Impact of the Internet for SMEs in Malaysia

Introduction

The Internet

According to Hamil (1997) stated that the efficiency and effectively medium used for accessing, organizing, and communicating information is representing the Internet. The presence on the Internet in the advanced economies is establishing from multinational or domestic whether it’s large or small (Duffy & Dale, 2000).

There are 888 million users of Internet for worldwide in 2004 and it is expected to growth until 1.35 billion by 2007 (eTForecast, 2004 &Internet World Stats, 2005). In the global online population, Asia rank the highest percentage followed by Europe and then North America with Asia is 34, Europe is 29.2 and North America is 24.9 (Internet World Stats, 2005). English is the main medium of instruction for the Internet and the online population is declining for its dominance in the Web while the Chinese and Spanish speaking users are lesser extent but the Japanese users are on the rise (Glreach.com, 2004). The world most populous and developing nations such as China, India, Indonesia, and Brazil has forecasted that there will be a little growth of the internet users (eTForecasts, 2004). Internet use and access is uneven across countries due to global reach as the population of internet users in South Korea is 63.3 per cent, Malaysia is 35.9 per cent, and Thailand is 12.8 per cent. The overall population internet users of these 3 countries just make up only 3.6 per cent of India population (World States, 2005).

According to Peterson et al (1997), the accessing to online market surveys, newspapers and journals, country and industry market research, trade lists of suppliers, agents, distributors, and government contacts in a large number of countries are the reasons of the firms’ access to Internet. Internet can play a role as intermediaries between producer and users that mainly in collection, collation, interpretation, and distribution of information (Liang et al, 2004 & Quelch & Klein, 1996). Internet provides a flexible, reliable, and low-cost method if compared to other means of communication such as telephone, fax, and post (Poon & Jevons, 1997).

In the existing marketing activity, Internet is playing a supporting role (Hazel, 1996). The traditional dominance of fixed location stores will be replaced by a new retail format which is provided by Internet (Evans, 1996 & Van Tassel & Weitz, 1997). Internet is the means of communicating information about retail organization, products, and services (Bruno, 1997). In the US, retailer view the Internet as an emergence marketing communication tools that used to attracting new customers, penetrating new markets, promoting company’s brand, and improving customer retention (Ernst & Young, 1997).

Small Business Enterprise (SME) and the Internet

Small business enterprise is independently owned and operated where it is not dominant in its field, and doesn’t engage in new or innovative practices. Neighborhoods grocery stores, fast-food restaurant, hair stylists, dry cleaners, video or record shops, and the veterinarian are an examples of small businesses. Qualitative factors are also important in describing the small businesses. To be classified as ‘small’, a small business must have at least two of the following features that are management is dependent, since the manager usually owns the business; capital is supplied and ownership is held by an individual or a few individuals; the area of operations is primarily local, although the market isn’t necessarily local; the business is small in comparison with larger competitors in the industry (Washington DC: Small Business Administration, 1985).

Perhaps the best definition of small business is the one used by Congress in the Small Business Act of 1953, which states that a small is one that independently owned and operated and is not dominant in its field of operation. The act also authorized the Small Business Administration (SBA) to develop more detailed definition that takes into account such criteria as sales volume and the number of employees in the firm. Incorporating these criteria into workable guidelines for use in determining loans, the SBA has established the upper limits for small firms in this manner (Washington DC: Small Business Administration, 1985).

As the global online users growing rapidly, SMEs have discovered unparallel new opportunities in the Internet that are entrepreneurial enough to recognize and take advantage of highly profitable niche markets (Forster, 2000 & Poon & Swatman, 1997). The researchers found that SMEs in the UK has been characterizes as dynamic, enterprising and ambitious as key role in entrepreneurship and innovation by DTI (DTI, 2000). McCalman (1999), states that the entrepreneurial character of the owner, individual managers or operational teams often associated with the fast growing of the new venture and the high growth and high technology firms appear to be more able and more willing to seize the opportunities afforded by the Internet. The Internet has changed the landscape of the firms in the worldwide and globalization is a key driven role for Internet usage by small firms to expand their operations to other nations.

The main strategic factors that associated with successful information, communications, and technology (ICT) is often viewed by the organization learning, entrepreneurship, innovative workplace cultures, and knowledge management enhancement context. The Internet virtually has relevance either directly or indirectly for entrepreneurship management in every aspect of organizational learning (Matlay, 2001 & Leitch & Harrison, 1999).

In the marketing context, Noh and Fitzsimmons (1999) have described “complex, creative, and innovation relationship” is a significant relationship found between Internet usage and the marketing functions where ICT and entrepreneurial activity strategically linked. The ICT opportunities that the marketing function can respond is depend on sustainable competitive advantage of the organizational changes which is the key to organizational survival (Brady et al, 1999 & Komenar, 1997). In order to attract and retain customers, the SMEs have to derive customer service advantages and marketing performance gains by adopted “transformative” use of ICT (Brady et al, 1999). According to Martin and Matlay (2001), the relationship between marketing functions and ICT adoption in SME would make the firms need to make creative and innovative changes in ordeal to deal effectively with actual and perceived ICT related marketing opportunities due to less attention on strategic SME operations and emphasis more on managerial capacity and marketing opportunities. “online marketing” only the step two in a five stages sequential progress to e-commerce and full ICT integration by a company identifies by DTI adoption ladder. Market analysis and related responses or strategies might be seen as sophistication function for e-use in SMEs (Martin & Matlay, 2001). Despite its high level of connectivity and basic e-commerce applications, business appear reluctant to move up the adoption ladder but the DTI adoption ladder model is heavily emphasis on financial based transaction (UK Online, 2000).

In the UK, 80 per cent of the SMEs have accessed to the Internet and another much smaller proportion also able to implement and embed new technologies for strategic purposes based on the figures of Internet adoption (UK Online, 2001). The adoption of ICT in the smaller firms has made the impact on SME profitability largely due to high connectivity according to the number of recent benchmarking surveys (UK Online, 2000). The UK government has initiative to promote the use of ICT and has ambitious target for Internet adoption, some has been already achieved (UK Online, 2000). In 2002, the digital marketplace there was 1.5 million SMEs expected to be ‘wired up’ since 1.7 million businesses already connected and 81 per cent of all firms in one form or another. The national e-economy development had shown the successful outcome of the achievements and impressive of Internet adoption (UK Online, 2000).

Information technology is implemented in SME can described as multidimensional change process (Martinsons & Chong, 1999 & Butter & Fitzgerald, 2001). Information technology is playing an important role for training in SME. According to Coates (2000), information technologies represent the drivers of change of all aspect of life. A new corporate culture and management change will form when the electronic commerce fit into organization operations (Fadden, 2000 & Hard & Knie, 2001). The most important element of implementation of information technology is human resources (Greene et al, 1997). Westhead and Storey (1996) describe that the implementation of information technology can intervene on training aid for change in developing human resources and human capabilities of the organization. Decision making has played a dominant role for owner-manager in SME sector (Jennings & Banfield, 1993 & Jennings & Beaver, 1995). The owner-manager has acted as principal driving force for implementation and adoption of electronic commerce. The role of a person characterized is in conjunction with the nature of managerial activity (Jennings & Beaver, 1995). The owner-manager has total control on training. So, Jennings and Beaver (1995) have stated that the extension of the owner-manager role is the provision of organization training. SMEs are operated under uncertain condition (Nooteboom, 1994 & Storey, 1994 & Acs et al, 1997). Skills and ability of SMEs have change in uncertain environment and SME has adopted (Hendry, 1995 & Acs et al, 1997). Recognition of change has relation with the implementation of new technologies (Martinsons & Chong, 1999 & Coates, 2000 & Buttler & Fitzgerald, 2001).

The Internet adoption in the SME has make SME staff learning through online collaboration. According to Flexwork (2004), a project supported by CEC FP5 IST Programme is a place where EU SME teleworking is gathering at Flexwork. Lawless (2004) stated that both virtual working and face to face contact are still needed as well as those frequent working online also have some face to face contact. The relationship forming through work online has to be considered to maintain well fairly (Walther, 1992). SME has practice team working and it is a most used method currently (Institute of Work Psychology, 1999). Computer World and British Telecom (2003) has stated that beneficiary from the process working online with others is SMEs wish and it must be properly conducted and resourced since there is over 50 per cent of SMEs has no formal IT strategy. ICT based environment is important for future networking platform and it is crucial for SME to cope with it (Ulbrich, 2000) and the need for change in SME has to take consideration on collaboration learning through ICT whether it is formal or informal (Fulantelli & Allegra, 2003 & Williamson et al, 2001). It is an ideal to have online collaborative training or learn cluster (Geer & Au, 2002). Collaboration is required for supply chain and SME is a part of the supply chain especially in motor and technologies industry. The trial has been conducted in Athabasca University in Canada to simulate SME members (Athabasca, 2002). Some EU training organization has proposed online collaborative learning systems using virtual classrooms, network or similar (AutoTrainProject, 2000). The individuals in the same SME or separate SME can form the collaboration learning. The increase used of ICTs especially email for internal communication has become a crucial feature of innovativeness of SMEs as well as collaboration between individuals in same or separate SME (Andrew Pettigrew, 1997). Another increased capacity for innovation in SMEs are external networking (Gray & Allan, 2000).

SMEs and the Internet in Malaysia

Small and Medium Industries Development Corporation (SMIDEC) was established on 2nd May 1996 which is an agency under Ministry of International Trade and Industry to promote and coordinate the development of SMEs in Malaysia through specific programs, provide technical support and management counseling services with the cooperation with other agencies, forge linkage industries between SMEs and large companies or multinational companies, and collaborate with other agencies locally and internationally to develop the SMEs (Small and Medium Industries Development Corporation Malaysia, 2008).

Malaysia adopted a common definition of SMEs to facilitate the identification of SMEs in the various sectors and subsectors. It has facilitated the government to formulate effective development policies, support programs as well as the provision of technical and financial assistance (Small and Medium Industries Development Corporation Malaysia, 2008).

The categories of SMEs in Malaysia consist of manufacturing, manufacturing related services and agro-based industries and another category is services, primary agriculture and information and communication technology (ICT). The enterprise in SMEs in Malaysia varies from micro enterprise, small enterprise, and medium enterprise (Small and Medium Industries Development Corporation Malaysia, 2008).

The Malaysia government has recognized that ICT would serve as a foundation to transform Malaysia from a P-based economy to K-based economy. ICT was emphasized as an enabler mainly in manufacturing sector and National Information and Technology Council (NITC) was established and its primary function is to ensure that ICT well integrated in the socio-economic fabric of the nation (Ministry of Science, Technology, and Innovation Malaysia, 2007)

In the 9th Malaysia Plan, the strategic plans for Malaysia ICT including the implementation of Digital Content Development, E-Commerce, SSO, Bioinformatics, MyICMS 886 which consist of Content Development, ICT Education Hub, Digital Multimedia Receivers, Communication Devices, Embedded Components and Foreign Ventures. It also includes the launching of MSC Phase II and increasing the number of MSC status companies from 973 to 1236 (Ministry of Science, Technology, and Innovation Malaysia, 2007).

According to Ministry of Science, Technology, and Innovation Malaysia facts and figures 2008, the number of main lines subscribers is 588 per 1000 inibitants, number of internet users is 714.3 per 1000 inhibitants, number of broadband subscribers is 96.13 per inhibitants, and number of computer subscribers is 805 per 1000 people in 2007 (Ministry of Science, Technology, and Innovation Malaysia, 2008).

The government has embarked on a concerted effort to improve the development of the SME sector. The government has integrated 14 ministries and 60 agencies as a model to approaches the SME to source of information of their businesses and stage of development. The Small and Medium Enterprise Development Council endorsed and launched the SMEinfo Portal as an integration of the Internet adoption and SMEs in Malaysia and a mechanism to enhance the efficiency and effectiveness of dissemination of information to SMEs. It’s a one stop online information resource SMEs across all sectors of the economy (SMEinfo, 2008).

The SMEinfo Portal is portals that can comprehensive access to information and is a multilingual information portal outreach to wider SMEs as the function as sources of financing and types of financial support by financial institutions, business support programs by ministries and government agencies, training and advisory services, SME Business Adviser Network, managing counseling services, and relevant tools such as financial tools as well as events by ministries and government agencies (SMEinfo, 2008).

The important features of the SMEinfo Portal is the SME Business Directory where SMEs can advertise products and services to large potential customers worldwide, sources of raw materials and relevant services by contracting suppliers, and identify potential customers to venture into new market for their products and services (SMEinfo, 2008).

Problem Statement

According to Ministry of Science, Technology, and Innovation Malaysia facts and figures 2008, the number of main lines subscribers is 588 per 1000 inibitants, number of internet users is 714.3 per 1000 inhibitants, number of broadband subscribers is 96.13 per inhibitants, and number of computer subscribers is 805 per 1000 people in 2007. In UK, there are 80 per cent of SMEs have adopted Internet and another smaller proportion of small businesses also able to implement and embed new technologies for the strategic purpose. The small businesses in Malaysia have less adoption of Internet in business if compare to other countries such as UK and USA. So, the Internet adoptions in small businesses in Malaysia have another prospective such as some are using for information accessed. The Internet adoption for small businesses in UK and USA has been a long history in the industry. The early adopters for the Internet has used for the range of functions such as marketing and advertising, information gathering, customer support and service and electronic transaction. There are several model to conduct the research on the Internet adoption for small businesses such as Rogers model of perceived attributes of the Internet. The firms has asked to rate their perceptions of Internet use for the business. From the previous research, Rogers, (1995) has listed the perceived attributes of the Internet as a strong influence exert on business use as:

“To what perceptions of innovation attributes for the research contribute to internet adoption for small businesses in Malaysia”

Research Objectives

In this changing technology era, the internet has become more important for everyone to access for information, shopping and communications especially in the business use. So, the purpose of the research for the impact of the internet adoption for small businesses in Malaysia is:

1. To investigate the relationship between innovation attributes and the internet adoption for small businesses in Malaysia.
2. To identify the relationship between relative advantage of internet adoption and small businesses in Malaysia.
3. To identify the relationship between compatibility of internet adoption and small businesses functions in Malaysia.
4. To identify the relationship between complexity of internet adoption and small businesses in Malaysia.
5. To identify the relationship between trialability of internet adoption and small businesses in Malaysia.
6. To identify the relationship between observability of internet adoption and small businesses in Malaysia.

Importance of the Study

The importance of the study of research project titled “The Factors Contribute to Internet Adoption for Small Businesses in Malaysia” can be contributed to the industry, education and society. The study of this research can make an impact on industry, education, and society for different reasons.

The impact of the study of this research on industry is identification of the potential business growth by small businesses in Malaysia with the Internet adoption. Business of the firm can growth by penetrating different market segments and coverage more geographical areas with using Internet as a marketing tool. Another impact of the study is can make the firm adopt process innovation and product innovation to reduce the cost of the production and capture the value of the customers with the quality products. The entrepreneurial opportunity also could discover on the study of this research. Youth could create entrepreneurial opportunity with the Internet adoption for developing own Electronic Business with the low cost, easy, and convenience method. The study of this research could create job opportunity in the industry especially from IT fields and entrepreneurship field.

Besides, the importance of this study also contributes to the education. In education, undergraduates can have an improvement process of acquiring knowledge and information with the Internet adoption on academic. Universities and colleges can provide entrepreneurial skills and knowledge for undergraduates on students’ entrepreneurship development programs, academics and students’ organization on free enterprise. It also could increase the understanding of the technology in terms of information system and web development.

Lastly, the importance of this study also contributes to the society. The study of this research can make an impact on society by reducing the employment rate for the country with the job creation by small businesses. It could increase the quality living of the society with the easy and conveniences services provide by small businesses on the adoption of the Internet. Foreign relation between people and people or government and government can be improving with the development of the Internet on the small businesses. The economies of the country can growth with the expansion and development of small businesses industry and small businesses can penetrate to another countries using Internet as well as increasing exports business of the country.

Organization of Research Project

The organization of the research project titled “The Factors Contribute to Internet Adoption for Small Businesses in Malaysia” overall consist of five chapters with each chapter has different aspects ranging from the different explanation of internet adoption and small businesses from different authors of journals to statistical analysis of the research study.

In the chapter one, the definition and explanation of the internet extracted from different authors quote in different journals. The subtopics consist of the Internet, the SMEs and the Internet, and the SMEs and the Internet in Malaysia.

In the chapter two, the literature review will extracted the quote from different authors in the journals to organize as a study of the internet adoption contribute to the small businesses in Malaysia. The other reviews of the literature are the relative advantage, compatibility, complexity, trialability, and observability of the Internet adoption in any fields.

In the chapter three, the methodology of the research will explain the sources of data collection from primary and secondary data. The hypothesis of the study and the procedures for collecting the samples will be explained here.

In the chapter four, the discussions and results will based on the geographic profiles of the small businesses. The chi-square analysis will analyze differentiates of E-Commerce and Small Businesses, differentiates virtual consumer behavior from retail consumer behavior, and the level of understanding of small businesses. The multiple regressions will focus on the entrepreneur’s interest in virtual store strategic management.

Finally, the chapter five will describe the summary and conclusion of the research. The research will recommend the solutions for the problems of the study.

Literature Review

Internet Adoption

Theory of reasoned action (TRA) (Fishbein & Ajzen, 1975), technology acceptance model (TAM) (Davis, 1989), and theory of planned behavior (TPB) (Azjen, 1991) reported as a number of studies of IT adoption. Adam et al (1992) stated that the fundamental determinants of acceptance of IT adoption consist of perceived usefulness and perceived ease of use and it can be widely used in the IT adoption. Perceived usefulness is a major determinant of people’s intention to use computers while perceived ease of use is a significant secondary determinant of people’s intention to use computers by competing two competing models of computer technology usage, TAM and TRA. It can conclude as people’s use of computer technology can be predicted reasonably well from their intentions. The TAM has been selected as a useful basis for starting build a model of adoption of the Internet since TAM is slightly better from an empirical point of view in the comparison of TAM and TPB (Mathieson, 1991). The researchers found that technology acceptance; reasons of using IT and behavior of using IT can derive the definition of the Internet adoption.

Besides, the researchers also found the definition of Internet adoption in other context such as supply chain management. Italian firm has made adoption modalities of IT to integrate into supply chain management to make their business growth. According to Chandrashekar and Schary (1999), in order to fit the customer request, the Internet can act as an enabler in depicting the firms. The efficacy and effectiveness of reaching higher level of performance is the integration and information technology (IT) and it can be regard as the most competitive and imitable weapons (Tan, 2001). Porter (2001) stated that modification of supply chain (SC) relationships, boundaries, and mutual influence is an integral part of the Internet in firm’s strategy.

In the former Central and Eastern European, innovation of technology has been introduced into commercial. Famous researchers such as Rogers have been workout to derive the definition of the Internet adoption from the technology innovativeness context. Everett M. Rogers (1995) was formulated the innovation adoption theory. The innovation adoption theory has been widely used in analyzing the adoption of the Internet (Wolcott et al, 2001), various Internet related applications (Black et al, 2001 & Polatoglu & Ekin, 2001), and software products (Karahanna et al, 1999 & Kautz & Larsen, 2000). Rogers (1995), regards the perceived new unit of adoption of an individual can be defined as an idea, practice, or object in term of innovation. Rogers (1995), also defined the adoption is a process that members of a society can communicated through certain channels over time. Schumpeter (1934, 1939 & 1942) has stated that new application of invention, discovery or new or existing knowledge as an innovation. The innovation also can be defined as the introduction and new development of knowledge derived tools, artifacts, and devices by which people extend and interact with environment (Tornatzky & Fleischer, 1990). The related technologies linked closely and innovation is a cluster of Internet adoption and banking (Rogers, 1995).

The factors influence the Internet adoption because the traditional modes of communication of the firms in the transitional markets of obtaining information on foreign markets, and communicated through business partners, customers, and distributors are costly and time consuming (Nguyen & Nguyen, 2001). According to Rogers (1983), the adoption is an alternative solution where the firm confronted with the problems. The organization’s strategies, policies, and actions as well as beliefs, attitudes, and intentions lead to the adoption of IT (Leonard Barton & Deschamps, 1995). The adoption of IT for organization’s continuously collecting information about target market needs and competitors capabilities and using it to create superior customer value. It is important and valuable for market orientation of an organization (Slater & Narver, 1995: 63). Organization’s innovativeness on IT facilitates the market orientation so that the forming of market orientation firms could gather information on markets and environments (Han et al, 1998 & Jaworski & Kohli, 1993).

Besides, Firm creating and use knowledge influences the organizational factor in learning organization (Sinkula et al, 1997). As learning environment is creates and encourages in learning oriented firms lead to the rise of adoption and implementation of new ideas, process, and products to produce innovative capacity for the firm (Hurley & Hult, 1998). Learning and sharing of knowledge opportunities exist among members of learning oriented firms from individual level to organization level (Nonaka & Takeuchi, 1995). Slater and Naver (1995), explained that how an organization acquire, process, and use market intelligence is a question to the ability in engagement in adapting the generative learning as a key component of organization learning orientation. The leveraging of superior learning environment is the use of all resources including the behaviors that accompany market orientation (Baker & Sinkula, 1999).

As stated by the above definition of Internet adoption in the supply chain management context, there are many factors contribute to affect the relationship of the Internet adoption. An easy and fast way in the process of acquiring and sharing information and the efficiency and effectiveness of improve performance are linked to the aspect of Internet adoption (Deeter-Schmeltz & Norman-Kennedy,2002 & Ronchi, 2003). The mistakes and time reductions and contribution to the order and stock cuts facilitate the better coordination among players of network (Akkermans et al, 2001). The enhancement of business model development providing innovation opportunities and competitive advantages challenge as well as strategic dimensions of SC design are the impact of Internet adoption (Wouters et al, 1999). The cost reductions of product management as well as cheaper and flexible of data exchange and enhancement of data standardization are the impact of IT adoption mechanism in market environment and organization management (Malone et al, 1987). The adoption of web based tools could enhance the integration such as EDI and as impact of product complexity (Garcia-Dastugue & Lambert, 2003). The standardization and behavioral formalization such as tasks repetitiveness and recognizability was influences by the adoption of ICT (Vacca, 1990 & Lomi, 1991 & Lorenzoni, 1992). The standardization of SC players in coordinating and performing activities are the affects of ICT (Becker, 2004). The change and variability sourcing are the improvisational aspect of routine which is including tacit knowledge, incorporate operative and applicatory capabilities (Pentland, 2003). Colombo et al (1997) stated that the transparency of process is the free information and knowledge sharing while Winter and Taylor (1996) stated that the reduction of middle management direct communication as an enabling of ICT.

On the other hand, technology innovativeness has been adopted in European markets to cater the demand of the consumers in many ways. There are many factors of adoption of technology innovativeness to serve the markets in Central and Eastern European nations. Researchers have investigated and identify the factors of commercialization innovativeness to explain the relationship of Internet adoption contributes to commercial in Ukraine and Austria. According to Dickerson and Gentry (1983), a new innovative service firm must offer increased functional performance than its predecessor can be defined as relative advantage. The primary measurement of relative advantage is assessing an innovation’s superiority in terms of overall convenience (Polatoglu & Ekin, 2001 & Tan & Teo, 2000). The degree to which an innovation is perceived as relatively difficult understands and use is the definition of complexity (Rogers & Shoemaker, 1971). Tornaztky and Klein (1982) stated that the lower rate of adoption means the complex the innovation is. Rogers (1995) defined the compatibility as the degree to which an innovation is perceived as consistent with existing values, past experiences, and the needs of potential adopters. De Ruyter et al (2001) also stated that compatibility is consistent with existing consumer affect, cognition, and behavior. Some researchers also found that consumer perceived risk post as important factors to the ICT adoption (Eastlick & Lotz, 1999 & Hansen, 2005 & Polatoglu &Ekin, 2001 & Tan & Teo, 2000).

Relative Advantage

Rogers (1995) defined relative advantage as the degree to which an innovation is seen as superior to existing practice. In the competition context, there is another definition for seeing innovation as superior to existing practice. According to Day (1984) and Porter (1987), the competitive advantage can be seen as the objective of the strategy and the result of the competitive advantage is superior performance. The derivations of competitive advantage are from numerous