored in different departments (Ibid).

A company can be built internally by connecting and integrating different information systems departments at a single point, and giving members of the department of differential access to all data on that one point (Simchi-Levi et al ., 2003). A centralized information system and standardized data format to facilitate communication and help companies do business in less time and lower cost (ibid).

Internal integration decentralized decision making, thus accelerating the decision-making process and increase cooperation and collaboration between teams from different departments (Vickery et al., 2003). It also improves the result of cross-functional teams regarding marketing efforts and logistics (Stank et al., 1999).

In the first level of integration, companies are disconnected from the other members of the network of supply chain (Simchi-Levi et al., 2003). However, companies that integrate internally have the potential and the need-to integrate with other members of the supply chain.

• Second level: The companies are integrated with suppliers

The integration of a company with its suppliers is the result of a strategic partnership between them. This is the result of a mutual and permanent involves a high level of trust, commitment over time, long-term contracts, joint conflict resolution and sharing risks and rewards (Vickery et al., 2003). Both parties work together to increase product quality and reduce costs, leading to the distribution of benefits (Ibid).

Larger companies tend to agree reliable smaller companies, which are therefore able to function as major suppliers (Stroeken 2000). These relationships are strengthened and facilitated by the different business systems such as Electronic Data Interchange (EDI), Enterprise Resource Planning (ERP) and Product Data Interchange (PDI) (ibid).

In this second level, companies are integrated with their suppliers. This association reduces inventory and improves the efficiency of their communications, by providing accurate information about materials in near real time (Simchi-Levi et al., 2003). It can also improve the capabilities of competitors (Vickery et al. 2003) and deter new entrants (Stroeken 2000).

• Third level: Companies integrate with customers

Company's strategic ability to identify customer needs and the extent of its commitment to meet those needs determines the level of their relationship with customers (Powell, 1995). Strengthen customer relationships allow companies to be more responsive to customer needs and preferences (Stroeken 2000). In addition, strong relationships with clients can be used to improve operational efficiency, cost efficiency, and deter new entrants (Vickery et al., 2003). Firms in this level of integration are very knowledgeable about their customers by integrating their front ends with their clients (Simchi-Levi et al., 2003).

• Fourth level: The companies are fully integrated

The integration of information flow has been defined by (Rai et al. 2006) as "the extent to which information is shared operational, tactical and strategic coordination between a company and its partners in the supply chain." Operational information refers to the knowledge of areas such as maintaining inventories and production and delivery times. The exchange of operational information can reduce the total inventory in the supply chain (Lee et al. 1997) or can improve operational efficiency through better coordination of the resources, activities and roles across the supply chain (Rai et al. 2006). The exchange of tactical information includes performance indicators related to the execution of tasks and their results (Rai et al. 2006). Finally, strategic information creates value when shared with other partners in the supply chain. For example, the exchange of sales information with suppliers has to create value through better demand planning, forecasting and replenishment (ibid).

Instead, fill the supply chain with incorrect information leads to many problems. The "whip effect" refers to the upstream amplification error in the demand signal (Lee et al. 1997). The deficiencies in the sales information or inaccuracy in demand forecasts leads to the falsification of the demand signal as the information flowing upstream through the supply chain (ibid). The problems caused by the bullwhip effect include insufficient inventory, low production and capacity planning, inappropriate use of cash flow, poor customer service, and many others (Rai et al. 2006).

Variations in customer demand are amplified in the supply chain and that this information comes from upstream, its effects are increased further (see Figure 4.2) (Fitzsimmons and Fitzsimmons 2008). In such cases, inventory is generally used to buffer variations in end customer demand and capacity utilization of the product (Fitzsimmons and Fitzsimmons 2008).

Figure 2-4: The bullwhip effect

Source: Simchi-Levi and Simchi-Levi 2001

SME organizations face significant problems due to irregular demand patterns, as opposed to manufacturers who are unable to inventory services, separate production from consumption, or hold stocks of goods for a significant time if they are perishable (Palmer, 2008). In addition, questionable or unexpected requests of the customers are challenges for service providers (Fitzsimmons and Fitzsimmons 2008). Therefore, the demand for SME organizations is considered indicative of competitive advantage (Fitzsimmons and Fitzsimmons 2008).

There are many benefits associated with the exchange of information between members of the supply chain network. These include strengthening relationships with customers and suppliers, improved forecasting, production timing and delivery, reducing inventory costs, coordination of inventory related decisions and develop a shared understanding of bottlenecks, all of which impact a firm's performance (Rai et al. 2006).

At this level, companies are fully integrated and operating at the highest levels of external integration value chain (Simchi-Levi et al., 2003). Complete integration of the supply chain leads to a total visibility across the supply chain network (ibid). The literature suggests that the integration of business processes through the supply chain network is considered the best approach (Lambert et al., 1998).

In particular, the integration of the supply chain is not possible at any level without the use of information technology and communication (Stroeken 2000). Most prediction techniques, which are very important for SME organizations are based on data pertaining to previous employers, therefore, information technologies are of great value in terms of saving information about previous claims supplies (Fitzsimmons and Fitzsimmons 2008).

The levels of integration of the supply chain are discussed in this section. The following sections explain the adoption of enterprise systems and their history.

Enterprise Systems

During mid-1970, researchers began to notice that some companies were gaining competitive capabilities through the use of systems of information technology to lower costs and/or increase revenues significantly (Sung 2008). Companies such as Dell Computers and changed its business model to allow customers to order products directly from their websites without having to rely on third party distributors (Simchi-Levi et al., 2003).

In general, it is expected that the implementation of enterprise systems leads to reduced costs, increased profits, improved service levels, and the greatest benefit (Simchi-Levi et al., 2003). For these reasons it is considered an important factor of an integrated supply chain effectively (Simchi-Levi et al., 2003). Here, the discussion of the ES to supply chains includes systems that are both internal and external to an individual company. These systems facilitate information transfer between companies, both upstream and downstream.

Although there is substantial theoretical support positive business improvements through the use of ES, the main concerns of managers is whether the application of ES is cost effective and would result in a significant return on investment. It should be noted that the application is expensive and could cost hundreds of millions of dollars, depending on the application level and firm size. Therefore, it is important for analyzing each component can contribute to the signature. Then, the investment can be planned according to the specific needs of the company and industry requirements (Simchi-Levi et al., 2003). For example, by installing advanced monitoring systems, transport companies would be able to provide detailed information to customer. However, the main question is if your customers want such data (Simchi-Levi et al 2003).

The strategic use of information technology has been the dominant theme of research since early 1980 (Sung 2008). Despite overwhelming professional and academic emphasis on the importance of information technology, its real contribution to business performance remains controversial (ibid). Enterprise systems offer new opportunities for customers and suppliers, making the market more transparent, which means that both parties are fully informed of all market opportunities (Nooteboom, 1992). Business systems favoring suppliers when data on demand characteristics are available on past sales or market research (ibid). More and more companies are adopting innovative technologies that encourage executives and managers to care more about the actual contribution made by ES for the performance of the company (Sung 2008).

ES could also threaten businesses instead of creating areas of opportunity (Sung 2008). In fact, the cost of IT adaptation may produce little or no return, however, the costs of adoption not be significant enough to justify the investment (Sung 2008). Without these systems, a manager is required to make decisions based on the reports manuals, forms, making it difficult to understand what was happening in the business as a whole (Laudon and Laudon 2007). Therefore, the need of a special enterprise system to integrate information is evident (ibid). This is especially important when considering which companies operate in the vicinity of sensitive time strategy, which is implicit in the competitive world of today.

According to the first chapter, the focus of IS in this dissertation will be on ERP systems and RFID. Its characteristics are described in the following subsections.

Enterprise Resource Planning

The Gartner Group coined the phrase in the early ERP 1990 (Jacobs and Weston 2007). Mentioned that the ERP evolved from MRP (MRP) and Manufacturing Resource Planning (MRP II) systems, which primarily support the back-office functions (Soja 2008, Yeh 2007). Later, these were referred to as systems enterprise resource planning, which evolved to include more support for front-office activities and between organizations, including the management of the supply chain, customer resource management, and automating the sales force (Soja 2008). ERP has applications in service and manufacturing industries (Yeh 2007).

One of the most important business systems is the ERP (Cotteleer and Bendoly 2006). The study by Olhager and Selldin (2003) found that among the 190 manufacturing firms in China, 83.6% applied or are in the process of implementing ERP systems.

ERP systems integrate information and processes based on the information using a common database in which all transactions are logged, recorded, processed, monitored and reported (Tarn et al 2002,. Yeh 2007). The main benefit is provided by a system that provides a unified enterprise-wide view of the company, covering all functions and departments (Yeh 2007). The other advantage is that the results generated from this system are integrated and coherent (Yeh 2007). ERP allows all functional areas of a company to communicate directly with each other, and makes the data available to all functional departments in real time (Ibid). Consequently, companies can respond quickly to customer requests and to minimize the time components and finished products go into inventory, which leads to reduced costs (Laudon and Laudon 2007).

The main developers of ERP systems, SAP released ERP software under the name of R/3 in 1992, and the application became among the world's largest software companies (Jacobs and Weston 2007).

Jacobs and Weston (2007) believe that ERP systems have reached a level of maturity in both software vendors and users have substantial knowledge about the technical, human and financial resources for implementation and maintenance of these systems. In addition, these systems are increasingly tailored to specific market segments, thus becoming smarter (Jacobs and Weston 2007). Provide a comprehensive approach to companies through a single interface and reliable for the entire system (Hatzithomas et al. 2007). An important feature of these systems is their ability to be implemented in modules, which allows companies the opportunity to select and implement only those modules that have a special need (Yeh 2007).

Empirical studies of ERP systems have revealed that their impact on the performance of the supply chain Akkermans (2003). Motwani et al. (2002) compared successful and unsuccessful attempts to ERP implementation, and Al-Mashari and Al-Mudimigh (2003) conducted a case study of failed attempts to implement ERP in an effort to redesign business processes.

Because of the time and cost of ERP implementation, doing what normally represents a formidable task for companies (Akkermans et al 2003; Hatzithomas et al 2007). Despite the explosive growth of the ERP and the belief among users that ERP systems improve performance (Hatzithomas et al. 2007), the daily practices and empirical studies in this area indicate that ERP systems have been so far very little in terms of benefit (Buckhout et al., 1999). Moreover, the factors that impede the overall success of ERP are abundant (Akkermans et al., 2003). Therefore, there is a need to investigate the impact of these systems in business.

Radio Frequency Identification

This research focuses on RFID systems as a business system that is relatively new for scholars and professionals (Lee et al. 2008a). However, the number of company currently investigating or devoting resources to adopt RFID systems is increasing significantly (Angeles 2005).

Although RFID is very similar to bar codes, it conveys much more information and requires no line of sight reading. This allows companies to track goods from a container ship to trucks and even the shelves of retail stores (Fitzsimmons and Fitzsimmons 2008). Scholars believe that this system will favor revolutionary change in the management of a supply chain, especially in the retail sector (Luna and Ngai 2008). The main benefits of an RFID system include improved efficiency, accuracy and security of materials and information flows throughout the supply chain network (Cannon et al. 2008).

This technology is currently used in several applications of service industry. For example, passports have been issued with RFID tags in Malaysia since 1998, payments of transport with RFID tags used in principle in Paris in 1995, many libraries use RFID instead of barcodes on library items, and nightclubs in Barcelona and Rotterdam using RFID to check VIP customers (Fitzsimmons and Fitzsimmons 2008).

RFID technology vendors are in two types. The first is that part of software vendors like SAP, Microsoft and Sun Microsystems. The second is represented by hardware vendors such as IBM, Philips, Texas Instruments, Alien Technology, Applied Wireless Identification Group (AWID), SAMSys Technologies, Inc., and Intermec Technologies Corp.

(Lee et al. 2008) conducted three case studies that focused on the service sector, which indicate that RFID systems improve efficiency in managing the supply chain or logistics process. The study of the Moon and Ngai (2008) on fashion retailers revealed that RFID could be implemented in the fashion retail in areas such as customer relationship management, marketing and promotion, logistics and inventory management. Moreover, they found that the implementation of RFID leads to greater operational efficiency and effectiveness, and increased sales and profits.

(Wamba and Boeck 2008) conducted a three-year exploratory multiple case study in the retail industry and noted that the role of supplier-buyer was a fundamental background that shapes the RFID infrastructure and represents a consequence of the implementation of RFID. (Lee et al. 2009) used computer simulation study, and research provides a comprehensive view on the benefits of RFID in terms of reduced inventory and service level improvements.

The review of the literature on RFID found that most studies focus on the retail industry are qualitative. However, there are some examples of quantitative research in RFID as well. For example, (Kim et al., 2008) compared the benefits of RFID in the U.S. (n = 70) and Korea (n = 87) retailers. It is also understood that retailers are more attracted by the RFID system compared to other service industries. In general, however, empirical studies on RFID in its infancy, and there is a critical need for additional research on the impacts of RFID in managing the supply chain and business performance (Kim et al., 2008).

ERP systems and RFID are discussed in this section, together with their specifications, benefits and disadvantages. The next section will discuss the history of enterprise systems.

Drivers of Enterprise Systems

Both the manufacturing and SME organizations adopting enterprise systems for a variety of reasons, such as improving information flow and efficiency of order processing (Koh et al., 2006) or enterprise information integration (Stratman 2007). Despite the economic justification is vital to facilitate management decisions on the implementation of an enterprise system, this is not the only element of consideration (Abrahamson and Rosenkopf, 1993).

There are two theories that support three antecedents of business systems. The theory of rational efficiency and contagion support the expected return, access to new markets, and external pressure, as the drivers of enterprise systems (Frohlich and Westbrook, 2002). Each of these theories is discussed in the following sections.

Rational Efficiency Theory

The rational efficiency theory holds that the adopters of a technology for disseminating information about the technology to non-adopters. Therefore, the number of adopters increases as the awareness that technology increases (Abrahamson and Rosenkopf 1993). The other reason to increase the number of adoptive is the fact that the costs of a new technology decrease over time, thus attracting more users (ibid).

Companies to implement an enterprise system based on the assumption that the system will improve efficiency and effectiveness of their business. Therefore, the anticipated benefits of enterprise systems can be considered as a driver for adoption of the system. Moreover, companies assume that the implementation of an enterprise system will provide access to new markets. Therefore, access to new markets can be an antecedent to the adoption of enterprise systems (Frohlich and Westbrook, 2002).

Bandwagon Effect

The contagion effect, says that companies adopt new technologies due to external pressure from other companies (Abrahamson and Rosenkopf 1993). This theory states that firms adopt a technology, not their individual assessments of the efficiency of this technology, but due to external pressure generated by companies that have already adopted (Abrahamson and Rosenkopf 1993). Generally, large companies force their suppliers to adopt an enterprise system to improve information, material and financial flows between them.

The systems of the company and its history were discussed. The next section presents the most important variable in this study, which is firm performance.

Firm Performance

Firm performance is an essential variable for professionals and academics, as it determines the success or failure of a company. However, it is difficult to measure this variable, and is especially difficult to justify the relationship between the integration of the supply chain and business performance (Ketokivi and Schroeder, 2004). Despite this difficulty, however, researchers attempt to investigate the performance of the company by conducting empirical studies to measure its components.

(Hendricks et al. 2007) investigated the impact of enterprise systems in the performance of the company, focusing on CRM, ERP and management of the supply chain. In doing so, they used secondary data on stock returns and accounting metrics. However, his analysis of the financial benefits of adopting enterprise systems yielded mixed results. (Dehning et al. 2007) conducted a survey of 123 manufacturing firms from 1994 to 2000. In this study, we investigated the financial benefits of enterprise systems using (1998 Porter) value chain model, based on secondary data (from factual news services). Their findings revealed that the enterprise systems market share gains, inventory turnover, return on sales, gross margin, but lower sales and administrative expenses.

The study (Tracey et al. 1999) of 474 manufacturing firms shows empirically that enterprise systems and the involvement of managers have a positive and significant relationship with capacities of competition. Furthermore, their results showed that high level of capacity competition leads to high level of performance. (Tracey 1998) demonstrated empirically that customer service has a significant and positive relationship with business performance. (Powers and Hahn 2004) demonstrated that, in the banking sector, the strategy of cost leadership was positively related to return on assets, while using differentiation strategies and discussion cannot generate outstanding returns. (Rosenzweig and Roth 2004) used the theory of competitive progression and found that each of the four capacities, directly and / or indirectly improve profitability.

As shown in Table 2-1, most empirical studies investigate the relationship between the capacity of competition and corporate performance in the manufacturing sector other than the study (Powers and Hahn 2004), which put the emphasis on the banking sector. Response rates in these studies ranged from 10 to 22.2%. The unit of analysis for most studies is "firm", except (Rosenzweig and Roth 2004), who used their business units as the unit of analysis. The variable of business performance has been operationalized items both single and multiple, while the variable capacity of competition was considered with four or five dimensions. These studies used structural equation modeling as the analytical analysis, except that by (Powers and Hahn 2004), who used ANOVA. The results of these studies confirm the positive and significant capacity of competition on business performance in manufacturing. However, in banking, cost leadership alone (i.e. the one dimension of capacity competition) has a positive and significant relationship with firm performance.

The literature review in this area revealed that there is a research gap in the services sector. (Powers and Hahn 2004) studied only three dimensions of capacity competition in the banking sector. Therefore, it is essential to conduct empirical research that addresses all dimensions of capacity competition and their relationship to company performance.

Study (year)

Sample and context

(response rate)

Unit of analysis

Competition capabilities operationalization

Firm performance operationalization

Analytical approach

Major findings




manufacturing firms in the US



Customer Service along 4 dimensions: price offered

(3 items),

product quality

(3 items),

Product variety

(3 items),

delivery service

(8 items)

Firm performance

(6 items:

sales growth position,

market share gain,

return on investment,

overall competitive position,

customer retention rate,

and generating new business through customer referrals)


High levels of customer service lead to high levels of firm performance.

Tracey et

al. (1999)


manufacturing firms in the US



Competition capabilities along 4 dimensions:

price offered

(3 items),

quality of products

(4 items),

product line breath

(4 items),

and delivery capability (11 items)

Level of performance

(6 items:

customer retention rate,

customer referrals,

sales growth,

market share,

overall competitive position,

and customers' perception of the value of the product)


The relationships of ES and managers' participation with CC are statistically significant and positive. High levels of CC lead to high levels of performance.

Powers and Hahn (2004)

98 banks in the

US (22.2%)


Competitive methods along 5 dimensions:

differentiation strategy (6 items),

focus strategy

(4 items),

stuck in the middle

(1 item),

cost leadership

(7 items),

and customer service (7 items)

Return on assets (single item)



Cost leadership strategy provides a statistically significant performance advantage. Differentiation and focus strategies do not lead to higher levels of firm performance.

Rosenzweig and Roth (2004)

81 manufacturing firms in the US




Combinative capabilities along with four dimensions conformance quality, delivery reliability, volume flexibility, and low cost

(all are single item)

Business performance

(profitability, single item)


Each generic capability improves profitability.

Table 2-1: Empirical contributions on competition capabilities and firm performance

Note: SEM: Structural Equation Modeling; EFA: Exploratory Factor Analysis; and CFA: confirmatory Factor Analysis.

Chapter Summary

A literature review was conducted in this chapter. To start, the literature focuses on service industries and their growth in recent decades. The increasing of the number of SME organizations has led to intense competition between them. The literature review that focused on the capacity of competition and the fundamental assumptions showed that integrating the supply chain is one of the facilitators of capacity competition.

Subsequently, by examining the supply chain integration, it was revealed that the full integration with partners in the supply chain is not really possible without the use of technology. Therefore, the literature on enterprise systems was examined, and two main systems have been identified on which the center of this research (ie ERP and RFID). Then, the history of enterprise systems were discussed, and the theory behind them.

Finally, in the last section of this chapter, business performance was discussed. The relationship between the capacity of competition and corporate performance has been specifically examined. In addition, empirical contributions made in this area were presented.

In conclusion, the literature review revealed that there is a strong need for empirical research on ERP and RFID, especially in the services sector. Despite the theoretical advantages of these technologies, the failure rates associated with their implementation are high. In addition, these systems are relatively underdeveloped and remain at an early stage. The literature review also revealed a limited number of empirical studies are available on the integration and supply chain capabilities of the competition and their impact on business performance in the services sector. Therefore, the need for more research seems necessary before any critical conclusions can be drawn regarding the influence of the adoption of enterprise systems performance.