Globally internet has changed the way in which businesses were performed traditionally. Developed countries have benefited from implementing e-commerce. But, in case of emerging economies like India the adoption of e-commerce has been very slow due to challenges posed by a number of barriers. In India, though the large corporations have adopted e-commerce and successfully explored the business opportunities, the small and medium enterprises (SMEs) are yet to benefit from adopting e-commerce. This presentation reflects on the barriers that the SMEs face in India in process of adoption of e-commerce. It analyses both the external and internal factors that affect the adoption of e-commerce. In the end recommendations are also mentioned.

1. An analysis
Barriers in Adoption of
e-commerce by SMEs
in India

2.  Introduction
 Some facts and statistics
 SMEs in India
 E-commerce
 Current scenario of e-commerce adoption in India
 Primary factors behind the e-commerce boom in India
 External factors acting as barriers to e- commerce adoption by SMEs in India
 Internal factors acting as barriers to e- commerce adoption by SMEs in India
 Recommendations
 Conclusion and the future of e-commerce
Table of Contents

3.  Steady increase in number of internet users in India provides
immense opportunity for growth of e-commerce (Lawrence &
Tar, 2010).
 Significant change in the traditional way of doing business with
application of e-commerce (MacGregor & Vrazalic, 2007).
 E commerce presents immense opportunities for businesses
(Sengupta, 2004) in India by
 providing cost efficiency,
 access to global markets (Humphrey, et.al., 2003) and
 distinctive strategic positioning opportunity (Porter, 2001)
Introduction

4. Some facts and statistics
 Industries that have benefited most from using e-commerce:
 IT, ITeS, digital products and service providers (Haffman, et.al., 1995).
 Growth rate of Indian e-commerce market: 550 % in last five years (iamai.in).
 But India has not maximized its benefits from e-commerce yet. It is still at the
nascent stage.
 Though large organizations have reaped the benefits of implementation of e-
commerce, the penetration level of e-commerce in the is very slow .
 Reasons: Lack of awareness and knowledge (Barry & Milner, 2002).
 If implemented effectively, SMEs can actually gain by capitalizing on the
opportunity to explore global markets and compete with large corporations
in spite of having limited resources.

5.  There lies several barriers
 in the internal and external environment of the organizations
SO……
 Focus of the presentation:
 evaluating these barriers and puts forward recommendations.
BUT……

6. SMEs in India
 In India almost all major industries have prominent presence of SMEs. The Government recognizes the
strategic backbone of SMEs in the Indian economy.
 The annual compounded growth rate of SMEs from 2001-02 to 2006-07 has been 2.61 percent (Press
Information Bureau).
 According to G M Ambhore, the director of the MSME Development Institute, Mumbai, in total industrial
production of India, SMEs contribute up to 45 percent (Pawar, 2012).
 2.61 crore SMEs in India employ 5.95 crore people employed, as noted by G M Ambhore (Pawar, 2012).
 Family run businesses comprise majority of the SMEs across different sectors and industries in India.
 With globalisation, the SMEs have undergone a transitional phase and facing competition from the MNEs.
 The businesses with strong technological base, pro-activeness in changing themselves and international
outlook are most well prepared to emerge successful in the increasingly competitive and dynamic
business environment (Taylor & Owusu, 2012).

7. E-commerce
 In business to customer transactions, increasing web developments and their
application, has allowed the companies to offer the best prices to their customers as
it does not require investing in and maintaining a brick and mortar store for the
company and can sell their products out of their warehouse.
 Result:
 Increased savings for the company and discounts for customers.
 Also increases convenience for customers
 Customers benefit from online services like online banking, online ticketing for airlines,
movies, entertainment, railways, placing order online for home delivery of food from
restaurants, online hotel bookings, online facility for utility bill payments, purchasing
apparels, books, and home utilities over the internet, and so on (Ray, 2011).
 Marketing functions also benefit from electronic advertising, electronic marketing,
and electronic customer support service.

8. Current scenario of e-commerce adoption
in India
 Some statistics from IAMAI:

9.  Development in communication infrastructure and computer technologies has made
commercial application of internet an important part of the country’s economic
infrastructure.
 The growth rate of e-commerce in India is presently 30 to 40 percent (Ray, 2011).
 Market size of e-commerce in India was predicted to reach 46520 crore INR turnover in 2011,
according to IAMAI.
 SMEs in multimedia, entertainment and fashion industry to benefit the most from e-commerce
the most in future (Ray, 2011).
 Approximately around 1.6 million households connected to the Internet.
 B2C transactions are increasing the e-commerce revenues.
 Travel industry is the highest contributor of revenues from e-commerce followed by e-tailing
(6 percent share) and financial services.
 Online classifieds and digitals downloads contribute to 4.6 percent and 2 percent share
respectively (Ray, 2011).
 Increasing use of smart phones will contribute to faster penetration of
e-commerce.
Current scenario of e-commerce adoption
in India

10. Primary factors behind the e-commerce
boom in India
 Increase in internet users
 The total number of internet users:121 million (merely 9% of the total population of
the country (Jain & Kapoor, 2012)
 Growing middle class:
 Increased disposable income to meet the increasing demands.
 Ease of payments:
 New and effective payment gateways
 Multiple payment options like cash on delivery, net banking, credit card
 Cash on delivery is most widely accepted by the users as it protects their interests
(Ray, 2011).

11. External factors acting as barriers in e- commerce adoption by SMEs
in India
External Factors

12. Economic factors
 Infrastructure factors:
 The primary requirements for e-commerce are electricity supply, internet access and computer (Jain & Kapoor,
2012).
 Collusion:
 Collusive behavior in competition.
 Presently in the B2B e-commerce many online market places are co-owned by a few large companies.
 Less attractive market segments:
 The cost advantage that a company gains from e-commerce is only 2 percent from traditional industries as
compared to the 40 percent in the electronics goods market.
 Costs involved:
 The ongoing costs and monthly internet charges are still high considering affordability by SMEs and customers.
 Inequality in income distribution:
 Large population of semi-urban and rural areas in India cannot afford internet facilities.
 Dichotomy exists in the penetration and usage of technology.
 Lack of economies of scale:
 Due to low internet and e-commerce penetration levels
 Resulting in adoption of e-commerce less attractive and less profitable for businesses.
 Supply chain:
 Poor supply chain affecting the business processes.

13. Political factors
 Lack of government intervention:
 Weak formal institutions (Kshetri, 2007).
 Poor state of telecommunication infrastructure, lack of telephone connections,
low speed of internet, limited bandwidth, and security concerns
 Lack of promotion, education and policy development by the government
 Time consuming government and regulatory processes in India delaying the
business processes and adoption of ecommerce.
 Market structure:
 Telecommunications market is not open, lacks free trade and is very closely
regulated.
 The import duties are high.

14. Legal factors
 Taxation:
 Multiple taxes including VAT, service tax, Octroi, income tax along with their
exceptions and special clauses makes it confusing at times.
 Cyber act and the laws:
 Insufficient legal protection for internet purchases.
 Jurisdiction:
 Difficulties in resolving international disputes by applying the laws of any one of
the countries involved and requirement of global intervention for resolution
(Kshetri, 2007).

15. Socio-cultural factors
 Language and education:
 Language diversity poses a barrier in access to information (Fleenor & Raven, 2002).
 High rate of illiteracy, low level of education and lack of IT education makes it difficult for both businesses and
consumers.
 Majority of the website contents are in English.
 They lack the awareness of how quality of life and business income can boost by application of technologies
(Humphrey, et.al., 2003).
 Risk aversion and cultural differences:
 Certain communities in India people prefer to be risk averse (Singh, et.al., 2001).
 Collectivism is preferred over individualism.
 Cultural behavior:
 In India, shopping is considered a recreational activity.
 Preference for touch and feel of the product that the customer wants to buy, face-to-face contact, scope to
bargain and interpersonal relationship with the business owner or the employees which lacks transactions take place
online (Lawrence & Tar, 2010).
 Perception of technology intervening with their culture and ways of life.
 Lack of trust among customers:
 Regular postal service does not offer an acceptable service level for delivery
of goods and couriers have high charges and limited reach.

16. Cognitive factors
 Buying behavior of Indian customers:
 In India, shopping is considered as a social activity with family and friend and involves personal
interactions and relationship with the merchant.
 People value long term relationships, social bonding and the spending quality time in developing the
relationship (Lawrence & Tar, 2010).
 In India shopping is more need driven than impulse driven.
 Risk as perceived by online shoppers:
 Cyber crimes are increasing.
 Customers still perceive that there are risks associated with online transactions, information theft and
phishing attacks (Muthaiyah, et.al., 2004).
 Because of these factors a large number of internet users exit from the online shopping process at the
registration stage itself (Lawrence & Tar, 2010).
 Business of thin margins:
 The goods and services sold online have thin margins (Kshetri, 2007).
 Insurance requirements on goods shipped, increases the cost of product.
 Shipping cost of low value items is relatively high.

17. Technological factors
 Personal computer penetration:
 High cost of the equipment.
 Personal computer penetration varies across regions, due to inequality of income
distribution, education levels and lack of infrastructural support (Fleenor & Raven, 2002).
 Infrastructure:
 Erratic power supply
 Lack of wide availability of credit cards
 Limited bandwidth and lack of broadband facility
 Poor telecommunications infrastructures
 Limited access to technology.
 Low connectivity rate through telecommunications though the service providers are
reducing their charges (Fleenor & Raven, 2002).

18. Internal factors acting as barriers in e- commerce adoption by SMEs in
India
Internal Factors

19. Top management
 Centralised decision making:
 Usually, the CEO (usually the owner of the business) holds all powers of decision making
(Fuller-Love, 2006).
 Demographic factors and the personality of the CEO affect the willingness to adopt new
technology and be innovative (Ghobakhloo, et.al., 2012).
 Perception of and attitude toward IT adoption:
 If the CEO perceives the benefits the company derives from adopting e-commerce is
more than that of the risks involved, it will result in adopting the new technology.
 Top management support:
 The management’s level of involvement in requirement analysis for e-commerce
adoption, decision making, consultation with external experts and direct monitoring of the
process of implementation of e-commerce (Ghobakhloo, et.al., 2012).
 IT knowledge and experience:
 Lack of awareness of the CEO about innovative technology and low current
level of IT application in the company (Humphrey, et.al., 2003).

20. Enterprise resources
 Requirement of financial resources for investment in technology:
 SMEs in India are normally hard pressed for finances because of lack of financial
support from financial institutions and most of them receive financial support
mainly from the owner’s own personal finances; so tendency to avoid capital
investment in technology (Rangone, 1999).
 IT expertise:
 Inadequacy of IT knowledge in-house (Ghobakhloo, et.al., 2012).
 Need to hire an external consultant and IT expert which will again involve further
expenses to be borne by the company.

21. End users
 Competency and attitude of users:
 The level of knowledge of computers and information technology among the
employees of an SME is usually low as they are not the high end IT professionals
whom large organizations can recruit easily at a higher salary.
 Also, the employees have a tendency to retain the status quo and their
willingness to adopt new ideas and technology is low.
 Training requirements:
 As the SMEs cannot afford to recruit IT experts at higher salaries; they need to
train the existing employees to successfully adopt the new process (Ghobakhloo,
et.al., 2012).

22. Organizational characteristics
 Organization structure and culture:
 The size and structure of the organization is an important determinant of adoption of e-commerce
because the capability of capital investment and human resource expertise is in proportion to the size
of the organization (Chanvarasuth, 2010).
 The attitude, perceptions, values and beliefs of the owner impacts the cultural dimensions of
openness to change, innovativeness, risk taking and uncertainty avoidance.
 Readiness to change:
 To accept the changing business environment and implement new technologies, The readiness of the
organization to adapt to the change in industry characteristic and growth opportunities is important
for adoption of e-commerce.
 Family intervention in decision making:
 Majority of the SMEs in India are family run. The top management is small and comprises of the family
member who tend to hold the leadership position for longer time than non-family run businesses, have
lower level of education and professionalism, and monitors the company with the help of informal
controls and the organizational structures are more informal.
 Nature of industry:
 The importance of e-commerce adoption in different industries is significantly
different (Ghobakhloo, et.al., 2012).

23. Recommendations

24. Recommended strategies for SMEs in
adoption of e-commerce
 Recommendations to increase online customer base:
 Ensure that the products they offer the customers online adds value to the customers.
 Build trust in their online relationship with the customers and help customers develop confidence in e-
commerce by providing the necessary assurance and support in their purchase process.
 Excellent customer service and in-time delivery of goods in top condition.
 Providing clear information on the website in simple words and if possible including an option of
multiple regional languages will help in increased transparency of information about the product,
price comparison, offering low cost products and branded products are the other options to be
taken up by the companies (Sumanjeet, n.d.).
 Recommendations to eliminate marketing issues:
 Develop logistics infrastructure to ensure smooth procurement and delivery management.
 To improve inventory management and warehousing, the companies need to integrate a system for
automated updating of the inventory levels and setting alerts for stock replenishment.
 Recommendations for business management and owners:
 Developing a culture and practice of outsourcing the functions of development of e-commerce to
other SMEs specializing in information technology and e-commerce can
prove to be cost effective, time effective and ensure the quality of work
within the limited financial resources.

25. Recommendations for actions to be
taken by the Government
 Government intervention in the process of penetration of telecommunications and
accessibility of internet across the country to support the e-commerce businesses.
 Developing strong regulatory bodies to oversee the e-commerce business would
benefit both the businesses and the customers as it would help safeguard the
interests of the parties involved (Muthaiyah, et.al., 2004).
 Ensuring security of payments and privacy of online transactions is key to the
widespread acceptance and adoption of e-commerce.
 Improving the cyber crime acts and adding new provisions in the existing laws to
cover the online contracts and legalities would be beneficial (Sumanjeet, n.d.)as the
provisions of the existing laws are inadequate to cover the issues arising out of e-
commerce.

26. Conclusion and the future of e-commerce
India has a promising future in e-commerce.
The businesses would need to scan the new opportunities coming up in the business sphere
continuously and adopt faster to the changing economy in order to be successful in attaining
the organization goals, gaining competitive advantage and sustaining in the long run.

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 Click here for complete list
References

29. Any Questions?