Malaysia Smes In Services Industry

Published Date: 02 Nov 2017

Introduction

On traditional markets, firms seeking to compete with a firm with a global presence will first lay the groundwork on a smaller geographical market where they will test their products and build brand recognition and reputation. The existence of geographical and time barriers shields the local development of multiple players. The emergence of Internet & E-commerce is helping to enlarge existing market by cutting through many of these barriers that can prevent firms from gaining access to foreign markets. Many small and medium-sized firms (SMEs) in western countries are using e-commerce as a "business-to-business" tool to open and/or maintain a presence in local or foreign markets. Despite e-commerce has its presence in market for decade, it still remain at infancy stage in Malaysia and majority of the small and medium enterprises (SMEs) are yet to adopt such technology.

2.2 E-commerce Definition

There are various definitions of electronic commerce coined by famous scholars. As per Kalakota et al (1996), e-commerce can be defined from four different perspectives:

From a communications perspective, e-commerce is the delivery of goods, services, information, or payment over computer networks or by any other electronic means.

From a business perspective, e-commerce is the application of technology toward the automation of business transactions and workflow.

From a service perspective, e-commerce is a tool that addresses the desire of firms, consumers, and management to cut service costs while improving the quality of customer service and increasing the speed of services delivery.

From an online perspective, e-commerce provides the capability of buying and selling products and information over the Internet and other online services.

Turban and King (2003) suggests that e-commerce can be the facilitator for inter and intra organizational collaboration and provides a gathering place for community members to learn and collaborate (Turban and King, 2003).

In the context of e-commerce as a tool to conduct business activities, several categories that are rising rapidly in the field of e-commerce today:

Mobile Commerce

E-commerce transaction and activities conducted in a wireless environment and mostly is mobile phones.

Business to Business (B2B)

This is the most common type of e-commerce today. Businesses make online transactions with other businesses. It includes electronic market transaction between organizations.

Business to Consumer (B2C)

These are retailing transactions with individual shoppers.

Consumer to Consumer (C2C)

Consumers are selling directly to consumers.

Consumer to Business (C2B)

This category includes individuals who sell products or services to organizations, as well as individuals who seek sellers, interact with them and conclude a transaction.

Non-business E-commerce

It includes non-business institutions such as academic institutions, non-profit organizations, religious organizations and government agencies using various types of e-commerce to reduce their expenses or to improve their operations and customer service

Intra-business (organizational) e-commerce

This category falls on all internal organizational activities, usually performed on Intranets that involve exchange of goods, services, or information.

2.3 Types of E-commerce Application

Based on the handful of previous studies on adoption of e-commerce applications by SMEs as summed up by Daniel et al (2002), usage of e-commerce could be categorized into the following areas: communication, researching for information, marketing, business with suppliers and business with customers. Furthermore, other literatures revealed that common e-commerce applications such as email and websites could be employed as cost-effective marketing tools in terms of information dissemination, advertising, customers support and servicing as well as brand building. SMEs could employed Internet infrastructure to develop a virtual community or rather a virtual marketplace that could encourage interaction between manufacturers, service providers, suppliers and customers through exchange of information via websites. Although there are many possible uses of e-commerce, empirical studies showed that most SMEs have not fully adopted e-commerce applications and small businesses normally use Internet as a communication tool and the most popular Internet-based communication is email. It could be partly due to they can obtain such the communication tool easily with less resources and expertise in implementing e-commerce application. For the purpose of this research, the author has grouped different types of E-commerce into the followings:

Website

E-catalogue

E-booking/orders

Online payment

Online customer support services

2.4 Malaysia SMEs in Services Industry

Generally, there is no specific definition of small and medium enterprise (SMEs) that has been accepted universally and each country has defined SMEs differently. The definition can be based on a threshold in revenue like it is the case in Canada or it can be based on number of employees as in the UK. In Japan and Korea, the SMEs are classified by the number of permanent workers, capital and sales. According to the memorandum issued by Bank Negara Malaysia, SMEs are defined based on two criteria, namely annual sales turnover and number of full-time employees of a business. For the manufacturing and manufacturing-related services, SMEs refer to enterprises with sales turnover of less than RM25 million or full-time employees of less than 150 workers, while for the services and the other sectors, SMEs are those with sales turnover of less than RM5 million or less than 50 workers. A business that fulfills either one of the criteria will be deemed as an SME. SMEs businesses can be legally structured as entities registered either under the Registration of Business Act 1956 or Companies Act 1965 (BNM, 2005).

In the area of OECD (The Organization for Economic Co-operation and Development), SMEs employ more than half of the labor force in the private sector. In the European Union, they account for over 99.8% of all enterprises which equate to 20.7 million businesses and provided an estimated 67.4 percent of jobs in the non-financial business economy (European Commission, 2012). According to the census report released by Department of Statistics Malaysia, it recorded a total of 645,136 SMEs operating their businesses in Malaysia and this figure representing 97.3% of total business establishments. Out of which, SMEs in the services sector was the largest, with more than 580,000 establishments (DOSM, 2011) and presently the SME GDP grew at an average annual growth of 6.3 percent in the period of 2005-2011 (SME Developments and Outlook 2011).

SMEs services industry in Malaysia is a very heterogeneous group. They are involved in activities ranging from petty traders, grocery store operators, medium-sized contract manufacturers supplying parts and components to multinational corporations and professional services such as software firms or medical researchers selling their services to overseas markets. They also operate in different market environment such as urban, rural, online, physical, domestic, regional and international. According to SME Master Plan 2012, bulk of these SMEs (87%) are engaged in the services sector and about 60% of total SMEs are in the distributive trade services sub-sector. In terms of size, majority is microenterprises with less than 5 workers as the Chart 2.1 and most of the SMEs are concentrated in the Klang Valley (Selangor and Federal Territory) account about 35.7%. SMEs employed about 59% of total private sector employment and two-thirds of the workers are in the services sector (SME Masterplan 2012). Meanwhile, the higher growth of SMEs in the services sector was driven by the wholesale and retail trade activity, including trading of motor vehicle, which formed the main component of the SME value-added of the sector (52% of total share). In view of the above, the performance of SME services industry has significant implication towards the growth of the country’s economic.

Theoretical Review

It is commonly accepted today that e-commerce has significant effects on the productivity of firms and these effects will only be fully realized if it was widely spread and used. It is crucial, therefore, to understand the determinants of IT adoption and the theoretical models that have arisen addressing IT adoption. There are many reviews of literature on the subject and the most sighted theories are the technology acceptance model (TAM) developed by Davis, Diffusion of Information (DOI) by Rogers and the TOE framework by Tornatzky and Fleischer. The TAM model proposes two specific beliefs i.e. perceived ease of use (PEOU) and perceived usefulness (PU) to determine one’s behavioral intention to use a technology. Behavioral intention is a measure of the strength of one’s intention to perform a specific behavior. DOI theory is examined individuals level would possessed different degrees of willing ness to adopt innovations and innovativeness is related to independent variables such as leader characteristics, organization structure and external characteristics of the organization. Whereas TOE framework is identified three aspects of an enterprise’s context that influence the process by which it adopts and implements a technological innovation: technological context, organizational context, and environmental context. The contingency theory was sighted which found to be relevant in this study as the theory is in attempt to relate research on many management variables from different perspective. The essence of contingency theory is that best practices depend on the contingencies of the situation and it allows the researcher to analyze a situation and determine what variables influence the decision with which are concerned. Scott (1992) suggests that contingency theory is guided by the general orienting hypothesis that organizations whose internal features best match the demands of their environments will achieve the best adaptation. The termed was invented by Lawrence and Lorsch in 1967 who argued that the amount of uncertainty and rate of change in an environment impacts the development of internal features in organizations. Hence, the determinant factors of E-commerce adoption by SME services industry in Klang Valley Malaysia should be carefully examining as each factor will relatively affect the level of adoption. Based on the theories, the study developed a conceptual framework as shown in table 2.5a

2.6 Organization

Top management

The importance of top management support has long been recognized in various literatures. According to T.O.E. framework developed in 1990, innovation of IT would be more likely if the political environment within an organization has norms favoring the change (Tornatzky and Fleisher 1990). Top management support has been identified as crucial in the acquisition and diffusion of innovation. Top management consists of individuals with power and authority to make strategic decisions; thus they can develop a clear-cut ecommerce vision and strategy while at the same time sending signals to different parts of the organization about the importance of e-commerce. Top management can be referred as the most relevant stakeholders in the company (boards and top managers). In view that most of the small and medium companies usually form in a flat organization structure hence the owner or manager has the overall decision making power towards any change in process or new implementation. They have the freedom to provide or withhold their support if not well convinced on the realization of benefit for the change. Chong et al. (2009) suggest that top management support is the most important factor to determine whether the company is ready to adopt the e-commerce. Some other studies also revealed that in SMEs, the role of CEO (top management or owner/manager) is central to enterprise since their decision influences all firms’ activities, both in current and in future (Fuller-Love, 2006; Smith, 2007). It refers to e-commerce adoption from planning stage to the implementation, maintaining, and system upgrade stages. The support and assurance from top management will determine the successful e-commerce implementations in the following:

Business process problems are solved first (investment in technology will not be wasted if the business issues are integrated with the technology).

Senior management is attuned to the opportunities and threats enabled by the economy.

Generating a competitive advantage via e-commerce is a top priority of senior management.

An e-commerce vision with specific time frame and is communicated up and down the organization. A long time frame may be fruitless in view of constant change in the e-economy.

A Culture of information sharing exits within the organization.

2.6.2 Owners/Managers Characteristic & Behavior

While the top management has influencing power towards the e-commerce adoption, however, the decision are mainly based on their experiential knowledge derived from combination of existing competencies of knowledge, personal experience, judgment, and their communication skills (Carson and Gilmore, 2000). Similarly, the characteristic of the CEOs should be taken into consideration for the adoption of any new technology. The study done by Caldeira and Ward’s (2003) has reaffirmed that positive attitude of top management has brought about the relative success of e-commerce adoption in SMEs, especially in manufacturing ones. It is often argues that SMEs are differ from large companies in terms of the way they operate the business and develop corporate strategies and their technology policies. Large companies typically have well-defined processes for developing and implementing strategies through a corporate planning process. In contrast, SMEs often use less structure approaches, strategies and policies that may not be formulated but emerge from a set of actions and experiments. Many SMEs do not possess the technological background which would enable them to use and evaluate IT (Barnes et al, 2008). Successful companies that embrace e-commerce technologies are often the one that the owner takes on the role as innovation champion of the IT adoption. In additional, such champions will have a reasonable level of knowledge and understanding regarding the specific technology.

SMEs are particularly demonstrating conservative and risk-averse approaches towards new changes. Instead of adoption new application such as e-commerce, they prefer conventional, traditional methods (Fillis et al, 2004). As Cyertamd March (1992) also noted that managers of SMEs prefer the comfort of what they perceive as familiar rather than indulging into any new venture. Kotter and Schesinger (1979) provide examples of what they see as the four most common reasons for resisting change and one of it is misunderstanding of the change and its implications, and the belief that change does not make sense for the organization hence low tolerance for change. From the strategic and administrative point of view, SMEs can be seen as an extension of the entrepreneur’s own personality as they are typically informal with minimal differentiation among units due to lack of resources. However, the view from the other side of coins is SMEs tend to be more flexible, flat structured, organic and simple as compared to large organization which requires longer time to come into planning and decision making stage. Cameron and Clarke (1996) suggest that some of the features of SMEs’ made information technology use ideal for their businesses. From the perspective of flexibility and their ability to change and adapt quickly to innovations compared to large organizations. They tend to exhibit more informal communication and a less bureaucratic mode of operation and less rigid functional divisions. They are also having a shorter focus on medium-term survival rather than on long-term profit, which is prevalent in large organizations.

2.6.3 Lack of Skilled Staff

Many SMEs do not know how to profitably develop their e-commerce activities or how to cope with the complex rules governing this area. The lack of appropriate human resources, in terms of technical and/or managerial staff familiar with the IT environment, constitutes a major barrier for SMEs wanting to adopt e-commerce technologies and strategies. According to the Irish findings indicate that most Irish businesses consider that it is increasingly difficult to hire employees with the appropriate skills. (2011580). As comparing to large organization, it has been acknowledged that SMEs are suffering from lack of in-house IT expertise which might negatively influence the process of e-commerce adoption. According to OECD’s report, the talent base of the workforce of Malaysia has lagged behind as compared with other high income nations. The country suffers from a shortage of skilled workers, weak productivity growth stemming from a lack of creativity and innovation in the workforce. Furthermore, majority of small and medium enterprises especially in services industry are over-reliance on unskilled and low-wage migrant workers. As a result, only 25% of Malaysia’s labor force is composed of highly skilled workers, as compared to significantly higher proportions in Singapore, Chinese Taipei and Korea. Businesses in Malaysia, including SMEs, are facing increasing difficulties in recruiting and retaining skilled workers at the technical, supervisory and managerial level (OECD, 2009).

The potential root cause for the above is the emigration of skilled work and professionals from Malaysia to other countries which terms as ‘Brain drain’. According to a World Bank report, the Malaysia brain drain has contributed to the narrowing of an already narrow skill base and deterioration in its overall quality. It has created a mismatch situation between skills needed by the labor market and job seekers. More than 40% of firms have reported vacancies for skilled production worker positions, and the average time to fill a vacancy is about four weeks (World Bank, 2009b). The longer process taken for hiring is because the applicant did not have the required basic skills or the right technical skills needed to carry out the job. Hence, the latest report showing that the average productivity of SMEs is relatively low as compared with large companies. This may due to sizeable employment of unskilled workers by SMEs across all economic sectors of the economy. Without skills workers in place to handle internal processing, the companies are even found tougher to adopt into new technology.

Lack of awareness

Numerous studies revealed that SMEs could benefit by adapting to e-commerce technology as it could help the company to have international market accessibility by enabling clients around the world to shop twenty four hours a day, all year from almost any location. For example, checking the hotel room availability through the company’s website without the needs to call the hotel receptionist or physically make presence there. Place booking through internet and make payments to confirm the order immediately with few clicks. Lawrence suggests that the advent of internet-based electronic commerce allows smaller firms to expand their customer base, enter new product markets and rationalize their businesses (Lawrence, xxx). The ability to provide on-line answers to commonly encountered problems, email interaction on a 24 hour basis could builds customer confidence and retention. Through online help desk kind of facilities allows the company to provide better customer service experiences. The cost of creating, processing, distributing, storing and retrieving paper-based information could decrease significantly as comparing to traditional method of paper recording and filing. Moreover, instead of keeping high level of inventories, the company can gather order from consumers through internet and produce or purchase from suppliers. Keeping the minimum level of inventories allows the company to reduce unnecessary costs such as warehouse and the product gets obsolete. Due to the ability to collect information on customer’s needs and behavioral patterns, it allows SMEs to have more personalized relationships between suppliers and their customers. It could record every event in the relationship, such as customers asking for information about a product. This potential for customer interaction, which is largely asynchronous, facilitates relationship marketing and customer support to a greater degree than ever possible with traditional media (Hoffman et al, 1995). Despite the above mentioned, perceived benefits very much refer to the extent of management’s recognition of the relative advantage of adopting ecommerce in the organization. Rogers (1995) defined relative advantage as the extent to which an innovation is perceived as better than the idea it supersedes or its nearest alternative. It was reaffirmed by Beatty in their study that the adoption and utilization of web-based is basically influenced by the benefits that they received, such as reduced transaction costs, improved cash flow, increased productivity, better customer service and relationship with existing customers and improved operational efficiency (Beatty, xxx). Additionally, e-commerce also offers many potential benefits and those who are quick to adopt the innovation are believe to benefit more than the late adopters. SMEs in Malaysia are typically more conservative and hence the benefit of adopting e-commerce has to be well aware and recognized by the owners/managers otherwise they may more like to stay status quo. Therefore growing awareness and understanding of the advantages of e-commerce among SMEs can positively influence their desire and interest in adopting e-commerce in their businesses.

2.6.5 Perceived of Complexity

Rogers (2003) defined complexity as "the degree to which an innovation is perceived as relatively difficult to understand and use" (p.15). The e-commerce concept is still relatively new to SMEs in Malaysia and hence the systems may perceive to be highly technical and difficult to use or support. The introduction of new technology might require the owner and manager to develop new skills in order to use the technologies. Recruiting skills staff is also trigger to be part of the consideration. Based on a study by Robertson and Gatignon (1986), companies are less likely to adopt innovation or technology if they need to acquire a high level of skill employees. This is simply because of skills workers are higher in terms of pay. It may directly causing additional burden to the companies.

Furthermore, the introduction of technology can be intimidating particularly if it requires them to change their existing businesses practices or acquire new skills (Beatty et al., 2001). The owners or managers need to firm up their strategy and direction. They may need to consider the followings prior to implementing the new application:

[a] Why does the company want to be on the internet?

[b] What does the company want to achieve through business in the internet?

[c] Is the first phase of the implementation focused merely on generating interest in the company or plan to engage into transaction activities on the internet?

[d] Is the internet strategic to the company’s core business or generating new business?

[e] How to align the internal process such as receiving order, deliver product and collect payment?

Financial Factor

2.7.1 Financial Limitation

Traditionally, the small and medium enterprises carried with cost-conscious mindset as most of them are suffering from not having sufficient financial resources and usually the major capital of the businesses are forked out from their personal asset. SMEs are generally more vulnerable as compared to large corporation as they have a weaker financial structure, less diversified in their economic activities, lower or no credit rating, and heavily dependent on credit but fewer financing option. As per resource-based theory, financial resources are one of the most considerable critical resources which are known as the key SMEs performance requirements and subsequently the critical success factors for e-commerce adoption (Rangone, 1999). Limited finance resources has resulted SMEs to cautiously consider for unnecessary move to new application implementation such as e-commerce. An investment to e-commerce can impose drastic financial consequences for SMEs and in extreme circumstances it may lead to an insolvency and economical failure. SMEs usually hard hit during the period of global economic uncertainty; considering the increased payment delays on receivables which added together with an increase in inventories hence resulted in an endemic shortage of working capital and decrease in liquidity. For example, during global crisis, 43% of surveyed SMEs in Belgium experienced delays in their receivables and 50% of SMEs in Netherlands have to deal with longer payment terms from their customers. In Sweden, bankruptcies increased over 50% in the first two months of 2009 (OECD, 2009).

Despite that there are such government grants and incentives extended to SMEs by Malaysia government, however, many SMEs, both rural and urban-based, have not been successful in their applications for these incentives because of deficiencies in the management of businesses. Also, many non-bumiputra owned SMEs shy away from applying for government grants and incentives because the application forms, besides being complicated, require sensitive information that owners are not willing to divulge (OECD, 2012). Moreover, the implementation of minimum wage order which take effect on 1 January 2013 has added on burden to those small entrepreneurs as suffering from higher costs of doing business and facing difficulty to maintain the profit margin. The minimum wage policy may subject firms to higher costs and could result in adjustments through several possible means such as absorbing the increased cost through a reduction in profit margin, increase productivity. Alternatively, the firm may pass on some of the increase in costs to consumers but this may not be a feasible option in an environment where firms face strong market competition (BNM, 2012). The incremental of fix costs within the firm will also impede entrepreneurs to carefully consider on any future investment such as e-commerce implementation.

2.7.2 Costs

Other studies revealed that the price of computer hardware and software has been considerably declined in recent years; hence costs may not be the key factors that hindering smaller firm to adapt into e-commerce. Nevertheless, the author is in the view that the initial starting costs to implement e-commerce should not be disregarded as there are different costs associated in numerous stages of e-commerce adoption. The types of cost involved such as the cost of users training and development, cost of purchasing software or hardware and software, and post deployment costs. The costs factor was studied in other literature also found that it has significant relationship and inter-related among cost and adoption of technology. The lower the cost of adoption the higher the new innovation such as the e-commerce will be adopted by the firm and vice versa (Mansfield, 1968; Davis, 1979). The cost factor was studied by various Information System (IS) researchers and found direct significant relationship between cost and adoption of technology (Cox and Ghoneim, 1996). The cost of accessing internet by most users in developing countries also influences the growth of e-commerce. The priority for most developing countries is to put in place the necessary infrastructure and a competitive environment and regulatory framework that support affordable internet access (OECD, 2004).

2.8 Technology Factor

2.8.1 Security

In the eighties when the internet was in its infancy, its main usage came from university students and professors in an atmosphere of implicit trust. This means that security was not the first thing in mind when the basic uses and functions of the internet were first developed. While in view that now the Internet is everywhere both in public and in private life, thus it has become a vital means for professional and personal. This would require security enhancements to be added to the various communication methods used on the internet after it became widely used. The public internet is a worldwide collection of connected computer networks that are accessible by individual variety ways using a particular set of communication protocols which is known as TCP/IP (Transmission Control Protocol / Internet Protocol). Through this channel, people across the world are become increasingly connected to each other. Hence, there is no doubt that Internet has created innumerable new opportunities for personal interaction and entrepreneurial ventures. However, there are also some criminals taking its advantage and causes the valuable information flowing through Internet lost, eavesdropped, manipulated or misused and the computer system to be made corrupted. Hence, security is becoming one of the most challenging problems faced by consumers who wish to trade in the e-commerce world. If weaknesses in software systems have been detected by hackers and use them to their advantage, catastrophe may follow (Lee and Rahman, 2003). Internet merchant will have to face the loss of consumer trust and loyalty and probably affect consumer not to purchase online anymore if this situation occurs.

There are four main computer security attributes, including confidentiality, integrity, privacy, and availability (Howard, J and Longstaff, T., 1998).

[a] Confidentiality can be considered as secrecy. Unauthorized persons should not gain access to others data or other computing assets. Different degrees of confidentiality are possible in electronic transmissions, as confidentiality can depend on simple passwords, secure connections, or more advanced technologies.

[b] Integrity involves accuracy of data. To achieve integrity, only authorized persons are able to create, edit, and delete data in an approved manner. One should ensure that the prevention of tampering is included when considering this attributes as well.

[c] Availability means computer assets should be available for and accessible to authorized persons when they need them and should not be interrupted.

[d] Privacy is the ability and/or right to protect your personal secrets. It extends to the ability and/or right to prevent invasions of your personal space. It simply means that the subject of information should be able to control the information.

Security issues in any technological-based domain especially e-commerce are still undergoing research and development to identify the common issue that haunting the security aspect in the development of e-commerce sites. There are few common Internet attack methods such as viruses, eavesdropping, hacking, worms, and Trojans. Viruses are usually attached along with a file and its self-replicating programs will run when the file is opened. It may dele information from a document or insert phrases into it. One of the latest incidents in virus attack is happened in a national oil company in Saudi Arabia, which known as Shamoon. According to BBC news, the company has to isolate its computer networks as a precautionary measure (BBC, 2012). Trojan is another type of hacking method where appeared to be benign programs to the user but would have some malicious purpose and also carry some payload such as remote access methods (Frantzen, M, 2001) and it happened in the popular Skype service provider where 480 million Skype users worldwide hit by this virus. It intercepts all audio data coming from Skype and sent to computers that controlled by the criminals (Robertson. J., 2009)

As business move towards adapting on-line trading, the major threats to business are theft of data or trade secrets and manipulation of their internal systems or software applications. The worst scenario would affect the company’s branding and reputation. According to Daily Mail, Sony entertainment was fined for GBP250,000 for the breach of personal information of 77 million play station users and personal data such as details of payment card, names and addresses, dates of birth, and passwords were exposed. The firm was heavily criticized over its handling of the network incursion, as it did not inform consumers of the breach until a week after it began the investigation on the cyber hack (Daily Mail, 2013). Internet threats will continue to be a major issue in the global world as information is accessible and transferred across the internet. Proper security protection by service provider is crucial so that internet users can have confidence engaging in activities on the internet. The growth of e-commerce in the future is depending on the critical measures taken today to search for a better solutions and guidelines. It should not be led to emerge as an alternative way to conduct business while there are vital risks and circumstances still awaits the online customer. Otherwise, internet merchant will have to face the loss of customer trust and loyalty and probably affect consumer not to purchase online anymore if this situation occurs. Researcher suggests that when an e-commerce site is breached or attacked, the customer retention factor is so volatile that it could kill the merchant and business just by the fear and mistrust instilled in customer (Olkowski, 2001).

2.8.2 External Vendor

Due to the complexities in implementing e-commerce, companies increasingly prefer to outsource their information system developments to achieve lower costs, faster implementation and effective use of company resources (Ward and Peppard, 2002). The organization have the option to hire external IT consultants who can assist them in getting the job done and it enabled companies to access the latest technology easily with limited IT resources. However, selecting the right consultant can be a daunting task as many of them claimed that they are worthy to be considered. Despite the mushrooming of IT consultancies in the market, however, their track records are quite difficult to verify. The services rendered by these consultants are not standardized and some organizations in need of their services are still not clear of what they should be expecting from those consultants. Researchers suggest that there is positive association between level of vendor support and successful adoption of E-commerce (Yap et al., 1992). Furthermore, the criteria for an effective IT consultancy service has not been defined which resulting in the vast differences in consultation costs/prices. According to report released by Forrester Research Inc, e-commerce executives are finding that the demand for experienced e-commerce professionals outstrips supply (Internet Retailer, 2012). Hence, SMEs may always face difficulty to implement for any new technology if in absence of both internal and external technicality support.

Infrastructure

The infrastructure of a country positively influences the adoption of new technologies (Kennet. W, 2012). The three service-sector infrastructures of communications finance and payment, and distribution and delivery comprise many of the technologies and processes that create the internet marketplace. The technological infrastructures almost make-up changes on an daily basis with the rapid development of third generation wireless telecommunications and satellite capabilities, smart cards and online currencies, and overnight airfreight and digital delivery. Fixed-line and wireless telecommunications infrastructures form the "backbone" through which the majority of the world's internet traffic travels. These infrastructures hence constitute a basic ingredient for the growth of the Internet and, in particular, the development of value-added internet services such as media-rich content and electronic commerce. Policymakers can lay the foundation for a high quality, fairly priced, and technologically up-to-date telecommunications infrastructures by introducing privatization and competition. With such a policy framework, it will results in increased telephone ownership, lower prices for local calls and most importantly higher network quality and hence increasing the ability for individuals and businesses to connect to and use the internet. Malaysia's telecommunications network has seen impressive expansion and upgrading during the past decade following the successful privatization of its Telecommunications Department and the sole Internet service provider TM net, a subsidiary of Telekom Malaysia Bhd, no longer monopolized the Malaysia broadband service industry as fifty one licenses have been issued to other companies to provide similar services (The Star, 2010). Such measurement will encourage competition among the telecommunication market and improvise infrastructure quality. Furthermore, the government is in its objective to establish a ubiquitous, high quality and affordable broadband network that will reach 95 per cent of the population by 2020. In the same timeframe, all urban areas will have at least 100 Mbps broadband access, putting Malaysia's urban areas on par with the leading countries globally (ETP handbook, 2010).

Electronic commerce directly influences the financial structure of an economy in several ways. It affects the range of financial products offered by financial intermediaries, as well as affecting how businesses and buyer interact with each other in financial transactions. Since electronic commerce is global, hence financial intermediation is more likely to involve cross-border transactions and involve non-domestic institutions. Secondly, financial intermediaries interact with each other and with the central bank via payments systems. The fast-paced and global environment of both the electronic and physical world demand the financial intermediaries to offer easy-to-use payment tools that allow rapid electronic funds transfer, including across borders. Speed becomes a crucial element of financial intermediation services as authorization of transactions by Internet businesses through payment institutions (e.g., bank or credit card companies) needs to be in real time, so as to allow the immediate delivery of products. A financial system that cannot reach this level of service will stymie the development of electronic commerce.

Environment Factor

2.9.1 Consumer

The consumer of today and tomorrow is connected, empowered, more informed, social, and environmentally. Technology has transformed the expectations of shoppers of all ages. Mobile devices such as smartphone or tablet have added a layer to the retail experience and making it easier than ever for consumers to find product, locations, and details, right in the palm of their hand. Consumers are the main players that contribute to the future direction of electronic business and therefore their buying behavior cannot be disregarded. Each consumer that visits an e-commerce website has different needs and intention. Whether it is just to search for information about a certain product or purchase the product that fulfills their needs, it all depends on the level of comfort built during visiting the site. In a survey conducted by Deloitte, consumers are increasingly using the web to do research in-store purchases and they use shopping websites for various activities such as checking prices, looking for discounts, coupons, sales information. Some of them are reviewing the product recommendations as well (Deloitte, 2011). Despite the incremental of online sales volume published across the world, however, the consumers don’t seem ready to entirely erase the traditional retail outlet from their shopping landscape. Based on survey conducted by PWC, feedback from the sample size of approximately 11,000 respondents revealed that there are significant minority of internet users who still never or almost never shop online. As per table 2.9.1a, 23% of the respondents research consumer electronics online and then go to a store to buy the product, compared to only 2% who do it the other way around. The ability to see, touch and try products still ranks as shoppers’ number one reason to visit a store in person and getting the product immediately (PWC, 2013).

The use of social media has been exploded in recent years and provides shoppers with a platform to discuss the products and stores they love or hate. Some of the organizations have leveraged social media as a brand-building tool or marketing communications. However, there are pros and cons between brick-and-mortar stores and electronic commerce thus it is vitally important for companies to building a proper online strategy or marketing framework via social media to avoid undesired circumstances. For example, with consumers that expecting a seamless experience at each touch point and at any point during a consumer’s journey, the experience can go well or quickly sour and retailer will face many possible permutations of consumer interactions. It is therefore critical for the companies to well engage with their consumer through different touch point and ensure the client has positive experience. The consumers can easily critic a brand, with the power to share the experience through social media with his or her global network of "friends" and affecting the company’s reputation.

Trustworthiness from the company is another important aspect in online business. According to researchers, the ability of a merchant is reflected in its ability to handle sales transactions and the expertise to generally conduct business over the Internet (Belanger et al, 2002). There are several other dimensions like honesty transaction abilities, legal integrity and ethical orientation. The National Consumer Complaints Centre (NCCC) reported through news that 400 complaints have been received within four months over the deal sites about product quality. Other complaints included misleading information and problems of delivery and refunds (The Star, 2013). Despite the internet provides more conveniences to shoppers, however, it may restraint consumer to purchase online if more and more irresponsible merchants in the market providing misleading information via their webpage which will jeopardize the consumer’s trust over online transaction.

2.9.2 Competitors

Competitive environments have strong influence on the adoption of a technology and it will certainly promote the development of e-commerce and made the company’s presence from invisible to visible. Firms and consumers can easily contact with more potential purchasers and suppliers. Kuan and Chau (2000) defined external pressure as the influences from the external business environment which consists of two dimensions known as competitive pressure and the imposition by trading partner. A firm may feel pressure when it sees that large number of competitors in the industry are adopting e-commerce and thus forcing it to adopt in order to remain competitive in the market place (Sparling et al, 2007). SMEs do not embark in e-commerce will certainly loss certain level of advantage among others who has adopted. The major comparative differences are in the traditional marketing versus Internet marketing. Traditional marketing such as distribution of promotion flyers to public and words of mouth and it would generate slower effect and more costly as comparing with e-marketing. E-marketing can be carried out in a computer-mediated environment, its platform is online and its scope is wider. Under such an environment, a new marketing paradigm is being developed where competitiveness is no longer based on the traditional 4Ps idiom but to include standards and customer information. E-marketing enables the companies to provide on the organization’s background, its product and services. Customer can be more interactive with the company through access to graphics, sound, and even movies type of advertisement. The adoption of electronic business technology shall result in better improved customer relationship or customer services. A study done by Dutta and Evrard (1999) affirmed that the main focus of European small enterprises is to make use of information technology to deliver a superior customer service and better communication with distant partners/customers. Likewise, it is suggested that suppliers pressure to adopt information technology is an important factor influencing the level of technology adoption in Portuguese manufacturing SMEs (Caldeira and Ward, 2003). When a major supplier adopts e-commerce, the small business owner is more likely to adopt (Kirby and Turner, 1993).

However, from the other perspective, e-commerce technology would also provide buyers with easier access to information about products and suppliers, thus bolstering buyer bargaining power and bringing many more companies into competition with one another. It creates new substitutes and intensifying the rivalry among competitors. It may engage companies into a destructive price competition. Michael Porter suggests that internet to be served as a complement into the organization strategy in the way of competing. The fundamental factor is sustainable competitive advantage which allows a company to outperform the average competitor.

2.9.3 Government

The government plays a crucial role in the process of development of e-commerce and enhances the economic wealth of the nation. For many SMEs, Lack of access to finance was found to be at the top of any list of problems of SMEs (Mansor, N., & Amri., A.F., 2010). While banks and the Government alike are making available funds for business expansion, the reality is, it is getting tougher to secure financing especially during crisis. The global financial crisis has caused financial institutions to be more cautious and credit processing has become so complex that SMEs find it difficult to understand the procedures. According to The Star news, despite the Government’s assurance on banks’ ability to lend, SMEs are facing mounting pressure by the day to obtain financing. Many applications have been overturned and others are experiencing their existing loans and overdraft facilities reduced (Star, 2009). Furthermore, many SMEs in the services sector do not own land or equipment and it getting even tougher to obtain financing as they can’t provide any form of security or collateral to financial institutions. It has created a boundary for a profitable business venture to expand further because of failure to obtain financing or even considering investing into e-commerce technology.

From human capital respect, the severity of the brain drain has brought into the concern of government, especially among professionals and skilled workers and little is being done to help SMEs attract and retain talents. According to SME Annual Report 2010, labor shortage was an issue across the services sector and shortage mainly in the skilled or semi-skilled category (NSDC, 2010). Many SMEs has put in placed numerous practices to attract and retain talents. Those measures including paying above market average salary, annual bonuses, training and supportive working environment (SME Magazine, 2010). But the fact is most capable young adults would prefer to work for larger companies. According to survey from JobStreet, among the top reasons for the brain drain was the large gap between expected and offered salaries. The country manager of JobStreet.com stated that issue of talent crunch by the local small and medium enterprises was not only limited to Malaysia but throughout the world however the issue can be resolved if the private sector and government work together (Borneo post, 2012). Perhaps, the government could step in and offer incentives to returning talents to work in SMEs and provide more incentives to SMEs to provide greater staff benefits.

Cybercrime law is another area where the government should be paying attention with. Although every country on the planet is connected to the internet, many of them do not have a cybercrime law. The lack of a globally legal framework with respect to cyber-criminal activities has become an issue which requires urgent attention of our country and all nations. The government should develop and spread principles designed to help policy makers ensure that legislative proposals do not affect e-commerce adversely, by providing an analysis of impact onto the local, national and international policy decisions and legislative proposals. Regardless whether organization is a publicly trade worldwide corporation, a mid-sized privately held operation, or a family-owned business, their rules to permit employees access to the computer systems and/or authorize the use of internet and email, they have actually put their companies’ future, assets, and reputation at risk. The misuse of internet or company’s email can generate potential cost and time-consuming legal, regulatory, security and headaches for employers. Hence, the government should implement a compatible standards e-policy which can lead to good security practice in using the ‘e-related-stuffs’. In this regards, the Digital Signature Act that was enforced on the 1st October 1998 by Malaysia government, aims to promote the processing of transactions especially commercial transactions, electronically through the use of digital signatures. This Act allowed the development of, amongst others, e-commerce by providing an avenue for secure on-line transactions through the use of digital signatures. However, there are criticisms that the digital documents laws enforcement are still not fully in place in Malaysia where businesses still have to file away paper documents for legal purposes for at least seven years. Furthermore, many people are reportedly still reluctant to accept e-signatures and prefer to read on paper rather than on a computer screen (Star, 2010).