Abstract

The project E-commerce for SMEs, is aimed to investigate business potential of

Internet for Small and Medium sized Enterprises (SMEs) mainly in the UK and
identifying the benefits and problems brought by the new medium. The Internet is
offering SMEs a number of new opportunities that are cost effective and reliable (to
certain extent), thereby for the first time, providing them with an opportunity to
compete with their larger counterparts. This project discusses the problems that
SMEs face while using or trying to use this technology. Problems, which are mainly
cost, and skill based.

In this information age, it seems like every company has its own web site. A web site
that is not effectively designed and maintained could spoil the companys reputation.
The report along with providing certain helpful tips for building an on-line business,
discusses some of the legal and regulatory issues.

In the near future, the Internet seems to become an inseparable part of our society,
especially with the emergence of new technologies which are about to change the
way business is being done. Small and Medium sized companies are therefore facing
up to understand the nature of the Internet and adapt themselves into this new
medium as quickly as possible.

Acknowledgements

I would like to thank Mr T G Gough, my project supervisor, for providing me with

some critical advices and comments right from the beginning of my work till its
accomplishment. I am also thankful to Lydia Lau, my project assessor for providing
me with some important materiel, which were vital for some analysis.

I am also thankful to my friends for supporting me not only during my dissertation

but also through out this MSc course in Leeds.

It is a pleasure for me to acknowledge a number of other people who have been

directly, and indirectly helpful in achieving my objectives.

Finally, I am greatful to my family for their continual support and encouragement,

which always helped me being confident and responsible.

ii

Contents

Project Introduction

1.1 Purpose of the project

1.2 Methodology

1
2

Introduction

2.1 The Digital revolution

2.1.1 The Digital Economy
2.1.2 Components of Digital Economics

5
6

2.2 The Internet

2.2.1 Background and History
2.2.2 The World Wide Web

7
8
9

10

Electronic Commerce

3.1 Definitions
3.2 The EDI (Electronic Data Interchange)
3.3 Origin and History
3.3 Internet and E-commerce
3.4 Working Framework for E-commerce

13
13
14

16

Small and Medium Enterprises

4.1 Some definitions

4.2 Factors determining the size of an SME
4.3 SMEs in the UK
4.4 Importance of SMEs to the Economy of UK
4.5 Behavioral aspects of SMEs in the new Economy
4.6 E-commerce as a business strategy
4.7 Stages involved in setting up a business on-line
4.7.1 How can existing customers be kept
4.7.2 Reduce operating costs
4.7.3 Attract, keep and train a productive staff
4.7.4 Regulate and increase cash flow
4.7.5 Going global
4.7.6 Advertising your web site

iii

10

16
16
17
18
19
21
22
24
24
24
25
25
27

4.8 Risk Assessment in SMEs A necessary measure

4.8.1 Intellectual property
4.8.2 Advertising on the web
4.8.3 Other potential pitfalls
4.8.4 Some legal Issues

28
28
29
29
30

Case Study

32

Future

36

6.1 Prospects for EDI

6.2 Introduction of the Euro

37
38

Discussions and Conclusion

40

References

45

Appendix A

48

10 Appendix B

49

11 Appendix C

50

12 Appendix D

51

13 Appendix E

55

14 Appendix F

56

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E-commerce for SMEs

1 Project Introduction
As we enter the second millennium, we experience one of the most important
changes in our lives- the move to an Internet based society. Almost everything in our
society is to be changed - the way businesses run, the way schools educate and even
the way we spend our leisure time. Most of the change has already occurred, and
much more yet to come (Efraim Turban et al, 2000). So, it is tacit that every
individual, particularly those who run a business or those who intend to start one, has
some understanding of the way the business society is functioning in this IT age.

The project E-commerce for SMEs is an attempt made to explain how businesses,
in particular Small and Medium sized businesses, are functioning and how they are
using IT and other information resources, to sustain their presence in todays global
market and withstand the cut-throat competition where the life of a business can
sometimes last for a few months. The project is aimed at people who have little or
no understanding of the potential benefits of E-commerce as a business tool
particularly in small medium sized enterprise.

1.1 Purpose of the Project

There are several aspects that lead to the take up of this project, my interest in the
field of E-commerce being the main reason. The initiation of the project is based on
the following considerations:

1. There are a number of projects, articles and researches describing the ecommerce technology and their applications in businesses, but there are only a
few resources which have been giving a comprehensive and up-to date
information about e-commerce and their impact on the current and new emerging
trends in SMEs in layman terms.

E-commerce for SMEs

2. Many of the articles, which have been written about E-commerce, are mainly
circled around SMEs in other countries particularly in America. The discussions
in this project are mainly based on the SMEs in U.K.
3. In this Digital age it seems that every organization is trying or is having a web
presence. But each new technology brings with it, its own share of problems.
Driven by the media hype and success stories many companies decide to present
themselves on the Internet without a sound business reason. A weak web site on
the other hand can result in worsening a firms established image. By having a
sound strategy before hand for building an effective web site, and targeting their
market companies could avoid this state.
4. Despite the fact that small businesses find implementing E-commerce
advantageous, there are several factors that hinder the smooth transition of the
business. These include dealing with the new technology, lack of expertise, in
some cases improper utilization of funds and to certain extant the legal issues
concerning security and standards. These aspects will be discussed in the
following chapters.
5. The future has a lot to hold for E-commerce. This to some extent is predictable.
Emergence of new technologies and economic policies will have a considerable
effect on the way the businesses are being done. There was not much of
discussion available in this field. Certain economic issues such as the
introduction of the Euro currency have been covered in the following report.

1.2 Methodology

For carrying out this project effectively and efficiently, it has been divided into
several tasks. There was a necessity of having a general background and
understanding of this field before getting into the study. Here it should be noted that
the World Wide Web was the primary source of information, right from the start of
this project, as this area is a relatively new and fluctuating one, and without up-todate information it is impossible to carry out a well reasoned analysis.

E-commerce for SMEs

Choosing research topic/ Allocation of Project topic

Setting clear aims and defining the project objectives

Listing the information sources for the project

Collecting and selecting of information required

Checking with
the original aims
and objectives

Choosing a method for analyzing the information

Conducting an analysis on the information

Making an outline of the project (topics and sub-topics)

Discussing a case study, and draw an inference

Drawing a Final conclusion with discussions

However there are many books available on E-commerce, which were used for
getting a basic idea about the project. All the sources used to carry out the
dissertation can be categorized as:

Internet/Web

Text books

Research and survey results,

E-commerce for SMEs

Statistical data

Academic Journals/Magazines

Commercial Magazines

Press releases by government bodies

E-mail Research groups

A case study allows exploring the issues of concern, within an organization in a real
time basis. This not only helps understand the problem domain in detail, but also
allows drawing some critical conclusions for analysis. The case study discussed in
this project fit the situation perfectly and depicts the typical industry and market
behavior towards adoptation of new technologies.

E-commerce for SMEs

2 Introduction

The rapid growth and proliferation of the information society continues to accelerate
as we step into the new millennium. People and businesses are increasingly
becoming dependent on the easy and rapid availability of information. New concepts
and paradigms are emerging and are changing the traditional ways of doing business.
As more and more people and places are getting connected, the technological needs
and forces that are driving the present day market continue to change at a rapid pace.

2.1 The Digital revolution

A new era of Digital revolution is emerging in a similar way, once industrial

revolution prior to agriculture revolution emerged, this took nearly 200 years to
manifest itself. But it merely took 40 years for digital revolution to shape-up. What
is the digital revolution? There has been a transformation in the way business was
done before. People started involving computers into their businesses as a device
that could do a few complicated and time consuming tasks, apart from storing
information. As the technology advanced, computer evolved into the most
sophisticated device that almost took care of all the required necessities of a
business. The rapid advancement in the telecommunication technology caught up
with the computer technology, which evolved both in terms of its computing power
and size. Internet is the revolutionary technology that this century has seen. The
businesses are seizing to exist, the way they used to before.

The wind of Economic change has never blown through our economies with such a
force as it is today. Tony Blair

E-commerce for SMEs

2.1.1 The Digital Economy

The new economy has done more than change the way business is conducted; it has
rendered obsolete the fundamental economic assumptions on which businesses have
been based. It has transformed the industrial economy into Digital economy. In this
new economy intellectual property and customer relationships move to the forefront.
No longer do physical assets play the central role in value propositions [Ref 27].
Information in this age is easier and cheaper to get. Manufacturers can offer
customers more and better choices tailored directly to their preferences. No longer
does size ultimately limit returns and no longer does it take several years and deep
pockets to build a business with global presence. We are now stepping the Digital
Economy.

2.1.2 Components of Digital Economics

Just like in marketplace, in marketspace sellers and buyers exchange goods for
money. The major components of marketspace are digital products, consumers,
sellers, infrastructure companies, intermediaries, support services, and content
creators. A brief description of each is as follows. [18]

Digital Products. This is where the major difference exists between marketplace
and marketspace here there is a digitization of products and services. Software and
music are one of them. In digitization, most of the costs are fixed and variable cost is
very small. Therefore profit will increase very rapidly with sales.

The Consumers. The millions of people worldwide who surf the web are the
potential buyers of goods or services advertised on the web. They are the drivers of
the technology that is implemented. Consumers can search for detailed information,
compare, bid and sometimes even negotiate over the web.

E-commerce for SMEs

The Sellers. There are thousands of storefronts on the web which offer a choice of
millions of items. It is possible to find new offers, products or services.

The Infrastructure companies. There are many companies which provide the
software and hardware support that is required to support E-commerce. Many
companies offer consulting services on how to set up a store front, other companies
offer hosting services for SMEs.
The intermediaries. The role of intermediaries lies in bringing the sellers and
buyers together. They help provide some kind of infrastructure services, and also
facilitate transactions between customers and sellers.

The Support services. Hundreds of services are available which help businesses in
aspects ranging from certification/ trust and shopping carts to knowledge providing
services.

Content Creators. The quality of a web site is of paramount importance to run any
web based business. There are many companies which create web content for their
self as well as for others and deal updating and other web maintenance tasks.

2.2 The internet

The internet is the most well known component of the information superhighway
and network infrastructure. To define it in simple terms Internet is a network of
networksIt is a loose association of thousands of networks and millions of computers across
the world that all work together to share information.

E-commerce for SMEs

2.2.1 Background and History

first taking its shape in the early 60s as the ARPANET ( Advanced Research
Project Agency Network, developed by the computer research program of the United
States defense department), over the next several years Internet grew steadily but
unremarkably as government agencies, universities and corporations continued to
develop and hammer out new protocols and architectures. Internet and Electronic
mail made their first appearance in 1972 [Ref 4], but by 1990 the U.S government
officially decommissioned ARPANet , and National Science Federation (NSF) took
over managing internet development this

gave the ultimate uplift, when

privatization and commercialization were facilitated which involved removing

government subsidies to regional networks and barriers imposed by restrictive
acceptable usage policies (1991 present).

350
300
250
200
150
100
50
0
1995 1996 1997 1998 1999 2000

2005

Projected

Fig 2.2.1 Number of world-wide Internet users [Ref 5]

Since then there was a remarkable progress in the number of users as illustrated by
the above chart. People had transformed this powerful technology, to support their
business transactions. This so called supporting technology rapidly evolved into an
inevitable choice for todays business - big or small which intend to go global and
keep up with the competition in todays global village.

E-commerce for SMEs

2.2.2 The world Wide Web (WWW)

The two terms web and internet are often used synonymously, but they are actually
two different things. The world wide web is a subset of the internet. It is a collection
of interlinked documents that work together using specific internet protocol called
HTTP (Hyper Text Transfer Protocol)

Exchange of web pages between the web server (which stores pages) and the
browser (which reads pages) is enabled by the common HTTP which is understood
by both the browser and web server. The web pages are organized using an
addressing scheme, which identifies the web page. Two addressing levels are used
over the web.

IP address . The Internet Protocol or IP is a 4 to 12 digit number that identifies a

specific computer connected on to the internet. Depending on how the Internet
Service Provider assigns an IP address one may have one address all the time or a
different address each time a person logs in.

Domain Name . These are the next level of internet addressing. Domain names
create a single identity for a series of

computers used by a company or an

institution. So while there may be many servers at a given company, each with its
own IP address, they all share a common domain name (eg microsoft.com). The
domain name identifies all the computers in a group. [Ref 8]

E-commerce for SMEs

3 Electronic Commerce

3.1 Definitions
There are many definitions for E-commerce, depending on the perspective Ecommerce can have a definition. The table below lists the definition of E-commerce
under different possible perspectives.
Perspective
Business
On-line
Service
Communications

Description
To automate business transactions and work flows
To provide the capability of buying and selling products and
information over the internet and other on-line services.
To cut service costs while improving the quality of goods
and increasing the speed of service and delivery
To deliver information, products/services and payments over
telephone, communication networks or other means[23]

Talking in terms of SMEs which use E-commerce as a way to reduce costs and
provide services on line, E-commerce can be defined as a process of buying and
selling products and information via a network of computers, this very much satisfies
with ease the needs of business merchants and consumers by reducing the cost of the
product/service and by increasing the speed of delivery. Summing up E-commerce
can be defined as buying and selling electronically. [Ref 6]

E-commerce primarily encompasses two concepts: -

Business to Business transactions (B2B): - Commercial exchange between a vendor

and his supplier, traditionally a market for electronic data interchange (EDI) and new
market for XML (Extensible Markup language).

Business to Consumer Transactions (B2C): - Commercial exchange between a

vendor and individual members of the public.

The E-commerce applications in the B2B market dominate those in B2C. More than
75% of businesses utilize E-commerce for B2B purposes. According to a study by
LCC (London Chamber of Commerce), Internet to consumer trade will hit 1.6tn by

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E-commerce for SMEs

2004 making up over 6% of Europes total trade, and B2B revenue will rocket to
4tn. The survey also points out that it is very significant that the biggest rise in the
use of web sites to generate business is among manufacturers [Ref 25]. To exploit
the commonalties between B2B and B2C, we need to have a means to treat them
alike in a more efficient and more effective way then treating them differently. Such
means are now becoming increasingly available with internet, the web and electronic
commerce technologies such as data mining , electronic payments and copy-right
protection software (Timmers,2000). They enable the convergence between B2B and
B2C to be exploited in new online business models, these will be discussed later in
this section. The majority of B2B transactions are conducted by EDI and/or
extranets. (Refer Appendix F for and example)

3.2 The EDI (Electronic Data Interchange)

EDI has been around for almost 30 years in an non-Internet environment, and is also
called the back bone for E-commerce. Traditional EDI involves translating of
standardized business and trading processes such as purchase orders, invoices,
payments, shipping and delivery schedules into a globally understood business
language and transmit them between secure trading partners using secure
telecommunication links. This uses dedicated or leased telephone lines or VAN
(Value Added Networks) to carry out these data exchanges. Well- known retailers
such as Home Depot, Toys R Us, and Wal Mart would have operated differently
without EDI. Most businesses of smaller size could not benefit from EDI mainly
because only small number of their business partners have EDI and also due to some
major factors such as:

Significant initial investment

Requirement for business restructuring

Long start-up time

Use of expensive networks

High operating costs

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E-commerce for SMEs

The fact that EDI is not a good solution for running businesses on line for small
businesses is evident from the above factors. With the increasingly universal and
cheaper alternatives being offered by Internet based technologies such as Ecommerce, more organizations are now adopting such alternatives also to keep up
with their future needs.

Here it is important to mention the term Business Model for E-commerce, because
defining its Business Model is the first step and stands paramount in the systematic
approach of building any business on-line. A Business Model can be define as an
architecture for product, service and information flows, including a description of
the various business actors and their roles; and
A description of the potential benefits for the various business actors; and
A description of sources of revenue. [Ref 24]

There are a huge number of possible business models that can be constructed,
however we observe in practice only a small number of these being implemented. To
list down a few :

E-procurement

E-Malls

E-auctions

Virtual Communities

E-shops

Collaboration Platforms

Third party Marketplaces

Value Chain Integrators

Value-chain service providers

Information brokerage, Trust and other services

12

E-commerce for SMEs

Models such as the E-procurement, Value Chain Integrators are used widely in B2B
E-commerce supply chain, involving procurement or supply of goods. Considering
the current scenario of SMEs, business models based on

two of the above

mentioned business models seem to be widely used. The E-shops and Information
brokerage, Trust and other services. A company having its web site can be
considered to have a basic E-shop other services such as providing shopping carts
and on-line payment are add-ons which depends on the companys decision.
Businesses providing help organize and find information over open networks, and
some of special category which provide services such as digital certification fall
under this class.

3.3 Origin and history

Electronic Commerce applications date back to the early 1970s, with innovations
such as Electronic Fund Transfers (EFT), however this was limited to large
corporations, financial institutions, and a few daring small businesses, with the
emergence of EDI which expanded from financial transactions to other transaction
processing and enlarged the participating companies from financial institutions to
manufacturers, retailers, services and so on. With the commercialization of Internet
in the early 1990s and its rapid growth, the term Electronic Commerce was coined,
and EC applications expanded rapidly. From 1995 to 1999 we have witnessed many
innovative applications ranging from advertisement to auctions and virtual reality
experience. And now less than a decade later of its origin, many medium and largesized organizations already have a web site.[Ref 18]

3.4 Internet and E-commerce

The Internet is the most well known component of the information superhighway
network infrastructure. Today the internet spans several continents connecting the
distributed information. This not only rules out the once existing geographical
barriers, but the very general infrastructure targets not only one E-commerce

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E-commerce for SMEs

application such as video-on-demand or home shopping but a wide range of

computer-based services such as e-mail, EDI, information publishing, information
retrieval and video conferencing which are also form a subset of E-commerce, all
these being offered in a cost and time effective way through a commonly available
technology. In short Internet can be viewed as the technology that enables Ecommerce in a global way [Ref 6].

3.5 Working Framework for E-commerce

There are several frameworks using which E-commerce can be described like the
WWW Architecture (Kalakota, whinston 1999), Open market E-commerce server
architecture (Turban et al, 2000) and others. But the Merchant Server Architecture,
best describes the E-commerce architecture in the current scenario. This architecture
indicates the components involved in a transaction involving a vendor and a
customer as can be seen in most SME E-commerce transactions.

Fig 3.4 Working framework for E-commerce

The above figure outlines the major components in an electronic catalogue merchant
server system. As shown above a single server is used to handle product
presentation, order processing, and payment processing. Similarly in this architecture
a single database is used to store the catalog and handle orders. The pages of

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E-commerce for SMEs

electronic catalog are created dynamically from the product descriptions contained in
the catalog database. For those merchants who only deal with few products the pages
for the web catalog are created well in advance thus eliminating the need for a
catalog database. This standard framework supports the following components

Catalog templates

Shopping carts

Product searching

Cross-selling

Secure payment processing

Some of these concepts will be discusses in the succeeding sections. The other
frameworks can also be adopted, but this entirely rests on the budget allocated by the
SME, and also on the type of the E-commerce being used i.e. Business to Business
or Business to Consumer (these concepts would be discussed in the subsequent
chapters).

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E-commerce for SMEs

4 Small and Medium sized Enterprises

4.1 Some definitions

To have an overall understanding of the SMEs it should first be clarified exactly

what is meant by a Small business. Although there has been a long great deal of
arguments over the issue of definitions by small business theorists and researchers
(Bolton 1971; Binks and Coyne, 1983; Curran and Stanworth, 1984) no entirely
acceptable solutions have emerged.

Bolton Report 1971. The best description of the key characteristics of a small firm
remains that used by the Bolton Committee in its 1971 Bolton Report on Small
Firms. This stated that a Small firm is an independent business, managed by its
owner or partly-owners and having a small market share. It also recognized that size
would be relevant to sector. For instance a firm of a given sector could be small
compared to others in a different sector where the market is large and there are many
competitors, where as a firm of similar proportion could be considered large in
another sector with fewer players and/or generally smaller firms within it.

Similarly it recognized that it may be more appropriate to define size by the number
of employees in some sector but more appropriate to use turnover in others. But for
the purposes of official statistics it is most usual to measure size according to
number of employees or their equivalent [Ref 19].

4.2 Factors determining Size of an SME

There are different interpretations for determining under what category, an enterprise
falls under. The factors that may determine the companys size can be :

The number of employees the company hires

The Maximum annual turnover

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E-commerce for SMEs

The maximum annual balance sheet total

The maximum % owned by one or many enterprises not satisfying the above
criteria.

The table below illustrates these interpretations in figures [Ref 1]

SIZE OF COMPANY MICRO SMALL

Maximum number of
10
50
employees
Maximum annual
7m ECU
turnover
Maximum annual balance
5m ECU
sheet total
Maximum % owned by
one or several enterprises
25%
not satisfying the above
criteria

MEDIUM
250
40m ECU
27m ECU

25%

Table 4.2 Factors determining size of SMEs

4.3 SMEs in U.K

There were an estimated 3.7 million active businesses in the UK1 at the start of 1999,
of which there has been a considerable growth during 1998-99 in businesses having
1-4 employees. SMEs in UK are involved in almost every business sector other than
electricity, gas and water supply sectors. They cover a number of different industry
types like chemicals, electrical and electronic engineering, metals, footware/clothing,
rubber/plastics,

giftware

and

in

other

sectors

such

as

supplies

and

transport/communication. The share of employment provided by these SMEs varies

greatly from one industry to another. In construction sector SMEs contributed to
84% of the total employment, however the share of employment and turnover in
1

This includes an estimate of very small businesses that do not appear on the official business
register, since they are estimated using survey data, the reliability of data is lowest for smallest class
of businesses.

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E-commerce for SMEs

SMEs was the highest among those businesses based in Northern Ireland, and
lowest among those based in London, the south east, the north east and the Humber.

Its also an intresting fact to note that Ireland is gradually becoming UKs SME
capital. There has been an export of $3.29 billion worth of software from Ireland
last year mainly from the SME sector. There are an increasing number of SMEs in
Ireland which have been utilizing E-commerce as their prime business strategy. If
SMEs get left behind in the new economy, the whole country gets left behind said
Vivienne Jupp, senior partner with Anderson Consulting and chair of the
Information Society Commission of Ireland. 69 % of Irelands SMEs have some
form of net access, and most of them have been online for more than a year. [Ref 17]

Another sector that is note worthy and is increasingly being benefited by Ecommerce is the food sector. The web is a perfect fit for the sales of fresh fruits,
vegetables, and other perishable food items which are usually dealt by the SME
sectors. Products such as fruits are low margin products, quickly perishable and need
very quick sales decisions. The fruit industry in Europe is quite fragmented, and the
web helps pull the industry together, said Alan Holmes, managing director of
www.WorldOfFruits.com. [Ref 17]

4.4 Importance of SMEs to the Economy of U.K

Small and Medium Enterprises are significant in their contribution to the economy of
United Kingdom. There are an estimated 1.3 million SMEs that run all over U.K,
which sum-up to over 90% of the businesses in U.K [Ref 2]. Most of these
companies fall under the Small enterprises category with less the 10 employees. The
SMEs in U.K employ over 40% of the private sector work force and account for
40% of the U.Ks

turnover. The growth and health of this sector is therefore

important for the economic and social uplift of U.K. Considerable attention has been
paid to SME base over the last ten to fifteen years, without understanding the roles

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E-commerce for SMEs

of large firms and their links into the SME base [Ref 3]. Large firms still dominate
regional economies in terms of output but not in terms of jobs. However a healthy
and growing large-firm sector is essential to the growth of SMEs, from where the
bulk of new jobs will emerge in the future. Growth of a large firm indirectly reflects
the growth of SMEs in that region as large firms tend to outsource their business to
smaller firms in terms of contracts and sub-contracts.

4.5 Behavioral aspects of SMEs in the new Economy

The primary focus of Small firms is on business survival through minimization of

cost, maximization of income and thereby maximization of profits. Reduction of
cost can be in terms of reducing the paperwork, or reducing unnecessary man-power
E-commerce, was considered by many SMEs as a reactive measure for improving
their business, in some cases as a response to the request by larger organizations
which were their customers. But there is a probable question that arises, before a
small company thinks of an E-commerce solution. Would the implementation of Ecommerce yield lucrative results? This question also depends on different issues
such as the sector of the SME, the turnover and the behavior of the clientele or
customers. SMEs are involved in a very diverse business fields. It can be found in
U.K that SMEs are involved in almost every business sector, resulting in an intense
competition. companies run into crises mainly because of bad services and response
and many end up in a very short period, and loose business to their bigger
counterparts, partly because they do not have sufficient resources to withstand crises
and partly because many businesses lack understanding and importance of a sound
business plan.

With the astonishing growth of the Internet, businesses are beginning to find new
ways to expand their opportunities. It seems everyone has a web site these days. And
yet the task of setting up a web site is often not as simple as it seems to be. Some
business sites lack focus and functionality while others fail to take advantage of their
full potential.

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E-commerce for SMEs

Do you need a web site ? This should be the first question asked. A business should
think about what they intend to accomplish by establishing a web site. Mere
implementation of an E-commerce site may result in unnecessary and futile
investment of the organizations limited financial resources. When an organization
intends to implement an E-commerce solution, one question that is to be borne in
mind: what positive impact will it have on the business and is the company ready
with a business plan in place ? Then, Depending on the size of the business and
how one wants to grow it, an e-commerce solution provider is to be approached.
During a recent interview conducted by the Computing magazine [Ref 7], some of
the new business leaders stipulated a few rules for the new economy :

Speed is more important than stability.

Growth is more important than profitability.

Instinct is more important than research.

And most important of all as one director put it

The idea is everything the rest is just execution

One may dismiss the internet culture as just another technological feet. But
something is happening in the high-tech industry that hasnt happened in the U.K
for a long time. People are taking a risk and making serious money and many have
realized that this is the right time to strike. There are many online solution providers,
which help SMEs go about, solving their e-commerce necessities, like IBM [Ref 8].
As it is said Look before you leap, it is always wise to consider the benefits Ecommerce has to offer before one can think of implementing it.

E-commerce transforms the way business handles day to day issues including:

Attracting new customers

Retaining existing customers

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E-commerce for SMEs

Reducing operating costs

Increasing cash flow

Attracting, retaining and training staff

Understanding competitors activities that may impact your business

High investments by many big organizations were made on E-commerce .

Successful Companies like Dell have transferred their business onto the internet.
Today Dell sells over $2 million worth of computer equipment everyday, IBM has
aimed to trim up to $500 m off its expenses by reducing the paper invoices, e-mail
handling and other related costs and will be shifting 75% of its sales onto the internet
by the end of 2001[Ref 9].

An organization or business intending to have a web presence must operate with an

equally strategic level as they would do in a business without E-commerce. Key
business initiatives such as Sales Force Automation, Quick Response, Just-in-time,
Business Process Re-engineering, Efficient customer Response, Supply Chain
Management, all could be embraced as components of an overall E-commerce
business strategy.

The very purpose of an E-commerce infrastructure is to provide interoperability, for

instance between the SME and its trading partners. The required infrastructure must
thus be built, keeping in mind the IT know-how of the SME. Therefore certain
guidelines must be laid in order to achieve a desired level of reliability, security and
robustness to make the business dependent on the outcome.

4.6 E-commerce as a business strategy

Think Global act local this is the slogan that drives many companies to adopt Ecommerce into their business. In-fact this very much applies to small or medium
companies which intend to globalize their business, more and more companies are
having their web presence, because internet is one global network that anyone can
master with ease. Internet, other than publicizing and promoting products online also

21

E-commerce for SMEs

enables a company reach the vast customer community. More people implies more
business. Before trying to make the best out of E-commerce, a proper E-commerce
business strategy is very much vital. Let us first consider the various stages involved
in setting up a business on-line.

4.7 Stages involved in setting up a business on-line

The first step for improving business is by setting up an e-commerce site.. Setting
up an E-commerce site is similar to setting up a shop wherein you need to know your
business environment, customers, competitors, and ways to promote your store.
According to Michael Porter[Ref 24] , there are three generic competitive strategies
that can be followed by firms to achieve commercial success:

1 Cost leadership : In order to build and increase market share, it is always necessary
to have pursuing position in the market of being the lowest-cost producer.
2 Differentiation : Providing a product or service with a unique characteristic, which
allows the company to charge a relatively higher price and thus a relatively a higher
margin.
3 Focus or Niche : Concentrate on a specific market segment.
There were a few tips published by IBM on similar lines, to mention a few: [Ref 10]
Tip 1 : Develop a market management plan before setting up your site identify
your target customers and understand their behavior and preferences.

Tip 2 : How the products or services offered will be perceived by a customerCertain products need physical evaluation before a decision can be taken, does your
product fall under this category ? if so how can this be made more perceivable to a
customer.

Tip 3 : How efficient is your web-site ? customers will not wait for a long time to
access a web site. The popularity of a web site depends very much on how fast

22

E-commerce for SMEs

customers can access it on their computer and customers often find downloading
which takes more than 10 seconds unacceptable.

Tip 4 : The overall design and structure of your web site must be clear and up to
date A site should be appealing and encouraging to the customer visually and
informatively. Corporations must adhere to a fixed schedule of updating their web
site quite regularly. A unaltered web site might induce a sense of monotony in the
mind of the customer.

Tip 5 : Emphasis on the interactivity and communication of the web site A

customer by all means should be given a chance to express his opinion by different
means like discussion forums, feedbacks. On the other hand being able to interact
with customers means a company can more effectively provide customers with
targeted personal services and strengthen their relationship.

Tip 6 : Does your business have a database to capture all your customer
information Many web sites provide this through a membership service, by
providing the customer with a username and a password. With the help of an
analysis about their customers a company could tailor its program and response, like
for instance the customer response to price adjustments, or payment method etc.
There are a number of companies offering a gammut of services at very competitive
and affordable prices. Magic Moments (www.magic-moments.com ) is one such
company Ive come across. Companies like these host a variety of E-mail and webhosting packages. These services are primarily marketed keeping SMEs in mind,
the services start from domain name registrations to E-commerce shopping cart
facilities and real time payment solutions at an affordable price.

Hosting an informative web site ends the first phase of setting up your E-commerce
solution. The crucial part of any business lies in sustaining its growth, which means
how a business is maintained. Bad maintenance of a business may result in a
business loosing its market value and may even lead to its shutdown. Most SMEs

23

E-commerce for SMEs

having started EC applications do it for marketing purposes via a home page and
more and more often include the possibility of basic transactions such as on-line
orders, covering rather the business to consumer side [Ref 16] . There are many
aspects that need to be considered for a healthy growth in business.

4.7.1 How can the existing customers be kept

As a small business owner, one may always be looking for ways for cutting down
the operating costs of daily business such as rents, salaries, office supplies,
telecommunication etc. But the cost of keeping an existing customer happy can
quickly add up. E-commerce lets you connect with your customers when they need
you or when you want to. One can set up his E-business such that customers can
track their shipments or find product description at your web site. E-mail can be used
effectively to maintain customers, for instance you can send out a notice about a
special offer to all your customers with one key stroke, this can be done at home or
on move instead of from your office.

4.7.2 Reduce your operating costs.

One doesnt need to have an office in every geographic location that is targeted for
the business. And because you can reach both local and world wide markets through
internet, there is no need to employ many employees or have transport for selling the
product, and because your can communicate with your suppliers on-line there is no
such need to keep as much inventory on hand as you did previously or perform the
same amount of administrative tasks as you did before. The potential savings are
obvious.

4.7.3 Attract, keep and train a productive staff

One of the greatest assets of a successful, small business is a productive staff.

According a recent survey by EUROSTAT it was found that more then 90% of

24

E-commerce for SMEs

businesses in U.K comprise of SMEs and out of that more than 36% of them fall
under the Small enterprises category and employ less than 10 employees. It is
therefore very much essential to have a well-trained staff. Most employees look for
challenging and flexible work, the opportunity for career development and a good
salary. Implementing E-commerce into your business, means that you are ensuring
your employees that you are doing business in the most efficient and competitive
manner possible. The staff can be offered challenges and flexibility they want (for
example they can use E-mail and work from home or from another remote location,
Tele-working is once such concept). So as your business grows more efficiently with
the use of E-commerce tools and solutions, so too will your profitability, allowing
you to offer your staff the kind of salaries and opportunities that will make them
want to stay with you for a longer term.

4.7.4 Regulate and increase your cash flow.

Cash flow is perhaps the most important aspect of a small business. Without a
positive cash flow ( for payment of periodical things such as supplies, salaries,
advertising and other promotions) a business cannot sustain for a long time. The cash
flow in a business can be improved from all sides using E-commerce. Customers
would be able to buy products over internet and payment is made electronically even
before the product is dispatched, with this you can reduce your inventory carrying
costs and focus more towards advertising budget, and reducing costs will increase he
cash flow.

4.7.5 Going Global

Going Global is the next phase of expansion, once an organization has enough
resources to withstand itself and take risk. Whats involved in going global ? Going
global may seem like an intimidating task. Questions like Will international visitors
come to my site ? do pop up. During a recent survey conducted by IDC in the U.S it
was seen that only 45% of the sites make any efforts to accommodate non- U.S

25

E-commerce for SMEs

customers [Ref 11]. And only 11% of the sites display and accept sales in the local
currencies. Is it acceptable to loose a major chunk of sales out there ? Most Ecommerce sites which are entirely in English dont even ship outside their country,
this cuts out another majority of sales.
here are a few things that need to be done to globalize your site :

1. Find a way to ship globally : International shipments have to be handled.

Shipping services such as FedEx and UPS handle such shipments. Customers
need to be informed about the shipping tariffs and customs charges as applicable,
these can be taken care of by the shipping services like FedEx, but the process is
to be made clear before the shipment is dispatched.
2. Add multiple currencies to your site : Merchant banks generally accept
charges in any currency as long as the merchant sends the currency information
along with the purchase information with the sales details. Make minor changes
in your product presentation pages or your shopping cart so shoppers can see
what theyre going to be charged in their local currencies.
3. Convert your site to local languages : German and Japanese should be at the
top of your list. According to Forrester and IDC research, Japan will have 57
million web users by 2003 and by 2004 will have $1.6 trillion in online revenue.
So Japan is not a bad place to start with. The below chart shows the classification
of web sites on the language used.
4% 2%
2%
4%
4%

9%

5%
5%

57%
8%

English 57%
Spanish 5%
Korean 2%
Others 9%

Japanese 8%
French 4%
Italian 4%

German 5%
Chinese 4%
Portuguese 2%

Fig 4.8.6 Percent of adult Internet users by languages spoken

26

E-commerce for SMEs

4. Employ multi-lingual customer services : As long as a web site is being

displayed in international languages, you should expect customers to want to
communicate in their own language, this can be dealt in two ways. Contract with
a customer service center with native speakers, or translate the written language
into English and vise versa.

Sites such as www.US-Style.com handle such tasks such as localizing the web site,
managing e-mails customer inquiries and cultural content.

4.7.6 Advertising your web site

A new web site is like a new product in the market. People do not know about it
until it is brought to their notice through advertising and promotion. It is equally
important to advertise your web site as build it, as it is at the end of the day the
number of visitors that matters to a business web site. More visitors imply more
business. There are several ways to advertise a web site, depending upon the budget.
Advertising through other popular web site is perhaps one of the most common
ways. Certain web sites which run search engines like www.msn.com,
www.yahoo.com and www.ask.com , are but a few sites. Certain web sites are also
advertised through T.V commercials, but this obviously would cost more. And of
course magazines and newspapers also serve as an effective media. But advertising
online would be the best way to advertise, as the web people would almost instantly
access site.

6%

20%

22%

11%
21%

20%
6% Computing

22% web navigation/portal

21% Entertainment

20%News/reference

11% Other

20% Financial Services

Fig 4.8.7 Online Ad placement in UK by type of site [Ref. 5]

27

E-commerce for SMEs

A study launched by the Enterprise DG of the European Commission highlighted

the fact that Business to Business web sites accounted for 61% of business web sites
in Europe, while the figure stood at 43% in North America. Business to Consumer
web-sites accounted for 39% in Europe and 57% in America (Refer Appendix D for
some FAQs relating to E-commerce).

4.8 Risk Assessment in SMEs A necessary measure

Companies and organizations transacting business over the internet face potential
exposure in a number of areas. Electronic financial transactions, bill collections,
disclosure of sensitive information through e-mail. Companies face major threat in
the areas of intellectual property, security and business reputation exposures
[ Ref 12].

Organizations should consider conducting a risk assessment of their exposures over

internet. A company should review their possible exposures in their Internet
inventory which can be in e-mail, Database maintenance and marketing, financial
transactions, advertising, copyrights etc.

4.8.1 Intellectual property

The most valuable asset for any high-tech company is its intellectual property.
Intellectual property in cyberspace includes copyrights, patents, trademarks, service
marks, trade secrets, brand names and brand equity. Protection of intellectual capital
is one of the most overlooked aspects of risk management over internet. An
intellectual property lawsuit can lead to many obstacles for a company, such as
shortening a products life cycle, decreased earnings per share, loss of equity, and a
compromised cash position. An uninsured IP claim rises many problematic issues in
an organization.

28

E-commerce for SMEs

In past very little was done in the insurance industry to help clients protect their
intellectual assets. Today, insurance and risk management consultants have
developed various ways to protect and defend their intangible assets. Basic risk
management

procedures

include

obtaining

signed

disclosure

agreements,

maintaining records and documents, conducting patent searches, and notifying legal
counsel when new products are developed so that patent applications can be filed.

4.8.2 Advertising on the web

Advertisements on the internet are subject to the same Federal Trade Commission
regulations as ads that are broadcasted or publicized through print. Disputes and
litigations most frequently arise out of comparative claims, false claims or use of
unsubstantiated testimonials, use of terms such as satisfaction guaranteed ,
deceptive pricing and offers that use words such as free, bonus or gift.

4.8.3 Other Potential Pitfalls

Copyright and trademark infringement is another major area of concern for online
business. Individuals or corporations that distribute an unauthorized copy of a
protected work can be directly liable, even if it is unintentional. Other areas include
property damage, theft, business interruption, libel and slander, damage to reputation
and loss of market share.

The risks discussed above are by no means restricted to Small or Medium sized
businesses. Large organizations and corporations are equally prone to these risks. A
complete risk audit is necessary for any company doing business over the internet,
because it can help prevent a potentially catastrophic situation.

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E-commerce for SMEs

4.8.4 Some Legal Issues

The legal issues involving E-commerce for SMEs has both bright and dark sides of
it. The e-commerce bill or the e-trade bill which was published recently is a
government policy framework which lets businesses and individuals safely trade
online with a framework for the provision of public encrypted services will also be
regulated, which means that they must meet minimum standards for the customer.
The key aspect of the bill is the use of digital signatures for E-commerce. The
Department of Trade and Industry (DTI) is responsible for the bill. The bill to certain
extent has been useful by providing E-commerce customers and vendors by
ingraining concepts such as data encryption and digital signatures, but the bill gives
ministers broad powers to control the use of encryption, and allows the police and
law-enforcement community to tap data transmissions [Ref 29]. The consequences
for IT managers could be unpleasant. This bill does have a negative impact on the
businesses both on the SME and big industrial sectors, as this may lead to UKs Ecommerce being ignored by rest of the world, because of a possible security breach
and may lead to UK loosing business to rivals in countries with flexible frameworks.

SMEs have increasingly been pointing out problems of being held back by
restrictions on credit card transactions. Banks in UK have been inhibiting E-trade
progress in Small and Medium sized businesses by refusing to let them clear creditcard transactions on-line. This is the most important reason for the slow take-up of
E-commerce in Small and Medium businesses in UK. However we convert only
5% of those who apply to us to do online trading. The banks are declining the rest of
the applications the reason being that should a firm go out of business, any bank
which issues it an ID will be liable for unfulfilled card purchases.(Gavin Breeze, MD
of credit card payment gateway- DataCash). To accept online credit card
transactions, businesses must be granted Merchant ID by a card acquiring bank.
The largest acquirers are Natwest and Barclays, which control nearly 80% of the
market.

30

E-commerce for SMEs

Key Escrow is another legal issue that is still under debate. Although defining
escrow can be difficult, as this encompasses many issues such as cryptography and
Trusted Third Party (TTP) , but basically the process of escrow is : Buyers and
sellers deposit documents and money with a neutral third party to be held. When
certain conditions agreed upon by both buyer and seller are met, the third party (the
escrow holder) then distributes the documents and the money. There have been
many attempts made by the UK government to implement Key Escrow into the ecommerce legislature, but this issue has remained a paradox, the evident reason
being that Vendors and buyers feel vulnerable departing from their confidentiality,
and handing over their vital information to a third party. Due to these reasons it has
still been a debate, if Key Escrow would help or hinder E-commerce.

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E-commerce for SMEs

5 Case Study

SMEs are now using e-commerce in their everyday business practices in order to
integrate more fully into their respective supply chains . I have come across one such
interesting article on an experiment that was conducted by British Telecom (BT) on
fifteen organizations in the industrial sector of south Wales (ISW), with varied
business classes like manufacturing, service sector and regular exports [13]. Three of
those SMEs were of particular interest as they represented both Business to
Business and Business to Consumer trading. The three organizations represented
typical SMEs (were in compliance with the table shown in definition of SMEs)
The three companies have been named A, B and C for convenience.

Company A undertakes small manufacturing activity such as hose and couplings

fitting and can be classified as service activity. Companies B and C however are
manufacturing based companies. All the three companies were technologically
capable and were willing to be experimented. Therefore it was decided to install
ISDN lines for all the three companies to ensure fast and speed data
communications, since company A was more into industrial supplies, it relied more
on catalogues, so the company was tested for installation of e-catalogues
development by BT. Companies B and C have some ongoing R&D processes and
which could be boosted through desktop video conferencing systems. All three
companies had their own web sites designed.

Company As operations were more straight forward which involved sourcing of

supplies and sales teams interaction with customers.

Its major customer circle

covered Aiwa, Sony, Azcom. In August 1997 the marketing manager initiated a
Business process re-engineering (BPR) project, and evaluated the entire companies
operations by early 1998. The initial strategy being to consolidate the existing
supplier base. The internet has been used exclusively to find a team of consultants to
asset with this project. Company As customer base is hi-tech, so the manager feels
that by the improved means of electronic communications and understanding the

32

E-commerce for SMEs

difficulties facing them has resulted in generation of new business for the company.
The manager is increasingly using e-mail to build good relationship with his
customers.

Company B increasingly uses Internet for downloads, software upgrades, obtaining

data sheets and other technical information. The company also provided an upgrade
for its testing product on the web, which it did by asking its customers to download
from the web. Traditionally the company would have to supply 1200 hard copies of
the upgrade to it customers which would have costed it 7200 ( 6 * 1200), but
now the company just distributed one each to the twelve customer bases, with the
remainder being downloaded from the web. This simple solution saved the company
5305, by the spring of 1998 the company had therefore realized subsequent
benefits from E-commerce. This savings led to the company appointing new
employees for taking responsibility for the E-commerce activities in the company.
The profit gained by the company is as illustrated in the below table.
Cost Without e-commerce

/annum

Fixed costs :
7200
1200
paper
manuals,
printing and distribution (@
6/ copy)

Cost With e-commerce

Fixed costs :
1200
paper
manuals,
printing and distribution (@
6/ copy)
line installation
ISDN terminal adapter
Rental
BT internet account
Web-site
development/design

/annum

72

400
329
352
130
600

Total costs

7200

Variable costs

12

Total costs

1895

Saving with e-commerce

5305

Table 1 : Benefits for company B by using e-commerce

33

E-commerce for SMEs

Company C has benefited very much from the use of internet for supplying its
suppliers with all the necessary information and obtaining information about its
competitors. The companies main savings are made out of its automated daily
sales/manufacturing plan which it obtains from a major customer. This process of
data exchange is automatically received and processed with the minimal manual
intervention, thus saving two days of human labor per week, which turns out to be an
equivalent of 4600 per annum. The cost the company has to bear is 9 minutes of
phone call per day, the savings of the company started with 2653 the year
following the first installation of the ISDN line and the profits kept increasing the
following year. The below table shows the companies profit statistics. Thus this gave
time for company C to concentrate more on the productive shop-floor side of its
business thus contributing to more production with lesser staff. The second major
benefit that the company had was to the customer in that, what was a 400,000
stock-holding of company Cs looms which has now been reduced to 200,000,
which is half the amount in just 9 months, the manager expects that this cost will
reduce further. Thirdly this customer has now given 100% of its loom orders to
company C which resulted in a 10% increase in the companies turnover.
The time it took for the company to realize its profits was short. The electronic link
was established in March 1997, by May the benefits could be perceived, and by
August 1998 the lucrative benefits were all evident. The gist of the solution being in
the speed of communications backed by a simple internet e-mail link (Refer
Appendix E for statistics).

34

E-commerce for SMEs

Cost Without e-commerce

/annum

Cost With e-commerce

Fixed costs :
Two-fifths of clerks time
{@ 11 500salary}

4600

Fixed costs :
ISDN line installation
ISDN adapter
Rental
Clerks time
{@ 5.53/hour}
CompuServe account

Total costs

4600

/annum

400
329
352
719
72

Variable costs

75

Total costs

1947

Saving with e-commerce

2653

Table 2 : Benefits for company C from e-commerce

There is a growing importance for e-commerce in SMEs as shown by the above

experimental study. All the three SMEs which were experimented had benefited in
some way or the other as can be seen by the pre and post experimental statistics. The
major benefits that E-commerce can provide to SMEs in interaction with their
trading partners are faster communication, more effective dissemination and
collection of information, and closer relationships through out the supply chain. The
major issues are technology incompatibilities and a lack of understanding of
potential benefits

The most important requirements of E-commerce to SMEs are access to

information about E-commerce and generic products/services, which can be easily
implemented.

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E-commerce for SMEs

6 Future
While some of the legal issues still lye stranded in uncertainty, one thing we can be
sure of is that this is only just the beginning E-commerce revolution and over the
next few years E-commerce can be expected to have a profound influence on the
way every individual and business conducts trade. The advent of interactive digital
TV and unwired mobile internet access will take E-commerce well beyond the
realms of the PC-literate to create a truly mass market phenomenon.

The Wireless Application Protocol or simply WAP is an open, global specification,

which gives mobile users with wireless devices the opportunity to easily access and
interact with information and services. WAP is the technology that enables access of
Internet through a mobile communication device like a mobile phone. WAP is
picking up quickly. In the UK, telecom giants like BT, Vodafone, Orange are
already providing these services to their customers. It is predicted that In the near
future, there would be greater number of people accessing Internet over mobile
devices, than over the PC. Probably because Europe records the highest percentage
of mobile phone users in the world. Presently there are not many WAP enabled websites, but According to a recent report from Forrester, ninety percent of the ecommerce executives interviewed plan to launch Internet sites designed for mobile
phones. so doing business the WAP way has a lot to hold for businesses in the near
future.
Interactive digital TV promises an E-commerce boom. For the first time viewers will
be able to treat their TV like a PC. Interactive digital TV consumers will be able to
surf the web, send e-mail and pull up text based information about the program they
are watching. According to Microsoft which conducted its own findings about the
interactive digital TV prospects in U.K, 67% of web TV participants considered
buying goods online. One-third of the participants said they were willing to pay for
online banking and shopping in future. This suggests that TV will become a key
channel for delivery of E-commerce in future. The reason is simple: more people
have access to TV set than PC. 40% of UK homes have a PC where as 98% have a

36

E-commerce for SMEs

TV. On the other hand TV is seen as reliable and simple to use technology. But
looking at the darker side - setting up on digital TV is not as simple as setting up on
the internet, its not simply porting existing web sites to TV, as organizations must
overcome several obstacles. Several aspects on the web sites such as the amount of
text, the elimination scroll bars at the same time keeping in mind not to involve too
much of technical jargon i.e. avoiding concepts such as log on a PC illiterate may
not understand such terms, instead usage of more user friendly instructions are to be
incorporated [20]

There has been an increasing uproar among the E-merchants about the security and
reliability of online payment. This is one area, which needs a desperate uplift to
build the trust of consumers. Many companies have been working on this subject to
develop a much more reliable and secure payment transaction system. Few of them
have come out with a solution which can be expected to hit the Internet market, very
shortly. Wave Systems has developed one such solution. Online payment is
controlled by a chip within the computer, or optionally through a USB port device.
So the consumer having this device can got to the Wave Systems site, sign into their
server and using a credit card put the money into their chip. Unlike the normal
payment, money in this model resides on the client rather than on the server. Thus
the merchant need not connect to the server to authenticate the customers payment,
thus avoiding bottlenecks at the gateway server which would other wise happen. at
the same time the client is relatively secured without having to dispose his bank
details every time he shops online. [Ref 21]

6.1 Prospects for EDI

As discussed in section 4.6, the EDI has its own limitations. But it is a matter of
concern how organizations, which run EDI in the traditional manner, can compete in
an Internet based society. When considered as a channel for EDI, the Internet
appears to be the most feasible alternative for putting business on-line and in
particular B2B trading, which is virtually within the reach of any organization large

37

E-commerce for SMEs

or small. Companies who currently possess traditional EDI have had a positive
response to Internet based EDI (Turban Efraim et al, 2000). A recent Forester
Research inc. survey showed that by late 1997, 8% of the companies were already
moving to Internet based EDI and another 12% were piloting systems and 32% were
considering them. It is also said that 16% of the traffic will move from VAN and
leased lines to Internet. The Internet simply serves as an alternative transport
mechanism to a more expensive lease line. The combination of web, XML and Java
makes EDI worthwhile even for small infrequent transactions. The EDI on the other
hand is not interactive but the wen and Java were designed specifically for
interactivity as well as ease of use.

6.2 The introduction of the Euro

The share of SMEs that are or plan to be fully euro compatible, increased from a
low initial value in 1999 and are expected to hit well over 90% in 2002 in euro
countries and about 50% by the end of 2002 in non-euro countries. Less than one
fifth of the SMEs expect a negative impact of the euro on their business. The graph
below illustrates these figures.

0
1-9
10-49
50-249
0

20

40

60

large positive effect

Small positive effect

Small negative effect

Large negative

80
No effect

Fig 7.1 - Anticipated effect of Euro on businesses by enterprise size.

38

100

E-commerce for SMEs

The share of enterprises expecting positive effects increases from just over 20% for
companies without any employees to over 45% for medium sized enterprises.[Ref
22]

Although the UK is not joining in the first wave, a surprising 19% of the UKs Small
and Medium sized Enterprises have amended their business strategy to accommodate
the Euro according to Grant Thornton International Business Strategies Ltd. [Ref
26]. The UK SMEs were also more positive about the Euro than their German
counterparts (27% Vs 21% respectively), and 21% of UK SMEs were expecting to
invoice in Euro by the end of this year. Overall only 65% of Euro zone SMEs
surveyed expect to be invoicing in Euro by the end of 2000.

Australian based E-commerce software developer 3Dcubed said it has come up with
an international solution to help SMEs deal with the introduction of the Euro
currency. The software package called Shop Factory solves the Euro blues by
including the fixed currency conversion rates for Euro membership, this allows
selecting Euro as a secondary currency solving the dual currency problem for
merchants. Shoppers can also switch among 60 currencies with conversion rates
updated daily.

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E-commerce for SMEs

6 Discussions and Conclusion

It is difficult to draw qualitative conclusions about SMEs and E-commerce, partly

because this is very much an emerging market, with many of the SME examples
discussed having been set-up recently. Driven by the competitive pressure many
SMEs have entered the E-commerce market, many without preparing a proper
business case. Many SMEs, which have already implemented E-commerce, do not
have sufficient experience to assess a proper business case for continuing this
experiment. However SMEs are still experiencing certain extent of success with Ecommerce, this fact is quite evident from the case study that has been discussed, this
is in line with the fact that E-commerce activities are experimental add-ons to
existing businesses. KITE analysis report of E-commerce practices in SMEs
suggests that many SMEs surveyed have very low expectation of cost benefits to be
gained from E-commerce. They are very interested however, in quality benefits such
as access to new markets, which demonstrates a positive outlook. This suggests that
SMEs engaging in E-commerce are also prepared to take new challenges, such as
developing new ways of dealing with expansion into their customer base.

The majority of SMEs covered during this study are mainly focused towards
customer-facing E-commerce, perhaps because this is the easiest way to take off,
with the least disruption to the existing system as on the other hand dealing with
B2B application demands integrating the supply chain electronically which means,
changes to internal process such as automating and electronic maintenance of
databases and other inventory related aspects which points out for a greater
availability of time and money both of which are typically in short supply in SMEs.

A variety of other different issues and day to day problems are increasingly being
highlighted by SMEs. Surveys conducted by KPMG suggest that financial and labor
costs mainly arise during the pre and post-contract (E-commerce) stages. Small
businesses do not have the resources of medium to large sized corporations with
which they may trade everyday. This factor hinders the entire business of an SME

40

E-commerce for SMEs

due to the fact that the required or preferred, investment in skills and technologies
cannot be met. A survey conducted during the time of the experiment being
conducted by BT (Discussed as Case study- section 5) there were a number of
problems encountered by SMEs during the pre-contract, contract, and post-contract
stages.

The below figure illustrates the higher response levels of problems

10 Pre-contract
9

Contract

Post-contract

8
7
6
5
4
3
2

poor customer service

not utilising relationships

lack of support infor

slow design development

daily financial management

non-focused marketing

increasing enquires

market research

poor comm

1
sourcing supplies

number of SEMs with issues

encountered during the pre E-commerce trading in businesses.[Ref 13]

Fig 8 Number of SMEs facing types of problems during pre, on- contract and post-contract stages

For a majority of internet-enabled SMEs in UK, E-mail is the most important used
facility. Most businesses have understood the efficiency and effectiveness of this
communication tool (Refer Appendix E) .

Legality is another problem when it comes to SMEs. Certain issues are as discussed
in the Legal Issues section. But there is a lack of standards when it comes to

41

E-commerce for SMEs

digital signatures for authentication, which leads to resistance for conducting

transactions electronically. Additionally concepts such as acceptance of electronic
documents, invoices and other types of electronic documents are not well into the
knowledge of the SMEs as many SMEs are not well acquainted of the legal
framework and therefore have a chance of getting lost in the discussion of what is
recognized as legal and what is not.

The security issue is perceived as important across regions. Relatively new

technologies such as SET, SSL etc. are yet to take important role in the standards.
The discussion over the taxation issue also prohibits a fast market penetration,
especially in the case of SMEs with business activities in several countries the
taxation issue is not transparent. The basic issues involving standardization and
security are a key issues to be solved especially for SMEs because they do not have
law departments as large organizations do, leaving them in a legal dilemma. These
aspects of the emergence of electronic commerce (and their relationship with the
Single Market) deserve further study despite a number of open issues that are yet to
be resolved.

The SMEs are a dynamic force in the UK representing almost 99% of businesses
and more than half of the turnover. In most industries with a few exceptions the
majority of businesses are SMEs. The recent developments in ICTs (Information
and communication technologies) are providing new ways in further growth Internet
being the prime tool. The introduction of electronic commerce also involves the
introduction of new ways of doing business. Resistance to change can also be
expected from small and large organizations alike. Extensive research was done at
Monash University Center For E-commerce Queensland Australia. The findings of
the study were generalized to most of the SMEs through out the world. The findings
are summarized as follows:

42

E-commerce for SMEs

There is a great amount of resistance for change in the existing system that
SMEs function on, partly due to the technology phobia, and general confusions
generated by misinterpretations of its consequences.

Electronic commerce in most SMEs is not given priority. The managers are
more concerned about the day to day activities and lack thinking in long term
basis.

Implementation of a new technology, and its realization is a gradual process, it

takes some time before the actual benefits can be reaped. For SMEs to embrace
E-commerce technologies three key areas need to be addressed :

1. Demonstration of a real business need in order that E-commerce receives priority

2. Availability of a reliable and cost efficient telecommunications infrastructure
which will enable E-commerce technologies to be implemented.
3. Availability of E-commerce enabled software that is simple to install, operate
and maintain.

There are many factors that SMEs have to consider before they can actually think of
implementing an E-commerce solution. An SME with a proper cause and reason
identified can be successful, provided:

The right E-commerce solution is adopted

A proper telecommunication infrastructure is implemented

The SME is confident enough to absorb good business and recover the cost of
implementing and maintaining the solution.

Due to the rising awareness ICTs like Internet and its universal acceptability, there
has been a new perspective in which E-commerce is being dealt with. The evident

43

E-commerce for SMEs

reason being the cheap and extensive communication possibilities it has to offer.
While the more advanced levels of electronic commerce present substantial
challenges, the more basic levels are now well established and supported by "off the
shelf" solutions. The best way of gaining the mastery of electronic commerce that
will be vital in tomorrow's markets is to try it today.

44

E-commerce for SMEs

References

Web sites visited :

[1.] Small and Medium Enterprise (SME) - Definitions
http://www.dti.gov.uk/SME4/define.htm (last accessed 31-08-2000)
[8] CNET features techno- 20 questions:how the net works, 4. How does the web
work?, www.coverage.cnet.com/Content/Features/Techno/Networks/ss05.html
(last accessed 20-8-2000)
[5]
NUA
Statistics
(1999),
How
many
online
world
wide,
http://www.nua.ie/surveys/analysis/graphs_charts/index.html (last accessed 28-7-99)
[6] SME & e-business-Is your business ready for E-commerce
www.hk.ibm.com/sme/corner/ready_ecommerce.html (last accessed 19-07-2000)
[10] SME & e-business-e-business- Road to Success for SMEs set to expand on the
Internet, www.hk.ibm.com/sme/corner/roadsuccess_e.html (last accessed 19-072000)
[11] Globalization of E-commerce: Are you ready ?, Alexis Gutzman(May 17,
2000)www.ecommerce.internet.com/solutions/tech_advisor/print/0,,9561_365241,00
.htm l ( last accessed 29-07-2000)
[12] Julie Davis, Executive vice President , Aeon Technology, san-jose Ecommerce still a risky business ( Last accessed on 15-07-2000)
[13] A J Davies & A J Garcia Sierra (July 1999) Implementing E-commerce in
SMEs Three case studies ;; BT Technology Journal, Vol 17, No:3,
www.bt.com/bttj/archive.htm
[14] E-commerce web solutions provided by StepOne
www.ecommerce.stepone.co.uk/charges (last accessed 22-07-2000)
[16] Booz- Allen and Hamilton, The way forward in electronic commerce for
SMEs, G7 Global Marketing for SMEs First Annual Conference, Bonn April
1997 (www.ispo.cec.be/ecommerce/sme/reports/wayforward.htm). (Last accessed
16-08-2000)
[17] Madanmohan Rao, EM Wire E-business is critical for Small and Medium
Businesses, report from the SME e-Business Summit in Dublin.
( www.electronicmarkets.org/electronicmarkets/electronicmarkets.nsf ) ( Last
accessed 4-08-2000)

45

E-commerce for SMEs

[21] Alexis D Gutzman, Payment Solutions - Wave E-commerce System,

www.ecommerce.internet.com/reviews ( Last accessed 29-07-2000)
[22] KPMG Consulting and EIM Small Business Research and Consultancy, The
European Observatory For SMEs - Sixth Report executive Summary,
www.europa.eu.int/comm/enterprise/enterprise-policy/analysis/doc/eurob5en.pdf
(Last accessed 09-08-2000)

[25] James Middleton (2000), South East tops UK

www.uk.internet.com/Article/100458 (last accessed 29-08-2000)

dotcom

league,

[26] Euro Matters Spring 1999: Europes SMEs and the Euro (1999), www.grantthornton.co.uk/whatsnew/newsletters/euro/enews9.htp?frameset=yes (last accessed
29-08-2000)
[27] Anderson Consulting (2000), eCommerce Defined- Five Rules of the
eEconomy, www.ac.com/ecommerce/five_rules.html (last accessed 16-08-2000)
[28] E-commerce legal FAQs, Dr E-commerce,
www.drecommerce.com/legal.html (last accessed 3-09-2000)

Books, Magazines and Journals referred:

[2] Internet.Works magazine, Ybag bags business to business site. Aug2000 issue,
pg11.
[3] (May 1999), UK round Table on Sustainable Development :Small and Medium
Sized Enterprises
[4] Kalakota R, Whinston A.B. Frontiers of Electronic Commerce", Published by
Addison Wesley in 2000, 4thed.
[7] Computing magazine, issue 28 th October 1999, (2000), pg44

[15] Williams P; Arthur Anderson, Marshall R; Elite Strategy Clinic Consult the
experts, Computer Weekly, issue 3rd August 2000,pg 33.
[18] Turban E, Lee J, King D, Chung H.M., (2000), Electronic Commerce A
Managerial Perspective; Prentice Hall.
[19] Bolton, J.E. (1971), Report of the committee of Inquiry on Small firms (Bolton
Report), Cmnd. 4811, Her Majestys Stationary Office, London.

46

E-commerce for SMEs

[20] Clarke G, Preparing for E-commerce with the TV, not the PC Computing
magazine 22nd July 1999 pg (16-17)

[23] Lawrence E, Corbitt B, Tidwell A, Fisher J.A and Lawrence J R. (1998),

Internet Commerce Digital Models for Business; John Wiley Sons
[24] Timmers P (1999), Electronic Commerce Strategies and Models For Business
to Business Trading, John Wiley & Sons Ltd.
[29] Anderson R, Will E-trade help or hinder you online?, computing magazine 5th
Aug 1999, pg 10 11.

47

E-commerce for SMEs

Appendix A

My Experiences with the project

My overall experiences throughout the working of this project have been pleasant.
The initial discussions and meetings helped me find focus. Getting an idea about the
overall concept was not an arduous task as some of the fundamentals and basic
concepts were covered in the IS5 (Office Automation) module, which I opted for in
the first semester. This project provided me with an opportunity to learn new
concepts and some business theories relating to conducting business on-line. The
internet was of particular help not only for deriving information required for the
project, but also for helping me find new facts, many new articles and different
statistics which otherwise I might not have come across. The E-mail group Topica
(www.topica.com) was quite resourceful, my correspondence with several
researchers of similar interests had been quite encouraging. I personally feel that this
project helped me equip myself with the latest facts, figures and theories relating to
E-commerce, which is still an emerging field, and I am sure that doing this project
has given me an added advantage with the knowledge I had possessed during this
academic session. I suggest other students working on similar projects, that it is quite
important to set aims and objectives right from the beginning of the project. This not
only would help orient ones research but also would help early completion of the
project.

48

E-commerce for SMEs

Appendix C

MSC PROJECT OBJECTIVES AND DELIVERABLES

This form must be completed by the student, with the agreement of the supervisor of each project, and
submitted to the MSc project co-ordinator (Mrs A. Roberts) by 7th April 2000. A copy should be
given to the supervisor and a copy retained by the student. Amendments to the agreed objectives and
deliverables may be made by agreement between the student and the supervisor during the project.
Any such revision should be noted on this form. At the end of the project, a copy of this form must be
included in the Project Report as an Appendix.
Student:

_Raj K Gunturu________________________

Programme of Study:

____MSc Information Systems____________

Supervisor:

____T G Gough________________________

Title of project:

E-Commerce for SMEs _______________

AGREED MARKING SCHEME

Understand the
Problem

Produce a
Solution *

Evaluation

Write -Up

Appendix A

TOTAL
%

20

40

20

15

* This category includes Professionalism (see handbook)

OVERALL OBJECTIVES (continue overleaf if necessary):

Define E-commerce in SMEs

Discuss the present situation of SMEs in UK

Discuss how E-commerce can improve a business

Provide some tips for setting up a business online

Show how E-commerce can be lucrative in SMEs (through a case study)

Legal issues and Future

Overall discussion and conclusions

49

100

E-commerce for SMEs

DELIVERABLE(s):
1. A project report.
2. Electronic copy of the project report

Signature of student:

Date:

Signature of supervisor:

Date:

50

E-commerce for SMEs

Appendix D

Some FAQs about E-commerce

FAQ 1. What should I prioritize online ? As the person responsible for IT in a small
to medium sized enterprise in Midlands I see how cutting-edge things larger
enterprises are doing in field of E-business. My question is what should you do
online ? and how should you prioritize with only limited budget at you disposal ?

Ans: There is no point in acquiring or developing sophisticated e-business

technology if your suppliers and customers are unlikely to use it. Reviewing the
effectiveness of your web site, if any is necessary or setting up a new one if not, is
necessary. The basic cost of setting up any shop web site is relatively low and almost
any serious business is expected to have such a site. While a web site may not
generate significant business directly, but there may be negative consequences if a
company does not have any.

It all depends on the nature of your business, who your customers and suppliers are,
and how competition works in your markets. This is a very vast field and some of
the things you can do are relatively low cost and could pay for themselves quickly. If
a company needs to publish product information that keeps changing frequently with
new products, then a web site is ideal. If part of that information is confidential, than
that can be restricted to some registered customers with a fair increase in cost. The
next level would be to sell on the web depending on your customers again. [Ref 15]

FAQ 2. What are the different components that make up a e-commerce site, and
approximately, how much would it cost me to have a basic set up?

51

E-commerce for SMEs

Ans: For an organization to have a basic e-commerce site, the following components
are required :

Domain name registration: A name that uniquely identifies your company on the
internet. You can have one or more domains. A domain is not a trademark, and is not
your property. It is merely assigned to you in exchange for an annual subscription
fee.
Costs : 50 (minimum 2 years)

Web space: An allocation of hard disk space on the internet service providers web
server(s), which you may use to store the HTML pages, images, sounds and
downloadable files which comprise your web site.
Costs 100 per 15-Mb web space

Advanced services can also be incorporated by paying extra charges, they include:

Active Server Pages (ASP) hosting: A Microsoft technology that allows web-based
HML pages with built in scripts to be produced on the fly according to the input and
browsing environment of the user. Typically ASP can be used to query, update, add
and delete database records over the web.
Costs 100

Full text site indexing: A piece of software that indexes documents automatically in
the background, and provides fast full text searching capabilities, often with a
flexible and complex query language, allows search for information using key
words, instead of following links by trial and error.
Costs 50 per 15-Mb data

Microsoft JET database hosting: Originally Joint Engine Technology (JET) is the
database engine behind Microsoft Access. Still used extensively but suffers from
certain limitations, which will be largely replaced for many of Microsoft Database

52

E-commerce for SMEs

Engine (MSDE), which is actually a cut down but fully compatible version of SQL
server 7.
Costs 50 per 15-Mb data

Database Hosting: Microsoft SQL Server 7, used for maintaining the database of the
company from where the data is retrieved through the web site.
Costs 100 per 15-Mb data. [Ref 14]

FAQ 3. If I start a business in UK, selling goods via the Internet to the residents in
other EU states, what rate of VAT will apply to sales within the EU but outside the
UK? I am assuming I will be selling in large volumes so will meet the threshold for
tax registration in a number of EU states.
On my business web site would I need to publish the VAT rate and/or amount
applicable for destination country when displaying prices?
If I were to start selling services via the Internet, would the rules be the same as for
the supply of goods?

Ans: As you have pointed out in the question, each member state has a threshold. If
your sales to that member state exceed threshold, you are obliged to have a VAT
representative in that member state, charge VAT at the member states rate and have
your VAT representative file VAT according to that member state. If your sales do
not reach that threshold, then you charge VAT at UK rate and file locally. It is to be
not that this is for B2C E-commerce. If you are selling to other businesses, then you
do not charge VAT, but your customer takes the responsibility for VAT in his/her
country. These have to be made clear to the customer, prior to the purchase
agreement. It is necessary in this case, to know where your customer resides.

If you are selling services ( note that electronic products such as downloads, music,
software etc are all defined as services in the VAT directive) on a B2C basis, then
you always charge VAT at your own local rate, regardless of level of sales or

53

E-commerce for SMEs

thresholds. If the customer is another business then the situation is same as with
goods. [Ref. 28]

54

E-commerce for SMEs

Appendix E

Small Business Use of the Internet in the UK

Use
E-Mail
Business Research
Personal Research
Purchase goods/Services
(business use)

Purchase goods/Services
(personal use)

Sell/Market Products

1999
71%
58%
50%

1998
76%
71%
64%

43%

38%

31%

35%

26%

29%

Fig E Percentage of Internet usage in the UK according to business type

The 19th annual Dun & Bradstreet Small-Business Survey was conducted in
February and March of 2000, the total internet using population of has touched 10
millions. It was found that 40% of Small businesses have their own web sites, up
from just over a quarter last year, and that 70% now have internet access up from
57% last year. But while 31% of the small business decision-makers responding to
the survey said the Internet had helped them, nearly 60% said the web had no
measurable impact on their business. There is a notable significance in the fact that,
top use of the Internet among small businesses is e-mail. Every other categories of
Internet usage fell significantly over the previous year with the exception of
purchasing goods and services for business use.

55

E-commerce for SMEs

Appendix F
The ANX as a value adder to the Supply Chain

The automotive industry is perhaps the best example that vividly depicts the complete
Business to Business supply chain cycle. In September 1997 the three big U.S
carmakers and some other auto industry companies began piloting what could become
the worlds largest extranet, the Automotive Network Exchange (ANX) . The ANX
promises to cut down costs by billions of dollars and change the way the auto supply
chain does the business. This facility was later on extended by linking suppliers over a
single connection. This though was met with limited success in the initial stages, but
soon paved an easier way of conducting business through supply chain.

Automaker #1

Automaker #2

Single protocol
Single Link
Consistent
service security

Automaker #3

ANX
Network

Supplier #1

Supplier #2

Supplier #3

Fig C - The ANX Supply - Chain Network.

The diagram above shows how Manufacturers and suppliers are connected over the
ANX runs on a single protocol and provides easy connectivity, with security. The
network helps auto suppliers (some small and mostly Medium sized organizations)

56

E-commerce for SMEs

reduce the time it takes to turn around an order. The faster the parts arrive the faster
the cars leave the assembly line. Ford Co., for example, hopes to compress some
work-order communications from three weeks to five minutes. Many suppliers are
increasingly moving from private links to ANX, as this facilitates collaborative
product development, solicit and process orders, review designs, post shipping
schedules and trade e-mail messages over a reliable internet based communications
network. [Ref 18]

57