Transcript of "Factors influencing e-market places for SME buyers in B2B environment - Case of Indian Steel Market"
Factors influencing e-market places for SME buyers in B2B environment – Case of Indian Steel Market Present affiliation of Authors Dr. Atish Chattopadhyay Professor of Marketing, SPJIMR, India firstname.lastname@example.org And Dr. Kalyan Sengupta Professor of IT and Systems, IISW&BM, Kolkata, India email@example.com 1
1. IntroductionInternational Data Corporation, Gartner Inc, and many other research groups reported(Raven, 2002) that during the post dot-com-calamity period, B2B activities have grown atmuch faster pace than any other e-commerce activities. Consultants like McKinsey &Co., Forester Research also agreed the fact that B2B activities are likely to flourish inyears to come (www.3isite.com). In the recent past Confederation of Indian Industriesreported a growth of more than US$ 9 billion in the B2B market in India indicating 90percent of total of E-Commerce activities of the country (CII, 2001).There has been realization that greater benefits could be generated if industry widesegment B2B models were used. Because, e-commerce has the advantages of lowerrunning costs, better co-ordination between upstream and down stream operations alongthe supply chain and a high degree of transparency in terms of quality, quantity and pricefor any product or service. Relationship marketing which was first advocated by(Gummmesson, 1987) and (Gronroos, 1990) has become an established and efficientmethod of marketing for both consumers and industries. Jackson, (1985) strongly arguedthe best adaptation of relationship marketing is possible through B2B systems. As thesystem has the ability to tie up directly with an inventory system, one can also expect costsavings and materials control out of a B2B system. Effects of such benefits are alreadyvisible in the management spectrum of the corporate. A recent study conducted byGlobalSpec, (a vertical search engine for engineering, industrial and technicalcommunities), during January 2006 found that more than 73 percent of buyers ofindustrial equipment, have adapted to the new sources like search engines and onlinedirectories (www.clickz.com).As B2B models are getting increasingly popular and as well competitive, many researchissues are emerging in the context of attractiveness, usefulness and repetitive usage ofB2B electronic marketplace where both customer satisfaction and loyalty are expected tobe optimal. Riyad et. al, (2002) proposed five broad categories of critical success factorsfor B2B - IIM (International Internet Marketing) , viz., Marketing Strategy relatedfactors, Global related factors, Internal Organization related factors, External relatedfactors and Web site related factors.Web site related factors are important in a sense that companies can attract customers andpotential buyers through well designed web sites (Cronin 1996). Cronin cited examplesof pharmaceutical and microelectronic industries. Chaffy et. al (2000) pointed out thatinformation with good quality, easy and rapid accessibility are relevant to users.Researchers have pointed out that although a variety of B2B business models evolvedduring the late 90s, a successful model always depends on specific needs and expectationof the customers. Johnson & College in a study found that American and European B2Bbusiness models cannot be duplicated in countries like Brazil and China (Johnson andCollege, 2001) where culture and business environment are all together different from theabove mentioned advanced countries.2. ObjectiveIndia at present is an emerging economy. It is going through a phase of economictransformation and industrial changes. Electronic business is in its nascent stage but has 2
a high potential in near future. It is thus interesting to explore how successfully theIndian business system would leverage the e-business opportunities. Small and MediumEnterprises (SME) are contributing heavily into the economy of India and are rapidlygrowing all over the country. There are more than 3.4 million small and mediumenterprises in India which account for 42 percent of Manufacturing sector turnover and35 per cent country’s exports employ over 17 million people (http://www.laghu-udyog.com /smeshowcase/smeshow.htm). The current paper has an objective to studythe usage pattern of B2B portals by the SME sector of India. The study specificallyexplores effective strategies for the B2B market places. The SMEs who buy steel in thecity of Kolkata were chosen for the purpose of the study.3. MethodologyThe study consisted of two different measurements – (1) Offerings of the manufacturers /suppliers, communicated by their respective websites (2) Buying behaviour and attitudesof owners / managers of SMEs towards steel procurement.Earlier studies were taken into account while developing the instrument. The factorsenlisted by (Riyad et. al, 2002) were supplier and customer involvement, security,meeting the client demand, customer acceptance of language and quantity and quality ofdata interchanged over the internet. The constructs and the items leading to the constructswere taken into account in the study of (Riyad et. al, 2002) which stated that themarketing strategy related factors would consist of the potential audience, topmanagement support, development of the marketing strategy and integrating themarketing strategy with the internet. The website related factors would consist of thedesign of the website and the effective marketing of the site. The factors internal to theorganisation were determined to be the sales force role and the technologicalinfrastructure. The external factors that needed immediate attention were security andcustomer acceptance.A study of the causal factors of the B2B website use by (Vaidya and Nandi, 2005)confirmed the presence of perceived usefulness, perceived trust and perceived risk in theonline B2B procurement segment for SMEs. The risks were classified as time risks,performance risks, privacy risks and financial risks.For the first experiment, the respondents were exposed to twenty two website relateditems (similar to those identified by Riyad et. al, 2002) and were asked to rate these itemsin a 5-point scale of satisfaction (table 3.1). 65 randomly selected marketing professionalsworking in the city of Kolkata were asked to rate the items for websites of seven reputedsteel companies and intermediaries of India.Table 3.1: Website Related Items, rated by the marketing professionals 3
1. Products / Services 12. Company news2. Prices 13. Scientific / Technical Reports3. E-mail 14. Community activities4. Distributors 15. Job opportunities5. On-line Ordering 16. Membership benefits6. Literature request 17. Financial transaction / payment system7. FAQ 18. Tax details8. Company Profile 19. Events9. Certification 20. Auction Management10. Link to related sites 21. Speed of response11. Financial statements 22. Ease of NavigationIn the second experiment, fifty nine Small and Medium Enterprises buying/ procuringsteel were selected for the study. The person in charge of steel procurement wasinterviewed regarding the various aspects of steel procurement by means of a structuredquestionnaire. A pilot questionnaire was first administered to only 10 respondents andsubsequently, based on their responses, the instrument was purified. Finally the purifiedquestionnaire was administered to 59 respondents.The instrument consisted of three sections. The first section enquired about the type ofsteel (standardised, customised or a blend of both types) that was being procured for theorganisational usage. The section also enquired about the place from which the steel isbeing procured and the method of procurement (enlisted suppliers, directly frommanufacturers, open market, online or even from combination of few sources). Thefactors which are determinants in the steel procurement were measured on five pointlikert scale. The factors that were measured were reliability in terms of Quality, level ofCustomisation, timely delivery, adequacy of information available about the product, theease with which similar products can be compared, whether the prices available arecompetitive enough, the likelihood of using bidding / auction as a potential source ofprocurement, the payment terms with the prevailing supplier, the relationship with thevendor/ supplier, the preference of personal/ face to face contacts, the speed of responsetowards the needs of the client, acceptance of rejected products by the current supplier,the ease with which the transaction takes place and the confidentiality of the transactionthat takes place.In the next section of the questionnaire, it was attempted to find out whether the steel wasever procured online or not, and if it was ever procured online then the query was; fromwhich site was it procured. The third section was aimed at knowing if the organisationhad never procured steel online. Further questions were asked on whether it was thesheer outcome of their non awareness of online availability. Moreover the knowledge ofthe buyers regarding the various online sites was also investigated.4. FindingsThe survey of the website related factors amongst the marketing professionals of Kolkatarevealed the following: on a 5 point scale, related to agreement on the information 4
content (5 – Fully agree, 1 – Not at all agree). The mean scores of the sides areillustrated in table 4.1.It may be observed from the table, that the rating with respect to information related toprice, contact through e mail and ease of online ordering were low in majority of thecases.The survey of SME steel buyers revealed that about 90.6% of the buyers procure steelwith standard specifications available in the market. Only 6% of the organisations wereprocuring steel that was customised to their requirements, while the rest of the steel wasprocured as a mix of customised and standardised specifications.78% of the organisations procured steel form listed suppliers while about 22% procureddirectly from the manufacturers. Around 19% procure the steel from the open market.The notable finding is that none of the surveyed organisations procured steel online.Table 4.1: Mean Score of Information Content of the SitesSerial Number Factors Liking Score 1 Quality of the product 4.87 2 Customisation/ Meeting with specifications 3.81 3 Timely Delivery 4.69 4 Product Information 3.69 5 Ease of Comparison 3.43 6 Competitive Prices 4.13 7 Bidding/ Auction 2.05 8 Payment Terms 4.10 9 Relationship with Vendors 4.47 10 Face to Face contact 3.90 11 Speed of Response 4.52 12 Reverse Logistics 4.36 13 Ease of Transaction 4.06 14 Confidentiality of the Transaction 3.31The survey clearly revealed the fact that quality of the product was the prime concern ofthe SMEs for procurement of steel, followed by timely delivery and the speed of responseof the supplier to the buyer’s needs. Relationship with vendors and the supplier’sresponse to damaged / inappropriate goods (reverse logistics) are the other factors thatgained prominence in the steel procurement process for the SMEs.57% of the organisations are aware of the online steel procurement system. However, anotable factor was that of all those who were interviewed about 70% required assistancein remembering the names implying the fact that though SMEs are aware of onlineprocurement, yet they are not very conversant with it. 22% of the organisations wereaware of Metal Junction as an online procurement hub. 57% claimed the fact that the topmanagement is supportive towards online procurement. More than 72% of the SMEs alsofeel that it was not quite safe to transact over the internet, which is actually a primeconcern for online transaction. 5
5. Managerial ImplicationsThe evaluation of the websites revealed that majority of them lack information regardingprice. Also, it was not easy to establish contact over e mail or to order online which isvery basic requirement for success of online B2B marketers. Online B2B marketers needto make their websites more user – friendly in terms of online ordering and availability ofprice information.It was revealing to observe that none of the SMEs have ever purchased steel online, eventhough 90.6% of the buyers procure steel with standard specifications. Even though theowner – managers are interested in e-business, they lacked confidence in the securitysystems and are not sure of the reverse logistics. The SME buyers attach lot ofimportance to the relationship with the vendors and the buyers are still not educated withthe opportunities available within the B2B channel. Majority of them could not evenname the websites without being aided which shows very low level of awareness.Since around 78% of the steel purchase of the SME sector is made through intermediariesand relationship with the vendor is an important criterion in the buying decision. As suchthe steel manufacturers may also help the vendors in developing their website. Steelmanufacturers need to educate the vendors as well as the end users regarding servicebenefits which may accrue through transacting on the web resulting in overall costreduction. The model given below may be adapted to increase online B2B transaction.Figure 5.1: Model to increase online B2B transactions for SME buyers in India Initiative from Educate and Support Manufacturer to intermediaries in website educate intermediaries development and and end users familiarisation End User Facilitation and education6. Direction of Future ResearchThe study was more of an exploratory nature limited to a particular sector, steel, amongstSMEs within the scope of the city of Kolkata. Further research needs to be undertaken inthe other sectors and amongst other user groups in different geographical locations ofIndia. 6
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