http://www. cabinetoffice. gov. uk/sites/default/files/resources/uk-government-ict-strategy-2011 0. odt
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
Information and communication technology (ICT) connectivity (PCS and Internet) is very widespread in businesses of all sizes.
-business and Internet use programmes. However commercial considerations and potential returns are the principal drivers of small business adoption and profitable use.
on the Protection of Privacy in Global networks, on Consumer Protection in the Context of Electronic
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%or less of total business sector sales and
behind larger firms in Internet transactions For small firms to adopt e-business and e-commerce strategies and tools,
small-firm systems, network infrastructure and Internet-related support services. Lack of reliable trust and
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.
At inter-firm level, 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
Internet, with the goods and services ordered over the Internet, and payment and ultimate delivery of the goods
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 and attract new customers.
SMES€ motives for Internet commerce include reaching new/more customers, geographic expansion of market and improvement of service quality
Another firm with 40 employees, has established a company-wide intranet with an on-line BBS (bulletin
These companies†intranet and electronically integrated customer database not only provide the latest client-related information,
Internet and e-commerce enable SMES that remain in local and regional markets because of a lack of information and marketing capability
Internet technology makes it possible to transmit order information seamlessly between different systems. It can therefore provide small
Moreover, the Internet can convey the ideas of knowledge-based small businesses. Extensive use of ICT can allow micro-enterprises with ideas and
sales by exploiting their intellectual property over the Internet 11 ICT adoption and firm performance
inter-company computer networks Recent OECD analysis shows the impacts of ICTS and e-business strategies on firm performance
Use of ICT 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.
countries, Internet penetration rates for medium-sized firms (50-249 employees) are the same and
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 90 100 Fin lan d Sw ed en De nm ar
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
common use of the Internet is general information searches (Figure 2). Other uses include communication via e-mail, providing information about a company†s products, services and technologies via the corporate
SMES purchase some standard materials, 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.
include providing product information (56%),setting up a Web page (54%),purchasing goods/services 53%)and building customer connections (48%)(Scally et al.
Figure 2. Internet use by SMES in Japan, 2001 6 %8 %17 %18 %20 %23
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, it still accounts for a relatively small proportion of economic activity for firms of all sizes
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 De
nm ar k Ja pa n 2 Fin lan d Sw ed en Au str
alia Ne w Ze ala nd Au str ia No rw ay Ne the rla
%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
The main sectors covered are manufacturing, wholesale and retail trade, hotels and restaurants, transport, storage and
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
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;
larger firms is greater for Internet purchases than for Internet sales. In Norway, for instance, more than
Internet purchasing seems to be sensitive to firm size, with the largest firms having the highest percentages
However, the propensity to sell over the Internet seems less sensitive to firm size. The
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, 2000
Percentage of businesses in each size class 80 60 40 20 0 20 40 60 80
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
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
Percentage of businesses for any given country whose sales over the Internet as a share of total sales are greater
2001, selling over the Internet by micro-enterprises with 5-9 employees declined from 16%to 13%and by
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
house, is linked to the Internet via phone lines or, increasingly by a VSAT connection. It serves an average
Figure 6. Share of Internet sales in domestic and international markets, 2000 or latest available year
There is a wide range of reasons why SMES do not make more active use of the Internet and e
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
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
Customer's access to Internet is insuff icient It w ould not pay off No skilled personnel
Percentage of 1 427 firms with fewer than 250 employees not using the Internet in 19 countries (15 EU member
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.
firm with 90 employees and an emphasis on personal contact with clients decided not to adopt the Internet
Very few of its regular customers had used the Internet and some preferred receiving confirmation of their order via fax or telephone
These concerns are genuine and come from the practical judgement of SMES on the benefits e
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
A study of small ICT companies with 3-80 employees suggests that the Internet was adopted by
necessarily an obstacle to the decision to adopt Internet e-commerce. However, internal technological capabilities still matter because adoption of e-commerce cannot succeed without an understanding of the
e-commerce sales of magnet products via the site had reached already more than USD 700 000, and the site
In 1996 a company employee bought a personal computer at his own expense to use the Internet
which helped the company to create the Web page and took training to enable him to update it
To increase the number of visits to the site, the company used both an on-line campaign and
to (potential) customers lured 1 000 visitors to the site during the peak early month.
were encouraged to engage in Internet e-commerce SMES may also lack managerial understanding and skills for e-business.
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. Web site address) and USD 10-100 a month
outsource Web page design and updating, have found it difficult to contain site development costs which
%1%Website maintenance Telephony ISP charges/website hosting Responding to e-mails Advertising License fees Bank fees
Other Note: Percentage of total investment in Internet e-commerce. N=34 Source: Ernst & young (2001 Logistics services, e g. package collection and delivery, also matter.
While they can be subcontracted to private delivery services, some may charge higher rates to small businesses because of
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.
with a slow Internet connection and small download capacity rather than a high-speed (broadband connection For the SME leaders in e-commerce, narrow cost factors are likely to become less important
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
Fixed telecommunication networks are likely to continue to serve as the primary means of Internet access for many SMES because of their relatively lower cost.
The basic telecommunication infrastructure is in place in many OECD countries, although the development of reliable fixed
economies (Box 4). Most OECD countries have a similar number of fixed telecommunication access lines
The telecommunications infrastructure is also growing rapidly in non†OECD countries, but there are very wide differences among
despite areas of very advanced use of telecommunications to support its very rapidly growing and globally competitive IT and ICT-enabled services industry
Figure 9. Fixed and mobile phone growth in seven non-OECD countries and the United states per 1, 000 people
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
(or speed of data transfer) provided on a telecommunications network via high-speed Internet access. See OECD (2004) recommendation of the Council on Broadband
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
Increased competition in the telecommunications industry has been driving down access costs For example, prices of leased lines,
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
) Unmetered access was available from the leading telecommunication carrier in 12 OECD countries by the beginning of 2001 and has increased the amount of time users spend on line.
Price of 40 hours of Internet use at peak times, August 2001, in PPP dollars
OECD, Telecommunications Database, June 2002 26 Box 4. Network infrastructure in developing economies For most developing economies the highest priority is to put in place the network infrastructure
Developing countries with widespread access to telecommunications and network services i e. 40 mainlines or more per 100 people) are rare.
since much of the population lacks the income required to have telephone services. For low-income and rural populations, universal access programmes are needed to make adequate
telecommunications available in areas where telecommunication operators cannot otherwise be expected to provide network access. In Brazil, for example, telecommunication operators are required to contribute 1
%of total revenues to a fund aimed at providing services to those excluded from the market
Internet use with almost double the users (almost 8) per 100 inhabitants in 2002, even if China has
but less than five Internet users per 100, presumably for cultural and political reasons Internet access charges relative to income also matter.
%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
Some placed detailed corporate information on the site to illustrate their technology and financial base (Tiessen et al.
security, protection of credit-related information and secure system firewalls. As more on-line clients demand secure transaction environments, SMES are likely to face increasing costs for system protection
among the most important perceived barriers to Internet use by businesses (B2b and B2c), although large
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, and
Small and large businesses facing barriers to Internet payments, 2000 Percentage of businesses using a computer with ten or more employees
Concerns about privacy and legal protection for Internet purchases are the two first obstacles pointed out in
use in the country, taxation of Internet sales), while large firms are more sensitive to international strategy
an e-commerce site 46.8 18.9 45.3 33.4 39.3 33.6 27.3 35.4 28.6 33.6 Making needed
the Internet as part of business strategy 21.5 27.0 21.8 22.3 24.8 22.4 31.8 27.9 31.1
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:
introduced by the methodology (a questionnaire by telephone) mean that only the most advanced firms were included
Most Internet e-commerce transactions are domestic rather than cross-border. Although there may be other reasons,
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.
Most B2c transactions are relatively small (e g. less than USD 100) and hardly justify costly legal procedures or even
e g. phone, fax, letters) especially when dealing with a foreign counterpart E-business adoption challenges: lessons from EBIP
organisational structures and restructure business processes to make better use of the Internet and the
interviews with 217 firms that were early adopters of Internet and e-business strategies (OECD, 2002a
telecommunication costs) were seen also as largely positive for adopting firms when compared with benefits from e-commerce and e-business.
less well-formed opinions about factors affecting their Internet efforts, either positively or negatively Interestingly enough, this group of early adopters was concerned not particularly about general cost
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
Cross-sector surveys show that there are some differences in the use of the Internet by SMES
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 Figure 15. SMES in Europe: 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 %80 %Construction Retail Wholesale Manufacturing business services Distribute information on products Receiving orders Order confirmation
Percentage of responses of firms with fewer than 250 employees using the Internet in 19 countries (15 EU
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 of which was distributed previously only through the physical offices of (large) travel agencies. Small players with a Web page can now attract those preferring personalised (and possibly less
expensive) services. Some small travel agencies, making the most of ICT, take advantage of direct on-line sales of (discounted) airline tickets
Since the Internet and many travel-related sites allow on-line customers to compare the price of
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
people used the Internet for travel planning, little changed from 2002 due to the slower growth of â€oewiredâ€
households, but over 42 million people (30 percent of the adult population) used the Internet to book travel
suited for purchase over the Internet. In addition, most travel products, like air travel and hotel rooms, are
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
Use of Internet commerce among SMES in the retail industry is lower than in business services
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 and that the shop†s name/brand
leading consumer products sold over the Internet (OECD, 2002c. Projections for on-line apparel sales in
the adoption of costly EDI or the Internet. Some small textile producers consider that a Web site which
It uses the Internet to receive orders and to send digital images of products only to known clients (which then sell to other
) Another textile producer with 300 employees does not use the Web for buying and selling because
Brian decided to use the Internet to reach much a wider market without radically increasing his overhead costs.
The site has attracted customers not only in the United kingdom and Ireland but also throughout the world Australia;
customers who have bought an instrument through the site. Some customers, impressed by the presentation of the
violin-related site among individuals, dealers and others interested in the instrument Source: UK E-commerce Awards (http://www. ecommerce-awards. co. uk/)and the company Web site
continue to order over the phone or via fax (Moodley, 2002). B2b on-line marketplaces and auction sites
have also not been attractive to many SMES in the sector particularly in the light of most of these markets
its recent Internet forms) as a strategic necessity for not losing business with car producers (i e. their
attempted to integrate different communication networks into a single Internet network. This should allow high quality, high speed and security measures to protect the transmission of confidential data and other
The Internet-based EDI, ANX (Automotive Network Exchange) was started in 1994 and operated in the United states from 1998-2002 and was aimed at EDI integration involving ENX (Europe
The adoption and use of Internet and e-business strategies depend on sector characteristics. The products of services like tourism,
well-suited for purchase over the Internet. In addition, in sectors such as tourism and parts of retail and
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
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
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
also been evolving, with the focus shifting from connectivity and building simple web presence, to more
Firms will stay with traditional business processes if Internet commerce is unsuitable for their business,
Some are sophisticated as users of the Internet and e-business as larger firms, while others make no use at all.
The largest benefits for the Internet -using firms may derive from generating internal process efficiencies
The availability of a wide range of high quality Internet and communication services at competitive prices is particularly important,
applications and services such as streaming audio and video over the Internet with much higher quality.
Governments should also ensure open and competitive telecommunication markets so that SMES can choose among various technologies and services for high-speed Internet access.
opportunity for SMES to obtain affordable higher speed Internet connections (OECD, 2001b. In developing countries, multi-user services can be a very important tool for increasing coverage and use of
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
E-business and Internet strategies appear to be reinforcing market structures and the role of these
While Internet commerce provides SMES with opportunities to participate in new supply chains and markets, they may compete
SMES with new incentives to adopt Internet and e-commerce in order to enter new markets. Governments establish new e-market models through e-procurement initiatives
and Internet programmes focused on SMES Three new directions are emerging in such policies. These are in addition to initiatives that aim at
Internet and e-commerce adoption. National branches and 250 consultants help SMES and entrepreneurs prepare and implement their ICT action plan.
NET site (www. ause. net) and ebiz. enable site www. strategis. ic. gc. ca/sc indps/ebiz/engdoc/homepage. php
Training is provided increasingly over the Internet and, in some cases, in conjunction with ICT and e-commerce awareness and business consultation services.
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
customised Internet and e-commerce training to SMES. Since its start in 1996, more than 3 000 students have been hired
a special emphasis on training in the use of the Internet, e-mail and new management
Turkey KOSGEB KOSGEB, with more than 40 service centres and 25 Internet cafã s 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
wide range of e-business environment, Internet and ICT use issues. eeurope 2005, Helping SMES to go
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
•Continue to ensure open, competitive telecommunication markets that offer a range of interoperable technological options and network services (particularly broadband) of
Bricklin, D. 2002), â€oesmall Business and Web Sites†(available at http://www. bricklin. com/smallbusiness. htm
on Internet Use by SMES, Tokyo, November Council of the European union (2000), eeurope 2002 Action Plan, June (available at
Gertner, R. H. and R. S. Stillman (2001), â€oevertical Integration and Internet Strategies in the Apparel
Mehrtens, J.,P. B. Cragg and A m. Mills (2001), â€oea Model of Internet Adoption by SMES€, Information
http://www. chusho. meti. go. jp/hakusyo/h13/download/2001eibunzennbun. pdf Moodley, S. 2002), â€oee-Business in the South african Apparel Sector:
Scally, T.,M. Stansfield and K. Grant (2001), â€oean Investigation into the Use of the Internet and
Scupola, A. 2002), â€oeadoption Issues of Business-to-business Internet Commerce in European SMES€, in Proceedings of the 35th Hawaii International Conference on System Sciences 2002 (available at
Smith, M d. and E. Brynjolfsson (2001), â€oeconsumer Decision-making at an Internet Shopbot: Brand Still Mattersâ€, The Journal of Industrial Economics, December, pp. 541-558
Zixiang, A t. and O. Wu (2004), â€oediffusion and Impacts of the Internet and E-commerce in Chinaâ€, GEC
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