The impact of e-commerce on small-size companies in Sweden

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1 Diyan Ivanov The impact of e-commerce on small-size companies in Sweden Business Administration Master s Thesis 15 ECTS Term: Spring 2012 Supervisor: Maria Åkesson

2 Acknowledgements I would like to sincerely thank my supervisor Maria Åkesson for her valuable guidance and advices. I would also like to express my truthful appreciations to the respondents who have answered this study s interview question. Diyan Ivanov Karlstad, June 2012

3 Abstract The purpose of this thesis is to examine the influence of e-commerce on the small-size companies in Sweden. This thesis describes the drivers for e- commerce adoption and investigates the barriers and benefits faced from the companies when starting the process of implementation. A qualitative research was performed and an abductive approach was used, where the research findings and the theoretical background were connected by going back and forward in the process of analysis. Interviews with small companies in Värmland Country, Sweden were conducted in order to answer the research questions. This study shows that Swedish companies have relatively welldeveloped e-commerce strategies comparing to other counties, but the gap between small and large companies is still visible. The decisions for e- commerce adoption are dependent on the knowledge of the owner /manager and e-commerce is extensively used as a marketing tool. Main benefits of e- commerce adoption are improved internal efficiency and increased information exchange. The results suggest that companies value less than before the cost factor and consider the lack of knowledge as a main barrier. At the same time many companies are not motivated enough to make improvements, because of lack of customer demand. Key words: e-commerce, impact, barriers, benefits, small-size companies 3

4 CONTENTS 1. INTRODUCTION BACKGROUND RESEARCH PROBLEM AIM AND OBJECTIVES THESIS OUTLINE METHODOLOGY RESEARCH APPROACH RESEARCH METHOD DATA COLLECTION Secondary data Primary data RESEARCH MODEL OUTLINE THEORETICAL BACKGROUND INTRODUCTION DEFINITION OF E-COMMERCE DEVELOPMENT OF E-COMMERCE AND PROCESS OF ADOPTION E-COMMERCE AND MARKETING STRATEGY Product Place Price Promotion BENEFITS OF E-COMMERCE ADOPTION IN SMALL COMPANIES BARRIERS FOR E-COMMERCE ADOPTION IN SMALL COMPANIES SUMMARY OF LITERATURE REVIEW FINDINGS ELECTRONIC DEVELOPMENT IN SWEDEN E-COMMERCE USAGE IN SMALL-SIZE COMPANIES DEVELOPMENT OF E-COMMERCE IN THE INTERVIEWED COMPANIES THE REASON BEYOND E-COMMERCE DEVELOPMENT THE IMPACT OF E-COMMERCE ON MARKETING BENEFITS FROM E-COMMERCE ADOPTION BARRIERS FOR E-COMMERCE ADOPTION BENEFITS AND BARRIERS BEFORE AND NOW DISCUSSION E-COMMERCE DEVELOPMENT IN SMALL-SIZE COMPANIES IN SWEDEN DRIVING FORCE FOR E-COMMERCE ADOPTION THE IMPACT OF E-COMMERCE ON MARKETING BENEFITS FROM E-COMMERCE ADOPTION BARRIERS FOR E-COMMERCE ADOPTION CONCLUSION LIMITATIONS AND FURTHER RESEARCH REFERENCES APPENDIXES

5 List of figures FIGURE 1: RESEARCH MODEL...15 FIGURE 2: E-COMMERCE ADOPTION LADDER IN SMALL COMPANIES...19 FIGURE 3: EXPENSES ON IT...32 FIGURE 4: LEVEL OF E-COMMERCE DEVELOPMENT IN THE INTERVIEWED COMPANIES...42 List of tables TABLE 1: INTERVIEWED COMPANIES...14 TABLE 2: DRIVERS OF E-COMMERCE ADOPTION...18 TABLE 3: TANGIBLE AND INTANGIBLE BENEFITS FROM E-COMMERCE...24 TABLE 4: BENEFITS FOR SMALL-SIZE COMPANIES FROM E-COMMERCE ADOPTION...26 TABLE 5: BARRIERS FOR E-COMMERCE ADOPTION...30 TABLE 6: ENTERPRICES SELLING ONLINE...32 TABLE 7: E-COMMERCE DEVELOPMENT IN THE INTERVIEWED COMPANIES...35 TABLE 8: REASONS FOR E-COMMERCE ADOPTION

6 1. Introduction This chapter presents the research background and the purpose of the thesis. The most important reasons why to study e-commerce are mentioned briefly. Then, the aim of the research is described and research questions are set. Finally, overview of the content of the thesis is presented Background Electronic commerce is reshaping many aspects of the business and the social life. Companies need to adapt their strategies to the new realities if they want to be competitive in the marketplace. E-commerce is a new way of conducting business and its influence is increasing every year (Chong 2008). The term ecommerce is described by Chaffey (2009) as all electronically mediated transactions between the company and third party. At the same time e- commerce not only provides the companies with a huge amount of information, increases the speed of the transactions and decreases costs, but also reshapes their marketing strategies and practices (Dou & Chou 2002). The reasons for implementing an e-commerce strategy can vary from company to company. According to Xu and Quaddus (2009), while in the big companies the leading motives are to improve efficiency in their internal processes; small companies are more concerned with the competiveness. Successfully adoption of e-commerce is a slow process and it cannot be completed at once, but rather in small series of adoption processes in which the company moves gradually from simple to more complex stages o f e-commerce (Brand & Huizingh 2008). Obviously, any firm beginning the process of adoption will face many problems and barriers. Managers in the small companies need to overcome the barriers and realize the benefits from e-commerce in order to prevent the risk of competitive disadvantage in their businesses (Abid et al. 2011; Stockdale & Standing 2004). This study will try to describe the impact of e-commerce on Swedish small-size companies. The reasons why the small companies have started the process of e-commerce adoption will be described. Attention will be put on the benefits and barriers related to this process. In order to do this, an extensive review of the literature and secondary data will be performed. Second, three interviews with small-size companies based in Värmland region of Sweden will be made. The accessed companies can be described as small, with numbers of employees from 10 to 49 and annual 6

7 turnover below 5 million euro. Company A is a producer of gardening tools and equipment and operates mainly in the local Swedish market. The products are distributed within the country by well-developed network of industrial distributors and retailers. Company B produces ergonomically chairs and high quality ergonomic seating solutions. High volume of company s sales is generated in the international market. Company C produces equipment and products for industrial labelling, coding and identification. The company sales its products mainly in Sweden and have few clients in the other Nordic countries Research problem This paper will investigate the impact of e-commerce on small companies in Sweden by identifying the perceived barriers and benefits for e-commerce adoption. The study is important, because it throws lights on the unique and ever changing factors influencing the companies. Additionally, in European Union (EU) most of the enterprises are small and medium sized (SMEs), corresponding to 99.8% of all enterprises. These SMEs enterprises employed around 67% of all employees; generate 58% of the total turnover in EU and they are the engine of the economy (Calogirou et al. 2010). Due to the dynamism of the market and ever developing technology, e-commerce implementation from the small companies is becoming necessary. The natural process of transition toward collaboration exchange and customer-centred business which large companies firstly understood can now be seen as a tendency in the small companies. E-commerce creates possibilities of better connections with customers and partners, extensive information exchange and unique customer s solutions. At the same time, small size companies are still behind the largest in adopting new technologies due to different motives, vision and resources. For example, while for the big companies the leading driver for e-commerce adoption can be expected improved efficiency, small companies can have different motives customer demands or to improve competitiveness (Xu & Quaddus 2009). Very important for the small companies is the ability to benefit from that new strategy. If they do not have any benefits or managers are not being able to realize and estima te them properly, the incentives for future improvements and reaching more sophisticated levels of e-commerce are low. Obviously, many different barriers for adoption are and will be faced from the managers within the small firms. 7

8 An attempt to describe the impact of e-commerce and to capture the unique problems and benefits faced from the small companies in Sweden will be made in this thesis. The significance of the topic The impact of e-commerce on small-size companies in Sweden and reasons why I decided to explore this field are given shortly below: I decided to focus my thesis on Swedish companies, firstly because Sweden is a country among highly developed in ICT (Information and communication technology), and secondly, the trends accessed here can be faced in the future by companies from less developed countries. Many studies have examined the influence of different factors and proposed theoretical framework and critical elements for future analysis. The rapid development on Internet and new technologies presupposes continuously monitoring the changing conditions. Therefore the need of studies to monitor the current status is necessary and can be of interest for companies or future researchers. I decided to concentrate on small companies, firstly because they are relatively in the middle of the process of e-commerce implementation and experience now all the problems and benefits which largest companies have already faced and solved. But due to the differences between the small and the large companies, the motives, barriers and benefits are expected to be different. Secondly, the influence of the small companies in Europe is increasing and they are considered as very important for the economy Aim and objectives The aim of the research is to investigate the influence, barriers and benefits of e-commerce adoption in small size companies in Sweden. In order to do this, the following tasks will be performed: 1. Critically review past publications about the influence of e-commerce. 2. Review the literature about the perceived benefits and barriers from small size companies. 3. Make interviews with small size companies in Sweden. 8

9 The following research questions have been set: 1. What is the level of development and the impact of e-commerce on small sized Swedish companies? 2. What are the perceived benefits from e-commerce adoption? 3. What are the perceived barriers for e-commerce adoption? 1.4. Thesis outline Chapter 1: Introduction. The chapter introduces the basic concept of the study, the importance of the topic and the aim and objectives. Research question are set. Chapter 2: Methodology. The chapter introduces the methodology approach and the steps for conducting the research. The author explains which method is used in the thesis and why it is chosen over the others research methods from the literature. Attention is put on the different data collection techniques used. Secondary and primary data are described and the reason why they are used is given. Finally, the author presents his own research model where the main points of the thesis and working process can be seen. Chapter 3: Literature review. This chapter introduces the concept and gives theoretical background necessary for the next parts. Explanation of the concept and the influence of e-commerce over the traditional marketing strategy are given. Barriers and benefits from e-commerce adoption are thoroughly examined. Summary of the literature findings is given. Chapter 4: Research. The chapter presents the author s findings as a result of primary and secondary data research. Firstly, the author examines the secondary data sources to access the current level of development of e- commerce in small size companies in Sweden. Secondly, the findings from the author s own research are presented. They are based on primary data obtained from interviews with small companies. Chapter 5: Discussion. The chapter presents the empirical findings in terms of the literature about the problem and tries to answer the research questions set earlier. Empirical findings are related and compared to the theory in order to answer the research questions. Chapter 6: Conclusion. This chapter concludes the thesis by summarizing the findings from this research and literature. Finally, limitations and recommendations for further studies are given. 9

10 2. Methodology This chapter describes the research methodology used in the thesis. First, the research approach and method are discussed. Then, the two types of data used are described secondary and primary. Finally, the research model outline is presented and the methodology used is summarized Research approach Literature distinguishes three main research approaches deductive, inductive and abductive. A deductive method can be characterized with scanning and analysing of past literature, deriving on logical conclusions from the theory in form of hypotheses and prepositions. On the later stage, hypotheses and prepositions are empirically tested and conclusions are presented in order to proof or reject the allegations. The deductive approach follows the pattern case / results / rule. On the other hand, the inductive approach is based on opposite techniques observation lead to theoretical framework or following the pattern results /case /rule (Kovács & Spens 2005). In this paper an abductive method was used. An abductive approach can be seen as a mixture between deductive and inductive and follows different process from rule to result to case. An abductive approach is suitable for this research first, because e-commerce has been examined extensively and certain theoretical framework has been developed. According to Kovács and Spens (2005) an abductive approach can lead to better interpretation of the phenomena within a certain theoretical framework and examine it from the new perspective. Second, the new insights about the impact of e-commerce can be described. In the abductive approach, the case presents admissible, but not necessary logically conclusions, where the empirical event is related to the rule and gives new insights about the problem (Kovács & Spens 2005). Therefore, in my thesis, first I will examine the literature, and then conduct my own observation and present the results. Afterwards, the facts will be correlated and explained in wider context, referring again to the previously examined literature in order to answer the research questions set earlier. 10

11 2.2. Research method The literature distinguishes different research methods qualitative, quantitative and mixed. The quantitative method is primary focused on the deductive component of the research or hypothesis and theory testing. The method includes collection and analysing of numerical data. On the other hand, the qualitative method is described as subjective emphasising on the expression, meanings and description and is less concerned with numbers. Qualitative method supposes broader approach to the research question (Bryman & Bell 2007). Many researchers use a mixed method, which combines the qualitative and quantitative techniques in order to improve the reliability of the research outcome. In this study qualitative method was applied and primary and secondary data were used. The reasons to use a qualitative method are numerous. First, the human factor in small companies is very important for the strategic decisions. Therefore, by approaching the persons who have the power to make decisions and by conducting interviews, I can obtain more accurate information in order to answer to the research questions. Second, because the purpose of the thesis is to describe the phenomena of e- commerce rather than to confirm or reject hypothesis, the qualitative method is more suitable. Third, the method supposes more flexibility and adjustments, and it is more appropriate for an inexperience author. Fourth, qualitative researches have already been made. For example, Statistics Sweden publishes every year an extensive data about e-commerce usage from the enterprises. Therefore, I decided to conduct interviews rather than a questionnaire survey. At the same time, the results from the secondary data sources will be taking into the account. Finally, a qualitative research can be performed in relatively short time period. On the other hand the time frame to write the thesis makes hard to complete an extensive quantitative research. At the same time, some limitations of this research can be depicted. The limitations of the thesis are described in the last chapter. For the purpose of the thesis, a definition of small companies is necessary. When targeting companies for interviews the definition of European Commission for small companies was used. Small company is considered as an independent company with from 10 to 49 employees and less than 10 million euro annual turnover. Independent is considered a company which is not owned by other enterprises and has more than 25% of the capital or voting rights (European Commission 2012; Xu & Quaddus 2009). 11

12 2.3. Data collection Data collection can be divided into two types secondary and primary. While secondary data is available before, the primary data is new data collected from the researcher (Bryman & Bell 2007). For the purpose of this work a combination of the both techniques will be used in order to increase the validity. According to Yin (2004), the results from the research are more accurate when they are based on several data sources Secondary data Secondary data is collected by researchers or agencies often for other purposes, but can be used for the purpose of the author s paper. In business and management the role of the secondary data is increasing (Bryman & Bell 2007). The advantages of secondary data analysis are numerous. According to Crawford (1997) is less time consuming to obtain secondary data than primary, and by doing this, the researcher can receive far better picture of the problem, than relied entirely on own sources. Receiving a good overall picture of e-commerce is necessary for the chosen qualitative method. Theoretical review and past researches gives possibilities to increase the knowledge and formulate better the interview questions. At the same time, the analysis and conclusion will be more accurate. That was the first reason to use secondary data in my thesis. Additionally, secondary sources of information can present more accurate data, especially when they are published by governmental and trading organizations. The presented data is high-quality and the samples covering wide variety of regions (Bryman & Bell 2007). Using Official statistical data, presented by governmental organizations can also complement the better understanding of the research problem. At the same time, well developed procedures for data collection and the highly experienced researchers lead to far more accurate data than any student can obtain. For example Statistic Sweden presents every year an extensive amount of research comprising samples which is not possible to achieve for a single researcher. As Bryman and Bell (2007) stated, governmental or trading organizations have well-developed procedures for control of the quality of the 12

13 data, hence the outcome is far more accurate than any single researcher can achieve. Drawback from using secondary sources is that the data could not be appropriate for cross-national comparisons, when different criteria and definitions are used. Since in this thesis, the purpose in not to compare different countries but to explore only one, using secondary data is considered favourable. In this paper multiple secondary data sources were used official statistic and public documents, journals, articles, international statistic from Eurostat as well as information from companies web sites. Reviewing the secondary data in this thesis was performed before the collection of primary data, consistent with Crawford (1997) who stated that this is the right approach - first to examine secondary data and then to collect and analyse primary sources Primary data Primary data in this thesis was obtained from face-to-face and telephone interviews conducted with preliminary selected companies. Interview, as a source of primary data has many advantages and disadvantages. In this paper, the main benefits are the possibilities to collect valuable data critical for answering the research questions. On the other hand, the interviews are time consuming and needs greater preparation. That s why semi-structured interview technique was used in this thesis. Positives from this approach are that they were performed in a short time period and are more appropriate for an inexperienced researcher. Semi-structured interview is suitable when the author has already sufficient knowledge about the topic and it supposes little variation of the questions and their sequence, or altering of the wording (Crawford 1997). While the interviews in quantitative research must be highly structured to maximized the reliability and validity of the data, in qualitative research the emphasis is on the generality of the primary research ideas and interviewees own perspective (Bryman & Bell 2007). In this thesis three interviews were conducted among small manufacturing companies in Värmland Country, Sweden. Two of the interviews were carried out by telephone due to the long distance, while one interview was performed face-to-face. The interview consists of two parts. The first part is in form of Yes/No questions in order to obtain information about the current level of e- 13

14 commerce development in the companies. This data helps mainly to answer the first research question and to obtain clear picture of the companies and their e-commerce usage. The second part of the interview consists of nine open questions clarifying the influence, barriers and benefits from e-commerce adoption. The interviews were minutes long and the responses were recorded and then transcribed in order to not lose valuable information and to allow more thorough examination. Being aware for the possible disadvantages, the questions were sent to the companies by in order for them to get familiar with the research problem. Disadvantages of doing this is that the respondents could be too prepared or previously influenced, affecting the outcome of the interview. Table 1 below shows the interviewed companies and their main activities, the respondent s role, the length of the interviews and their type: Table 1: Interviewed companies Company Main activity Respondent s Time taken Type role A Manufacturing CEO 40 min Phone Garden products B Manufacturing CEO 35 min Phone C Ergonomically Chars Labelling equipment and products CEO 45 min Face-toface Next follows a model of the research. 14

15 2.4. Research model outline An abductive approach is used in this thesis. Therefore, the research findings and the theoretical background are connected by going back and forward between data, theory and analysis. Because the purpose of the work is to describe rather than measure, the qualitative method is used. The interviews with small companies in Sweden are performed in order to answer the research questions. Regarding the data collection, primary data used is obtained from the interviews, while secondary data is obtain from Internet, journals, books, articles, and official statistical publication. Figure 1 below summarizes and illustrates my methodology approach; the main points of the thesis and the working process can also be seen. Figure 1: Research model (authors own model) 15

16 3. Theoretical background The aim of this chapter is to give a theoretical base for better understanding of the e-commerce concept. The chapter begins with a definition of the term and outlines the different forms of e- commerce. The development of the concept is being described. Attention is put on the influence of e-commerce on the traditional marketing strategy it the terms of the four Ps product, place, price and promotion. The second part is focused on the benefits and barriers of e- commerce participation in the small companies Introduction In the last two decades due to the increased development of the technology and the emergence of the Internet and World Wide Web (www) the new term e-commerce was born. From the mid-1990s e-commerce began to grow rapidly and to reshape many industries. The marketplace and the way the business is conducted will never be the same (Chong 2008). The importance of the topic has been increasing every year since the very beginning, and nowadays e-commerce is considered as a promising tool for reaching companies goals increased sales and revenue. At the same time there are still some prejudices and negatives for adoption of this new strategy. This is especially highly visible in the small companies which are the target of this study. Before beginning to explore the influence of e-commerce, a clarification of the meaning of this term according to different authors is given Definition of e-commerce The increasing number of the publications past few years leads to greater variation of the definitions of e-commerce. The first definitions were simple e-commerce has been defined as a process of buying and selling of goods over the Internet. The term was developed later and it was added exchange of information in addition to buying and selling of goods (Chong 2008, pp.470). Rainer and Cegielski (2011, pp.201) defines e-commerce as a process of buying, selling, transferring, or exchanging of products, services, and/or information via computer networks, including the Internet. Moreover, this 16

17 supposes continuous flow of information, before and after the process of sales. Rayport and Jaworski (2002) add that the process of exchange is technology mediated and that it is based on inter and intra organizational activities for facilitating such exchange. In this context, Chaffey (2007, pp.8) considers e-commerce as all electronically mediated transactions between an organization and any third party. Summarizing, e-commerce is not restricted to buying and selling, and it has become a more open term than before. Therefore the following description of e-commerce based on the literature will be used: E-commerce is a process of integration of all company s processes, activities and services toward buying and selling of products and exchange of information and funds with the company s partners via computer networks and electronic technologies (Adapted from Chong 2008; Chaffey 2007; Rainer & Cegielski 2011; Rayport & Jaworski 2002). The term e-commerce and e-business are interchangeable (Rainer & Cegielski (2011, pp.201). Many people use e-business or even e-marketing, talking about e-commerce in a broader sphere (Schneider 2011, pp.4). Good illustration of the closeness between the two terms can be found in the IBM definition of e-business: the transformation of key business process through the use of internet technologies (Schneider 2011, pp.4; Chaffey 2007, pp.14) Development of e-commerce and the process of adoption Before digging into the main problem of the thesis (the influence, the barriers and benefits from e-commerce), I feel that it is necessary to describe how e- commerce has evolved during the years and what prompt the managers to adopt more technology in their businesses. Schneider (2011) divides the development of e-commerce into two stages: first wave and second wave. First wave of e-commerce was adopted by large enterprises in USA with easy access to capitals, primarily from external sources. Evans and Wurster (1999) refer to e-commerce in this early stage as a landgrab. At once, the whole new marketplace was created and companies who had sufficient resources and willingness could grab from the land. These large companies firstly understood the possibilities that e-commerce can offer and started exploring and developing them. Since most companies were 17

18 dependant on external investors, achieving the profit was relatively rare. The pressure to the smaller companies was far more intensive, and many of them suffered losses. In the beginning, the technology was simple, inexpensive and internet connection slow, the websites were mainly English based, s were used unstructured and the integration of e-commerce with other processes were not efficient (Evans & Wurster 1999). Second wave is characterized with the technological boom after 2001, mobile broadband development, and increased speed of Internet on low cost price. The land was already captured and the key players shifted their attention from capturing to defending the land. Companies started to focus more on competitive advantage and developing strategies to achieve it (Evans & Wurster 1999). This was a prerequisite for development and adoption of e- commerce from smaller companies using their internal resources. At the same time, certain difficulties arising from using new technologies should be overcome. Stockdale and Standing (2004) stated that the benefits using e- commerce should be visible and substantial so that the companies are encouraged to climb to the ladder from a simple to a more complex stage of e- commerce. The driving force for improvements and innovations of any company is the aim to increase the revenue. Theoretically, e-commerce can improve the performance by two ways: first, by increasing the customer base and number of purchases, and second, with cost reduction by implementing e-commerce. Cost reduction like material savings, decrease of transport, storing cost, or by reduction of personal expenses (Chaffey 2009). Table 2: Drivers of e-commerce adoption (Chaffey 2009) Cost / efficiency drivers Improved efficiency of process of ordering/dispatching Increased speed of information exchange with suppliers Decreasing of operational costs Decreasing of sales and purchasing costs Competitiveness drivers Customer demand Improving the quality and range of products and services Way to prevent losing market share As illustrated in table 2 above, the drivers for e-commerce adoption can be divided into two main categories cost/efficiency drivers and competitiveness drivers (Chaffey 2009). Results from an international research shows that cost/efficiency drivers and competitiveness drivers are equally important for companies. Furthermore, the study reveals that there are differences between 18

19 adopters and not adopters. Overall, none or early stage adopters rates all the benefits lower (Chaffey 2002). According to Brand and Huizingh (2008), the process of adoption of e- commerce consists of a series of adoption processes. Of course, the big companies with huge resources and knowledge can skip or implement some stages together but for small-size companies the process is long and follows logical consequences. Brand and Huizingh (2008) describe it as a process where companies moves consequently from simple to more sophisticated e- commerce, reaching more and more complex levels of innovation. At the early stage the firm can decide just to build a web-site to present the products and services. Later, the management can decide to give the customers possibilities to interact and participate actively and customize the information according to their needs (Brand & Huizingh 2008). Companies can also benefit from the increased information exchange. For example, it can better understand the individual customer preferences and offer appropriate products. Importantly, Brand and Huizingh (2008) proved that there is a correlation between the adoption level and the intention to innovate. With the increased knowledge and satisfaction, the intention to future innovation is increasing. Xu and Quaddus (2009) also describe the development of e-commerce in small companies as a series of processes in which the company moves gradually and increase its electronic capabilities (figure 2). According to Xu and Quaddus (2009), there are four stages of development, where level 1 means no online capabilities and level 4 fully developed e-commerce strategy. Figure 2: E-commerce adoption ladder in s mall companies (Xu & Quaddus 2009, pp.304) 19

20 The adoption ladder in figure 2 shows the logical process companies follow when implementing e-commerce. At the beginning, companies have few or non e-commerce capabilities. Level 2 supposes more intensive use of online communication, mainly s for internal and external communication. In the next stage, level 3, companies start to use e-commerce as a marketing tool, mainly to communicate their products through online brochures and catalogues, but they still do not conduct business transactions. The most sophisticated level of development can be characterized with intensive information exchange and interaction with customers and partners with increased speed. Companies also make and receive orders, and make payments online. While advanced e-commerce adoption is far more costly and complicated, the initial stages can be completed relatively i nexpensive and easy. Furthermore, the adoption decisions are described as less controversial (Xu & Quaddus 2009). At the same time different reasons for e-commerce adoption are mentioned in the literature. On the other hand, commonly reported motives for small companies are the necessity to compete more effectively, while the large companies adopt e-commerce because of their more complex internal processes and operations (Xu & Quaddus 2009) E-commerce and marketing strategy As I mentioned in the previous section, one of the most common reasons for small companies to adopt e-commerce strategies in their businesses according to the literature is to enhance competiveness (Xu & Quaddus 2009). At the same time e-commerce presupposes new possibilities and difficulties as well as certain changes in the marketing strategy. But according to Stockdale and Standing (2004), electronic technologies and e-commerce are not the reason for the market to exist. The basic principles of the marketing are the same and the technology only facilitates the businesses (Stockdale & Standing 2004). When companies apply technologies to achieve their marketing objectives, we can use the term e-marketing (Chaffey 2002). Allen and Fjermestad (2001) suggest that the impact of e-commerce can be better understood in the contexts of the traditional marketing mix of the four Ps - Product, Price, Place and Promotion. Therefore they will be described in details in order to obtain a clearer picture of the impact of e-commerce. 20

21 Product Traditional marketing considers product as anything which can be offer in the market for satisfying customer needs. In e-commerce, information can be regarded as equal to the product itself (Evans & Wurster 1999). Enterprises providing clear relevant information can increase the attractiveness of their products. Technology improvements give possibilities for decreasing the cost of searching, collecting, and disseminating of information from the company and from the customers. Buyers can access information instantly, and even virtually test the product, which in traditional marketing concept would be time consuming. E-commerce changes even the way of delivering the product (Alrawi, 2007). For example a software company can offer the purchased product to be downloaded directly from their website after the payment. Or the physical distribution can be replaced with online distribution. This can decrease the overall costs. The possibilities for innovation are also increasing. E-commerce provides better access and communication with customers, which can be used for a better understanding of customer needs and finally offering a product which fully satisfy those (Allen & Fjermestad 2001). Moreover, e-commerce gives possibilities for shortening the product s life cycle, as well as the process of testing and development. At the same time, companies can expand their product line, offering additional interactive or physical services around the core product (Chaffey et al. 2000). As value-added product characteristics influence the customer s perceptions, and brand is dependent on these perceptions, e-commerce can be used to create strong brand identity and enhance brand awareness (Chaffey 2002) Place Marketing channels or the place has changed due to e-commerce. The effect of e-commerce is higher on the place than on the other three elements. Why? Because e-commerce changed rapidly the marketplace and offered tremendous opportunities for expanding the customer base and increasing the market share (Allen & Fjermestad 2001). According to Chaffey (2002) digital channels gives opportunities to selling more existing products on the same markets (market penetration). Furthermore, Internet gives premise for more a global reach and creating of larger marketplace or market development. E-commerce gives new possibilities for distribution of the product and international expansion with relatively lower costs (Allen and Fjermestad 2001). Before, companies needed 21

22 to invest huge amount of money to establish local supporting structures. Now, they create virtual market space, which can complement their traditional marketing channels. Chaffey (2002) stated that this is a big opportunity especially for small and medium size companies. Moreover, the large variety of choices is available 24h per day and buyers can at the same time consider different offers from a variety of sellers (Alrawi 2007). Additionally, companies can shorten their supply chains and bypass some of the parts of the value chain (Allen & Fjermestad 2001) Price Price is the most flexible of the four elements of the marketing mix. At the same time it is the only element which generates revenues, that s why companies should be aware of possibilities and threads exposed on (Allen & Fjermestad 2001). With the increased exchange of information, customers can easily compare different prices on a global scale and quickly make their choice. The price competition is increasing, companies are pressured to decrease the prices, and turn to other sources of competitive advantage. This can lead to price standardization across borders (Allen & Fjermestad, 2001). At the same time, there are possibilities for decreasing the overall costs for storing, and also administrative costs. By better coordination of production, distribution and sales, companies can decrease the overall costs of their products (Alrawi 2007). Moreover, companies selling online can offer special discounts in order to meet its objectives. The lower overhead of electronic transactions than telephone or personal sales gives possibilities for these price reductions (Chaffey 2002) Promotion E-commerce provides a new way to communicate company s messages to the customers. Enterprises can connect the traditional method for obtaining information, like product testing and focus groups with the information from their e-commerce website to build a unique profile for every customer. By doing this, they can develop more precisely advertising messages to targeted groups or individuals using such tools like s, web media, blogs, social media adds and others (Allen & Fjermestad 2001). Performed well, the lowcost promotion over the Internet leads to competitive advantage for the companies over these competitors who did not succeed it. Companies can either create web site with the idea of communicating messages to the 22

23 customers, or use external internet advertisement to attract visitors to their home page. Sales promotions can be established quickly, and customers can be better informed. Direct marketing, which in traditional strategy is too costly and time-consuming, now can be performed faster using direct s. Of course, this cannot fully replace the old way but supplement the overall marketing strategy. For example, direct e-marketing can be used to identify and establish the relationships with customers, and then face-to-face approach can be performed (Allen & Fjermestad 2001). However, there are some negatives of relying entirely on online promotion. For example, customers are still unwilling to share information fully, feared for their privacy because the information can be used with unclear intentions. Evans and Wurster (1999) suggest that if marketers used the information to create additional value, customers will be more willing to share the information. Therefore e- commerce and internet promotion suppose more efforts for satisfying customer needs and predispose the customers to share information. Summarizing, the traditional marketing strategy is changing due to the development of the technology and e-commerce. Companies are not limited on the marketplace in which they operate, can offer more products, communicate and receive more information. A good illustration of the difference between traditional business and e-commerce is given by Evans and Wurster (1999). According to them, the main points are: reach, richness and affiliation. Reach, means the access and connection with customers and how many products can be offered to them. It is the main visible difference between e-commerce and traditional business. Richness is connected with the information which has been exchanged and the possibilities for building strong lasting relationships. Companies start using this information to customize their offerings according to the individual needs. Traditional business experienced difficulties in collecting and using this information. That was too costly and time consuming. According to Evans and Wurster (1999), while traditional businesses need always to make trade-offs between reach and richness, with e-commerce this could be avoided. With relatively low investments customers can get access to lots of information and receive many products. The possibilities for the company to collect information and use it after to improve its performance are increasing. The third element is affiliation, or the effectiveness of the links with partners and customers (Chaffey 2009). While traditional commerce is centred on the company, e-commerce is shifting more attention to customers and the information offered is regarded as an 23

24 important element for building a competitive advantage (Evans & Wurster 1999) Benefits of e-commerce adoption in small companies Research among small size companies about the perceived e-commerce benefits have increased in recent years. However, due to the differences between the countries, the character of the companies and type of business they are into, the results are different. As illustrated in table 3, Chaffey (2009) divides the benefits from e-commerce into tangible and intangible. While tangible are connected with increased sales, decreased cost and market expansion which can be measured, intangible benefits are hard to identify and access. But they obviously are connected with the tangible. For example, if the company shorten its product development lifecycle, this could lead to costs savings and better satisfying customer needs and finally increased sales (tangible benefits). Table 3: Tangible and intangible benefits from e-commerce (Chaffey 2009) Tangible benefits Increased sales (new customers, new markets, repeat selling, cross-selling) Marketing cost reductions (reduced time for customer service, online sales, reduced distribution costs, reduced advertising costs) Supply-chain costs reduction (reduced inventory, increased competition, shortening the process of ordering) Decreasing the administrative costs Intangible benefits Increased brand awareness Better corporate image Improved marketing communication Improved product development process Finding new partners Improved effectiveness of market information Feedback from customers Digging into the problem and examining other publications gives a more detailed picture about the problem. For example Abid et al. (2011) stated that the most important benefits are connected with the competitive environment rather than just cost savings. The following major benefits have been reported: increased sales and increased ability to compete. Next to them, companies highlight increased customers service and reaching large number of customers (Abid et al. 2011). 24

25 Xu & Quaddus (2009) state that the increased ability to obtain information about customers and suppliers is one of the major benefits for small companies. Moreover, they can benefit from expanding their covering beyond the regional or even national borders. With the global nature of the technologies, companies can increase their market presence by penetrate in the global market (Xu & Quaddus 2009; Turban et al. 2008). The authors suggest that in the near future e-commerce will become a necessity for survival in ever increasing market competition. Nevertheless, through e-commerce small businesses can increase their ability to communicate with customers, suppliers and competitors to the same degree as many of the largest companies, leading to greater ability to compete by being more flexible (Fillis et al. 2003). Stockdale and Standing (2004) also support that. They suggest that because of the size, the small companies will be more adaptable to the changing conditions and can gain from the increased speed and flexibility which e-commerce offers. At the same time, most small companies nowadays are primarily concerned with short term and tangible benefits like cost savings than the long term indirect benefits, like better corporate image (Duan 2011). The explanation of the author is that even if e-commerce leads to some intangible benefits for the small business, these perceived benefits are far below the initial expectations (Duan 2011). Cost savings are also being commonly reported as a result of e-commerce implementation. Abid et al. (2011) propose that these saving are mainly because of the improved customer service, leading to less stuff and time to maintain the customer operation as well as decreased material expenses. Going online gives possibilities for low cost day-to-day operation and improved access to products and services from customers. For example, a purchase and payment of digital product can be made online, and the product then can be downloaded from the customers. This leads to reduced operational costs for the company. Nevertheless, more efficient and less expensive way of looking for suppliers or customers can be expected (Stockdale & Standing 2004). It is being reported that e-commerce gives opportunities for small business to increase their service offerings and improve the quality. Moreover, the benefits of the customer service and support online are big and this leads to better satisfaction, increased communication and interaction (Abid et al. 2011; Xu & Quaddus 2009). 25

26 Additionally, it is being stated that the perceived benefits of e-commerce among small companies are more than the larger, when talking about the customer service and customer relationships. According to Stockdale and Standing (2004), the ability to tailor unique customer products and services to individuals leads to better customer satisfaction and e-marketplace facilitates this ability. Due to the transparency of information, companies can easily identify where and how to differentiate their product from the other companies on the same marketplace (Stockdale & Standing 2004). Summary of the benefits for the small companies of participation in the electronic marketplace according different authors are given in table 4 below: Table 4: Benefits for small-size companies from e-commerce adoption Benefits Description source Improved dayto-day low cost day-to-day operation and Duan (2012), Turban et efficiency improved access to products and services al.(2008) Cost saving Reaching large number of customers Improved customer service Increase ability to compete from customers By improved customer service, less personnel and time to maintain customer operation; decreased material expenses Companies can reach new markets in other regions and countries. Firms can broaden their marketplace or widen the supplier base The companies can offer variety of new services offerings and improve the quality, with decreasing the time Through e-commerce small business can compete at the same level as the largest by being more flexible Duan (2012), Stockdale & Standing (2004) Duan (2012), Abid et.al (2011), Xu & Quaddus (2009), Turban et al.(2008), Stockdale & Standing (2004) Abid et.al (2011), Xu & Quaddus (2009), Oh K- Young et al. (2012) Stockdale & Standing (2004) Abid et. Al(2011), Xu & Quaddus (2009), Fillis et al.(2003), Stockdale & Standing (2004) Increased sales E-commerce leads to increased sales Abid et.al (2011) Improved distribution channel Increased flexibility of communication Better access to information Better customer satisfaction through unique products Small companies can broadened their supplier bases through the use of e-marketplaces E-commerce possess new possibilities for communication between partners increased ability to obtain information about customers and suppliers, increased information exchange tailor unique customer products and services to individuals leads to better customer satisfaction Abid et.al (2011), Fillis et al.(2003), Stockdale & Standing (2004) Abid et.al (2011), Turban et al.(2008), Fillis et al.(2003) Abid et.al (2011), Xu & Quaddus (2009), Oh K- Young et al. (2012) Stockdale & Standing (2004) 26

27 In conclusion, the benefits from e-commerce can be numerous but not all of them can be expected to appear in every company. Due to the differences within the industries, countries, and type of the business, different perceived benefits can be expected. According to Stockdale and Standing (2004) the process of achieving and realizing these benefits is slow and reaching sustainable advantages from e-commerce should be expected in long-term Barriers for e-commerce adoption in small companies According to Arendt (2008), the small companies experienced greater difficulties in finding e-commerce solutions than larger firms. Companies should carefully measure the risk and potential benefits of implementing e- commerce. Moreover, their new strategy needs substantially changes in all aspect of companies business. If the plan is not in accordance with the overall company mission, the result could be disastrous bad customer experience and low return of investments. The risk for small firms is particularly higher since they suffer from lack of capitals and knowledge. There are also many problems with the security, problems with ordering and delaying of orders (Arendt 2008). However, the barriers for adoption of e-commerce are numerous but they are different in small than the large companies. Arendt (2008) states the opinion that even with the similar level of connectivity to Internet the gap between small and large companies still exists. According to Arendt (2008) the barriers can be split into two major categories: macroeconomic and microeconomic. One of the major macroeconomic barriers is the lack of innovation culture. Due to the insufficient reward from the market companies are not stimulated enough to introduce innovation (Arendt 2008). In addition, Stockdale & Standing (2004) stated that many small companies operate in an environment that does not encourage the process of innovation and development of the strategy. At the same time e-commerce can be irrelevant to the business and managers feel that it is not appropriate to participate in the e-marketplace (Chaffey 2002). This factor, together with the low access and increasing cost of capitals is a major obstacle. According to Arendt (2008) the very first microeconomic barrier is insufficient awareness and skills in the company and the level of implementation of e-commerce is dependant in higher degree of that factor 27

28 than the financial/costs factors. However, even if the financial barriers still exist in some degree, we are observing a major shift from resource driven toward management driven factors (Arendt 2008). In other words, the process of decreasing the influence of the costs factors and increasing the influence of the internal factors is irreversible. Most researches select lack of knowledge and skill as a major obstacle. To illustrate the differences of the major barriers then and now, I examined some past research about the problem. Studies made among small and medium size companies show that the leading barrier is the initial set-up costs and followed by the running costs. Because the small companies did not have easy access for capitals, this was a major obstacle. But with the development of the technology, the initial investments are decreasing and other factors emerged as most important lack of skills and knowledge (Fillis et al. 2003; Arendt 2008). Other important obstacle is unwillingness of top management to implement new strategy. The strong correlation between the top management support and the level of adoption has been proved by Duan (2012). In small companies, the power decisions are concentred in the owner or the manager and their understanding of the potential benefits is crucial for implementing more sophisticated levels of e-commerce (Fillis et al. 2003; Duan 2012). The results obtained from Arendt (2008) and Duan (2012) are constant with the research from Abid et al. (2011) among Australian small-size companies. The authors stated that the internal barriers are more important, and the external takes the lowest position in the ranking. Lack of knowledge and skills is the most important barrier for the Australian companies, and after that is the cost factor (Abid et al. 2011) Major barrier is also the lack of compatibility between the company s technical infrastructure and e-commerce technology. Moreover, Abid et al. (2011) additionally examined the expected barriers and compare them with the perceived after starting to implement e-commerce strategies. The result showed that small firms are bad prepared for the introduction of e-commerce. They make insufficient planning process and underestimate the technological sophistication and complexity of the process. The lack of long term business strategy is also indicated by Arendt (2008). Companies also need to adapt their strategy with the transition to more 28

29 relationship oriented strategy, which is inevitable with e-commerce (Arendt 2008). But according to O Toole (2003) this requires people and substantially changes in the way of doing business. People and knowledge are becoming more important and companies need to invest more on training programs to overcome this barrier and to be successfully implementers of e-commerce strategy (O Toole 2003). The security risk is increasing with the openness of the company to the world and with that, the fears that the company could be more vulnerable to attack s. This in turn can affect negatively the internal environment and the company can terminated the process of e-commerce adoption on very early stage (Oh Ka-Young et al. 2012). Moreover, Oh K-Young et al. (2012) showed that the perceived business risk has double effect on the company. The perceived business risk is defined from Oh Ka-Young et al. (2012) as apprehension about an organization s business security when using e-commerce systems. First, the business risk has an overall negative effect towards implementation to e-commerce strategy, and second, positive effect towards improved innovation capabilities. The results show that the greater the risk is, the more likely the firms are to strengthen their innovation capabilities. But overall, security risk is a major obstacle. The fear of possible negatives of information exchange between partners remains (Oh Ka-Young et al. 2012). According to O Toole (2003), security of information exchanged between the partners and the fear that strategic data can be accessed by competitors is a major obstacle for the small companies. Moreover, customers are also concerned about the data collection about them and the security of electronic financial exchange (O Toole 2003). More recent publications presented the security problem more general, describing it as a lack of trust. Because e-commerce interaction is a virtual and the personal contact is missing, the parties are suffered from lack of trust, which could be a barrier for further adoption (Oh Ka-Young et al. 2012) A good classification of the barriers is given from Arendt (2008), where they are classified into six main categories. Summary of the barriers from my literature research based on the Arendt s model is presented in the table 5. 29

30 Table 5: Barriers for e-commerce adoption (Adapted from Arendt, 2008) Category Barriers Source Management and strategy Cost and financing Skills and training The Supply chain Technology Choices Security and reliability Lack of awareness Lack of long term business strategy Lack of innovation culture Resistance of top management Lack of finance resources Long process of return on investments Lack of experience and knowledge Unsuitability for the type of business Lack of consumer demand High level of complexity Lack of time Business risk Security factors Arendt (2008), Abid et.al (2011), Duan (2012) Arendt (2008), Abid et.al (2011), Fillis et al.(2003) Arendt (2008), Abid et.al (2011), Oh Ka-Young et al. (2012) Arendt (2008), Chaffey (2002) Abid et.al (2011), Fillis et al.(2003) Arendt (2008), Oh K- Young et al. (2012), Abid et.al (2011), O Toole, 2003, Oh Ka-Young et al. (2012) 3.7. Summary of the literature review According to the literature, the impact of e-commerce on small size companies is substantial. The marketplace is different and in a global world, more companies begin to realize that the implementation of electronic technology is a necessity. At the same time it s clear that the e-commerce does not change the business itself but it is a complementary tool that supplements the overall strategy and enhances the business performance. The main issue for the small sized companies is to overcome the barriers and realise the benefits, but this is a slow process with no universal recipe how to solve. Due to the different driving force for electronic commerce adoption, small firms can face different barriers. Some of them are more common, like lack of knowledge and skills, while others can appear due to the character of the company lack of long time business strategy. The realising of the potential benefits can be reached in relatively long-term. In the small companies in higher degree there is a lack of understanding of the potential benefits. The degree of understanding is very important. According to Stockdale and Standing (2004) this is a desirable prerequisite for future development. If the benefits are not realized, the effect on the company performance can be negative. 30

31 4. Findings This chapter presents the findings from primary and secondary sources. First, information regarding the IT / e-commerce development in Sweden and other European countries will be presented. This helps to receive a more accurate picture of the problem and answer to the research questions. Then, data regarding the small companies in Sweden will be presented. Differences between small/medium and large companies in Sweden will be examined. The second part of the chapter presents the findings from the interviews conducted with small size companies. The data about e-commerce usage from the enterprises are presented in a table and shortly commented. Then the responses to the open questions from the interviews are summarized Electronic development in Sweden According to the latest study of Economist Intelligence Unit (2010) Sweden occupies the first place in the digital economy rankings, while Denmark and USA are second and third. This is a ranking which asses the quality of the county s IT-infrastructure and the ability of individuals and enterprises to use electronic technologies for their benefits (Economist Intelligence Unit 2010). There is a visible tendency among companies in Sweden to spend more on telecommunication equipment, computers and software. For example, the overall investments in 2010 comparing to 2009 have increased from million SEK to million SEK, which is an increase of 4,9% on year s base. Examining the detailed information about industries, it is interesting to notice that despite the overall increase, some industries have decreased the investments. This process can be seen in manufacturing and energy and recycling sectors. It is interesting to see that the increasing investments for information and telecommunication technology from small companies are more than the average. Companies have invested 28,5% more in 2010 comparing to As can be seen in figure 3, the overall investments made from the small companies (10-49 employees) accounts for million SEK in 2010 (Statistic Sweden 2012). 31

32 Figure 3: Expenses on IT (Source: Statistics Sweden 2012) The statistical office of Eurostat (2012) presents data about the spreading of e- commerce and electronic technologies among the enterprises in EU. The broadband internet connectivity among the enterprises in Sweden is well developed. In 2011, 95% of companies with 10 or more employees are connected to Internet. Comparing to the previous year there is an increase of 4%. Overall, Sweden is on sixth place of all EU members countries, while the average broadband connectivity in EU is 89%. Online selling in 2010 is highly spreaded in Norway (34% from enterprises), Belgium 26%, Denmark 25% and Sweden 24%, while at the same time the average percent for all EU members countries is 13 %, as can be seen in table 6 below. Table 6: Enterprises selling online Country Enterprises selling online (at least 1% of annual turnover), % 1.Norway 34 2.Belgium 26 3.Denmark 25 4.Sweden 24 5.Germany 22 6.Lithuania 22 EU 27 average 13 Source: Eurostat (2012) The average turnover from e-commerce in Sweden in 2010 accounts for 18% from the total turnover, while the average level for European Union is 14%. 35% of all companies in Sweden use electronic technology to share information between different functional areas within the company in By this criteria Sweden again is among the leading countries it is ranked on 32

33 third place after Belgium and Greece. On the other hand, Eurostat shows different picture regarding the external data exchange with suppliers, customers and partners. Sweden takes 21-st place out of 27 members countries with 43%, while the leading country is United Kingdom with 77%. At the same time companies in Sweden interact intensively with public authorities. 90% have reported that in 2010 (Eurostat, 2012). Concerning purchases companies make electronically, Denmark (65%), Norway (65%) and Sweden (63%) occupy the first positions in the list for 2009, while the average percent for all EU members is only 33%. In 2010, Sweden took the second position with an increase of 6% comparing to the last year. Denmark retains in leading position with 70% (Eurostat, 2012) E-commerce usage in small-size companies A survey made in 2008 among small manufacturing companies in Sweden shows that 92% of them used e-commerce to exchange information by s and 91% use e-commerce in their marketing, mainly by their web-site (Eriksson et al. 2008). This reveals that Sweden in among the leading countries in terms of e-commerce development. A more detailed picture presented from Statistic Sweden (2012) reveals that 88% of all small enterprises have built a Web site, while among micro size companies the percentage is low 58%. The differences between industries are insignificant, only transportation and warehouse companies have relatively small level of web adoption 69% of web presence while the average level is 89%. The most sophisticated level of e-commerce can be characterized with possibilities for customers to make orders and payments electronically. Despite the high level of IT development in Sweden, the share of enterprises offer an electronic way of ordering and payment is low. The adoption of small companies is 25%, and can be seen that it is in relation to companies size. In contrast, 47% of the big companies use online payments. Differences between the industries can also be observed. In some sectors the possibilities for ordering and payment are high. For example in Finance sector 62%, in Real estate sector -52%, and Energy sector 48%. On the other hand, among construction companies the level is 12% and among manufacturing companies is 16% (Statistic Sweden 2012). 33

34 Electronic technologies and Internet are used to manage different administrative procedures. 50% of all companies with 10 or more employees perform procedures electronically, or 48% of small, 59% of medium, and 58% of the large companies. Only 35 % of small companies have reported that they offer electronic services to their employees. At the same time there are differences between the industries. While manufacturing companies show average adoption level 40%, in IT and finance sector the percentage is high 79% and 77% respectively. Small enterprises actively seek information (90%), download forms (90%) and also fill and submit electronics forms by Internet (82%). At the same time companies interact limitedly with governmental organizations. According to Statistic Sweden (2012) the most significant factor for that is the insignificant knowledge of the services and possible benefits of them. By using electronic data exchange companies can more efficiently communicate with customer, suppliers and authorities. The automated information exchange allows sending and receiving of orders and invoices, shipping documents and others in a standardized format with an increased speed. The interaction with partners among small companies is on a significantly lower level than the larger enterprises. While only 28% of the small firms use electronic systems to order and receive payments, larger enterprises show much higher level of adoption 53% among medium, and 77% among biggest firms. Only 25% of small size companies send or receive product information, 22% send and receive transport documents and 26% perform data exchange with agencies. Electronic invoices send only 29% of the small companies, while among the largest enterprises the percentage is 53%. At the same, electronically control of inventory levels have reported 20%, information sharing regarding control of distribution channel 18% of all small companies. All these applications are significantly lower adopted of smaller comparing to the larger companies. Regarding the industry sectors, the companies in manufacturing and retail and wholesale business are among the highest users of electronic technologies for sharing information about sales. Information exchange in terms of controlling the inventory levels is used from 20% of small companies, while 27% use it for the purpose of accounting. Other applications of e-commerce within the Swedish companies can be seen in Appendix A, which summarizes the results from Statistic Sweden (2012). 34

35 4.3. Development of e-commerce in the interviewed companies Table 7 below, presents the aggregates of my findings about e-commerce development in the interviewed small-size companies: Table 7: E-commerce development in the interviewed companies E-commerce applications Company: A B C Have an internet connection Yes Yes Yes Have a website Yes Yes Yes Other language version of the website or information No Yes No in different language than Swedish communication inside the company Yes Yes Yes communication with partners and customers Yes Yes Yes Publishes information on web page such as products, Yes Yes Yes catalogues, brochures Using Internet and website to promote companies Yes Yes Yes products Using internet to search for new suppliers Yes Yes Yes Electronically interaction between the company and Yes Yes Yes government agencies Company fill in and send electronic forms Yes Yes Yes Send electronic invoice Yes Yes Yes Receive electronic invoice No Yes Yes Using electronically technologies to share information No Yes Yes about sales for use for inventory control, accounting or distribution channel Customers can place orders by website No No Yes Customers can place orders by other forms, like e- Yes Yes Yes mails, EDI type messages or others Customers can pay electronically No No No The company can order electronically from suppliers No No Yes Using electronic technologies for administrative procedures inside the company No Yes Yes All companies are connected to Internet and have websites. At the moment only company B has a different than Swedish version of the website. The company has four language versions additionally to Swedish. Company A is now building an English version of their web page, while company C has only a Swedish version. Company B has allowed their customers to participate actively in the information exchange by integration with the social media like Facebook and Twitter. The other two companies have not adopted these applications. s are used actively from all firms to communicate inside and outside the companies. All companies use web pages to publish 35

36 information such as products, catalogues and brochures. Additionally, e- commerce is used as a tool to promote the companies products. Internet is used also for searching for new suppliers and to interact with the government. Company A sends electronic invoices but does not receive. They do not use electronic technologies to share information about sales in terms of inventory control, accounting or distribution. Online ordering and payment are not possible. At the same time, there is a possibility for receiving orders from customers by other methods s, EDI or others. Company A does not order electronically from suppliers. Electronic technologies for administrative procedures are not used. According to the responses, Company B sends and receives electronic invoices. Electronic technologies are used for inventory control, accounting and distribution as well as for manage administrative procedures inside the company. Similarly to company A, the possibilities for online ordering and payment do not exist and company A does not order electronically from suppliers. Different methods of receiving orders from customers are also used. Company C has a well developed web-shop. They have a more sophisticated level of e-commerce than the other two companies. All their products are included in the web shop and customers can make orders electronically. It is not possible for customers to pay online by credit cards. The company has tried this method but abandoned it since most of the customers prefer to receive an invoice and pay by other methods. The company actively use and manage information according to customers needs. Interaction between partners electronically is largely used The reason beyond e-commerce development The CEO is the leading force of e-commerce development and improvements in Company A. His visions and ideas for the future are the main reasons for the adoption of e-commerce. According to the responses, they took the decision to engage more technologies in order to improve efficiency and cut costs. He explains that they felt the necessity to do what other companies do. Similarly, in the other two companies the leading force for e-commerce adoption is again CEO. 36

37 The respondent from Company A describes the reasons for starting using electronic technology in their business. He believes that both competitiveness and cost/efficiency factors are important, but according to him, they were leaded by the cost/efficiency motives. The CEO adds: We believed that we can cut expenses, because we have many partners and by using Internet we can save money and time. Additionally they believed that through e-commerce they can improve efficiency like cutting the time for sending and receiving orders or filling and sending electronic forms. On the other hand, the CEO of company B says that they started e-commerce primary to improve competiveness. He also believes that during the time this would affect their cost of marketing and decrease the communication expenses since they have a large distributor network around the world. Company C started e-commerce leaded by cost/efficiency factors. The leading force for that was the CEO of the company, who sees their web-shop as very important for cutting cost and improve efficiency. Before 2,5 years the company did not have the knowledge about e-commerce but because of the CEO s long term vision the company managed successfully to get this knowledge inside - by hiring an experienced employee from a firm operating in the same industry. Summary of the findings regarding reasons for e-commerce development can be seen in the table 8 below: Table 8: Reasons for e-commerce adoption Driving force for e- commerce adoption Reason beyond starting electronic technologies using Company A Company B Company C CEO CEO CEO Cost / Efficiency factors To improve competiveness Cost / Efficiency 4.5. The impact of e-commerce on marketing According to the first respondent (Company A), the e-commerce has not changed their marketing strategy much. The most visible result they see in the possibilities to inform customers for the products via company s website. Importantly, they use Internet to advertise the products and to inform the customers where they can find the products in Sweden. The prices are not 37

38 published and customers have to send additional requests if they want more information. They cannot pay online. The respondent summarizes that via e- commerce his company managed to increase the advertisement and reach more customers. However, they are not so relied on finding customers by Internet, and are more dependent on their distributaries around the country. Asked if they have changed company s long time business strategy because of e-commerce, CEO replies negatively. He adds that e-commerce helps them a lot but they have not made any significantly changes in the strategy. Similarly, CEO of Company B states that the company did not change the business strategy influenced by e-commerce. Additionally, direct sales are generated only in Sweden due to the high credit risk. Due to the specificity and complexity of their products and their high price the necessity for online ordering from their website is low. The markets out of Sweden are covered by the distributors with which Company B has established close connections. The company can offer extensive information to their foreign customers by the web page; information is published in four additional languages beside Swedish. On the other hand, in Company C the changes is the long term strategy are more visible. The CEO explains that they have realised the possibilities which e-commerce offers, and changed dramatically their vision and strategy for the future. As a part of their new image the CEO highlights different graphical profile of the company, a new logo, a redesigned web site and a changed marketing strategy. Now they manage to operate with a far broader product line than before and manage to optimise it internally. The CEO explains: Before we had also a huge product line, but it was hard to handle with. Now, when everything is in the web shop it is much easier to have this range because of the structure to sell it. So, we also helped ourselves internally by optimising our product line. Moreover e-commerce gives them possibilities to put products in the web shop which are not physically produced and even sometimes they have never seen. CEO adds that now with e-commerce, the possibilities for cooperation with partners are increasing. Company s advertisement activities have been very influenced by e-commerce since the company managed to reduce the expenses and now is dependant to a large extent on their new web page. By e- commerce, the company managed to cover far larger customers area, while the price strategy is still the same - not influenced by e-commerce. 38

39 4.6. Benefits from e-commerce adoption CEO of Company A, describes the main benefits in terms of convenience and easiness for customers and partners. He explains that the new technologies give possibilities to improve communicativeness between company and partners /customers. That leads to the feeling of more closeness. Other important positive result is the possibilities to find new customers. He explains that the information published on their web site help them to attract more clients. The sharing of information and the possibilities it gives is also among the most valuable benefits, according to Company B. The respondent states that sharing of information with distributors is very important for their company since many of them are outside Sweden. At the same time, the company uses actively Internet to promote its products. Besides, they have created five language versions of the company s web page to cover the need of information from non-swedish clients. The respondent from Company C explains the main positive effect from e- commerce in terms of cutting costs for advertisement. Before, his company generated huge costs to reach and inform customers for printed catalogues, exhibitions and other forms of advertising. The respondent explains: Before we had huge expenses for advertisement for catalogues, to do our exhibitions and others. That was the only way to reach new customers. And that was too costly. Now, they have reduced dramatically the advertisement budget and attend only few exhibitions. Through the web site they have a virtual exhibition open 24h per day, 7 days a week, 365 days per year, as CEO adds Barriers for e-commerce adoption The CEO of Company A summarizes that the cost factor is very important to his company. He explains that at the moment they would not invest more money in software or technologies since they are still not sure of the positive results from their initial investments. Being asked how important the cost factor is from 1 to 5, the CEO responses with 4. 39

40 On the other hand, the CEO of Company B describes that among the main barriers for their company is the risk of card payments together with the higher cost. He states: We have a lot of international payments but accepting them in the form of foreign credit cards is too expensive and risky. We only accept international bank transfers. According to the respondent, the cost factor is also very important to adopt more e-technologies he gives it the highest grade. On the contrary, company C highlights the knowledge as a most important barrier and considers cost factor as not important at all, giving it the lowest priority. The CEO explains that the company was aware of the need to have certain knowledge in-house and not rely entirely on external sources. Moreover, he assumes that the knowledge would continue to be very important in the future for the company. If this knowledge drops out of the company they will need more resources to buy it to satisfy the need for constantly improvements. The reasons why they consider cost factor as less important is that they can see the actual positives from e-commerce and it is clear that the expenses have paid off Benefits and barriers before and now The CEO of Company A answers that they were less aware of the potential benefits. He explains that due to the little experience in this area the company had not big expectations, except to improve efficiency and reduce costs. And these expected benefits were visible as results. Concerning the marketing side and competiveness the respondent states that they were not aware of the possible outcome. The CEO states: We had some positive expectations for the potential benefits in terms of cost efficiency, but for example the positives for the competiveness and marketing were not clear for us. However, during the time they have realised the benefits of e-commerce in terms of competiveness. On the other hand, they were more aware of the potential barriers which may occur. From all the barriers, the company was most aware of the need to educate people and higher costs. Little experience causes the need for some education and company was aware of the cost connected with software and hardware upgrading. 40

41 The respondent of Company B says that the initial expectations regarding the possible outcomes have been met. The company has started to use social media (Facebook and Twitter) and this effect has been greater than expected, according to the CEO of the company. Regarding the awareness of the potential benefits, the respondent adds that his company was aware of the benefits mostly in terms of sharing of information. On the other hand, the company faced unexpected difficulties in setting up a web shop. They have still not set up their online store due to the payment and credit risk. Company C was not aware of the huge positive effect of e-commerce nowadays. The CEO explains: We knew we had to do this to be competitive but we did not expect to be so good. For his company, the benefits are far more than their initial expectations. As an example of the impact, the CEO mentions that almost all new customers have found them through Internet and most of their clients have already been informed about the products before making a request. Regarding the barriers, the CEO explains that they were aware of the need for continuous work. Every day the company have had discussions about some issues around e- commerce. The CEO adds that knowledge and the continuously improvement are very important. Regarding the possibilities for online payments by cards, CEO explains that they have already tried it, but at the moment the need for that is low, since most of their clients prefer to receive an invoice and pay by bank transfer. 41

42 5. Discussion This chapter presents the author s analysis based on the theoretical chapter and the results obtained from the interviews with companies. The author compares the finding from the literature with his empirical study and in the form of a discussion tries to answer the research questions E-commerce development in small-size companies in Sweden First, based on the theoretical model presented by Xu and Quaddus (2009) for the different stages of e-commerce adoption and according to the data obtained from the interviews it is visible that the three companies are on different level of e-commerce development: Figure 4: Level of e-commerce development in the interviewed companies If I try to align the data about e-commerce development obtained from Statistic Sweden (2012) with the model proposed from Xu and Quaddus (2009), most of the small companies in Sweden would fit into the level 3 in the graph. According to Xu and Quaddus (2009), in this stage of development companies use e-commerce primary as a marketing tool and they do not conduct business transactions. At the same time e-commerce is used for communication inside and outside the company and electronically sending and receiving of forms. This was commonly reported from the interviewed companies. The most sophisticated level of development can be characterized with an extensive information exchange, receiving of orders and payments online and optimization of the internal processes (Xu & Quaddus 2009). One 42

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