The Diffusion of E-commerce a he Firm Level: Theoreical Implicaions and Empirical Evidence by Enrico Sanarelli* Universià di Bologna Diparimeno di Scienze Economiche Srada Maggiore, 45; I-40125 BOLOGNA; ITALY Samuele D Alri Universià di Bologna Facolà di Scienze Saisiche Absrac As a specific insiuion of disribuive rades, e-commerce displays similariies wih reail sores and mail order companies. As well as providing heoreical suppor for he assumpion ha e-commerce is a way o sell cerain goods and services a prices poenially lower han hose of radiional disribuive channels, his paper analyses is iner-firm diffusion among a sample of firms (mosly SMEs) in Ialy. The paper has hree main purposes. Firsly, i challenges he view of e-commerce as a echnological revoluion, by poining ou is naure as a cosminimizing markeing channel. In paricular, i shows how, under cerain circumsances, e-commerce is a source of ransacion cos advanages analogous o hose yielded by mail order business. Secondly, he paper idenifies he circumsances under which e-commerce sales migh achieve a significan level of peneraion among hose SMEs ha would oherwise incur high coss in organizing a proprieary disribuive channel. Thirdly, he paper employs a unique daa se of Ialian manufacuring, service, and hospialiy firms (nearly 90% of hem wih fewer han 100 employees) o esimae a diffusion model based on he logisic curve. According o he esimaes, by he fourh quarer of 2003 nearly 50% of he populaion of firms in he geographical area surveyed will have inroduced e-commerce among heir markeing channels. * Corresponding auhor. E-mail: sanarel@spbo.unibo.i Fax: 0039 051 2092631 JEL codes: L23, L81, O31. Keywords: e-commerce; mail order; SMEs; echnology diffusion This version: 14 November 2001 Alhough he paper is a join effor, Secions 3 and 4.2 can be aribued o Samuele D Alri, he remaining Secions o Enrico Sanarelli. D Alri graefully acknowledges financial suppor from Assindusria Rimini, Sanarelli from MIUR (Cofinanziameno 2000). A previous version was presened a he 5 h ERC/METU Inernaional Conference in Economics (Ankara, Sepember 10-13, 2001). We hank he audience, and in paricular Zolan Acs and William Easerly, for helpful suggesions; and Robera Piergiovanni for her useful commens on previous versions of he paper. 1
1. Inroducion Despie rapid growh experienced in recen years, e-commerce sales accoun for a very small share of oal ransacions. As a maer of fac, elecronic ransacions in eiher reail (B2C) or wholesale (B2B) markes are sill in heir infancy, wih B2B represening approximaely 80 per cen of all elecronic sales (Inernaional Daa Corporaion, 2000). Thus, even if he media sill emphasize he magical benefis ha B2C will bring in everyday life, elecronics sales are expeced o exer heir sronges impac on verical relaions among firms. In his connecion, B2B will grow even faser han B2C over he nex few years, owing o he migraion of supply chain managemen from closed Elecronic Daa Inerchange (EDI) neworks 1 o he Inerne. For hese reasons, oo, he specacular bursing of he Inerne bubble has led some o quesion he very imporance of he ne (The Economis, 2001, p. 7). Ye alhough some of he early claims abou he Inerne were cerainly misaken, he poenial impac of e-commerce on he overall economy is largely unexplored. Accordingly, more in-deph analysis of his device from boh a heoreical and an empirical perspecive is needed, paricularly as regards wha David Audresch and Roy Thurik (2001) call he shif from he managed o he enrepreneurial economy. This paper has hree main purposes. Firsly (secion 2.1), i challenges he commonly acceped vision of e-commerce as a echnological revoluion, poining ou is close connecion wih radiional mail-order reail channel. Secondly (Secion 2.2), i idenifies he circumsances under which e-commerce sales migh achieve a significan level of peneraion among hose SMEs which would oherwise incur high coss in organizing proprieary disribuive channels, and which migh benefi from disinermediaing and dealing direcly wih heir cusomers, eiher in he business or he consumer secors. Thirdly (Secions 3 and 4), i employs a unique daa se of manufacuring, service, and hospialiy firms (mos of hem small and medium sized) locaed in he Emilia- Romagna region of Ialy o esimae an infra-secoral diffusion model based on he logisic curve for he case of he e-commerce disribuive channel. 2. Transacion coss and he insiuional arrangemens of disribuion In is mos commonly acceped definiion, he erm e-commerce denoes ransacions in which he Inerne is used a) o esablish he erms of rade (price, availabiliy, ime o delivery, and he oher deails of he ransacion usually called coordinaion coss) among he paricipans in a 1 EDI is a sandard used for he ransmission of informaion beween compuers over value-added neworks. I requires cusom nework and dedicaed communicaion links and (someimes) equipmen, which make i much more expensive o use han he Inerne. 2
markeing channel and hen b) o sell goods and services which can be delivered offline or services which can be digiized and delivered online. According o he relevan lieraure (for a survey, cf. Garicano and Kaplan, 2000), i is sill unclear wheher e-commerce is a brand new paradigm or a simple, alhough significan, improvemen in he radiional disribuive rades. More careful consideraion of insiuional arrangemens in disribuive rades may shed some ligh on his conroversial issue. 2.1 E-commerce and mail order 2 : wo sides of he same coin? In general, e-commerce is a source of ransacion cos advanages based on he exploiaion of informaion and communicaion echnologies. In his connecion, significan differences in echnological feaures nowihsanding, e-commerce can be likened o a echnologically up-o-dae version of he mail order business, whose origins (daing o he end of he fifeenh cenury in Venice 3 ) were closely linked wih prining and he depicion of producs for sale in a caalogue. The forerunners of he modern mail order caalogue appeared in he mid-nineeenh cenury America. In 1844, for example, Orvis disribued a caalogue lising a range of fishing supplies and in 1845 Tiffany & Company of Fifh Avenue published a caalogue of Useful and Fancy Aricles - which offered goods impored from Europe and China. In 1872 A.M. Ward founded he laer world-famous company Mongomery Ward and his compeior R.W. Sears sared up business in 1886 by sending waches o cusomers in he Far Wes. Rapidly growing demand araced hree oher large players in he indusry: Spiegel, Naional Bellas Hess and he Chicago Mail Order Company. Towards he end of he cenury, he Ward caalogue already consised of 244 pages wih housand of iems on offer. From 1897 onwards, Sears (he indusry leader, wih 43% of mail order sales in 1919) saw circulaion of is general caalogue increase from some 318,000 copies o over one million for he spring caalogue of 1904 and over hree million for he fall caalogue of 1907. In he 1920s, he American mail-order companies se up a nework of sores o be closer o heir cusomers, a rend ha was laer apparen in Europe as well, where large sores developed mail order deparmens because of he close link wih he general range of goods and a wish o be closer o heir cusomers. Sears and Ward opened reail sores in he 1920s, he purpose being o exploi heir purchasing organizaion more efficienly and o build cusomer goodwill (cf. Chandler, 1962; Emme and Jeuck, 1950). Spiegel, Chicago Mail Order and Naional Bellas Hess opened heir sores only in he 1940s, when i was oo lae o challenge he marke leadership of Sears and Ward (cf. Michael, 1994). Because consumers were exhibiing a greaer preference for deparmen sores, boh Sears and Ward used he capial and he managerial capabiliies generaed by he mail order 2 The ouline hisory of mail order in his Secion is based on EMOTA (2001). 3
business o develop a widespread nework of deparmen sores. This led o a significan conracion in heir mail order business, so ha by he 1940s deparmen sores had become heir predominan markeing channel. Chicago Mail Order and Naional Bellas Hess exied he marke in he 1960s, whereas Spiegel reurned exclusively o mail order business (Michael, 1994). In Wesern Europe, apar from some specialized companies, mail order grew by virue of he fac ha, unlike he USA, he big deparmen sores developed mail order secions because of he close link wih he general range of goods and a desire o provide a new service o heir cusomers. However, mail order really ruly expanded afer he Second World War, when a huge demand for goods and a disribuion sysem in ruins creaed he condiions for i o develop apace. As regards Ialy, mail order houses only appeared in 1958, when Anna Bonomi creaed Posal Marke in order o inroduce a disribuive channel ha had proved so successful in he Unied Saes. Under is new owner Eugenio Filograna, Posal Marke is sill he marke leader in Ialy, wih approximaely 70 per cen of he indusry's sales. I is eviden why mail order companies came o fruiion in he second half of he nineeenh cenury: mass-produced consumer goods became available and herefore forced manufacurers find new and bigger markes. This was combined wih he growh of he railway nework and a regular and relaively cheap mail delivery sysem, especially as regards parcels. The developmen of consumer credi faciliies, daily and weekly papers, and new prining echniques were he more echnical aspecs of he developing mail order secor. Today, many successful mail-order houses sill operae in several counries (e.g., Spiegel and J.C. Penney in he US, Posal Marke in Ialy), bu he rapid peneraion of sales via he Inerne (e-commerce, on-line reailing) has promped some of hem o adop a muli-channel approach 4. The rejuvenaed mail order channel is consequenly now used by radiional mail order houses, by new companies (such as Amazon.com) sared-up ad hoc in order o exploi he new echnologies, and by a plehora of firms (mos of hem SMEs) which use i for direc sales of he goods/services ha hey produce. Does his means ha e- commerce is he conemporary version of mail order? The new communicaion echnologies ha permi he widespread diffusion of e-commerce - which enables beer and more direc communicaion and dialogue beween sellers and cusomers - are similar in principle o he railway nework ha permied he developmen of mail order in he nineeenh cenury. To some exen, hey have engendered a de-mauriy process (as defined by Abernahy and Uerback, 1975) in he mail order business which sems from he availabiliy of his faser communicaion nework. 3 Curiosly, in he same period i was also inroduced in Venice he use of noaion @, employed as a measure of weigh. 4 For example, Posal Marke is now marke leader in Ialy in he e-commerce business. 4
Hence, more han a revoluion, e-commerce seems o be he resul of he adopion of he new, pervasive informaion and communicaion echnology wihin a radiional insiuional framework. The main difference is ha he modern communicaion equipmen available o producers, reailers and consumers is easy o handle, no oo cumbersome, and subsanially inexpensive. A his poin, one may answer he quesion asked above by saying ha e-commerce is he mos recen developmen in he mail order rade, one able o revialize his reailing insiuion. 2.2 A ransacion coss approach o e-commerce As shown by mos sudens of markeing, ransacion coss also include esablishmen of he erms of rade among he paricipans in a markeing channel (cf. Sern and El-ansary, 1982). I is herefore a useful device for analysis of how firms choose among alernaive disribuive channels. In his connecion, one can eiher rea he problem in erms of consumer subsiuion behavior among disribuive channels (Ward, 2001) or simply employ ransacion coss heory (Williamson, 1985) in assuming ha boh e-commerce and mail order yield coordinaion coss advanages (Garicano and Kaplan, 2000) and perform beer when he densiy of cusomers is low (Michael, 1994). In wha follows, we ake he second line of invesigaion. Thus, coordinaion cos advanages arise since: a) Boh mail order and e-commerce reduce a buyer's cos of finding suppliers because searching for producs and comparing prices on he Inerne (caalogues) is less cosly han visiing reail sores and making phone calls; b) The Inerne (and he caalogues received in he mail) provide buyers wih beer informaion abou produc characerisics, including prices and availabiliy. In urn, advanages associaed wih he densiy of cusomers in a given geographical area are idenified in he following circumsances: 1) On he cusomers' side, when hey are faced by significan ranspor coss in reaching he locaion of he seller (as is ypically he case in rural areas), hey draw advanage from online (or posal) informaion on he goods/services ha hey are ineresed in purchasing. In his case, he purchase price paid by he cusomer includes a paymen for descripive informaion (i.e., he online/offline caalogue) ha should be significanly lower han he ranspor coss ha s/he would incur by going o inspec and physically handle he good/service in he reail sore; 2) On he sellers' side, a low densiy of he cusomers is an argumen in favour no only of sending hem an online caalogue, bu also of using guaraneed overnigh carriers for 5
shipmens in all cases in which he goods/services sold canno be digiized and delivered online. In his way, a larger proporion of cusomers can be reached a a relaively low cos and he seller is more likely o gain conrol of a much wider poenial marke han ha associaed wih a radiional reail sore. This because he seller can serve a large marke from a cenral locaion wihou building a widespread reail channel composed of a number of sores. Of course, when he densiy of he cusomers exceeds a cerain hreshold he combined coss of using he Inerne and guaraneed overnigh carriers may be greaer han hose of building and mainaining a reail channel comprising several sores. More general consideraions can be pu forward as regards he characerisics of he goods/services sold: i) e-commerce (bu no mail order) is more efficien han oher forms of disribuion when he goods/services involved in he ransacion can be digiized and delivered online, as in he case of sofware, music, and financial brokerage services. This is he only circumsance in which e-commerce can be regarded as a major process innovaion. In all oher cases i is merely a way o speed up he exchange of informaion beween suppliers and cusomers; ii) e-commerce (as well as mail order) may be associaed wih lower disribuion coss in he case of search goods, or of hose goods and services which do no require much informaion o he cusomer. Oherwise, e.g. in he case of experience goods, if informaion on he goods/services can only be obained by direc inspecion or consumpion (as is he case, for example, wih new perfume, a soap, or a resauran meal), cusomers prefer o ravel o one or more sores so ha e-commerce is no longer a viable soluion 5. Thus, even from a heoreical perspecive, e-commerce can be likened o he radiional mail order channel. In his connecion, one canno rule ou a priori ha e-commerce will be overaken by radiional insiuional arrangemens as marke and echnological condiions change and is cos advanage is eroded. In paricular, i is highly likely ha a) as he populaion densiy increases and he informaion required by cusomers increases as well, reail sores will sill enjoy a ransacion cos advanage over e-commerce; b) firms already using he e-commerce channel for heir sales will inroduce (and/or srenghen if i is already in use) a more radiional reail channel, he raionale being he same as ha followed earlier by he mail order houses, i.e. in order o exploi heir 5 As aply argued by Klein (1998), under cerain circumsances e-commerce migh urn experience goods ino search goods, by using mulimedia capabiliies of he web o permi online experience. 6
purchasing organizaion more efficienly and o increase heir visibiliy among poenial cusomers; c) e-commerce will never acquire a significan share of he marke in he case of experience goods which canno be inspeced direcly via he Inerne. 2.3 SMEs and he poenial benefis of e-commerce The wave of corporae downsizing ha has involved mos OECD counries in recen decades has given rise o a shif in he indusrial srucure away from large firms and owards SMEs. Consequenly, SMEs are likely o represen he engine of growh in he emerging enrepreneurial economy (Audresch and Thurik, 2001), in which new knowledge is he crucial inpu o economic aciviy. As regards e-commerce, condiional on he availabiliy of he knowledge base and he skills needed o deal wih he informaion and communicaion echnologies, SMEs may in general benefi from adoping i o reduce heir marke enry and disribuive coss, and o reach a higher number of poenial cusomers. In paricular, SMEs which would oherwise incur high coss in organizing a proprieary disribuive channel may benefi from disinermediaing and dealing direcly wih heir cusomers, eiher in he business or consumer secors. This also implies ha he radiional dilemma beween developing a proprieary disribuive channel and resoring o he services of a specialized dealer can be overcome by using a more flexible and low cos disribuive channel. For example, a small firm specialized in he producion of goods ypical of a cerain area (examples in he food indusry being Culaello di Zibello and Lardo di Colonnaa in he Ialian provinces of Parma and Massa Carrara) may enlarge is cusomer base far beyond he narrow borders of he area; and do so wihou incurring he high cos of building a disribuive channel covering all he areas/counries in which i wans o expor is produc or hiring he services of specialized dealers. In his manner, a radiional cos disadvanage wih respec o larger firms disappears, and he small firm is in he posiion o compee wih is larger counerpar. In fac, mos SMEs are faced wih he problem of developing an efficien reail channel. In his respec, e-commerce represens a relaively low cos alernaive o any oher soluion, and efficienly serves he purpose of enabling he firm o reach a significan number of cusomers wihou having o inves heavily in he developmen of a markeing channel. The problem remains, however, ha in hose secors in which such coss advanages are higher from a heoreical viewpoin (namely, sofware, financial and brokerage services, ec.) here is a endency owards concenraion in he real economy which per se reduces he likelihood of SMEs growh. However, his mosly concerns he well known rade-off beween he gains in efficiency brough abou by increased concenraion and he gains in erms of compeiion and economic democracy which can 7
be achieved hrough decenralizaion (Williamson, 1968). As such hey fall wihin he field of anirus legislaion and pracice 6 more han in ha of he idenificaion of he opimal disribuive channel. 3. The Inerne and he adopion of e-commerce among a sample of firms: a descripive analysis In Ialy, e-commerce accouns for a very small share of oal sales, and he number of buyers using he Inerne is less han 1 per cen of he working age populaion 7 (Coppel, 2000). Neverheless, beween 1995 and 2000 he number of domains regisered for elecronic ransacions grew from 10 o 1040 (ANCE, 2000), hereby confirming ha his new markeing channel is aracing increasing ineres among reail and wholesale sellers. A he regional level, Emilia- Romagna ranks fifh among Ialian regions in erms of oal number of e-commerce sies, wih a 47 per cen growh beween 1999 and 2000. Emilia-Romagna is one of he mos economically advanced Ialian regions and is characerized by he widespread diffusion of SMEs, mos of which are localized in indusrial disrics. For hese reasons, he erriory comprising he Province of Rimini and he Republic of San Marino, boh locaed in he souheasern area of his region, is ideal for he sudy of he diffusion of e-commerce among SMEs. We shall herefore focus on a sample of firms, mos of hem wih fewer han 100 employees and wih heir headquarers in Rimini or San Marino: 1,214 SMEs in he manufacuring, service, and hospialiy secors ha by he beginning of 2000 were already conneced o he Inerne. The inerviews were carried ou via e-mail and 128 (11% of hose included in he sample) firms reurned he quesionnaires. Among hem, 109 (85.2%) urned ou o have se up a web sie, alhough his does no imply ha hey were using e-commerce capabiliies. Only 19 firms (14.8%) declared o have already inroduced e-commerce, or ha hey will do ha by he end of 2001. As shown by Table 1, nearly 45 per cen of he respondens were micro-firms wih fewer han 10 employees, and he large majoriy of firms (89.8) have less han 100 employees. However, he crucial role of SMEs in he diffusion process emerges more clearly by looking a he cross abulaion beween year of iniial adopion and size class of he adoping firm repored in Table 2. In effec, he diffusion process originaes from firms in he smalles size class, followed by hose having beween 10 and 49 employees. A he end of 2000 (i.e. four years afer he beginning of he diffusion process in he relevan erriory) none of he large firms wih more han 100 employees 6 And, in general, in ha of public consrains on he freedom of firms o conrac. 7 Which is very small when compared o he European average of 7%, and o he 15% and 10% of UK and Germany respecively. 8
had inroduced e-commerce among heir markeing channels ye, alhough hree of hem declared he inenion o adop e-commerce wihin 6 monhs from he ime of he inerview. Table 1 Size disribuion (employmen) of he responding firms Size classes No. of firms % Cumulaive % Fewer han 10 57 44.9 44.9 10-19 21 16.5 61.4 20-49 26 20.5 81.9 50-99 10 7.9 89.8 More han 100 13 10.2 100.0 Toal* 127 100.0 100.0 * 1 firm did no provide informaion on he size of is workforce. Table 2 Year of adopion and size class of he adoping firms Less han 10 10-19 20-49 50-99 More han100 1997 3-1998 1 2 3-1999 1 1 1 1-2000 3 2 1 - The firms were firs asked o define he main reasons for creaing a web sie (Table 3). Only a few of hem (2.6%) saed ha a web sie was a firs sep owards adopion of e-commerce, whereas a large majoriy (58.4%) cied he need for more visibiliy among poenial cusomers as he main facor influencing he decision o creae a web sie. The firms were hen been asked o define heir aiude owards he adopion of e-commerce soluions. Table 3 Main deerminans of he decision o adop a web sie Increase visibiliy 58.4 % Develop online caalogues 21.4 % Improve he qualiy of he services supplied o cusomers 16.2 % Develop an e-commerce channel 2.6 % Imiae compeiors 1.3 % Alhough only 19 firms had already adoped e-commerce a he ime of he inerview (December 2000), more han 30 per cen declared ha hey were ineresed in he capabiliy 8, whereas more han 50 per cen were unineresed in i or had never heard abou i (!) (Table 4). Thus, e-commerce is no on he agenda of mos firms wih web sies, he laer being perceived as relaively low cos promoion vehicles for heir business. In his regard, a large proporion of web sies can be aken o 8 Of hese, 24.2% declared heir inenion o adop e-commerce wihin 6 monhs from he ime of he inerview, and 57.6% wihin 12 monhs. 9
be online windows used by firms o increase heir visibiliy and o signal heir presence in he marke o poenial cusomers. Table 4 Firm s aiude owards e-commerce The firm has already adoped an e-commerce soluion 17.4 % The firm inends o adop an e-commerce soluion as soon as possible 30.3 % The firm is no ineresed in adoping an e-commerce soluion 49.5 % The firm is unaware of he exisence of e-commerce 2.8 % Requesed o indicae heir preferred e-commerce soluion, 22 per cen of firms answered B2B, 44 per cen B2C, and he res boh soluions. The populariy of B2C is raher surprising (alhough i probably reflecs over-represenaion of hoels in our sample), since as recenly as in 1999 is peneraion rae was subsanially insignifican in Ialy, wih oal sales represening 0.09 per cen of reail sales as a whole (Coppel, 2000). Among firms ha have already inroduced e-commerce, less han 6 per cen derive more han 50 per cen (and more han 50% less han 15%) of heir oal sales from his markeing channel (Figure 1). As a rough measure of he inra-firm diffusion of he new markeing channel, hese daa confirm ha, a he presen sage of developmen, e-commerce is no a subsiue for esablished markeing channels. Alhough approximaely half of he responding firms perceive is inroducion as a sep ha will sooner or laer be necessary, hey apparenly do no regard e-commerce as a panacea for heir compeiiveness. The 109 firms ha have creaed web sies were hen asked o indicae he main problems ha hey encounered in seing up an e-commerce service (Table 5). Mos of hem urned ou o be unaware of he exisence of secure servers enabling he use of encryped informaion on credi card daa. Thus, 26.3 per cen of respondens idenified securiy as he main problem faced in developmen of heir e-commerce soluions. Also significan was he imporance aribued o he coss of managing e-commerce (25.0% of respondens), as well as o he shorage of skilled human capial (20%), he lack of familiariy among cusomers wih he new disribuive channel (10%), and he scan proecion of privacy (10%). Significanly, only in a few cases (2.5%) had firms experienced no problems in implemening heir e-commerce soluion. Finally, firms were asked o idenify he main advanages of e-commerce (Table 6). The mos frequen answers concerned cusomer relaions, wih 19 per cen of firms saing ha hey had increased heir number of cusomers afer adoping he e-commerce soluion, 18.7 per cen saying ha he device enabled hem o ener in new markes, and 17.6 per cen idenifying he mos imporan benefi as faser communicaion wih heir cusomers. Only 3 per cen of he responding firms had gained no benefi from adoping an e-commerce soluion. 10
Figure 1 Peneraion rae of e-commerce a he firm level: % of firms 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% Less han 15% Beween 15% and 50% More han 50% Per cen of firms 58.80% 35.30% 5.90% Table 5 Main problems faced in implemenaion of an e-commerce soluion Securiy 26.3 % High developmen and managemen coss 25.0 % Shorage of skilled human capial 20.0 % Difficulies experienced by cusomers 10.0 % Low privacy proecion 10.0 % Unreliabiliy of he web 6.3 % None 2.5 % Table 6 Main advanages obained from he implemenaion of an e-commerce soluion Increased number of cusomers 19.0 % Peneraion of new markes 18.7 % Faser communicaion wih cusomers 17.6 % Increased flexibiliy in he supply chain 6.6 % Compeiive advanage over compeiors 6.6 % Possibiliy o cusomize producs/services 6.2 % Easy access o he cusomers neworks 5.9 % Cos advanage 5.9 % Easy access o he suppliers neworks 4.8 % Increased number of suppliers 3.3 % None 3.3 % Shorer delivery imes 2.2 % 11
4. Measuring he diffusion of e-commerce: an applicaion of he logisic model The perceived imporance of e-commerce as an alernaive disribuive channel which emerges from he descripive analysis suggess ha is diffusion paern among firms in he Province of Rimini and he Republic of San Marino should be invesigaed more horoughly. For his purpose, applicaion of a sandard logisic model allows he rae of adopion of e-commerce among firms in our sample o be racked unil he diffusion is complee. 4.1 Theory By adaping he diffusion model earlier used by Mansfield (1968) and Romeo (1975) o he purpose of he presen sudy, we follow Soneman (1983) in saring from he equaion of he sandard logisic curve: dn (1) d i = f i N i 1 N N i * i where N i denoes he number of firms in he populaion i adoping he new echnology a ime, N i * is he oal number of firms ha will have adoped he new echnology by he end of he diffusion process, and he linear combinaion φ measures he speed of diffusion. If one assumes ha φ i includes an error erm ε, hen equaion (1) has he soluion (2) N i * Ni = 1+ exp( f h) i Ni0 whereh = log N N i0 * i 4.2 Empirical resuls Esimaion of equaion (2) requires rewriing of he logisic model in is linear form: (3) log N * i N i N i =h+f i 12
and hen a linear regression using weighed leas squares. The weighs o be used are n p q, where p is he proporion of adoping firms n a ime, and q =1 p. The diffusion of e-commerce among he firms in our daabase sared in he firs quarer of 1997. Since he daabase racks he diffusion process o he second quarer of 2001, our analysis deals wih he firs 18 quarers afer he dae of iniial use of he new markeing channel among firms included in he daabase. For simpliciy, we also assume ha he diffusion is compleed when all he 128 poenial adopers have inroduced e-commerce among heir markeing channels. This implies ha N i * = 128. Using informaion on he exac sar-up ime of each firm, we empirically derive he values of n needed o consruc he weighs (Table 7). In order o be employed as values of, he 18 quarers have been numbered in increasing order, so ha = 1 denoes he firs quarer of 1997, = 5 he firs quarer of 1998, and = 18 he second quarer of 2001. Table 7 Values of n beween 1997 and 2001 Year N. of acive firms 1997 119 1998 122 1999 127 2000 128 2001 128 Esimaion of equaion (3) yielded he following resuls: (4) ln N = 4.401 0.159 128 N + wih 2 R = 0.916. Boh coefficiens are saisically significan (Sig. = 0,00), alhough hey canno be aken o be a direc measure of he diffusion rae. However, hey can be insered in equaion (2), obaining he following resul (5) N 128 = 1+ exp ( 4.401+ 0.159 ) and hen employed in consrucion of he esimaed curve represening he diffusion pah, which in urn can be compared wih he empirical pah (Figure 2). According o he esimaed curve, by 13
he fourh quarer of 2003 (i.e., 28 quarers afer he dae of he iniial diffusion) nearly 50 per cen of he populaion of firms in he relevan erriory will have inroduced e-commerce among heir markeing channels, wih he share reaching 80 per cen (100 firms ou of 128 in our sample) by he firs quarer of 2006 and 100 per cen by he end of 2011, when he diffusion is complee. Figure 2 Diffusion pah of e-commerce among a sample of firms 140 120 Maximun possible number of adopers Number of adopers 100 80 60 40 20 0 Esimaed curve Empirical curve 0 10 20 30 40 50 60 70 Number of quarers Of course, his resul only implies ha, wihin 14 years from he ime a firm in he sample firms adoped e-commerce, all poenial adopers will have inroduced his echnologically advanced disribuive channel. Predicion of he share of oal sales ha e-commerce will represen for each firm requires more in deph analysis of he rae a which e-commerce replaces more radiional disribuive channels. A is presen sage of developmen, e-commerce does no represen a subsiue for esablished markeing channels, no even in he case of SMEs. 5. Concluding remarks Challenging he commonly acceped vision of e-commerce as a echnological revoluion, his paper has poined ou is naure as a cos-minimizing markeing channel. In paricular, i has shown how, under cerain circumsances, e-commerce is a source of ransacion cos advanages ha do no significanly differ from hose of he old-fashioned mail order reail channel which became one of he dominan reailing insiuions in he Unied Saes during he firs half of he wenieh cenury. 14
Afer showing how SMEs may in general benefi from adoping e-commerce as a way o reduce heir disribuive coss and o reach a higher number of poenial cusomers, he paper has also analyzed is iner-firm diffusion among a sample of Ialian firms. To his end, he paper has employed a unique daa se of manufacuring, service, and hospialiy firms (nearly 90% of hem wih fewer han 100 employees) locaed in he Emilia-Romagna region of Ialy which comprises he province of Rimini and he small Republic of San Marino. According o our analysis, SMEs (and in paricular hose wih fewer han 10 employees) have been he iniiaor of he adopion process of e- commerce, whereas esimaion of a logisic funcion suggess ha by he fourh quarer of 2003 nearly 50% of he populaion of firms in he relevan erriory will have inroduced e-commerce among heir markeing channels, wih he share rising o 80% by he firs quarer of 2006. However, of firms ha have already adoped e-commerce, fewer han 6% derive more han 50% (and more han 50% less han 15%) of heir oal sales from his markeing channel. Thus, e-commerce urns ou o be a highly pervasive innovaion, alhough a he presen sage of diffusion i does no represen a subsiue for esablished markeing channels. Wheher i will overake he radiional markeing channels employed by business firms is a maer for furher research. 15
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