A report of results from the Internet Safety Group's survey of teenage mobile phone use.
9 Benefits of ICT and Internet use...9 ICT adoption and firm performance...11 Use of ICT and Internet among SMES...
11 Adoption of Internet e-commerce by SMES...13 Towards e-business integration...18 II. BARRIERS TO USE...
19 Unsuitability for business...19 Enabling factors: internal ICT and managerial knowledge...20 Cost of developing
44 4 ICT, E-BUSINESS AND SMES EXECUTIVE SUMMARY Information and communication technology (ICT) connectivity (PCS and Internet) is very widespread in businesses of all sizes.
and Internet use programmes. However commercial considerations and potential returns are the principal drivers of small business adoption and profitable use.
Despite these advantages, rapid growth in businesses'purchases and sales over the Internet has yet to materialise.
Broad definitions of e-commerce including established EDI as well as Internet transactions) suggest that in 2000 total on-line transactions were generally 10
although they lag behind larger firms in Internet transactions. For small firms to adopt e-business and e-commerce strategies and tools
and availability and cost of appropriate interoperable small-firm systems, network infrastructure and Internet-related support services.
e-mail and the Internet and their applications can have on their business. 4 In advanced OECD countries,
Communication via e-mail and the Internet can help to improve external communication, in either B2c or B2b contexts,
Benefits of ICT and Internet use ICT and e-commerce offer benefits for a wide range of business processes.
the Internet and e-commerce have great potential for reducing transaction costs and increasing the speed and reliability of transactions.
Internet-based B2b interaction and real-time communication can reduce information asymmetries between buyers and suppliers and build closer relationships among trading partners (Moodley, 2002.
or Internet commerce are used according to the OECD's narrow definition: the sale or purchase of goods or services conducted over the Internet,
with the goods and services ordered over the Internet, and payment and ultimate delivery of the goods or services either on line or off line.
The OECD's broad definition includes transactions conducted over computer-mediated networks, such as the Internet, EDI (electronic data interchange), Minitel and interactive telephone systems. 10 In the B2c context, the Internet and e-commerce can be effective tools for better communication.
A corporate Web site that provides information on products, services or technologies can enhance the quality of a firm's services to customers
Eurostat's E-commerce Pilot Survey shows that SMES'motives for Internet commerce include reaching new/more customers, geographic expansion of market and improvement of service quality.
Internet and e-commerce enable SMES that remain in local and regional markets because of a lack of information
Internet technology makes it possible to transmit order information seamlessly between different systems. It can therefore provide small players with an opportunity to join
Moreover, the Internet can convey the ideas of knowledge-based small businesses. Extensive use of ICT can allow micro-enterprises with ideas
and some micro-enterprises have generated substantial global sales by exploiting their intellectual property over the Internet. 11 ICT adoption
and Internet among SMES The use of ICT by SMES is increasingly common according to survey for OECD countries.
While Internet penetration is generally higher in larger enterprises the gap between larger firms and SMES is narrowing.
In most OECD countries, Internet penetration rates for medium-sized firms (50-249 employees) are the same and sometimes higher than for larger firms (more than 250 employees), with penetration rates
while in countries with lower Internet penetration (Portugal, Greece, Mexico) there are larger dispersions across firms in different size classes (OECD, 2002c).
Figure 1. Internet penetration by size class, 2001 or latest available year Percentage of businesses using the Internet 50 60 70 80 90 100finland Sweden
Note 3. Internet and other computer-mediated networks. Source: OECD, ICT database and Eurostat, Community Survey on ICT usage in enterprises 2002, May 2003.
Data available from surveys in some countries indicate that SMES use the Internet (and e-mail) for better external communications and as a means of obtaining business information.
In Japan, the most common use of the Internet is general information searches (Figure 2). Other uses include communication via e-mail,
office equipment and software over the Internet, but only a small share conduct B2c and B2b Internet e-commerce for nonstandard products.
A study of 484 SMES with fewer than 250 employees in Lanarkshire (Scotland) shows a similar pattern of Internet use.
Around 60%of the firms with the Internet use it to learn about competitors, customers or suppliers.
Other major uses include providing product information (56%),setting up a Web page (54%),purchasing goods/services (53%)and building customer connections (48%)(Scally et al.
2001). 13 Figure 2. Internet use by SMES in Japan, 2001 6%8%17%18%20%23%33%43%68%82%0
Percentage of responses of 1 700 SMES with 300 or fewer employees using the Internet as of August 2001.
Adoption of Internet e-commerce by SMES Computers and access to the Internet have become common in most OECD countries,
but sales and purchases over the Internet have yet to take off. While available data suggest that electronic commerce is growing,
Purchasing over the Internet is more common than selling. For 16 countries for which both Internet purchasing and Internet sales data are available, only one in eight on average reported making Internet sales.
Twice as many businesses on average use the Internet for purchases as for sales (Figure 3), with between 63%and 93%of businesses reported using the Internet,
except in Greece and Luxembourg (OECD, 2002c). 14 Figure 3. Businesses using the Internet for purchasing and selling,
20011 Percentage of businesses with ten or more employees 0 20 40 60 80 100 Denmark Japan (2) Finland Sweden Australia New zealand Austria Norway
Netherlands (3) Italy Portugal Canada (4) Spain United kingdom (5) Luxembourg Greece%Businesses using the Internet Businesses receiving orders over the Internet Businesses ordering over the Internet Note:
The results of the Eurostat survey are based on a selection of industries that changes slightly across countries.
Denmark and Norway also survey personal services. 1. Beginning of 2001 for Internet use; purchases and sales refer to 2000, for Canada,
for Denmark and Norway, Internet use refers to 2002 and purchases and sales refer to 2001.2.
and placed refer to Internet and other computer-mediated networks. 4. All businesses. 5. Orders received
and placed over the Internet and other computer-mediated networks. Source: OECD, ICT database, August 2002;
The gap between SMES and larger firms is greater for Internet purchases than for Internet sales.
In other OECD countries, Internet purchasing seems to be sensitive to firm size, with the largest firms having the highest percentages of purchases.
However, the propensity to sell over the Internet seems less sensitive to firm size. The difference between large firms and SMES is less than 10%,except in the United kingdom. In Australia, Denmark and Sweden,
smaller businesses that use the Internet appear to have roughly same propensity to sell over the Internet as larger ones (Figure 4). 15 Figure 4. Internet purchases and sales by size class,
or placed over the Internet and other computer-mediated networks. Source: OECD, ICT database, August 2002;
In terms of volume, Internet sales by SMES are far below those of larger firms. In the case of larger businesses in European countries (Figure 5), a maximum of 10.6%of businesses (in Sweden) had more than 5%of sales originating on the Internet in 2000,
and a maximum of 1. 2%of businesses (in Denmark) had Internet sales whose value was more than 50%of overall sales.
However, for smaller businesses, Internet sales are lower relatively, with around 11%of businesses having a share of Internet sales greater than 1%,
%compared to over 19%in the case of larger firms (in Sweden)( OECD 2002c. 16 Figure 5. Distribution of e-commerce sales in European countries, 2000 Percentage of businesses for any given country whose sales over the Internet as a share of total sales are greater than 1%,2
%,5%,10%,25%or 50%in larger and smaller businesses Source: OECD, based on Eurostat, E-commerce Pilot Survey 2001.
There have been some indications that the number of businesses selling on line is declining and e-commerce is being concentrated in fewer, larger businesses.
In Australia, over the period July 1999-June 2001, selling over the Internet by micro-enterprises with 5-9 employees declined from 16%to 13%and by firms with 10-49 employees from 21%to 18,
Most Internet e-commerce transactions are domestic rather than cross-border transactions (Figure 6). The Eurostat's E-commerce Pilot Survey indicates that European companies mainly sell over the Internet to locations within Europe.
In Austria, Denmark and Finland, exports to Europe represent between 55%and 63%of total exports of goods. The share of international Internet sales is particularly small in the United kingdom,
is linked to the Internet via phone lines or, increasingly by a VSAT connection. It serves an average of 600 farmers in 10 surrounding villages within about a five kilometres radius. Each E-Choupal costs between USD 3 000
South africa, Brazil, Chile, China, India, Russia and Singapore. 18 Figure 6. Share of Internet sales in domestic and international markets, 2000 or latest available year
BARRIERS TO USE There is a wide range of reasons why SMES do not make more active use of the Internet and ebusiness.
A recent survey of SMES with fewer than 250 employees in 19 European countries shows that around 40%do not use the Internet for selling
because they consider that Internet e-commerce does not suit their type of business and/or products (Figure 7). Other reasons for not conducting on-line sales include lack of personnel with appropriate ICT skills, concerns over unbalanced costs and benefits, insufficient customer access to Internet
and technology concerns, such as on-line security. In Canada, among businesses that did not buy or sell over the Internet,
56%believed that their goods or services did not lend themselves to Internet transactions. Figure 7. SMES in Europe:
Reasons for not using the Internet for selling, 2001 3%5%16%16%40%2%9%14%20%40%3%6%18%17%43%0%10%20%30
%40%50%Do not trust technology/security Customer's access to Internet is insufficient It w ould not pay off No skilled personnel Does not apply to the type of enterprise/product Micro firms w ith 0
-9 employees Small firms w ith 10-49 employees Medium firms w ith 50-249 employees Note:
Percentage of 1 427 firms with fewer than 250 employees not using the Internet in 19 countries (15 EU member states plus Iceland, Liechtenstein, Norway and Switzerland.
In sectors such as construction and among some small retailers, the view that Internet e-commerce is unsuitable for their business is relatively strong.
Some SMES in transport services also consider that the Internet does not suit their industry.
A firm with 90 employees and an emphasis on personal contact with clients decided not to adopt the Internet after a three-month trial of a Web site (Mehrtens et al.
Very few of its regular customers had used the Internet, and some preferred receiving confirmation of their order via fax or telephone.
The firms that adopt Internet and e-commerce are likely to have within the firm someone who has a reasonable amount of knowledge of the specific technology and/or technology in general.
A study of small ICT companies with 3-80 employees suggests that the Internet was adopted by firms with personnel who understand the technology (Mehrtens et al.
lack of ICT expertise within the firm is not necessarily an obstacle to the decision to adopt Internet e-commerce.
In 1996 a company employee bought a personal computer at his own expense to use the Internet.
other small firms in the region were encouraged to engage in Internet e-commerce. SMES may also lack managerial understanding and skills for e-business.
if the cost of basic Internet use is well within their marketing Budget for example, in the United states, typical Internet charges USD 10-35 a year for a domain name (i e.
Percentage of total investment in Internet e-commerce. N=34. Source: Ernst & young (2001. Logistics services, e g. package collection and delivery, also matter.
Items such as software, music and books can be delivered over the Internet, but the volume of such on-line delivery is still very small.
or by the individual or business customer with a slow Internet connection and small download capacity rather than a high-speed (broadband) connection.
access and interoperability The availability of a wide range of Internet connections and other communication services, preferably at competitive prices, is very important in that it allows small businesses to choose different and appropriate services according to their specific needs and (initial
Slow Internet connections and data transfer have discouraged in fact some SMES from adopting Internet: a majority of SMES with 10-249 employees in Austria, Greece, Italy, Luxembourg, Spain, Portugal and the United kingdom indicated excessively slow or unstable data communication as a major hindrance to Internet use (Eurostat, 2002.
Broadband penetration rates have accelerated rapidly in most OECD countries recently although it is very uneven across countries (Figure 10).
Business use of the Internet via broadband connection (xdsl) by firm size, 2001 Percentage of businesses with ten or more employees using the Internet 0 10 20 30 40 50 60 70 80 Finland Italy Austria Spain Portugal
United kingdom Luxembourg Greece%10-49 50-249 250+10+Source: OECD, ICT database and Eurostat, E-commerce Pilot Survey 2001, August 2002.
Internet access prices are a key determinant of Internet and e-commerce use by individuals and businesses (Figure 13).
Countries with lower access costs typically have a greater number of Internet hosts, and electronic commerce has developed rapidly in countries with unmetered (flat-rate) access (OECD, 2001a).
Price of 40 hours of Internet use at peak times, August 2001, in PPP dollars OECD Internet access basket for 40 hours at peak times using discounted PSTN rates1
but Thailand led in early Internet use with almost double the users (almost 8) per 100 inhabitants in 2002,
In the same year, Iran led both countries with 19 mainlines but less than five Internet users per 100
%but inequalities in income distribution means the Internet is not affordable for a large proportion of the population.
In 2002,8%of the population in Brazil were Internet users and almost 10%in Mexico, very much lower than Europe and the US (ITU data, 2004.
hackers) are among the most important perceived barriers to Internet use by businesses (B2b and B2c),
and have a larger share of transactions over the Internet (OECD, 2002c). Barriers to Internet commerce for businesses included payment uncertainties and contract, delivery and guarantee uncertainties, with very wide variations in perceived barriers across countries,
and unsuitability the major barrier. Payment uncertainties were relatively important in Italy, Spain, Austria, the United kingdom,
Small and large businesses facing barriers to Internet payments, 2000 Percentage of businesses using a computer with ten or more employees 05 10 15 20 25 30 35 40 45 Italy Spain Austria United kingdom Finland
and legal protection for Internet purchases are the two first obstacles pointed out in the CRITO global survey (2 139 firms in 10 countries)
Overall, SMES are more sensitive to local environmental obstacles than large firms (costs of Internet access, business laws, prevalence of credit card use in the country, taxation of Internet sales),
32.6 41.1 32.9 22.2 23.1 22.4 23.9 Level of ability to use the Internet as part of business strategy 21.5 27.0 21.8 22.3 24.8 22.4 31.8
34.9 32.2 34.8 31.9 22.2 31.6 40.8 40.4 40.8 24. 2 Taxation of Internet sales 28.5 23.6 28.3 27.1 17.6 26.8
19.9 15.6 19.1 16.5 Inadequate legal protection for Internet purchases 42.6 63.5 43.6 41.6 34.4 41.4 55.7 49.1 54.5 34.1 Source:
Legal uncertainties Most Internet e-commerce transactions are domestic rather than cross-border. Although there may be other reasons,
In another European commission survey, a small percentage of small firms with 10-49 employees indicated national differences in consumer protection as the most important reason for not using the Internet (European commission, 2002a.
The fear of being left with no satisfactory recourse against a transaction counterpart has been remarkably persistent among Internet users.
In the United states, 60%of Internet users indicate difficulties in obtaining satisfactory redress as a reason for reluctance to buy on line (OECD, 2002d.
and restructure business processes to make better use of the Internet and the potential of e-business.
The OECD's EBIP (Electronic commerce Business Impacts Project) study undertook in depth interviews with 217 firms that were early adopters of Internet and e-business strategies (OECD
except that small firms generally had less well-formed opinions about factors affecting their Internet efforts,
and automobiles to illustrate sectoral differences in e-business and Internet strategies. Internet e-commerce can enable businesses to reach a wider
and possibly more targeted range of customers either locally or globally, either in B2b transactions (automobiles, textiles) or B2c transactions (textiles, tourism, parts of retail
Cross-sector surveys show that there are some differences in the use of the Internet by SMES across different sectors.
In Europe, only around a third of SMES receive orders over the Internet. Their most common use of the Internet is for distribution of product/service information (Figure 15.
A slightly higher percentage of firms in manufacturing, wholesale and business services receive orders over the Web than those in retail and construction.
Some SMES send order confirmations via the Internet, although it is not clear how many of these orders were received over the Web rather than through other means, such as fax or telephone.
commercial activities using the Internet, 2001 58%63%63%68%71%26%33%37%38%35%24%26%31%29%30%0%20%40%60
Percentage of responses of firms with fewer than 250 employees using the Internet in 19 countries (15 EU member states plus Iceland, Liechtenstein, Norway and Switzerland.
Tourism In tourism, an area dominated by SMES in OECD countries, some small tour operators, hotels and inns, restaurants and travel agencies have been active in fostering cross-border Internet e-commerce.
The Internet allows travellers direct access to travel recommendations, reviews and local tourism information, many
Since the Internet and many travel-related sites allow on-line customers to compare the price of 32 air tickets and other travel services,
The volume of Internet e-commerce in tourism, has grown very rapidly, but still largely involves ticketing for passenger transportation and accommodation.
The Internet is used mainly for travel-related information and promotion. In the United states, where on-line travel sales grew rapidly from USD 400 million in 1997 to USD 22.7 billion in 2002
in the United states, over 64 million people used the Internet for travel planning, little changed from 2002 due to the slower growth of wired households,
but over 42 million people (30 percent of the adult population) used the Internet to book travel online, up 8 percent from 2002,
These characteristics make tourism products very well suited for purchase over the Internet. In addition, most travel products, like air travel and hotel rooms, are perishable and last-minute on-line sales provide a new distribution channel
Transaction costs over the Internet can be significantly lower than those of traditional distribution channels.
However, use of Internet commerce in the tourism sector is likely to concentrate on B2c rather than B2b transactions,
Retail Use of Internet commerce among SMES in the retail industry is lower than in business services and manufacturing.
Several studies suggest that even the most price-sensitive Internet consumers respond very strongly to well-known, heavily branded (large) retailers, such as amazon com.
An early study of Internet brand establishment analysing 20 000 on-line consumers who compared and purchased books from 33 on-line bookshops found that most did not choose the lowest price offer
along with music and video, books and magazines and software, are among the leading consumer products sold over the Internet (OECD, 2002c).
Again, small suppliers and shops have not necessarily been enthusiastic about the adoption of costly EDI or the Internet.
It uses the Internet to receive orders and to send digital images of products only to known clients (which then sell to other buyers).
Brian decided to use the Internet to reach much a wider market without radically increasing his overhead costs.
see EDI (and its recent Internet forms) as a strategic necessity for not losing business with car producers
EDI systems in advanced OECD countries have attempted to integrate different communication networks into a single Internet network.
The Internet-based EDI, ANX (Automotive Network Exchange) was started in 1994 and operated in the United states from 1998-2002
Summary The adoption and use of Internet and e-business strategies depend on sector characteristics. The products of services like tourism,
are suited well for purchase over the Internet. In addition, in sectors such as tourism and parts of retail and finance
Barriers to Internet commerce also vary among sectors. In tourism, incompatibility of systems and the dominance of relatively small agents with less capability impedes efficient Internet transactions along the supply chain, especially for B2b transactions.
In the retail sector, the problem of confidence building seems more crucial. In manufacturing sectors
POLICY IMPLICATIONS SMES have been slower than larger firms to adopt Internet and e-business strategies despite the potential benefits.
All OECD countries have introduced programmes to speed SME e-business and Internet development. However, the recent features of e-business and Internet use will also structure policy.
First and foremost, most e-commerce is B2b rather than B2c, which means government policy needs to focus on value chain participation.
Next, most Internet e-commerce transactions are domestic rather than cross-border. Finally use varies widely among sectors,
Governments have used many policies to encourage the diffusion of e-business and Internet use from fostering technological diffusion to creating a favourable business environment with fair and predictable rules.
if Internet commerce is unsuitable for their business, or if expected benefits are outweighed by costs.
Some are sophisticated as users of the Internet and e-business as larger firms, while others make no use at all.
The availability of a wide range of high quality Internet and communication services at competitive prices is particularly important
In particular, broadband, characterised by high-speed, always-on connection and two-way capability, allows faster access and delivery of existing on-line services and new applications and services such as streaming audio and video over the Internet
as these generally represent the initial opportunity for SMES to obtain affordable higher speed Internet connections (OECD, 2001b).
The open architecture of the Internet does not necessarily result in more open markets, because e-commerce among businesses is initiated usually by dominant companies in value chains.
E-business and Internet strategies appear to be reinforcing market structures and the role of these companies.
While Internet commerce provides SMES with opportunities to participate in new supply chains and markets,
can also provide SMES with new incentives to adopt Internet and e-commerce in order to enter new markets.
and Internet programmes focused on SMES. Three new directions are emerging in such policies. These are in addition to initiatives that aim at facilitating the participation of SMES in e-business value chains rather than simply encouraging them to adopt e-commerce.
Netherlands Netherlands Go Digital Supports trade organisations in the development of an ICT strategy to stimulate their members'Internet and e-commerce adoption.
Training is provided increasingly over the Internet and, in some cases, in conjunction with ICT and e-commerce awareness and business consultation services.
of Continuous Training for Traders and SMES offer training courses on the Internet. Forem's Web site provides a meeting place for businesses (e g. job vacancy advertising), a list of training programmes and aids for training.
and college students as student business advisors to provide customised Internet and e-commerce training to SMES.
Spain A programme is designed for micro-enterprises (fewer than 20 employees) in small towns with a special emphasis on training in the use of the Internet, e-mail and new management techniques.
Turkey KOSGEB KOSGEB, with more than 40 service centres and 25 Internet cafés across the country contributes to building computer and Internet literacy in SMES.
United kingdom Learndirect SMES are a priority group for the on-line service. Each course, looking at a specific business issue, allows SME managers
The EU covers a wide range of e-business environment, Internet and ICT use issues. eeurope 2005,
and exploit e-business and Internet strategies. In addition, specific policies have been common in areas seen to be crucial for initial uptake (e g. awareness, managerial and ICT skills.
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