September 2006

ICTS in e-Business

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The article is based on cross-country project of the author that analyses the causes and consequences of the adoption of ICTs in several developing countries.

ICT Adoption
Advent of ICT led new technologies are  capable of providing equal edge to large firms and SMEs in term of market access and production technologies. Function-specific ICT tools are expected to contribute to a great extent in business applications such as corporate management, production processes, marketing, resource management, coordination with business partners, etc. The article is based on cross-country project of the author that analyses the causes and consequences of the adoption of ICTs in several developing countries. The main objective of the project was to gather international evidence of the extent of ICT adoption by SMEs and its consequences on the performance of firms. 

Although the project includes countries in Asia, Africa, and Latin America and Caribbean, the summary of the findings of Malaysia and India are presented in this article. The findings are based on the primary data, collected from SMEs in sample countries. Same instrument was used to collect qualitative and quantitative data. The motivation behind the project was the ability of SMEs in contributing in employment and foreign exchange earnings. The contribution of SMEs in national income has also been underlined in the recent years.

Malaysian firms were surveyed during October 2004 to March 2005. The findings are based on sixty-seven SMEs located in and around Kuala Lumpur while Indian SMEs, located around Delhi (Noida and NEPZ) were surveyed during December 2000 and February 2001. The Indian sample firms (fifty-one) were revisited in November-December, 2004.

Malaysian experience
Findings showed that the majority of the respondents had advanced ICTs adoption rate. However, results cannot be generalised, because majority of the sample firms were drawn from more advanced or technologically driven industries such as hardware and machinery, chemical and pharmaceutical and electronics. It is generally known logic that technologically advanced industries should have higher levels of ICTs adoption rate. This sentiment was echoed by many representatives from both government and SMEs associations in Malaysia including SME owners themselves.

One most important finding is that educational attainment of companies’ directors had a bearing on ICT adoption. There is also a strong link between technologically driven firms and the qualification of their leaders. Collaboration with foreign partners was found to be a usual practice among SMEs in Malaysia. Follow up interviews also attested to this phenomenon. A president of a SMEs association in Malaysia concurred that SMEs in this country normally employed workers over 40 years of age and most of them could only speak and write Chinese. Lack of English proficiency was recognised as the main problem in ICT adoption, causing hindrance to training or collaborative efforts with foreign partners.

Although the Malaysian government is serious about enhancing SMEs competitiveness in response to growing threats of globalisation, the policies introduced two decades ago were very much in line with efforts to increase participation of ‘Bhumiputra’ (natives), sometimes at the expense of overall development. It is also interesting to note that the Malaysian government has begun to recognise the importance and contribution of SMEs to Malaysian economy with the establishment of SME Development Bank in 2005.

The findings of the study suggest that apart from providing financial support to SMEs, the Malaysian government needs to focus on human resource development policies. It is two-fold:

(i) The government needs to establish technological institutions that can provide job-oriented formal training in new technologies; (ii) Short time training opportunities near the workplaces may be very helpful for skill upgradation of workers. A provision of such opportunities is expected to contribute to the efficiency and high productivity of workers. 

Indian experience
The study identifies and analyses the determinants of the adoption of e-Business technologies in the manufacturing sector in India. Sample firms were dominated by SMEs as 73 percent of these firms employ less than 150 persons. Entrepreneurial characteristics such as Managing Director’s education and age, historical data of firms, and other firm-specific factors such as size of operation, export intensity, international orientation, wage rates, profit margins were included in the analysis. We also included a variable, i.e. bandwidth that represents the institutional environment, created by central and local governments. The opinions of MDs on potential benefits of the adoption of e-Business technologies were also considered.

Sample firms were grouped into three categories, namely (1) offline, (2) online and (3) portal-using firms. Firms that were doing e-Business, using offline technologies, such as e-mail systems, were grouped in the first category, whereas firms that were using e-mail systems as well as online e-Business tools such as Active Server Pages (ASPs) in their websites were classified as online e-Business doing firms. Portal and Enterprise Resource Planning (ERP), using firms were considered as advanced users of e-Business technologies and were treated in the third category. Firms were assigned ranks, depending on the type of e-Business technology, used by them. As far as the model of e-Business is concerned, 92 percent of firms adopted B2B e-Business model.

The multivariate ordered probit technique was used to identify the determinants of the degree of the adoption of e-Business tools. The study reveals that the firms that were more internationally oriented, have adopted more advanced e-Business tools. Wage rates and scale of operations have also emerged as significant determinants of the adoption of e-Business technologies. The study captures the role of bandwidth in diffusion of e-Business technologies. 

The study shows the evidence of a positive association of type of e-Business technology, used by firms and the bandwidth. A study by NASSCOM in 2000 suggests that availability of higher bandwidth is a pre-requisite for the penetration of Internet and web-enabled services in India. This study concludes that a very reliable and affordable telecommunication network has to be in place to harness the potentials of ICTs. The passage of the IT Law 2000 is a necessary but not sufficient condition for the success of ICTs. The findings of the study suggest that there is a need to create proper local, national and global information infrastructure to derive the maximum benefit from the ICT revolution.

Export performance
Same data were used to examine the export performance of sample firms. A censored regression model, i.e. Tobit, was used to identify determinants of export performance of firms. The results of the study show that the type of technology, used for e-Business and the skill intensity of the workforce were the two most significant factors, found to influence the export performance of firms. The scale of operations has also emerged as a significant determinant of export performance. The study reveals that the labour productivity of export-oriented firms was higher than that of non-exporting units.  

The study captures the important role being played by the type of technology, used for e-Business by the sample firms in influencing their export performance. Several other studies suggest that communication technology network is a driving force behind the diffusion of e-Business. The study found that the diffusion of e-Business is strongly associated with the bandwidth. A study by Mehta suggests that availability of higher bandwidth is a prerequisite for the penetration of the Internet and web-enabled services in India. Findings of this study suggest that it is imperative to create a conducive environment for greater diffusion of e-Business technologies that, in turn, could augment the export performance of firms. The implications of findings of the study are twofold. One, an appropriate environment for the effective adoption of e-Business has to be in place.

The limited use of e-Business will have serious repercussions on the performance of firms in international markets. If Indian firms, that deal in international markets, are unable to strengthen the applicability of e-Business in areas such as online financial transaction and monitoring of status of consignments, etc, they are likely to lose foreign partners. Although the Government of India has taken several measures to encourage greater diffusion of ICTs, access to high speed communication networks at competitive price might enhance the diffusion of e-Business technologies, which is, in turn, likely to influence export performance. The formulation and enactment of comprehensive communication technology convergence regulations can facilitate access to a broad range of communication networks. The Government of India can also encourage the adoption of this new technology among export-oriented firms by continuing export incentives such as tax holidays on the value of goods and services, traded electronically.

The second implication is related to policies on collective learning and training facilities, aimed at SMEs.  The study has shown that the incorporation of e-Business practices, coupled with a higher skilled workforce, can enable firms to perform better in export markets. Hence policy makers need to target learning and training facilities for SMEs. This can be achieved by providing logistical support to industry associations located in SME clusters. The industry associations in turn can take advantage of an ‘Industry-University link’ programme initiated by the Government of India in producing skilled labour for the use of SMEs. Therefore, it has become imperative for the Government of India to provide proper institutional support to export-oriented firms for the effective use of e-Business, which would strengthen export performance. If it does not take proactive measures to speed up the adoption of e-Business, India might lose part of its export share in international markets.

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