Adoption of ecommerce in smes in nigeria

According to Ovia (2007) “the term E-commerce means electronic commerce, which consists primarily of the distribution, marketing, buying and selling of products or services, and transfer of funds over electronic systems such as the internet”. It cuts across all forms of businesses from retail, business to business, and countries. A study by Alemayehu, 2005 indicated that in developing countries, businesses is said to have benefited from E-commerce, because it is believed to eliminate some, if not all of the links in the chain of supply in the global web.

Electronic commerce (E-commerce) application began in the early 1970s with such innovation as electronic transfer of funds. However, the applications were limited to large corporations and few daring small businesses. And it has been reported that an essential platform in the development of business and socio economic issues in the past years has been associated with ICT (allAfrica.com).

Electronic commerce or simply e-commerce, which relies on various information and communication technologies (ICT), has the potential to improve trade efficiency around the globe and to integrate developing countries into the global economy (UNCTAD 1999). As a result, there has been a significant growth of e-commerce in developed countries in the last two decades and more recently in developing countries (Chowdhury 2003).

Most technologies, including e-commerce were developed in Western countries that have very different backgrounds to those of developing countries. The success of technology adoption is heavily dependent on how it is used by the adopters and this in turn is affected by the fit between the technology and the adopters (Unhelkar 2003). Not surprisingly, technology adoption has not always been successful in developing countries. Moreover, while many of the e-commerce benefits have been realized by organizations in developed countries, there is still skepticism in the relevance of e-commerce and its benefits for developing countries (Odedra-Straub 2003; Raman and Yap 1996).

In the globalization era, understanding the adoption of ICT, including e-commerce by developing countries is becoming important to improve its adoption success. This, in turn, enables developed countries to trade with developing countries more efficiently. At this stage, there are still a limited number of studies on the adoption of e-commerce technologies by developing countries (Chowdhury 2003).

Small and medium-size enterprises (SMEs) are important for positive economic growth of any country due to their flexibility and innovation (OECD, 2002). SMEs account for a large percentage of all enterprises in most OECD countries. In Nigeria, this sub sector accounts for major employments of the workforce, and it has contributed to a positive development of the country. (allAfrica.com). Small and Medium Industries and Equity Investment Scheme (SMIEIS) of Nigeria define Small and Medium Enterprises based on their asset base and their staff strength (quantity) (Akabueze, 2002). According to OECD (2000) the adoption rate of e commerce which is on the increase does not match the comprehension and benefit they can derive from the use of e commerce.

The focus of this research is to find out what drives and hinders small and medium enterprises in developing countries (Nigeria) in the adoption of e-commerce.

1.2 STATEMENT OF PROBLEM

E-commerce growth in Nigeria has been steady over the years due to the vast improvement in the telecommunications services. Telecommunications growth in Nigeria has increased over the past few years with about 70 million subscribers to date, International Telecoms Report (2010). A recent development of telecommunications market has demonstrated a prospective market for ICT services in Nigeria (Ndukwe, 2006). Considering Nigeria’s large population e-commerce services can be considered as a possible productive market.

Like other developing countries, Nigeria has only devoted a small percentage of its GDP to ICT implementation and has a low score for Network Readiness Index (NRI) and E-Readiness Index (ERI) (Indjikian and Siegel 2005). Nigeria has been chosen in this study because it presents a unique and interesting case as a developing nation. It has been undergoing a wide array of economic and political changes in the last few years. As a result, there have been many changes to business competition because of foreign investors and there has also been a rapid ICT investment growth in various business sectors to stay competitive (PWH 2003/2004). It is, therefore, important to assess how these recent changes affect Nigerian SMEs attitude towards e-commerce technology adoption, since it is believed that competition plays a crucial role in ICT growth (Singh 2000). At this stage, little research has been undertaken into the adoption of e-commerce in Nigeria.

Currently the internet is most commonly used by SME firms in developing countries for communication and research; the internet is least used for E-commerce. E-mail is considered an important means of communication. However, the extent of use is limited by the SMES recognition of the importance of face-to-face interaction with their buyers and suppliers. The level of confidence of using e-mail for communication with both suppliers and buyers increases only after an initial face-to-face interaction. E-mail, therefore, becomes a means for maintaining a business relationship. It is typically the first step in E-commerce, as it allows a firm to access information and maintains communications with its suppliers and buyers. This can then lead to more advanced E-commerce activities.

PURPOSE OF STUDY

Electronic commerce (EC) has the potential to improve efficiency and productivity in many areas and, therefore, has received significant attention in many countries. However, there has been some doubt about the relevance of e-commerce for developing countries. Currently, there are still a limited number of studies on e-commerce adoption by developing countries. To address the gap in the literature, this study aims to assess the adoption of e-commerce in Nigeria, as an example of a developing country, and its relevance.

This study is also designed to address the gap in the technology adoption literature by looking at the adoption of e-commerce by developing countries, using Nigeria as a case. In particular, the aim of the study is to explore the status of e-commerce adoption in Nigeria, the reasons for adopting, the benefits experienced, negative consequences and the problems encountered.

SIGNIFICANCE OF STUDY

For SMEs in developing countries e-commerce poses the advantages of reduced information search costs and transactions costs (i.e., improving efficiency of operations-reducing time for payment, credit processing, and the like). Surveys show that information on the following is most valuable to SMEs: customers and markets, product design, process technology, and financing source and terms. The Internet and other ICTs facilitate access to this information. In addition, the Internet allows automatic packaging and distribution of information (including customized information) to specific target groups.

However, there is doubt regarding whether there is enough information on the Web that is relevant and valuable for the average SME in a developing country that would make investment in Internet access feasible. Underlying this is the fact that most SMEs in developing countries cater to local markets and therefore rely heavily on local content and information. For this reason, there is a need to substantially increase the amount and quality of local content (including local language content) on the Internet to make it useful especially to low-income entrepreneurs.

1.5 RESEARCH QUESTION

The research question of this study relates to the drivers and hindrances that affect the adoption of ecommerce in developing countries with respect to Small and Medium Enterprises. The specific question to be examined is:

Is Nigeria ready for the adoption of E-commerce?

STATEMENT OF HYPOTHESES

The statements of hypotheses that guide this study are as follow:

HYPOTHESES ONE

HO1: Nigeria is not ready for the adoption of ecommerce.

HA1: Nigeria is ready for the adoption of ecommerce.

SCOPE AND LIMITATION OF STUDY

The research study is on the adoption of E-commerce in SMES in developing countries. A few firms from various sectors of the Nigeria Economy were selected as respondents to the questionnaire with which the research questions and the Hypothesis were validated.

Ordinarily, the study would have surveyed all SMES in Nigeria who has deployed or planning to deploy E-commerce, especially those that have a site on the Internet. But the financial and time implications in relations to the expected date of research completion have become limiting factors.

Another limitation encountered during the course of the study is the relatively little amount of existing reference materials available on the theme of the study which is evidently due to the pioneering status of the study particularly in Nigeria and the developing countries environment.

DEFINITION OF TERMS

E-commerce

The term E-commerce means electronic commerce, which consists primarily of the distribution, marketing, buying and selling of product or services, and transfer of funds over electronic systems such as the internet. It cuts across all forms of businesses from retail, business to business, and countries. Electronic commerce application began in the early 1970’s with such innovation as electronic transfer of funds. But with the growth in ICT, it has become an effective business tool.

SME (Small and Medium Enterprises)

According to the European Union (EU) definition, a small and medium enterprise is classified based on the numbers employed in the business. It defines a small enterprise as a business employing between 10-50 employees and a turnover below 10 million euro. A medium sized firm is defined as having between 20 – 250 employees and a turnover not exceeding 50 million euro.

Internet

The internet is referred to as the largest computer Network in the world! It is a vast, globe-spanning network. No single person, group, organization runs it. Instead, it is the purest form of electronic democracy. The network communicates with each other based on certain protocols, such as the Transmission Control Protocol (TCP) and the Internet Protocol (IP). More and more networks and computers are being hooked up to the internet every day, ranging from university networks to corporate Local area networks to Large Online-services such as American Online and Compuserve. Every time you tap into the internet, your own computer becomes an extension of the Network.

REFERENCES

Chowdhury, A. “Information Technology and Productivity Payoff in the Banking Industry: Evidence from the Emerging Markets”, Journal of International Development, (15:6), 2003

OECD (2000), “OECD small and medium size enterprise outlook”, available at: www.oecd.org (accessed 17 April 2010).

Odedra-Straub, M. “E-commerce and Development: Whose Development?” Electronic Journal on Information Systems in Developing Countries, (11:2), 2003.

PWC – PricewaterhouseCoopers, Indonesia, Retail and Consumer Growth Dynamics From New Delphi to New Zealand, 2003/2004, pp 58-65.

Raman, K. and Yap, C. “From a Resource Rich Country to an Information Rich Society: An Evaluation of Information Technology Policies in Malaysia”, Information Technology for Development, (7), 1996, pp.109-131.

Singh, A. D. Electronic Commerce: Some implications for firms and workers in developing countries, International Institute for Labour Studies, 2000, Geneva.

Unhelkar, B., “Understanding the Impact of Cultural Issues in Global e-Business Alliances”, 4th International We-B Conference, 24-25 Nov, 2003, Perth, Western Australia.

CHAPTER2

LITERATURE REVIEW

2.1 DEFINING E-COMMERCE

In recent times, a lot or researchers have come up with different definitions of electronic commerce. According Kalakota & Whinston (1997), electronic commerce was defined from perspective of business development using ICT. Payne, (2009) defined it as any use of information and communication technology by a business that helps it improve its interaction with customer supplies.

World Trade Organization (WTO) defines the EC as: “the production, distribution, marketing, sale or delivery of goods and services by electronic means” (Baker and McKenzie, 2001). Another definition, which is provided by the Electronic Commerce Team of European Union, exclusively confines EC activities to the internet and reads as: “electronic commerce refers specifically to buying and selling products or services over the Internet” (Schulze and Baumgartner, 2001).

Although E-commerce is still a relatively new term within the society, it actually has been around for several decades. The first E-commerce application, Electronic Funds Transfer (EFT), was developed in the early 1970s to allow funds to be routed electronically between financial institutions (Johnson 1998). As an extension to EFT, Automatic Teller Machine (ATM) was introduced in the 1980s, to enable financial transactions to be carried out over a computer network (Barnes and Hunt 2001). Then Electronic Data Interchange (EDI) was developed later in 1980s to enable a wider application of E-commerce across industries. It allows structured business documents to be exchanged electronically between different computer systems without human intervention (Johnston 1998). In 1990s, the Internet was commercialized and the term E-commerce was introduced. With the availability of the internet and the popularity of the World Wide Web to access the internet, E-commerce has grown significantly in the last few years (Turban et al. 2006).

Going through different definitions some factors are clear, electronic commerce must have an electronic technology which could be inform of telephone, internet, etc with the aim of improving positively a business activity which could be with its employees, customers, and other businesses.

2.2 IMPORTANCE OF ELECTRONIC COMMERCE

The internet became an important medium for information acquisition and knowledge dissemination across the globe. The world now called a global village could attribute this to ease of interconnectivity of the globe through technological advancement as one of the main factor and this has resulted to the interdependence of world trade as transactions are done more easily now. Some of the reasons whys e-commerce is important are listed and explained below:

E-commerce aids faster transactions: the electronic nature of this type of transactions allows for businesses to execute high transactions on a day to day basis. A good example is the rapid increase in electronic banking in the world that has different features such as allowing you to make payments on line and transfer payment from one bank to another.

Recognition: In the 21st century, an existing business with an electronic identification (email/ telephone, etc) could be considered as a non existing one, because most customer now prefer to make enquires and orders using an electronic means. Also, most customers are targeted by businesses using the internet.

Convenience: in recent times a lot of customers prefer to transact online because of the convenience as this saves them the stress of transportation, car parking cost, the reduction of green house gas emission and so on.

Safety: e-commerce has helped reduce accidents n developing countries in form of robbery, fire, loss of funds etc.

Unification: E-commerce has helped some companies in unifying their mode of operation worldwide among their employees a good example is Toyota where all instructions are passed from their head office.

2.3 FEATURES OF E-COMMERCE

Laudon and Laudon, (2007) reported that in changing the conventional way of a business activity, by introduction of E-commerce, there has to be a uniqueness in the feature of the e-commerce adopted these are ubiquity, global reach, universal Standard, richness, interactivity, information density and personality/customisation. In 2009 Laudon and Traver, listed eight unique features of e-commerce that challenges both conventional business ideas and why e-commerce has received so much attention. These unique aspects of e-commerce suggest different possibilities for marketing and selling.

Table 1, Features of E-commerce (Laudon and Traver 2009: 12)

E-COMMERCE DIMENSION

BUSINESS SIGNIFICANCE

Ubiquity – internet/ Web technology is available everywhere: at work, at home, and elsewhere via mobile devices, anytime.

The marketplace is extended beyond traditional boundaries and is removed from a temporal and geographic location. “Marketplace” is created; shopping can take place anywhere. Customer convenience is enhances and shopping cost is reduced.

Global reach – The technology reaches across national boundaries around the earth

Commerce is enabled across cultural and national boundaries seamlessly and without modification. The “marketplace” includes the potential billions of customers and millions of businesses worldwide.

Universal standards – this standard of technology refers to internet standards

There is a common, inexpensive, global, technology foundation for businesses to use.

Interactivity – users interaction though the use of technology

Video, audio, and marketing text messages are integrated into a single marketing message and consuming experience.

Interactivity – users interaction though the use of technology

Consumers are engaged in a dialog that dynamically adjust the experience to the individual, and, makes the consumer a co-participant in the process of delivering goods to the market.

Information Density – reduction of information cost and increase in quality through technology.

The cost of information processing, storage and communication drops, while currency, accuracy and timeliness improve greatly. These gives rise for information to become cheap, adequate and accurate.

Personalization/Customization – technology allows personalized message to be delivered to individuals as well as groups

Personalized marketing message and customized products and services are based on individual characteristics

Social technology – Social networking and user content generation

New internet social and business models enable user content creation and distribution, and support social networks

2.4 Factors Influencing e-commerce Adoption

To explore the relevance of e-commerce and the opportunity of its growth in developing countries, it is important to understand national factors that affect e-commerce adoption. Developing countries face insurmountable barriers getting on the electronic highway. These factors can be classified as either internal or external to the organization. Some of the internal factors include:

Awareness and E-commerce knowledge by Owner/Manager

A significant factor is little or no knowledge, firstly of the technologies, and secondly of the benefits from such technologies by the owners of smes, who are basically the decision makers.

Lack of capabilities and resources

Lack of staff knowledge on how to use the technology, low computer literacy, mistrust of the IT industry and lack of time also hinders the adoption of E-commerce by SMEs in developing countries. Other factors, such as the current level of technology usage within the organization, also affect the adoption of E-commerce.

Return on investment

Naturally, SMEs definitely have limited resources (financial, time, personel). This has an effect on adoption, as they cannot afford to experiment with technologies and make expensive mistakes.

SMEs owners are also concerned about return on their investments and since short term returns are not guaranteed considering the huge investment in equipment, personnel and training. It becomes a major concern.

Other internal factors

Lack of awareness, uncertainty about the benefits of electronic commerce, low use of internet by customers and suppliers, lack of adequate internet security also hinders the adoption of E-commerce.

A number of external factors have been identified as summarized in figure 1. The figure also demonstrate the influence of each factor on other factors.

Figure 1. Factors Affecting e-commerce Adoption

Government Initiatives

Government initiatives are important in the adoption of e-commerce and other ICT in general (Molla 2005). They can be in terms of promotion of ICT usage, education and the establishment of adequate regulatory framework for e-commerce including taxation and tariff for revenue generated through e-commerce and Intellectual Property protections. Government initiatives are affected by many factors including the country’s political condition, economic condition, and external influence from other countries.

Political Condition

Political situation is a key factor for e-commerce growth. In a country with an unstable political condition, it is less likely that government will give enough attention, if any, on e-commerce development (Dedrick et al. 1995).

Economic Condition

Economic condition is also widely recognized as a major driver for e-commerce adoption. The GDP and income per capita are common indicators for the economic condition of a country. Since e-commerce relies on some technology infrastructures which are relatively expensive for many developing countries, countries with unfavourable economic condition are not likely to be involved in e-commerce (Dedrick et al. 1995). The economic condition will also affect the socio-cultural condition of a country.

Technology Infrastructure

E-commerce success relies heavily on a number of technology infrastructures. Firstly, telecommunication infrastructures are required to connect various regions and parties within a country and across countries (Molla 2005). The cost of accessing the infrastructures also influences the growth of e-commerce. E-commerce also relies on efficient logistic infrastructures within a country. Its growth further requires the establishment of reliable and secure payment infrastructures to avoid frauds and other illegal actions (Boerhanoeddin 2000). The overall technology infrastructure development of a country relies heavily on the economic and geographical conditions of the country.

Geographical Condition

Geographical condition of a country can be a motivation or barrier to technology infrastructure development. In countries that consist of many small islands, technology infrastructures can be difficult to develop. On the other hand, the need for having such infrastructure is also significant for effective communication and trading among the widely spread parties (Boerhanoeddin 2000; Minges 2002).

Socio-cultural Condition

The adoption of e-commerce also depends on the cultural and social environment. In some countries, people consider shopping as a recreation, and therefore, B2C e-commerce is difficult to nurture (Boerhanoeddin 2000). Likewise, the level of education, the availability of IT skills, the level of penetration of personal computers and telephone within the society affect the growth of e-commerce (Raffa et al. 2002).

Public Awareness

A lack of awareness of the use and potential benefits of ICT can also hinder the growth of e-commerce (Molla 2005, Jennex et al. 2004). In some developing countries, many people are only aware of limited e-commerce applications such as chat, email and browsing websites (Minges 2002). As a result, many organizations have not considered exploiting the potential of e-commerce to improve their business operations.

External Influence    

The growth of e-commerce in a country is also influenced by other countries. For example, the reputation of credit card frauds in some countries caused blockages of several IP addresses by a number of commercial sites from different countries. This situation can cause those countries to be expelled from global business transactions and hence, limit the usefulness of e-commerce (Hidayat 2004).

2.5 DEFINING SMALL AND MEDIUM ENTERPRISES

SMEs everywhere play a critical role in economic development, and Nigeria is no exception. Many countries use different parameters to define SMEs by referring to: number of employees, amount of capital invested or amount of turnover.

According to Martin and Matlay (2001) SMEs are a “heterogeneous and complex mix of economically active units. Most working definitions of SMEs emanate from the Bolton Committee report of 1971, which defines a small firm as independent, owner managed and with a small market share. The use of so many definitions has its critics who argue that it impedes statistical analysis. Such criticism is often dismissed by claiming that these definitions all have their different uses (Beaver, 2002). The Companies Act 1985(Accounts of Small and Medium sized Enterprises and Audit Exemption) (Regulations) 2004 of the United Kingdom (UK) defined SMEs as “a small company that has a turnover of not more than 5.6 million pounds, a balance sheet total of not more than 2.8 million pounds and not more than 50 employees and a medium-sized company which should have a turnover of not more than 22.8 million pounds, a balance sheet total of not more than 11.4 million pounds and not more than 250 employees”.

Going through different definition of SME according to different authors and different schemes, SMEs are defined based on staff strength and company’s turnover based on the business environment that is specifically being referred.

2.6 OVERVIEW OF SMES IN NIGERIA

The economy of developed and developing countries depends on small and medium enterprises and these SMEs are improving their business ideas by inculcating e-commerce Payne (2009). Despite the prospective nature of Nigerian SMEs with features of development of economic growth, technology, and creating more job opportunities. Studies have shown that they cannot adopt e-commerce in their businesses because of lack of technological knowhow of manager as well as inadequate infrastructure, ignorance, corruption poverty and security (Humphrey et al, 2003).

According to a survey conducted in 2002 of firms in the auto-components, food and beverage, electronic goods and engineering manufacturing sectors was conducted in Uganda and Nigeria (Oyelaran-Oyeyinka and Lal, 2004). The goal was to discover reasons that influenced the e-business adoption by SMEs, including microenterprises. The authors found that, overall, adoption level of e-business was higher in the highly skilled sectors of electrical and electronic goods than in the more labour intensive sectors of auto-components and food and beverages. The Nigerian survey covered 105 SMEs and microenterprises (fewer than 10 employees) in the engineering sector. It was discovered that one third of the firms did not use any ICTs at all, primarily those whose managers had a low standard of academic qualifications. Also organisations that implemented e-business at a higher level were operated by managers who had engineering backgrounds, and had more skilful workers (engineering graduates) among the workers. Their assumption was that limited skill levels in SMEs were a key factor for low ICT usage.

The major obstacle for internet uptake in most companies in both developed and developing countries is very similar. European, Latin American, African and Asian companies reported that internet security was a major setback, after which came poor network connections. The finding showed that the reason why most companies haven’t gone electronic not because of technical skills and capacity shortage but because e-commerce depends on the ability to manage the company and the educational level of the possessor; examples from Asia and Africa (Nigeria) showed that firms where owners had received higher education and had management skills were more likely to use up-and-coming equipment.

2.7 BENEFITS OF E-COMMERCE ON SMEs

E-commerce has immensely helped to SMEs in so many ways. With the adoption of e-commerce SME can;

Acquire potential customers ,partners or suppliers domestically and internationally;

Give better customer services to prospective and existing ones thus presenting more value to them;

Progress in the good organization of their business methods;

Develop completely fresh products and services

Even commence fresh businesses.

E-commerce allows SMEs to compete with established companies. Even though they are small in size, they can also sell their selves through the World Wide Web which is lucrative way to enlarge company’s association and carve out a niche in the markets to be able compete in the global marketplace.

2.8 E-COMMERCE ADOPTION THEORIES AND MODELS

A lot of studies have been carried out on e-commerce adoption using the diffusion innovation theory and TOE model. Examples of studies are, Sandy Chong (2008), Ada Scapola (2003), Kojo Saffu, John H. Walker and Robert Hinson (2007). Also other theories such as Theory of Communicative Action can be used in carrying out e-commerce researches. Below the diffusion innovation theory and the TOE model is explained

2.8.1 Theory of Innovation Diffusion

The theory of innovation diffusion recommends that the acceptance of an innovation may have a number of stages. Adoption of innovation can be carried out in two stages Zaltman, Duncan and Holbek (1973): the initiation stage, which involves understanding or being aware of innovation, the formation of attitudes toward the innovation and decision making (i.e., whether to adopt the innovation); this is followed by the implementation stage, when the real adoption of the technology is carried out. A similar view of adoption was proposed by Rogers (2003); it was referred to as, the innovation-decision process, which consists of the stages of knowledge, persuasion, decision, implementation and confirmation. Also, like Zaltman, Duncan and Holbek (1973) the decision stage determines whether the organization accepts or rejects the innovation. In a study conducted by Scupola (2009), adoption was defined as the decision to make use of business to business electronic commerce to conduct business or transaction with trading partners. There are two levels of adoption. Firstly, innovation must be acquired and implemented by an organisation. Secondly, it must be accepted by the fundamental users in that organisation also called completing.

2.8.2 Technological, Organizational and Environmental (TOE) Model

The TOE model was developed in 1990 by Tornatzky and Fleischer. The TOE model is regular with Rogers (1983) theory of innovation diffusion in organizations. Salwani et al. (2008). The three aspects that have been identified by the model to be the characteristics that influence the progress of adopting, implementing and technological innovation are explained below:

1) Technological context. Salwani et al (2008) explained technological context as emerging and existing technology that is being used in the firm, and the total number of computers the firm has determines the ability of the firm to adopt e-commerce and other upcoming technologies. The decision of adoption of a