E-commerce in Malaysia: Perceived Benefits and Barriers

Ali Khatibi, V Thyagarajan, and A Seetharaman

presents articles focusing on managerial applications of management practices, theories, and concepts

INTER.ACES

Executive Summary

KEY WORDS

E-commerce B2B E-commerce B2C E-commerce Real-time market place

Rapid developments in information technology and telecommunications have set the pace for an electronic revolution leading to emergence of E-commerce. The advent of internet offers many business firms new opportunities and challenges. However, there are various psychological and behavioural issues such as trust, security of the internet transactions, reluctance to change, and preference for human interface which appear to impede the growth of E-commerce. This paper analyses the current situation of Ecommerce in Malaysia, the merits of E-commerce, and factors affecting the adoption of E-commerce. Internet has transformed the traditional marketing model and system. Besides functioning as a communication medium, it has been used as a market space where buyers and sellers exchange information, goods, and services without the hindrance of time and geographical constraints. Marketing functions are performed under a hypermedia-computer-mediated-environment where interactivity and connectivity are replacing the traditional mode of face to face negotiation and communication. Internet allows interactivity between buyers and sellers to create a shared real-time common marketspace. Connectivity links buyers-sellers worldwide creating a shared global marketspace. No other industry in the world history has achieved a rapid growth in as short a time as E-commerce. Though only a few years old, E-commerce has taken off at an unprecedented speed despite much skepticism and some initial hesitation. It is universally accepted that the world is in the grip of an E-commerce revolution. But, the hyper growth of Internet sales is still an American phenomenon and E-commerce has not taken off in other parts of the globe although some countries like Europe, Japan, and Australia are rapidly joining the bandwagon. Although E-commerce is a relatively new method of business, it has radically altered the marketing and distribution paradigms. The scale of business generated through Ecommerce is multiplying exponentially. However, Malaysian E-commerce industry has not taken off as expected. Based on primary data collected by MATRADE using a survey of 222 Malaysian manufacturers, traders, and service providers, this paper examines the perceived benefits as well as barriers to E-commerce adoption. Though the sample firms felt that E-commerce was beneficial to business in general, they were uncertain as to how it would benefit their actual business operations. The perceived benefits included: competitiveness better image efficient processes better information system. However, despite the perceived benefits, E-commerce adoption was hindered by a number of constraints. Major barriers were thought to be the problems of keeping up and understanding the technology itself lack of trained manpower uncertainties with regard to its operations and regulations high switching costs. These findings are helpful in providing the firms perspective of E-commerce in terms of its benefits to their companies as well as barriers to its full scale adoption. Hence, any policy that aims at promoting E-commerce should take these factors into consideration. The results support the development of E-business portals to cater to their needs and rectify their problems. E-commerce portals would enable companies to share the high investment cost of constantly changing technology, reduce the manpower requirement, and keep abreast with the advances in technology.

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he advent of Internet has transformed the traditional marketing model and system. Besides func tioning as a communication medium, internet has been used as a market space where buyers and sellers exchange information, goods, and services without the hindrance of time and geographical constraints. Marketing functions are performed under a hypermedia-computer-mediated-environment where interactivity and connectivity are replacing the traditional mode of face to face negotiation and communication. Internet allows interactivity between buyers and sellers to create a shared real-time common marketspace. Connectivity links buyers-sellers worldwide creating a shared global marketspace. No other industry in the world history has achieved a rapid growth in a short time as E-commerce. Though only a few years old, E-commerce has taken off at an unprecedented speed despite much skepticism and some initial hesitation. Internet sales are estimated to exceed USD1.2 trillion by the year 2002 (www.nua.ie). It is universally accepted that the world is in the grip of an Ecommerce revolution (Aldrich, 1999; Evans and Wurster, 1999; Hagel and Armstrong, 1997; and Schwartz, 1999). But, the hyper growth of internet sales is still an American phenomenon rather than the worlds. E-commerce has not taken off in other parts of the globe although some countries like Europe, Japan, and Australia are rapidly joining the bandwagon. With the exception of Japan, Hong Kong, and Singapore, E-commerce in Asian countries is basically underdeveloped. Nua Internet estimated that, as of September 2000, a total of 377.65 million population of the world were wired to the Internet. About 161.31 million of them (or 42.7 per cent) were from North America, 105.89 million or 28 per cent where from Europe, and only 89.68 million or 23.7 per cent were from the Asia-Pacific. Hence it is not surprising that E-commerce is concentrated in the North American countries. In the Asian region, Malaysia ranks seventh in terms of the number of Internet host after Singapore, Israel, Hong Kong, Korea, Taiwan, and Japan. Mynic (2000) reported that the number of dotcom servers in Malaysia has increased significantly from 100 in 1995 to 4,738 in 1999. These dotcom servers account for nearly 90 per cent of the total servers in the country. IDC Market Research (M) Sdn Bhd estimates that the current number of Malaysian Internet users is about 1.26 million, and by 2004, it should approach 4 million. Malaysia accounts for

about 1.2 per cent of the total Internet population in the Asia-Pacific Rim which is relatively small compared to 30 per cent (USA), 18 per cent (Australia), and 14 per cent (Singapore). In 1998, Malaysia spent about RM57million on E-commerce purchasesa small figure relative to her GDP of RM372 billion. International Data Corporation (IDC) estimates that the number of Internet buyers in Malaysia will increase from 0.1 million to 0.87 million in the year 2003. The majority of buyers are expected to come from the home buyer sector followed by the small business buyers (22.9%) and medium/large, government, and educational buyers with each accounting for 18.3 per cent (Table 1). The data in Table 1 suggest the enormous potential of E-commerce in Malaysia. Despite the launching of various programmes particularly the Multimedia Super Corridor (MSC) and other incentives, the success has been limited. This paper seeks answers to the reasons for the slow adoption of E-commerce from the firms perspective. The total revenue from E-commerce activities in Malaysia was estimated at RM187.3 million in 1999. This figure will roughly double every year and is expected to reach RM5.98 billion by the year 2003. The money, however, flew to foreign websites (particularly USA). Currently, the bulk of E-commerce in Malaysia is in businessto-consumer (B2C) transactions and there is a push for business-to-business (B2B) E-commerce. The sluggish performance could be attributed to its embryonic stage and a combination of socio-economic constraints. Since E-commerce is a brand new technology, its proliferation and diffusion require one to identify the specific and peculiar requirements of the industry and hence the need to adjust the technology accordingly. Since E-commerce is still new in the country, research on this subject has been limited with a notable exception of the study by IDC (2000). This study, howTable 1: Internet Buyers in Malaysia (1997-2003)
(Million) Type of User Home www buyers Small business www buyers Medium/Large business www buyers Government www buyers Education www buyers Total www buyers (Adjusted)* 1999 0.03 0.03 0.02 0.02 0.02 0.10 2000 0.06 0.05 0.03 0.03 0.03 0.18 2001 2002 2003 0.13 0.10 0.07 0.07 0.07 0.34 0.27 0.14 0.10 0.10 0.10 0.53 0.55 0.20 0.16 0.16 0.16 0.87

Source: International Data Corporation (2000).

*Adjusted for the overlap of business users and not double-counting them. E-COMMERCE IN MALAYSIA: PERCEIVED BENE.ITS AND BARRIERS

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ever, focuses on the micro issues of the industry such as the current status of the industry and its readiness in adopting the technology. The methodology employed by the study is given in the Box.

Table 2: Profile of Firms Surveyed

Category Manufacturing Consumer product Manufacturing Industrial product Traders Others Total Frequency 77 72 27 23 199 Percentage 38.70 36.20 13.60 11.60 100.00

DISCUSSION
Firms Profile
Table 2 presents the categories of the firms surveyed. About three-fourths of the sample firms were from manufacturing sector, approximately equally distributed between consumer (38.9%) and industrial (36.2%) products. Twenty-seven of the sample firms were from trading or intermediaries sector involved in buying and selling. Only seven firms were in computer-related products. The extent of labour intensiveness of the firms can be gauged from the number of workforce in the company. About 42.1 per cent of the sample firms employed less than 50 workers, 43.2 per cent between 50 to 250 workers, and 14.1 per cent more than 250 workers. The nature of the export orientation of the firms was ascertained through the percentage of company sales destined to the foreign markets. About a quarter of the firms surveyed reported that exports amounted to less than 10 per cent of total sales. Almost 30 per cent reported to export between 11-40 per cent from their total sales, while about one fifth exported between 40-80 per cent of their sales. About a quarter of the firms surveyed had high percentage (between 80-100 per cent) of export sales. A high percentage of firms (63.8%) reported to have less than 10 units of personal computers (PCs), about a fifth owned between 11-25 units of PCs, and the rest of
Box: Methodology
This study utilizes primary data collected through a postal market survey. The sampling framework was drawn from the list of Malaysian companies registered with Malaysian External Trade Division Corporation (MATRADE) as of April 1999. The total number of registered companies was 1,064 and they comprised manufacturers, traders, and service providers. The respondents included the President, Vice President, Chairman, Chief Executive Officer, Director, Export Managers, and executives of those companies. The contents of the questionnaire included the company profile, extent of IT usage, particularly E-commerce adoption, attitudes towards the benefits, and potential of as well as barriers to E-commerce. A five-point Likert scale was used to measure the intensity of the firms attitude towards selected attributes. Out of the 1,064 questionnaires distributed, 199 companies had responded which represents a response rate of 20.9 per cent. The study utilizes descriptive analysis to explain selected variables and cross-tabulation to examine the relationship between variables.
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the sample (30%) owned more than 26 units of PCs. These data suggest that PC ownership is still limited among the firms studied.

Level of Participation in E-commerce

Participation in E-commerce would mean that a firm has the following facilities and activities: e-mail, own servers, operating their sales and purchases through websites, providing product catalogue online, and making and receiving payments electronically. Table 3 provides the status of E-commerce among the firms surveyed. Internet marketing is still minimum, i.e., only 30 firms (15%) reported to make sales and purchases electronically. Only 4 per cent firms owned web servers and only 38.2 per cent had websites. However, about 68.8 per cent of the firms did use e-mail (and hence Internet connection) during the interview period and only 4 per cent reported to have transactional web servers. More than a fifth of respondents provided product catalogue online. Based on the status of Internet usage, the firms are further classified in terms of their intensity of participation in E-commerce. Four categories are identified: nonparticipating, low, moderate, and active participation. Non-participation refers to the respondents who reported to have only one of the facilities or were involved in the marketing practices listed in Table 3. Low level of participation refers to score of 1-2 which means that the firms reported to have utilized at least two of either the facilities or were involved in electronic marketing practices.
Table 3: Status of Internet Usage
Facility/Marketing Practice E-mail Internet connection Website/Homepage Online product catalogue Transactional web servers Company strategy for E-commerce Electronic ordering from customer Electronic payment from customer Electronic ordering from suppliers Electronic payment from suppliers Frequency 137 131 76 45 8 9 15 2 8 5 Percentage 68.80 65.80 38.20 22.60 4.00 4.50 7.50 1.00 4.00 2.50

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Moderate participation refers to score of 3-4. Score of more than 5 puts the firms in the category of active participants. A total of 47 per cent firms are non-participants. Only 15 firms (7.5%) are involved in Internet marketing activities which include having e-mail, web pages, and making and receiving payment using electronic means.

expressed a neutral stand on the subject.

Perceived Benefits
Many claim that adoption of E-commerce results in real operating advantages to the firm. Do the Malaysian firms perceive these advantages? Table 5 suggests that most of the sample firms believe that E-commerce does provide benefits in terms of providing information, enhancing image, improving the business processes, improving customers services and so on. A majority of the firms (about three-fourths) perceive that E-commerce has tremendous benefits.

Attitude towards the Utility of E-commerce

The level of participation in E-commerce in Malaysia is still quite low. What are the reasons? The advocates of Ecommerce claim many advantages. How optimistic are the firms in Malaysia about the utility of E-commerce as a tool of enhancing competitive capability and business prospects? Table 4 summarizes the views of the firms on the benefits of E-commerce. Table 4 shows that more than half of the 199 sample firms believed that E-commerce offers a real competitive advantage; it will help the firm enjoy long-term success; and the competitors will have an edge if they are E-commerce-enabled. More than two-thirds of the firms feel that E-commerce will change the nature of doing business within a short period, and, therefore, most firms accepted to rely on E-commerce in the future. There are significant number of firms (about 30%) which would like to wait and see before they embark on E-commerce. Based on the average rating for the seven statements shown in Table 4, the sample firms could be categorized into four groups: pessimistic (<2.5), neutral (2.5-3.5), optimistic (3.5-4.5), and strongly optimistic (>4.5). The results indicate that a little more than half of the group (51.2 %) were optimistic that E-commerce is the way of doing business in the future. Close to half of the (45.7 %) respondents

Barriers to E-commerce Adoption

Despite highly perceived benefits and optimism, the level of adoption of E-commerce by the Malaysian firms is low. This could be due to a number of constraints and barriers facing them such as doubts on the security and privacy, stringent requirement on technological skill, weariness of the rules and regulations and so on. As shown in Table 6, most respondents give high ratings (above average) on the listed barriers. High on the list are: concern on security and privacy followed by the hustle of keeping up with the technology, uncertainties regarding rules and regulations, high set up cost of Ecommerce, lack of skilled workers and so on. The firms perception of the barriers to E-commerce adoption is further categorized as low, moderate, and high based on the average rating given by the respondents to the 11 statements. A total of 60.87 per cent of the respondents perceive that the barriers to E-commerce are considered high (>3.5) and only 5.98 per cent view the barriers as not very important (Table 6).

Table 4: Response to Statements on the Business Utility of E-commerce

Statement Totally Disagree (1) 1(05.00) 0(00.00) 1(00.50) 0(00.00) 6(03.10) 8(04.20) 32(16.80) Disagree (2) 7(03.60) 5(02.60) 15(07.90) 10(05.20) 10(05.20) 46(24.10) 78(40.80) Neutral (3) 86(44.8) 77(40.1) 74(38.9) 50(26.2) 74(38.3) 83(43.5) 72(37.7) Totally Agree (4) 68(35.4) 81(42.2) 74(38.9) 93(48.7) 78(40.4) 43(22.5) 06(03.1) Agree (5) 30(15.6) 29(15.1) 26(13.7) 38(19.9) 25(13.0) 11(05.8) 03(01.6) 3.6 3.7 3.6 3.8 3.5 2.9 3.7 Mean

E-commerce offers a real competitive advantage to my company Company that embarks on E-commerce will enjoy long-term success My competitors that are E-commerceenabled will have a greater competitive edge E-commerce will affect greatly the way we do business in three years My company will rely more on E-commerce in three years It is better to wait and see how E-commerce develops rather than pursue it now E-commerce is overly hyped up and it will fade away in the near future

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Table 5: Perceived Benefits of E-commerce

Statement Totally Disagree (1) 4(2.10) 6(3.10) 0(0.00) 1(0.50) 0(0.00) 0(0.00) 0(0.00) 1(0.50) Disagree (2) 10(05.2) 20(10.4) 05(02.6) 13(06.5) 03(01.6) 04(02.1) 16(08.4) 09(04.7) Neutral (3) 42(21.9) 27(14.1) 36(18.8) 43(21.6) 20(10.5) 36(18.8) 52(27.2) 32(16.8) Totally Agree (4) 73(38.0) 86(44.8) 85(44.3) 91(45.7) 99(51.8) 76(39.6) 71(37.2) 94(49.2) Agree (5) 63(32.8) 53(27.6) 66(34.4) 41(20.6) 69(36.1) 76(39.6) 52(27.2) 55(28.8) 3.9 3.8 4.1 3.8 4.2 4.2 3.8 4.0 Mean

To To To To To To To To

increase revenue reduce operating cost increase customer service increase the efficiency in dealing with suppliers increase information flow enhance company brand and corporate image increase customer loyalty and retention improve business processes flow

Table 6: Potential Barriers

Statement

to E-commerce
Totally Disagree (1) 2(1.0) 1(0.5) 2(1.1) 4(2.2) 1(0.6) 1(0.6) 2(1.1) 12(6.8) 3(1.7) 1(0.6) 1(0.6) Disagree (2) 24(12.10) 19(10.40) 12(06.60) 31(17.20) 11(06.20) 19(10.60) 17(09.40) 55(31.10) 16(08.90) 10(05.50) 15(08.40) Neutral (3) 73(36.7) 55(30.2) 54(29.8) 63(35.0) 36(20.2) 44(24.4) 36(20.0) 62(35.5) 47(26.1) 43(23.8) 53(29.8) Totally Agree (4) 63(31.7) 85(46.7) 79(43.6) 67(37.2) 73(41.0) 78(43.3) 91(50.6) 41(23.2) 78(43.3) 98(54.1) 87(48.9) Agree (5) 17(08.5) 22(12.1) 34(18.8) 15(08.3) 57(32.0) 38(21.1) 34(18.9) 07(04.0) 36(20.0) 29(16.0) 22(12.4) 3.4 3.6 3.7 3.3 3.9 3.7 3.7 2.8 3.7 3.8 3.6 Mean

Not convinced of the financial and business benefits Lack of knowledge and understanding on E-commerce Uncertainties regarding rules and regulations Computer technology not widely used in our business operation Concern on security and privacy Lack of skilled workers to handle/ maintain E-commerce system Not enough customers/suppliers have internet access Internal channel conflicts with current physical channels High set up cost of E-commerce system Keeping up with changing technology Mindset shift in using E-commerce

CONCLUSION
Although E-commerce is a relatively new method of business, its impact and diffusion was unexpected, i.e., it has penetrated and radically altered the marketing and distribution paradigms. The scale of business generated through E-commerce is multiplying exponentially. The success of Internet marketing was too obvious for the Malaysian firms to ignore or deny the potential and benefits of such a technology. Our sample firms perceived Ecommerce as beneficial to business in general, but were uncertain as to how it would benefit their actual business operations. The perceived benefits included: competitiveness, better image, efficient processes, and better information system. However, despite the perceived benefits, E-commerce adoption was hindered by a number of con-

straints or barriers. Major barriers were thought to be the problems of keeping up and understanding the technology itself, lack of trained manpower, uncertainties with regard to its operations and regulations, and high switching costs. These findings do provide the firms perspective of E-commerce in terms of its benefits to their companies as well as the barriers to its full scale adoption. Hence, any policy that aims at promoting E-commerce should take these factors into consideration. The results support the development of E-business portals to cater to their needs and rectify their problems. E-commerce portals would enable companies to share the high investment cost of constantly changing technology, reduce the manpower requirement, and keep abreast with the advances in technology.

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REFERENCES
Aldrich, D F (1999). Mastering the Digital Marketplace: Practical Strategies for Competitiveness in the Economy, New York: John Wiley & Sons Inc. Evans, P and Wurster, T S (1999). Getting Real about Virtual Commerce, Harvard Business Review, 77, (NovemberDecember), 84-98. Hagel, J and Amstrong, A (1997). Net Gain: Expanding Markets through Virtual Communities, Boston: Harvard Business School Press. International Data Corporation (2000). http:// www.idc.com/Data/AsiaPacific/default.htm Mynic Statistics (1999). http://www.mimos.my/mynic. html; http://www.mynic.net/mynic-reg-summary.htm Schwartz, E I (1999). Digital Darwinism , New York: Broadway Books. V Thyagarajan is a Lecturer in the .aculty of Management, Multimedia University, Cyberjaya. He is a Doctorate in Consumer Behaviour. His teaching and research interests are consumer behavior, product development, and E-commerce. His articles on marketing have been published in leading international journals. He is an active member of the Research Centre for Multimedia Borderless Marketing. e-mail: venu.thyagarajan@mmu.edu.my

Acknowledgement The authors are thankful to the anonymous reviewer for his/her comments, and to the Vikalpa Editor and staff for refining the language and style of the article.

A Seetharaman is a Associate Dean of the .aculty of Management, Multimedia University, Cyberjaya, Malaysia. He is a Chartered Accountant with Ph.D. in Accounts and .inance. He is the Chairman of the Centre for Multimedia Banking, Investment, and Accounting. His areas of interest are accounting, E-commerce, and Internet. His articles have been published in several international journals. e-mail: seetha@mmu.edu.my

Ali Khatibi is Associate Dean of the .aculty of Management, DBA and MBA Coordinator, Multimedia University, Malaysia. He is a Doctorate in Marketing. His areas of specialization are global markets, Internet marketing, and E-commerce. His articles on marketing have been published in leading international journals. He has presented many papers on E-commerce and Internet in international conferences. e-mail: ali.khatibi@mmu.edu.my

This is my prayer to thee, my Lord Strike, strike at the root of penury in my heart. Give me the strength lightly to bear my joys and sorrows. Give me the strength to make my love fruitful in service. Give me the strength never to disown the poor or bend my knees before insolent might. Give me the strength to raise my mind high above daily trifles. And give me the strength to surrender my strength to thy will with love. Tagore

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