SMEs and the Internet Opportunities and Challenges

1
SMEs and the Internet Opportunities and
Challenges

• Tim Beal
• USM
• Penang
• September 1999

2
Overview

• Internet
• US SMEs and e-commerce
• Implications for SMEs
• Levelling
• Globalisation
• Direct communication

3
The Internet

• New to (small) business
• IBM survey
• 1994 - less 50 aware of internet
• 1999 - intricate part
• Consumer base
• growth
• uneven spread

4
Growth of Internet in Australia
5
Uneven connectivity
6
Predictions for Asia

• 1998 - 38 million users
• 2005 - 374 million
• China 40 m by 2001
• (Taiwan already 3-4 million)

7
Characteristics of Internet

• Two main forms
• email
• Web
• Email
• cheap (money, skill)
• mainly text
• active but needs address
• best when correspondents know each other
• gtgtbusiness-to-business e-commerce

8
Web

• closer to e-commerce more expensive (money,
  skills)
• passive
• customer comes to vendor
• graphic, multi-media
• Types
• progression to e-commerce

9
progression to e-commerce

• Static billboards
• Dynamic billboards
• updated (advantage over print)
• Database-driven
• interactive
• links customers and products
• Storefronts
• e-commerce - purchase, pay (consume) online

10
e-commerce pyramid

• OH
• small business laying the foundations for
  e-commerce

11
What makes a good website?

• Offer value to customers
• Focus on customer relationship
• Uses functionality of internet as a tool rather
  than a master
• Usually simpler the better
• SME doing its business well (understanding
  customers) can transfer that to Internet

12
US SMEs and e-commerce

• Two research reports
• Small Business Agency report July 1999
• Michigan Internet Study
• started 1996, published 1999

13
SBA Small businesses venture online

• Complied data from various sources
• problems of definition and comparability
• snapshots of situation rather than coherent
  survey
• some relevant points

14
SBA report I

• Small businesses with ACCESS to Internet doubled
• 1996 - 21.5
• 1998 - 41.2
• Internet utilisers have higher revenues
• cause or effect?
• Biggest barrier is cost
• 35 have website 78 of these to reach new and
  potential customers

15
SBA report II

• 1.4 of SB Internet use - e-commerce sales
• Internet sales - lt1 of total US retail sales
• only 5 of WWW visitors become customers
• just buying online?
• online retail marketing 200 annual growth
• estimates vary widely

16
SBA report III

• 1997- SB 3.5b in e-commerce sales
• projections for early 00s
• 25 billion
• 300 billion
• e-mail main use
• 2000 - 1/3 of all business-to-business via
  Internet

17
Consensus?

• Largest component of e-commerce is
  business-to-business
• main reason for Internet - cost cutting
• Website
• Reaching new and potential customers
• selling goods and services
• reaching new prospective employees
• expanding globally

18
Michigan study

• small and now dated study but interesting
• companies had high expectations
• provide on-line quotes
• advertise in more markets at less expense
• decrease cost of printed materials
• answer questions about products in several
  languages
• conduct foreign market research
• communicate with, and sell to customers

19
Disappointed not downhearted

• sales/ visits to websites ranged from 0 to 5.6
• constraints
• competency
• time
• finance
• marketing
• technology
• Remained optimistic

20
Key aspects

• Levelling
• Globalisation
• Direct communication
• Interrelated

21
Levelling

• Level playing field on which small and large
  companies compete on equal terms?
• Equality - no advantage for big or small
• Big is better
• Small is beautiful

22
Equality

• No necessary correlation between size, visibility
  and functionality of website and size of company
• past - big buildingsgtgtpower, financial resources,
  technical expertise, permanency
• now - virtual companies
• How many divisions does Amazon.com have?
• Geographical reach of big companies eroded
• Internet is relatively cheap

23
Internet is relatively cheap

• Cuts costs of communicating with customers,
  staff, suppliers, government
• Allows access to global market research
• Gives same advantage to large companies (who are
  taking it up faster) but does offer potential for
  SMEs to compete more equally

24
Big is better I

• Closer to e-commerce more expensive Internet is
• For large companies moving into e-commerce the
  decisions are strategic (eg channel relations)
  but for SMEs cost is major barrier
• Danger for SMEs to lose control over website
• updates cost money

25
Big is better II

• Much internet communication is staff time
  intensive
• staff to update webpages, respond to emails
• Most companies exist offline as well
• can leverage from off line resources (eg brand,
  advertising, etc.)

26
Small is better

• Should be more nimble, able to respond to changes
  in society and technology
• Should be closer to customer
• If Internet (Web) is tool to enhance relationship
  with customers then SMEs have advantage
• Necessity can be mother of successful Internet
  utilisation
• eg simple, effective, customer-focused websites

27
Globalisation

• Internet (WWW) inherently global
• uneven spread of connectivity but does allow
  unprecedented SME access to global markets
• Still often physical constraints
• distribution
• excessive demand
• Global environment is complex - legal, political
  and cultural

28
Global cultures and exposure

• Internet exposes companies usually to wider range
  of cultures and languages
• Few, if any, companies - even largest- have yet
  addressed challenge of multicultural, polyglot
  Internet customers
• Malaysian SMEs have advantage over US
• Internet exposes SMEs to unprecedented global
  competition
• local bookshop - Amazon.com

29
Direct communication

• Internet allows direct communication with
  customers
• Disintermediation threat to SMEs in
  distribution and retailing
• Allows SMEs to bypass distributors to communicate
  and/or sell directly to customers

30
Conclusions

• Internet will grow but predications vary
  considerably
• Topography of business will change in
  unpredictable ways
• More volatile relationship between SMEs and
• each other
• customers
• large companies

31
Opportunities and challenges

• Key aspects of the Internet for SMEs
• levelling
• globalisation
• direct communication
• Volatility brings opportunities and challenges