ICT in E-Business and SMEs in Developing Countries: Status and Barriers

Abstract

With the continuous spread of the Internet and its related applications, the adoption of information and communication technologies (ICTs) by enterprises has grown considerably over the past few years. New e-business practices are more and more integrated into existing business processes of large enterprises. Business firms use ICTs for their internal automation like office and production processes, customer relations and supply chain management, and for the management of distribution and logistics networks. Internet use, for instance, may range from simple website presence to tire complete integration of business functions. As a result, e-business practices are being increasingly considered for evaluating the impact of ICTs on economic growth and business performance. The adoption of ICTs by enterprises through connecting to the Internet is a major step for small enterprises (SMEs) in developing countries. It requires management and technical skills, as well as organisational changes and investments that are often not affordable. Further, although SMEs have been found to have the greatest potential for productivity gains through e-business, ICT usage usually increases with the size of companies. E-business firms need to have good managerial capacities, technical skills and innovation, which may be harder to afford for SMEs in developing countries. On the other hand, importantly, ICT usage by SMEs in the developing countries of Asia and Africa has enabled many firms to adopt internet connectivity and its active use for communicating with suppliers and customers. This is particularly true of companies in urban areas, whereas the urban- rural digital divide excludes many SMEs located outside the major cities. Several instances have demonstrated the correlation between ICT adoption and profitability/productivity of firms; however, from the point of view of the company owner, one of the major reasons for not using ICTs is the perceived limited impact on business profitability, often coupled with the argument that few suppliers and customers are online. On the other hand, if companies experience a positive impact on their business - for example, an increase in the number of customers, they would be wi lling to invest in hardware and connectivity. In other words, the readiness of SMEs to invest in ICTs is not necessarily a cost factor. In fact, studies by UNCTAD (2004) reveal that the availability of personal computers (PCs), the Internet and ICTs is high among companies located in urban areas, and there are no significant differences between small and medium sized companies as regards basic access to and use of the Internet (such as e-mail). However, the more complex tasks, in particular automating and integrating the business processes, are carried out much less frequently by SMEs. E-commerce is still rare and small companies use more e-marketplaces, whereas medium-sized companies use company websites (of third parties or their own) for selling online. Service companies are the most active users of ICTs and the Internet, followed by trade and manufacturing (the least active). This corresponds to findings in other developing regions and is partly explained by the fact that functions such as marketing and selling services online require basic Internet access and website presence, and less system integration related to, for example, supply and value chain management, as is the case in manufacturing. This paper will focus on the adoption of ICTs by SMEs in three developing country regions. It will investigate which companies use ICTs according to sector, size, location or target markets (foreign or domestic); the costs and benefits of using ICTs from the point of view of SMEs; the specific circumstances faced by SMEs which may impact ICT usage, such as access, quality, costs, skills or finance; and the kind of assistance they may need to enhance their e-business activities. Most of the existing knowledge about the use of ICTs in enterprises or e-business, and its impact on business performance in the developing world is based on anecdotal and case study evidence, and little statistical data on e-business are available. The paper looks at the potential and the current adoption of ICTs by enterprises, using available data mainly from developed countries, and discusses