Benefits of Internet Opportunities for SMEs in Mauritius

Acknowledgement

Many individuals have played an important role in our upbringing and education… To our parents, who deserve special recognition.

We would also like to extend a special acknowledgement to our lecturer, Mr. D Seethiah for giving us the opportunity to reflect and work on such a project.

Thanks to our group who have been working very hard for accomplishment of this assignment.

Finally, we extend our appreciation to the Almighty for granting us good health and prosperity.

Executive summary

SMEs are called upon to play a competitive role in the economy of Mauritius. Adoption of ICT by SMEs can a have positive impact on the national economy. The reasons are: (a) Internet based infrastructures are relatively cheap; (b) they provide an ever converging and rich environment for effective business networking; and (c) they provide SMEs access to a larger market.

This assignment examines the extent internet provides opportunities for business expansion of SMEs in Mauritius. It also identifies the enablers and barriers to the use of internet by SMEs.

A questionnaire was used to collect data among some SMEs. They were classified as follows: IT Novice, IT Savvy and e-Commerce Specialist.

The findings are reported, based on the analysis of the data collected.

Several key findings emerge from the research in this assignment:

1. IT Savvy and e-Commerce Specialist use computers, they have internet connection that they exclusively use for email and they have a website too.
2. The degree of diffusion of the internet is high among IT Savvy and e-Commerce Specialist.

For SMEs to take advantage of the opportunities provided by the internet for business expansion, they will have to acquire knowledge and skills in using the internet and be made aware of the facilities being offered by the NCB and the existing laws in the field of e-commerce.

They will also have to bank on the vulgarization of the use of internet amongst customers or at least, for the time being, design/customize products that could help target a certain market segment.

Introduction

Internet has revolutionized and continues to deeply impact on the way one does business. It is now a major tool for conducting business. It allows buyers and sellers to meet online, communicate and exchange information on goods and services. Besides, it does away with the geographical boundaries, the time zones and, in some cases, the need for physical space to transact business. With its tremendous potential, it has become commonplace for businesses and consumers to transact business via the Internet through email or online purchasing. For the SMEs, it offers a vista of opportunities for business expansion.

However, many SMEs do not take advantage of the Internet thinking that their goods and services do not lend themselves to Internet transactions. Moreover, they do not possess the managerial knowledge and skills for e-business. Hiring an IT-expert or an e-business consultant to fill this gap requires relatively huge sum of money, which they cannot afford. Sometimes, the availability of broadband connections may affect the decisions of SMEs to adopt e-commerce.

Further, sound government policies should be in place to create the necessary environment and incentives to encourage SMEs to take advantage of the Internet to create business opportunities.

Many unscrupulous persons are interested in the huge potential of the Internet for their own selfish motives. In countries where there are no appropriate legal instruments, there may be a host of possible attacks that compromise the confidentiality, integrity and availability of information that they exchange through the Internet. Consequently, people may lose trust on the security of doing business in the Internet and thus forego it huge potential for business.

Literature Review

SMEs in MAURITIUS

According to the minister of Finance and Economic Development, Dr. R. K. Sithanen: “A key component in the government’s agenda for economic development and democratization is the development of the small and medium enterprise sector into a competitive force” (April 2006).

Small and medium-sized enterprises (SMEs) are widely acknowledged as an important sector for national and international economic development. Growth oriented small business make a major contribution to economic development and employment generation within local communities and national economies. (Smallbone and Wyer, 2000) SMEs contribute substantially to national economies (Poon and Swatman, 1999) and are estimated to account for 80 per cent of global economic growth (Jutla et al, 2002).

It is no secret that globalization (r)evolution and communication technologies (ICT) are going to change the structure of the any economy. (Kaushalesh Lal and Aveeraj Sharma Peedoly, 2006). With the government of Mauritius promoting small and medium enterprises as a competitive sector of the economy, organizational and technological changes in these firms are expected to have significant impact on the national economy. Proponents of globalization argue that it will open a window of opportunities for SMEs while networking capabilities of ICTs suggest that SMEs can augment their competitiveness in global markets. In fact several studies (Lal, 2004 and Drew, 2003) found positive impact of the adoption of ICTs by SMEs.

Although there is very little data pertaining to the evolution of SMEs across time, the origins of SMEs in Mauritius can be traced back to the 1960s when Mauritius was witnessing the beginning of a timid industrialization process with an import-substitution strategy with the main objective of supplying the local market and giving certain autonomy to the country. The inward-looking industrial policy of the Government of the day was of encouraging the production of such commodities as the manufacturing of blades, electrical bulbs, batteries, soap, welding and steel work for construction, refining edible oils, plastic industry, food canning, industrial poultry breeding, yogurt manufacturing, biscuits, shoes, matches etc for the domestic market; this was also the prevailing orthodoxy of the time especially for African developing economies. Many critics (see e.g Maujean, 1996) argue that this programme was superficially planned with no support schemes nor incentives proposed to the enterprises. Although, the import substitution strategy was soon overshadowed by an export-oriented strategy with the setting up of Export-Processing Zones, many small-scale enterprises exploited the products mentioned above for the domestic market. In fact, most SMEs today cater for the local market in similar areas as mentioned above.

According to Maujean (1996) the early enterprises were attempts to reproduce locally models which existed abroad. In food processing, firms like Purlait Ltd, La Boulangerie Industrielle and Lyons Maid which pioneered private, small-scale enterprises in the country started off with enormous difficulties in spite of being relatively modern with an important capital investment and sophisticated distribution network. The concern with survival in a largely traditional and poorly developed society meant that the local market was not yet ready for such products. Nevertheless against this background a protectionist strategy which involved high tariff against competitive goods helped these industries to operate.

As Wignaraja and O’neil (1999) argue, for the size of the country and its stage of development, Mauritius has a particularly wide range of support services for the SME sector. Beyene (2002) makes a largely similar argument especially when looking at it by African standards. This wide array of support is provided mainly through Government and parastatal agencies or financial institutions. The Small Enterprises and handicraft Development Authority (SEHDA), Enterprise Mauritius (EM), the Development Bank of Mauritius Ltd (DBM), the Small & Medium Enterprises Partnership Fund (SMEPF), the National Computer Board (NCB) are generally regarded as the main institutions which provide support to SMEs by operating schemes to enhance the setting up or development of enterprises. They act mainly as facilitators, providing financial support, training and consultancy services, marketing and export assistance.

The Small Enterprises and Handicraft Development Authority (SEHDA)

The Small Enterprises & Handicraft Development Authority (SEHDA) was created following the merger of the Small & Medium industries Development Organisation (SMIDO) and the National Handicraft Promotion Agency (NHPA). The aim of the merger is to rationalize and optimize the use of resources dedicated to the small business sector in Mauritius. SEHDA, falling under the aegis of the Ministry of Industry, SMEs, Commerce & Co-operatives, provides support to potential and existing small entrepreneurs with a view to enable them to start new enterprises or to improve their existing businesses.

Enterprise Mauritius (EM)

Enterprise Mauritius operates under the aegis of the Ministry of Industry, SMEs, Commerce & Co-operatives and we have one primary objective, driving growth in exports both regionally and internationally through export sectors at 3 levels:

• Assisting in the development of Industry Sector strategies and Action plans
• The facilitation of Strategic Clusters to meet commonly shared group objectives
• And ultimately, working with individual businesses to help them develop an integrated market and capability development plan to provide access to resources that meet their specific requirements

Development Bank of Mauritius

An important part of the Bank’s resources is geared towards the development, consolidation and modernization of the SME sector. A separate department at the DBM is in fact dedicated to promote entrepreneurship development. Loans are provided at competitive rates for start-ups, financing of production equipment, technology improvement and also for working capital with the maximum quantum allocated varying according to industrial sectors. With respect to exports, the DBM runs the Export Development Fund for participation in overseas trade fairs and market surveys and also provides loans for joint ventures with overseas partners. Together with the DBM, other commercial banks such as the Mauritius Post and Cooperative Bank (MPCB), the MCB and the STB offer credit facilities albeit at less competitive rates and relatively more important collaterals to small entrepreneurs. Recently most of the main banks in the country (MCCB, MCB, Barclays and the State Bank) have also announced preferential interest rates for SMEs.

Small and Medium Enterprises Partnership Fund (SMEPF)

A parastatal body set up to provide funding ranging from Rs. 300,000 to Rs. 3 million amounting up to 50% of the total capitalization of the business. The criterion used is the evaluation of the business plan of the proposed venture to assess its feasibility to allow the return of the allocated funds within a period of five years. SMEPF is gradually gaining more importance as a source of funding to SMEs.

National Computer Board (NCB)

The NCB was set up as the apex organisation to develop and promote ICT and ICT-related services in Mauritius. Its main contribution towards SME development has been in terms of its incubator centre mainly for ICT start-ups with the main objectives of promoting entrepreneurship in the ICT sector by providing the necessary infrastructure and logistics, the development of linkages with other institutions and marketing. Moreover it runs sensitization programmes regularly for SMEs in order to familiarize and influence them to the strategic and financial benefits of integrating ICTs in the running of their enterprises.

Information and Communication Technology Authority (ICTA)

The ICTA is a regulatory body set up in 2001 replacing the former Mauritius Telecommunications Authority. The main objectives of ICTA are listed below:

1. To democratize access to information, taking into account quality, diversity and plurality
2. To license and regulate the information and communication services
3. To encourage optimum use of ICT in business, industry and government at large, the introduction of new technology and the investment in infrastructure and services

Other SME Supporting Institutions

Together with the above institutions there are others, which mainly private sector bodies such as the Mauritius Employers Federation (MEF), and Mauritius Chamber of Commerce and Industry (MCCI) do provide miscellaneous facilities for SMEs more specifically in terms of documentation, training, advice and consultancy.

Despite the variety of measures described above, it is acknowledged that the full potential of the SME sector has yet to be unleashed, the more so in the contemporary context of globalization which calls for greater competitiveness and efficiency in both local and overseas markets. A review of the existing literature on the difficulties faced by the SME sector pinpoints the shortcomings of the existing support system.

As Wignaraja and O’Neil (1999, p 64) argue:

“Undoubtedly the investment in SME support is not delivering the growth required or expected at the enterprise level and this must be improved. An overhaul of the entire support system is required to address the deficiencies (…) and to create a more cohesive integrated framework.”

It has been noted that owing to the fact that SMEs are quite flexible, they sometimes lack the vision and discipline to maintain a coherent strategy to wards the market. IFC (2004) proposed that an aggressive push to be given to the sector of training and education.

One of the most important barriers to the adoption of e-business in Mauritius remains the lack of trust into the system. Indeed, (Kuwayama, 2001) found that companies believed that transactions on the internet were very unsafe. This situation seems to be recurrent in other developing countries as suggested by (Payne, 2002)

Aspects of Internet and Issues

The use of internet in business is one of the tools that e-commerce offers. We start therefore by overseeing some general facts about e-commerce as pertains to SMEs.

General e-commerce facts related to SMEs

The use of the Internet and communication technologies has been found to improve business competitiveness, with the Internet providing the opportunity for SMEs to compete on equal terms with larger organizations (Chapman et al., 2000). The development of e-commerce in the last ten years all over the world has involved a growing number of businesses. E-commerce has been used as an important lever to promote business growth (Bianchi and Bivona, 2002). It is important for a firm grow continuously if the firm wants to maintain competitive advantage. Thus firms should struggle for continuous growth keeping the aim of increasing or simply maintaining their sales and profits levels, to ensure their survival (Claver et al., 2006). Throughout management literature, many successful stories are spread and researchers are encouraging SMEs to start e-commerce ventures in order to increase their sales (Bianchi and Bivona, 2002). At the same time there is considerable effort expended, both in time and money, by governments to encourage small and medium sized enterprises to invest in the use of the Internet (Beckinsale and Levy, 2004).

According to Levy and Powell (2002) most SMEs do not view the Internet as the key to their business strategy. Strategy is rarely raised as an enabler or as an inhibitor in the literature. The entrepreneur is critical in determining the Internet development. However, strategic commitment has been shown to be critical in SMEs. Research in several countries show that SMEs have been slower to adopt e-commerce than their larger counterparts, but the rate of the Internet usage in SMEs is growing quite rapidly. Internet has focused on large firms, new business models, the growth and development of dot-coms and the ‘new economy.’ SMEs in traditional industries have been slower to adopt e-commerce than their larger competitors and research into the use of the Internet by such firms is more recent. (Drew, 2003)

Furthermore, compared to the extensive literature on the importance and potential of the Internet as component of the business environment, research on organizational evolution and strategy for the Internet in businesses is limited and sketchy. The majority of publications, text books, press articles, and white papers on the Internet strategy deal with this issue on a somewhat tactical level: How to build up unique competitive position, attract customers, and increase sales. (Constantinides, 2004)

In many ways the field of entrepreneurship and small medium sized firm research seems no closer to understanding the dynamics of small business growth after decades of empirical studies (Lowe and Henson, 2004). Whilst the issue of growth in small firms is topical and well researched, the literature on growth processes and transitions in high-growth small firms is sparse and underrepresented in the entrepreneurship and small business journals. A recent content review of abstracts obtained via a database search identified only two percent addressing issues of high growth, growth processes and transitions as being key elements of the published papers. Saulnier and Rosson (2004) further mention that expressions made about the importance of e-business have not been fully matched by actions taken, particularly in the areas of staff training, technology infrastructure, and applications to deal with growth.

The use of ICT, technology upgrading, and continuous innovation are paramount to being competitive and run at optimum efficiency. However there is relatively little empirical data pertaining to SMEs in Mauritius and more particularly regarding the extent to which they have adopted ICTs in day to day running of their businesses.

A survey by Matadeen (2004) showed that most of the Mauritian companies were managed by the owners themselves irrespective of the fact that they may have management skills or not. With this in mind, the strategy to develop for SMEs and e-business must take into account the local culture and customs in Mauritius.

Possible Role of the Internet in Specific Growth Strategies Adopted by SMEs

The Internet is usually presented as an opportunity for smaller firms because it helps reduce transaction costs and level the playing field. Often cited benefits include expanding the scope of marketing, wider and richer communication, reaching new markets, reducing the cost of operations and partnering with suppliers and other collaborators. (Drew, 2003)

The Internet provides a unique opportunity to examine the evolution and growth of a business sector because it has taken place over a relatively short time period (Javalgi et al. 2004). The initial Internet environment might be described as a virgin environment, in which rapid growth could be expected. Among emerging technologies, the Internet is a new channel for commerce applicable in a wide variety of industries around the world. As a new strategic tool, it is transforming businesses and creating new opportunities as well as challenges for international marketers as many nations are fast connecting to the global marketplace.

Information technology is continuing to be an integral part of the business plan. Electronic commerce is affecting the way business are planning growth strategies and is the leading driver of corporate growth. The key is for IT to be seen as the new engine for growth, and not as a frustrating cost center. This result in a new way of thinking: The focus should be not on how much new technology should cost, but on how much revenue it will bring in. (Fruhling and Digman, 2000)

Many SMEs have made innovative uses of the Internet to invent new business models or to enhance existing practices (Drew, 2003). Firms with a history of innovation are embarking on a full- scale electronic commerce strategy. These firms are tying innovation with electronic commerce with the hopes to ensure company growth. Fruhling and Digman (2000) mention electronic commerce enables business to quickly and efficiently implement growth strategies. One of the main reasons this strategy is so attractive is the incredible growth rate of the Internet users.

Key Drivers for adoption of the Internet in SME Growth

Levy and Powell (2002) explored the adoption of the Internet among SMEs and formulated a model for the Internet adoption. This model identifies four roles for the Internet in SMEs brochure ware, support, opportunity, and network. These are driven by business growth planning and perceived the Internet value as shown in figure:

Business Growth

Levy and Powell (2002) advocate two key drivers in determining the use of internet by SMEs. The first driver is business growth. In some firms business growth is planned and investments are made ahead of need. In many other SMEs growth may occur but not as a result of planning. Attitude to business growth often determine whether SME owners consider resource investment in the business. IT investment is traditionally restricted in SMEs, with many investing at start-up, but no further investment is made until business outgrows existing system. It is reasonable that attitude to growth will impact SME’s decision to invest in the Internet.

Business Value from Use of the Internet

The second driver is business value from use of the Internet. Business value of the Internet is identified through response to the firm’s competitive positioning and their knowledge of respective industries. SMEs do consider the role of the Internet for their business generally with cautious approach. Most firms do not see the value of the Internet to their growth strategy. However, a number of visionary owners believe they can change their business through the use of the Internet. (Levy and Powell, 2002)

Brochureware are those firms that do not plan business growth and see the value of the Internet as low. Owners generally think about the Internet but cannot see its relevance to their business. One of the reasons is nature of industry in which SME operates. Hence, there is a role for the Internet for these firms but it is restricted to the presentation of on-line firm information or brochures and for e-mails. (Levy and Powell, 2002)

Business Opportunity is SMEs with recognition that the Internet has some value to them, in the future. However, it is limited to improving efficiency internally, customer communication, and research. The contrast between this category and Brochureware is that owners recognize the business value of the Internet and although not seeking growth, recognize that competitive pressure demand investment. These firms see a business opportunity from use of the Internet and related. (Levy and Powell, 2002)

Firms using the Internet for Business Support are planning growth, but currently see little future for their businesses from the Internet. Most of time these SMEs are innovative firms seeking growth. They have a number of innovative products that are sold to large firms, so personal contact is regarded by customers as important and there is little indication that the Internet is of value. These SMEs seek to grow but do not believe that industry demands investment in the Internet to support that growth. These firms see the worth of the Internet as a medium for business support. (Levy and Powell, 2002)

In Business Network opportunity from the Internet is seen as key to the development of SMEs. Firms see their future tied into using the Internet. Firms develop IT strategy alongside their business strategy most of the time. These are well positioned to take advantage of e-Business. These firms possesses effective internal network accessible by all employees as means to manage the business processes. (Levy and Powell, 2002)

Advantages of the Internet for SME Growth

According to Davis et al. (2000) a firm-specific advantage in penetrating international markets and facilitating organizational growth may stem from investments in technology or the use of specific technologies, such as the Internet. There is a long history of research linking technology and internationalization. Researchers advocate that to enter foreign markets, a firm must possess some clear advantage that will allow it to overcome native firms’ more thorough understanding of the local market. Traditionally, multinational corporations use economies of scale and other advantages of large size.

However, many entrepreneurial firms can overcome the disadvantage of small size through their use of technology, such as the Internet, to reach consumers beyond their borders. Certain technologies can provide an advantage that widens market opportunities and serves as a platform for expansion. The Internet is widely considered to be one such technology rapid internationalization. (Davis et al. 2000)

Authors argue that internationalization and growth of firms are positively affected by increased use of the Internet and increased investments in information technology. In addition, more attention is to be paid to the application of the Internet as well as to the pattern of investments in information technology to explain international expansion and growth among entrepreneur- led businesses. The continued globalization of the world economy makes the realization of role of technology in expanding overseas and maintaining healthy growth.

Davis et al. (2000) mention that firms with more aggressive use of technology are likely to engage more in international activities. Their study of internationalization among new, high-tech firms reveals that firms with higher levels of technology usage incur costs associated with internationalizing to be significantly lower than firms with lower levels of technology usage. It appears that companies with a technological advantage have an incentive to expand overseas because they can use that advantage in overseas markets at little or no marginal cost over the cost of developing the advantage in the domestic market.

Role of the Internet in Product-Market Development Strategy

Market Development

Online channels are used to sell into new markets, taking advantage of the low cost of advertising internationally without the necessity for a supporting sales infrastructure in the customers’ regions (Chaffey et al. 2003). This is a relatively conservative use of the Internet, but is great opportunity for SMEs to increase exports at low cost. A less evident benefit of the Internet is that as well as selling into new geographic markets, products can also be sold to new market segments or different types of customers. This may happen simply as a byproduct of having a web site. The Internet may offer further opportunities for selling to market sub-segments that have not been previously targeted. For example, a product sold to large businesses may also appeal to small firms.

Product Development

The Internet can be the basis for product development, information sharing, resource sharing, knowledge sharing and task assigning between different businesses. This can improve product quality and decrease development time and cost. (Yujun et al., 2006) Product development is innovative use of the Internet (Chaffey et al., 2003). Howe et al., (2000) report that the Internet provides global access to people, data, software, documents and multimedia have allowed organizations to shorten the development cycle of new products, to communicate with experts from around the world, to receive immediate customer feedback, and to access supercomputers for industrial research and development.

According to Howe et al., (2000) the Internet and its related applications can be effectively implemented at various stages of product development. For example, online forums, newsgroups, and Web sites provide an external source for product ideas. Market research can be performed on the Internet as numerous Web sites provide demographic information useful for estimating market size and potential. Surveys can be conducted on the Internet during the business case preparation to determine consumers’ needs, wants and preferences. Web-based and intranet applications can play an important role in the development phase, particularly when projects involve numerous teams at various locations. Providing effective media for communicating and disseminating information, these technologies also facilitate concurrent engineering. The Internet can be used for beta testing of new products, allowing lead users and firms to collaboratively eliminate product defects prior to market introduction.

The Internet and its related technologies can add significant value to new-product development projects. The main value lies in the acceleration of profitable ideas through the new product development process. At the same time, risks associated with this `rush to market’ are minimized as a formal system to weed out poor ideas quickly and to suggest modifications to product concepts. The use of the Internet and/or intranet at various stages not only minimizes time to launch but can also increase the integration of constituent viewpoints/recommendations, example consumers, engineers, marketing, etc., during development. This integration of the `voice of the customer’ and other functional members of the firm are critical in successful new product introductions. Need for speed is becoming more salient in today’s competitive arena. The firm that is first to launch a new product/technology, i.e. the pioneer, can accrue several pioneering advantages. These advantages include, but are not limited to: establishing product standards, building brand equity (combination of awareness, perceived quality, brand loyalty, etc.), securing distribution channels, and setting initial customer expectation for all other products. (Howe et al., 2000)

The Internet offers opportunities for firms in their new product development pursuits in terms of enhancing their abilities to collect, categorize and use information needed for product development; helping them understand their market better and thus target it more effectively; generating a wider range of new product ideas from a wider range of sources; making the concept screening process more comprehensive, flexible and objective; increasing the speed and the quality of business analyses; facilitating the collaboration of new product team members and enhancing operational performance; increasing the speed and the quality of testing and validation; improving the effectiveness and the efficiency of manufacturing development; enhancing the effectiveness and the efficiency of new product launch. (Howe et al., 2000)

LEGAL ASPECTS

Laws Covering Cross-Border Electronic Transactions between a Buyer and a Seller

Business to Business (B2B) transactions differs from Business to Consumer (B2C) transactions on the way an agreement is entered. In the case of a B2C transaction, the parties involved have to abide by the public policy laws of the consumer’s country, which are meant to protect the consumer. On the other hand, parties have the freedom to choose which law will govern their contract. They have to state which law will govern their transaction(s). In case they have not specified, the jurisdiction responsible for the case will have to decide which law is applicable. In general, two solutions are most commonly applied:

1. The applicable law will be the law of the country of the seller or
2. The applicable law is that of the place of the signing of the contract.

Point of Sale for Which the Buyer and the Seller Become Legally Bound