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The use of e-commerce in small and medium enterprises (SMEs) has ... 46% faster than their peers who do not use the Internet (Kartiwi & MacGregor, 2007).
3rd INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC 1716 RESEARCH ( 3rd ICBER 2012 ) PROCEEDING 12 - 13 MARCH 2012. GOLDEN FLOWER HOTEL, BANDUNG, INDONESIA ISBN: 978-967-5705-05-2. WEBSITE: www.internationalconference.com.my

ORGANIZATIONAL FACTORS INFLUENCING THE E-COMMERCE ADOPTION BY INDONESIAN SMEs Yen Yen Maryeni, Rajesri Govindaraju, Budhi Prihartono & Iman Sudirman Department of Industrial Engineering Bandung Institute of Technology [email protected] ABSTRACT The use of e-commerce in small and medium enterprises (SMEs) has become an important topic of many studies. In fact, this is related to the potential benefits of e-commerce for SMEs. Several studies on ecommerce adoption by SMEs in developing countries have been conducted and can be found in the literature. This includes studies of e-commerce for SMEs in Malaysia, Singapore, Thailand, Iran, Brunei, Turkey and some other countries. Unfortunately there are still a few studies for that in Indonesia, particularly in West Java province. In addition, only a few studies have been conducted to produce a model that can explain the success of SMEs in adopting e-commerce systems, especially in Indonesia. This paper presents some results of a preliminary study with the aim to explore organizational factors influencing e-commerce adoption by the SMEs. Three exploratory case studies in three manufacturing SMEs in West Java were addressed in the study. The result of this study indicates several variables organizational factors that affect e-commerce adoption in West Java SMEs. These organizational factors include: IT skills of the users, IT knowledge of the owner/manager, management support, funding capacity, and the required effort. Finally, the case studies also revealed that staff turnover has a big influence on the adoption of e-commerce by SMEs.

Field of Research:

SMEs, adoption of e-commerce, organizational factor, drivers, barriers.

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1. Introduction Indonesia is one of the countries in Asia which has potential market. The value of e-commerce in Indonesia has reached U.S. $ 3.4 billion (IDC, 2011). Small and medium enterprises (SMEs) in Indonesia have proven to be the most dynamic and vibrant sector, especially in past events of financial crisis. The most important role of SMEs in Indonesia is to employ people, facilitating the eradication of poverty as well as the fields of foreign exchange through exports (DEPKOP, 2010). The globalization of the world economy emphasizes the need for SMEs to become the backbone of the national economy. The success of the mentioned role needs to be accompanied by empowerment of SMEs to be able to compete in global markets. One of these aspects is the adoption of ICT (Information and Communication Technologies), including the adoption of electronic commerce or e-commerce.

3rd INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC 1717 RESEARCH ( 3rd ICBER 2012 ) PROCEEDING 12 - 13 MARCH 2012. GOLDEN FLOWER HOTEL, BANDUNG, INDONESIA ISBN: 978-967-5705-05-2. WEBSITE: www.internationalconference.com.my

A successful implementation of ICT offers competitive advantages for both large enterprises and SMEs, at local and global levels (Thorp, 1998; Doukidis et al., 1996). SMEs that have used the Internet grew 46% faster than their peers who do not use the Internet (Kartiwi & MacGregor, 2007). Other studies have also found positive signs that SMEs can take advantage of e-commerce, as a kind of special forms of ICT, in helping to develop their businesses (MacGregor et al., 2002) and the potential to be a source of competitive advantages (Kartiwi & MacGregor, 2007). Many studies have been done trying to identify the e-commerce adoption barriers and drivers and this is expected to be a reference so as to increase the chances of implementing successful e-commerce in SMEs (Kapurubandara & Lawson, 2008; Chong, 2008; Kurnia et al., 2009; Sarkar, 2009; Migiro, 2006). Several studies have also been made to develop a conceptual model of e-commerce adoption by SMEs in various countries, including New Zealand (Sarkar, 2009; Rashid & Al-Qirim, 2001), Australia and Singapore (Chong, 2008; Chong & Pervan, 2009), Sri Lanka (Kapurubandara & Lawson, 2008), Malaysia (Kurnia, 2008), and Indonesia (Kartiwi & MacGregor, 2007; Kartiwi, 2006; Kurnia, 2006). From a certain point of view, e.g. the number of studies on e-commerce in SMEs in developing countries, the corresponding research in Indonesia is still relatively limited. Even that on a conceptual model of e-commerce adoption (especially by SMEs in West Java, Indonesia) has never been comprehensive enough. Therefore, this study aim to address these gaps to develop a conceptual model of e-commerce adoption by SMEs in West Java. Based on these rationales, it is necessary to further study, on: (1) How to analyze the e-commerce adoption barriers and drivers in West Java SMEs? (2) To which extent these factors determine the rate of adoption of e- commerce in SMEs in West Java? (3) How the SMEs can adopt e-commerce system effectively, by using a strategy based on the consideration and adoption of systematic planning and the factors above in point (2)? Addtionally, the purpose of this study was to develop a conceptual model of e-commerce adoption by SMEs in West Java. The scope of application of e-commerce is limited to exploiting the Internet as a communication technology and infrastructure to distribute and exchange information and business transactions with business associates. Furthermore, we distinguished between two types of ecommerce namely B2B (business to business) and B2C (business to consumer). A theoretical conceptual model is developed from literature review and used as a study guide using the framework called Technology Organization Environmental (Tornatzky & Fleischer, 1990). The study reported here is focused on organizational factor.

2. Adoption of e-commerce in SMEs In line with the development of the Internet, e-commerce is currently an essential requirement in the global business world. E-commerce has offered a variety of potential benefits for both SMEs and large enterprises. According to Scarborough and Zimmerer, although the web-based sales strategy does not guarantee success, small companies with online presence have realized many benefits such as: opportunity to increase revenues, the ability to expand its reach into global markets, ability to remain open 24 hours a day and seven days a week, capacity to use interactive web to improve customer service, ability to lower the cost of doing business, capacity to improve the efficiency of the purchasing process, etc (Scarborough & Zimmerer, 2006).

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Although it can be an attractive benefit for SMEs to adopt e-commerce in business, SMEs have significant problems in identifying the application and adoption of e-commerce strategies accordingly due to lack of ICT knowledge and planning. Therefore it is not surprising that most owners/managers of SMEs eventually develop their ICT strategy through the method of 'trial-and-error'. According Engsbo and Scupola, most SMEs adopt e-commerce by chance, not as a consequence of the systematic consideration and planning (Scupola, 2002; Engsboet al., 2001). Meanwhile, according Kartiwi and MacGregor SMEs do not adopt e-commerce at the same speed as larger companies because of various obstacles associated with the adoption of the unique characteristics of SMEs (Kartiwi & MacGregor, 2007). A study on the implementation of e-commerce by SMEs found that SMEs in developing countries are slower to adopt e-commerce than in developed countries ((Kartiwi & MacGregor, 2007; Intrapairot & Srivihok, 2003). One basic difference is the speed of adoption of this paradigm difference between owner/managers of SMEs in developed countries and in developing countries, examples of comparative case between Sweden and Indonesia (Kartiwi & MacGregor, 2007). SMEs in Sweden are more concerned with technical issues, while SMEs in Indonesia are more concerned with organizational resistance. In addition to organizational and managerial factors (Chong, 2008; Sarkar, 2009; Rashid & Al-Qirim, 2001; Chong & Pervan, 2009; Sarlak et al., 2009; Wilson, et al.,2008), other factors are also an obstacle sufficient significant at the e-commerce adoption in SMEs is the infrastructure and technical factors (Kapurubandara & Lawson, 2008; Sarkar, 2009), environmental factors (Kurnia et al., 2009; Sarkar, 2009; Rashid & Al-Qirim, 2001; Kurnia, 2008), innovation and technological factors (Rashid & Al-Qirim, 2001; Kurnia, 2008). Based on the theory of innovation diffusion (Diffusion of Innovation - DOI) Rogers, the adoption of technological innovation is divided into 3 phases, namely initiation, adoption decision and implementation (Rogers, 1995). In this stage of the adoption process is often discovered constraints faced by SMEs that are in transition moving to e-commerce (Tucker & Lafferty, 2004; Matlay & Addis, 2003; Mendo & Fitzgerald, 2005). As already mentioned above that although e-commerce can provide many benefits for SMEs, but a number of barriers in the adoption and implementation of e-commerce makes difficult the spread of ecommerce in SMEs. Several previous studies have examined a lot of barriers to adoption and implementation of e-commerce, most of the studies conducted in developed countries, like Sweden (Kartiwi & MacGregor, 2007; MacGregor & Vrazalic, 2005), Dutch (Brand, & Huizingh, 2008), England (Wilson et al., 2008, Tucker & Lafferty, 2004), Scotland (Stansfield & Grant, 2003), Australia (Chong & Pervan, 2009; MacGregor, 2008; Flynn & Purchase, 2001). Only a few of studies in developing countries are currently done, in particular in Indonesia. Some studies on the adoption and implementation of e-commerce in developing countries can be used for comparison as studies in Malaysia (Kurnia, et al., 2009), Thailand (Intrapairot & Srivihok, 2003; Pooparadai & Smutkput, 2005), Singapore (Chong, 2008), Sri Lanka (Kapurubandara & Lawson, 2008; Kapurubandara & Lawson, 2006), Iran (Sarlak et al., 2009; Sarlak, 2008), Kenya (Migiro, 2006), China (Kurnia, 2008). While the amount of studies in Indonesia is still very limited, including studies conducted by:

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Kartiwi, regarding a case study of factors and combinations of factors to be considered by SMEs to adopt e-commerce, in West Java (Education Services) and Central Java (Transportation) (Kartiwi, 2006). Kartiwi and MacGregor regarding the comparative study of e-commerce adoption barriers in developed countries (Sweden) and in developing countries (Indonesia: West Java, Bali and Jakarta) (Kartiwi & MacGregor, 2007). Kurnia regarding the adoption of e-commerce in developing countries, a case study in Indonesia. In this study carried out assessment of the level of adoption, the benefit of experience, negative consequences and problems encountered due to e-commerce adoption (Kurnia, 2006).

Some studies mentioned above have classified resistance factor in the adoption and implementation of an obstacle to internal factors and external factors (Chong, 2008; Chong & Pervan, 2009; Kapurubandara & Lawson, 2006). Likewise, the drivers are divided into internal and external factors (Kapurubandara & Lawson, 2008).

3. Drivers and Barriers to E-commerce adoption in SMEs It has been observed and examined in many studies that SMEs have been actively searching for solutions and methods that are suitable to adopt and integrate e-commerce into their business processes. If the implementation of e-commerce success, the potential benefits for small businesses is included increased sales, improved profitability, increase productivity, reduce costs associated with inventory, procurement and distribution, improving the quality of service, and guarantee competitive position. On the other hand, if the implementation of e-commerce does not work, it will impact heavily on small businesses with their limited resources (Chong, 2008). Based on the literature review, the basic model that often used in previous studies is the adoption of innovation, internal-external factors, business environment, and the TOE framework. Each has different strengths and weaknesses. Research using the adoption of innovation has weaknesses of ignore some external factors of organizations such as government regulatory/ support. Research using the internalexternal factors, business environment also has weaknesses because there are factors that can be included in both categories, can be classified as internal factors and external factors. For example, the technological factors. The context of technology can be classified as an internal technology, external technology, equipment, and processes (Tornatzky & Fleischer, 1990). Based on these considerations, the study will refer to the TOE framework as the basis for model development and combine it with some other relevant models. Several factors and variables selected based on literature studies and empirical studies.

4. SMEs in Indonesian According to Indonesian Law No.20 of 2008 on Micro, Small and Medium businesses in Indonesia are classified into micro, small, medium and large businesses. For the purposes of this study, Indonesia's official definition of SMEs according to Law No.20 of 2008 and two government agencies of Indonesia,

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Central Bureau of Statistics and Ministry of Cooperatives and Small and Medium Enterprises will be adopted (Table I) (DEPKOP, 2010). TABLE I DEFINITION OF MICRO, SMALL, AND MEDIUM ENTERPRISES IN INDONESIA Micro Enterprise - Asset < Rp. 50 million (excluding land and building) (UU No. 20/2008) - Annual sales volume < Rp. 300 million Small Enterprise (UU No. 20/2008) Central Bureau Statictics (BPS) Medium Enterprise (UU No. 20/2008) Central Bureau Statictics (BPS)

- Asset Rp. 50 million – Rp. 500 million (excluding land and building) - Annual sales volume < Rp. 300 million – Rp. 2,5 billion - Employess: 5 – 19 people - Asset Rp. 500 million – Rp. 10 billion (excluding land and building) - Annual sales volume < Rp. 2,5 billion – Rp. 50 billion - Employess: 20 – 99 people

5. Theoretical Framework A theoretical conceptual model is developed from literature review and used as a study guide. The model of this study refers to the TOE framework. Two factors are included in this research model, namely technological factors and organizational factors (Figure 1). Organizational factors are internal factors that influence the adoption of e-commerce. In this study retrieved five variables in organizational factors, namely: IT skills of the users, IT knowledge of the owner/manager, management support, funding capacity, and the required effort.

6. Methodology 6.1 Sample and data collection method To achieve the objectives of the study, two stages of empirical studies are planned in this study. The first stage is a pilot case study, and the second stage is a field survey. To validate the factors taken from previous study, the pilot case study was conducted. Another purpose of this pilot case study is to find

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out and analyze new factors that may not exist in previous studies. Given the limited empirical knowledge on the practical management in Indonesian SMEs, a pilot qualitative case study approach is considered appropriate for the first stage of this study. One of the main limitations of case study findings is related to limited generalization (Eisenhardt, 1989). However, because the purpose of the first stage is to conduct preliminary investigation, the case study approach is considered sufficiently representative in fact from semi-structured interviews with top management (owners/managers, directors) and IT staff (who is a key member of the e-commerce implementation team) in three SMEs in West Java was conducted in this case study. The interviews were executed in the period July until September 2010 (Firm A) and March until May 2011 (Firm B and Firm C). Each interview session lasted over one hour. For the purposes of analysis, the interviews were recorded to ensure that all information were collected during the interviews were an accurate reflection of the information provided by the respondents. Beside that, we wrote memos to capture important thought and ideas which evolved during the interviews. In addition, several sources of information were also used as relevant company documents. The use of multiple sources was considered as one method to ensure the reliability and validity of qualitative research (Creswell, 2003). The semi-structured interviews were prepared in the form of protocols that consisting of a number of close and open questions. An interactive interviews was conducted with the role of the researcher was mainly listen and learn from the responden and encourage the resonden to tell more without too much interruption. The findings of the pilot case study is used as a basis in the development of conceptual models of ecommerce adoption. The next stage of the study is to conduct field surveys of SMEs sample in West Java. The results of data processing will be used to analyze and explain the model of e-commerce adoption by SMEs.

7. Finding & Discussion In this section, we present the preliminary results of case studies. Based on the pilot case study in three textile manufacturing SMEs in the district of Bandung in West Java, the following results were: Table II indicates the resume of pilot case study conducted on three textile manufacturing SMEs in West Java. TABLE II RESUME OF PILOT CASE STUDY

Item

Firm A

Firm B

Firm C

Profile Business process

Textile Industry Textile Industry Sizing, Weaving, Dyeing, Finishing Spinning, Sizing, Weaving, Dyeing, Printing, Finishing

Textile Industry Dyeing, Finishing, Printing

Location

Bandung, West Java, Indonesia

Bandung, West Java, Indonesia

Bandung, West Java, Indonesia

± 43 years Family Company ± 2.300 people 8 people

18 years Family Company 370 people 2 people

Medium Enterprises Simple software

Medium Enterprises Integrated software

Level 2

Non Adopter (plan to adopt)

Company age Ownership Employees IT personnel

22 years Family Company ± 550 people 5 people internal,1 person external Size Medium Enterprises Administrative Simple software (integration in process process) E-commerce Level 2 Level

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7.1 IT skills of the users The interviews showed that the IT skills of staff/users is required to support the successful adoption of e-commerce. It is usually quite annoying is staff turnover as experienced by Firm.A. High turnover leds to frequent change of the user so that if not matched by good training, can be prohibitive implementation of e-commerce (Tucker & Lafferty, 2004). For example, during the interviews, the company manager given the statement that “One obstacle is not all staffs who involve in e-commerce team have IT skill” (Firm A) “…all staff who involve in e-commerce adoption own IT skill” (Firm B, Firm C) 7.2 IT knowledge of the owner/manager IT knowledge of the owner/manager is the level of IT knowledge/understanding of the owners and or managers, particularly in e-commerce. IT Skill staff/user associated with the consistency of the implementation of e-commerce while IT knowledge of the owner/manager and management support related to adoption decisions (Tucker & Lafferty, 2004). “Owner is very concerned about the IT world. He even he suggested other companies to start using IT” (Firm B) 7.3 Management support All the three company respondents indicated that the adoption and implementation process can be performed when the idea strongly supported by management. This is in line with research Thong (1999) who said that the support of the CEO will positively affect the likelihood of IS adoption (Sarkar, 2009). "Our management had given strong support for e-commerce adoption. He supported the procurement of infrastructure for e-commerce. He also initiated change of EDP department into the new IT department and recruited IT expert personnel from the IT consultants. "(Firm B) 7.4 Funding capacity The results of case studies showed that for the adoption of e-commerce, SMEs should prepare a large budget for the cost of technology infrastructure and the cost of internet usage. For example cases in firm C that preparations for the adoption divide in several stages depend on availability. All the three company respondents perceived the funding for e-commerce adoption beyond their capacity. As said by manager Firm B “... The high cost required for the use of the Internet, as well as to purchase technology such as servers, etc."

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7.5 The required effort The interviews showed that the estimated effort for a company that will adopt e-commerce is very high, not only cost but also time, thought, and effort. Especially for companies that do not have a good data base. “E-commerce implementation required a lot of and continuous efforts (for example to follow-up of ecommerce implementation) “(Firm A) "The application development takes a very long time and so does the efforts t promote the website" (Firm B) 7.6 Turnover From the results of the pilot case study at Firm A and C, there is an interesting phenomenon in which large amount of staff turnover affects the successful adoption of e-commerce. This is because the new staff who replaces the previous staff does not own the competence equivalent to the previous staff. “…The staff turnover is quite disturbing. The new staff doesn’t necessarily have the competence that own by the previous staff” (Firm A) From the above discussion it can be concluded that the five variables organizational factors studied is all strong influence on e-commerce adoption in SMEs, even the IT skills of the users felt very important so that the turn over of staff felt strongly inhibit the process of adoption of e-commerce.

8. Conclusion and Future Recommendation From the results of a study of five variables that explain the organizational factors, namely IT skills of the staffs, IT knowledge of the owner/manager, management support, funding capacity, and the required effort is obtained that the seven variables significantly influence the adoption of e-commerce in SMEs in West Java. In addition there is a variable which found a significant organization factor in the pilot case study is the turnover of staff. Therefore each of the variables that explain the organizational factors will be examined further in adoption of e-commerce model development.

Acknowledgement This paper is research in progress.

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