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1 Academia. Revista Latinoamericana de Administración Consejo Latinoamericano de Escuelas de Administración ISSN (Versión impresa): LATINOAMERICANISTAS 2007 José Ernesto Amorós / Marcel Planellas / Joan Manuel Batista Foguet DOES INTERNET TECHNOLOGY IMPROVE PERFORMANCE IN SMALL AND MEDIUM ENTERPRISES? EVIDENCE FROM SELECTED MEXICAN FIRMS Academia. Revista Latinoamericana de Administración, junio, número 039 Consejo Latinoamericano de Escuelas de Administración null, Latinoamericanistas pp Red de Revistas Científicas de América Latina y el Caribe, España y Portugal Universidad Autónoma del Estado de México

2 Academia, Revista Latinoamericana de Administración, 39, 2007, Copyright 2007 de Cladea, José Ernesto Amorós Universidad del Desarrollo, Santiago, Chile ESADE Business School, Universitat Ramon Llull Barcelona, España Marcel Planellas ESADE Business School, Universitat Ramon Llull Barcelona, España Joan Manuel Batista-Foguet ESADE Business School, Universitat Ramon Llull Barcelona, España Does Internet technology improve performance in small and medium enterprises? Evidence from selected Mexican firms La tecnología de Internet ayuda al desempeño de las pequeñas y medianas empresas? Evidencia de una selección de empresas mexicanas ABSTRACT This paper examines the effect of Internet use on performance in small and medium-sized enterprises (SMEs). Performance is measured by enterprise growth. Research design is based on a quantitative study of SMEs in Mexico. The model has been tested by structural equation modelling (SEM) and non-parametric statistical tests. The total effect of the use of the Internet on the growth of the SMEs studied is considered to be plausible. This empirical evidence contributes to the knowledge of Internet use in the Latin-American SME context. Discussions about implications and future research are advanced. Key words: SME growth, Internet use, Mexico, structural equation modelling. RESUMEN Este trabajo examina el efecto del uso de Internet en el desempeño de las pequeñas y medianas empresas (PYMES). El desempeño es medido por el crecimiento de la empresa. El diseño de la investigación está basado en un estudio cuantitativo en PYMES de México. El modelo fue probado utilizando un sistema de ecu- Una primera versión de este artículo fue presentada en la IV Conferencia de la Iberoamerican Academy of Management Conference, Lisboa, Portugal, 8-10 de diciembre de Una versión parcial y en español fue publicada en Universidad & Empresa, 5(10). CONSEJO LATINOAMERICANO DE ESCUELAS DE ADMINISTRACIÓN, CLADEA 71

3 DOES INTERNET TECHNOLOGY IMPROVE PERFORMANCE IN SMALL AND MEDIUM ENTERPRISES? aciones estructurales y pruebas estadísticas no paramétricas. El efecto total del uso de Internet en el crecimiento de las PYMES se considera plausible. Esta evidencia empírica contribuye al conocimiento del uso de Internet en el contexto de las PYMES latinoamericanas. Se discute sobre las implicaciones y futuras investigaciones. Palabras clave: uso de Internet, crecimiento de las PYMES, México, modelo de ecuaciones estructurales. 1. INTRODUCTION The Internet currently constitutes the technological basis for the information society and for network organizations. The use and adoption of the Internet is a major academic research topic (Porter, 2001; Tapscott, 2001; Del Aguila-Obra & Padilla-Meléndez, 2006). Internet use as a strategic business tool puts the information revolution within reach of small and mediumsized enterprises (SMEs) and gives these kinds of enterprises more opportunities to compete in today s fast-changing markets. Such firms are considered of fundamental importance to maintain a competitive market (OECD, 2000b, 2002b), as they account for a large share of jobs and hence play an essential role in social development (Ba, Whinston, & Zhang, 2000; Hisrich & Drnovsek, 2002; Jutla, Bodorik & Dhaliwal, 2002). Efficient use of the Internet for both strategic purposes and operations affects the success of SMEs. However, the degree to which SMEs benefit from the use of this technology varies (Dholakia & Kshetri, 2004; Lohrke, Franklin & Frownfelter-Lohrke, 2006). The main purpose of this paper is to identify whether SMEs that make more intensive use of the Internet, have as a consequence greater growth, as a possible performance indicator. We circumscribe our research to developing economies, such as Mexico. The choice of high enterprise growth as a performance indicator is based on the conception that growth is the most important social and economic consequence for developing SMEs (Low & MacMillan, 1988), and for this reason SMEs are one of the most important actors for sustained economic growth in emerging markets. The SMEs in this study are from San Luis Potosí City, Mexico. This is the tenth largest urban region in the country, with nearly one million people, and represents a good example of an average medium-sized Latin-American city. The results of this research can be added to current work done predominantly in developed countries. 2. LITERATURE REVIEW 2.1. SMEs and the Internet Internet, just like any of the most important Information and Communication Technologies, ICTs, can be an agent of change and organizational innovation as well as a key element for 72 ACADEMIA, REVISTA LATINOAMERICANA DE ADMINISTRACIÓN, 39, 2007

4 AMORÓS, PLANELLAS Y BATISTA-FOGUET company operations. As the use of Internet becomes more common in organizations, it may constitute an important tool for business strategy (Dandridge & Levenburg, 2000). The Internet is flexible technology with many useful applications for companies. For example a study by the United Kingdom Department of Trade and Industry (DTI, 2000) shows Internet adoption in SMEs in the form of a ladder going from simple electronic mail to the complexities of e- business. However, many latinamerican SMEs face a lack resources with which is not psible to implement and use Internet (and other ICTs) to their full potential. This is one of the main factors inhibiting Internet adoption and its spread in SMEs (Chapman, James-Moore, Szczygiel & Thompson, 2000; Berranger, Tucker & Jones, 2001; Jutla et al., 2002; Street & Meinster, 2004). Nevertheless, the progressive reduction in the cost of ICTs has facilitated SMEs access to these technologies, particularly to the Internet. This has also helped SMEs and entrepreneurs in many sectors to join the so-called new economy through e-commerce and e-business (Colombo & Delmastro, 2001; Weiss, 2004; Fillis & Wagner, 2005). The pattern of Internet adoption and its subsequent use in SMEs usually differs from the adoption of traditional information and computer systems (Goode & Stevens, 2000). Basic PC technologies and their related software are rapidly turning into commodities (Lee & Runge, 2001; Tapscott, 2001), while the competitive advantages conferred by an Internet-based economy are becoming a key element for firms (Castells, 2001). Internet technologies help businesses to establish distinctive strategic positions to a much greater extent than previous information did (Porter, 2001). With traditional information technologies, first-movers achieve a temporary advantage but this technology is only an indispensable tool for enterprises when it becomes an open standard. Only those businesses that achieve a high level of lock-in continue to maintain their competitive advantage over their rivals (Shapiro & Varian, 1999). Given that the Internet is a newer rapidly changing technology, companies found they were able to model and examine new forms of business (Tapscott, 2001). The Internet is a relatively new technology for many SMEs, and all the more so in developing countries (Riquelme, 2002; Schlenker & Crocker, 2003; Wresch, 2003). For this reason, historical information such as conceptual frameworks only yields limited theoretical approaches and very precise models (Kim & Galliers, 2004). Several studies reveal differences in Internet adoption and use by SMEs (Amorós, 2003; Matlay 2004). However, it is important to note that such differences can arise from the type of SMEs in the study and the sector to which they belong. In addition, different methodologies stress different aspects depending on the way the research is designed. Nevertheless, there are certain common factors which crop up in all the studies: First, Internet adoption is not related to previous organizational experience or the adoption of traditional information systems. Second, the owner, who generally assumes the functions of the general manager in SMEs, plays a key role in Internet adoption and third, the most tightly integrated industrial sectors (with formal mechanisms for inter-organizational cooperation) facilitate more rapid Internet adoption. The same effect occurs in sectors that are more internationally oriented. CONSEJO LATINOAMERICANO DE ESCUELAS DE ADMINISTRACIÓN, CLADEA 73

5 DOES INTERNET TECHNOLOGY IMPROVE PERFORMANCE IN SMALL AND MEDIUM ENTERPRISES? Mehrtens, J., Cargg, P. B., & Mills, A. M. (2001). A model of Internet adoption by SMEs. Information and Management, 39(3), OECD. (2000a). OECD Information technology outlook: ICTs, E-commerce and the information economy Paris: OECD Publications. OECD. (2000b). OECD Small and medium enterprise outlook. Paris: OECD Publications. OECD. (2002a). OECD Information technology outlook Paris: OECD Publications. OECD. (2002b). OECD Small and medium enterprise outlook. Paris: OECD Publications. Poon, S., & Joseph, M. (2000). Product characteristics and Internet commerce benefit among small business. Journal of Product and Brand Management, 9(1), Poon, S., & Swatman, P. M. C (1997). Small business use of the Internet. International Marketing Review, 14(5), Porter, M. E. (1998). On competition. Boston, MA: Harvard Business School Press. Porter, M. E. (2001). Strategy and the Internet. Harvard Business Review, March, Raymond, L. (2001). Determinants of Web site implementation in small businesses. Internet Research: Electronic Networking Applications and Policy, 11(5), Raymond, L., Julien, P. A., & Ramangalaby, C. (2001). Technological scanning by small Canadian manufacturers. Journal of Small Business Management, 39(2), Riquelme, H. (2002). Commercial Internet adoption in China: Comparing the experience of small, medium and large business. Internet Research, 13(3), Roberts, M., Larsen, P., & Tonge, R. (2002). The influence of IS in high-growth and super-growth mediumsized enterprises. Paper presented at BIT 2002 Business Information Technology Management: Semantic Future. Manchester Metropolitan University Business School, 6th and 7th November 2002, Manchester, UK. Sadowski, B. M., Maitland, C., & van Dongen, J. (2002). Strategic use of the Internet by small- and medium-sized companies: An exploratory study. Information Economics and Policy, 14(1), Scupola, A. (2003). The adoption of Internet commerce by SMEs in the south of Italy: An environmental, technological and organizational perspective. Journal of Global Information Technology Management, 6(1), Schlenker, L., & Crocker, N. (2003). Building an e-business scenario for small business: The IBM SME Gateway Project. Qualitative Market Research: An International Journal, 6(1), Shapiro, C., & Varian, H. (1999). Information rule. A strategic guide to the network economy. Cambridge, MA: Harvard Business School Press. Southern, A., & Tilley, F. (2000). Small firms and information and communication technologies (ICTs): Toward a typology of ICTs usage. New Technology, Work and Employment, 15(2), Spectrum Strategy Consultants, (1997). Moving into the information society: an international benchmarking study, London: DTI Research Report. Storey, D. J. (1994). Understanding the small business sector, London: Thomson Learning. Storey, D. J. (2001). A portrait of success: The facts behind high growth companies in the UK. London: Deloitte & Touche. Street, C. T., & Meinster, D.B. (2004). Small business growth and internal transparency: The role of information systems. MIS Quarterly, 28(3), Tapscott, D. (2001). Rethinking strategy in a networked world (or why Michael Porter is wrong about the Internet). Strategy+business, Third Quarter. < article/?art=14904, andpg=o>. Accessed: Dec. 3, ACADEMIA, REVISTA LATINOAMERICANA DE ADMINISTRACIÓN, 39, 2007

6 AMORÓS, PLANELLAS Y BATISTA-FOGUET Thong, J. Y. L., Raman, K. S., & Yap, C-S. (1996). Top management support, external expertise and information systems implementation in small business. Information Systems Research, 7(2), Thong, J. Y. L., Raman, K. S., & Yap, C-S. (1997). Environments for information systems implementation in small businesses. Journal of Organizational Computing and Electronic Commerce, 7(5), Weiss, P. (2004). Small companies play catch-up on the Internet. Information Week, July 26, 70 Windrum, P., & Berranger de, P. (2002). The adoption of e-business technology by SMEs. BIT 2002 Business Information Technology Management: Semantic Futures. Manchester Metropolitan University Business School, 6th and 7th November 2002, Manchester, UK. Wresch, W. (2003). Initial e-commerce efforts in nine least developed countries: A review of national infrastructure, business approaches and product selection. Journal of Global Information Management, 11(2), Recibido: 6/12/06 Envío evaluación: 13/02/07 Corrección: 3/07/07 Aceptado: 18/08/07 CONSEJO LATINOAMERICANO DE ESCUELAS DE ADMINISTRACIÓN, CLADEA 91

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