Factors influencing e-market places for SME buyers in B2B environment – Case of Indian Steel Market

1. 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
atishc@spjimr.org
And
Dr. Kalyan Sengupta
Professor of IT and Systems, IISW&BM, Kolkata, India
kalyansen2002@yahoo.co.uk
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2. 1. Introduction
International Data Corporation, Gartner Inc, and many other research groups reported
(Raven, 2002) that during the post dot-com-calamity period, B2B activities have grown at
much 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 in
years to come (www.3isite.com). In the recent past Confederation of Indian Industries
reported a growth of more than US$ 9 billion in the B2B market in India indicating 90
percent of total of E-Commerce activities of the country (CII, 2001).
There has been realization that greater benefits could be generated if industry wide
segment B2B models were used. Because, e-commerce has the advantages of lower
running costs, better co-ordination between upstream and down stream operations along
the supply chain and a high degree of transparency in terms of quality, quantity and price
for any product or service. Relationship marketing which was first advocated by
(Gummmesson, 1987) and (Gronroos, 1990) has become an established and efficient
method of marketing for both consumers and industries. Jackson, (1985) strongly argued
the best adaptation of relationship marketing is possible through B2B systems. As the
system has the ability to tie up directly with an inventory system, one can also expect cost
savings and materials control out of a B2B system. Effects of such benefits are already
visible in the management spectrum of the corporate. A recent study conducted by
GlobalSpec, (a vertical search engine for engineering, industrial and technical
communities), during January 2006 found that more than 73 percent of buyers of
industrial equipment, have adapted to the new sources like search engines and online
directories (www.clickz.com).
As B2B models are getting increasingly popular and as well competitive, many research
issues are emerging in the context of attractiveness, usefulness and repetitive usage of
B2B electronic marketplace where both customer satisfaction and loyalty are expected to
be optimal. Riyad et. al, (2002) proposed five broad categories of critical success factors
for B2B - IIM (International Internet Marketing) , viz., Marketing Strategy related
factors, Global related factors, Internal Organization related factors, External related
factors and Web site related factors.
Web site related factors are important in a sense that companies can attract customers and
potential buyers through well designed web sites (Cronin 1996). Cronin cited examples
of pharmaceutical and microelectronic industries. Chaffy et. al (2000) pointed out that
information with good quality, easy and rapid accessibility are relevant to users.
Researchers have pointed out that although a variety of B2B business models evolved
during the late 90s, a successful model always depends on specific needs and expectation
of the customers. Johnson & College in a study found that American and European B2B
business models cannot be duplicated in countries like Brazil and China (Johnson and
College, 2001) where culture and business environment are all together different from the
above mentioned advanced countries.
2. Objective
India at present is an emerging economy. It is going through a phase of economic
transformation and industrial changes. Electronic business is in its nascent stage but has
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3. a high potential in near future. It is thus interesting to explore how successfully the
Indian business system would leverage the e-business opportunities. Small and Medium
Enterprises (SME) are contributing heavily into the economy of India and are rapidly
growing all over the country. There are more than 3.4 million small and medium
enterprises in India which account for 42 percent of Manufacturing sector turnover and
35 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 study
the usage pattern of B2B portals by the SME sector of India. The study specifically
explores effective strategies for the B2B market places. The SMEs who buy steel in the
city of Kolkata were chosen for the purpose of the study.
3. Methodology
The study consisted of two different measurements – (1) Offerings of the manufacturers /
suppliers, communicated by their respective websites (2) Buying behaviour and attitudes
of owners / managers of SMEs towards steel procurement.
Earlier studies were taken into account while developing the instrument. The factors
enlisted by (Riyad et. al, 2002) were supplier and customer involvement, security,
meeting the client demand, customer acceptance of language and quantity and quality of
data interchanged over the internet. The constructs and the items leading to the constructs
were taken into account in the study of (Riyad et. al, 2002) which stated that the
marketing strategy related factors would consist of the potential audience, top
management support, development of the marketing strategy and integrating the
marketing strategy with the internet. The website related factors would consist of the
design of the website and the effective marketing of the site. The factors internal to the
organisation were determined to be the sales force role and the technological
infrastructure. The external factors that needed immediate attention were security and
customer 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 the
online 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 related
items (similar to those identified by Riyad et. al, 2002) and were asked to rate these items
in a 5-point scale of satisfaction (table 3.1). 65 randomly selected marketing professionals
working in the city of Kolkata were asked to rate the items for websites of seven reputed
steel companies and intermediaries of India.
Table 3.1: Website Related Items, rated by the marketing professionals
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4. 1. Products / Services 12. Company news
2. Prices 13. Scientific / Technical Reports
3. E-mail 14. Community activities
4. Distributors 15. Job opportunities
5. On-line Ordering 16. Membership benefits
6. Literature request 17. Financial transaction / payment system
7. FAQ 18. Tax details
8. Company Profile 19. Events
9. Certification 20. Auction Management
10. Link to related sites 21. Speed of response
11. Financial statements 22. Ease of Navigation
In the second experiment, fifty nine Small and Medium Enterprises buying/ procuring
steel were selected for the study. The person in charge of steel procurement was
interviewed regarding the various aspects of steel procurement by means of a structured
questionnaire. A pilot questionnaire was first administered to only 10 respondents and
subsequently, based on their responses, the instrument was purified. Finally the purified
questionnaire was administered to 59 respondents.
The instrument consisted of three sections. The first section enquired about the type of
steel (standardised, customised or a blend of both types) that was being procured for the
organisational usage. The section also enquired about the place from which the steel is
being procured and the method of procurement (enlisted suppliers, directly from
manufacturers, open market, online or even from combination of few sources). The
factors which are determinants in the steel procurement were measured on five point
likert scale. The factors that were measured were reliability in terms of Quality, level of
Customisation, timely delivery, adequacy of information available about the product, the
ease with which similar products can be compared, whether the prices available are
competitive enough, the likelihood of using bidding / auction as a potential source of
procurement, the payment terms with the prevailing supplier, the relationship with the
vendor/ supplier, the preference of personal/ face to face contacts, the speed of response
towards 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 transaction
that takes place.
In the next section of the questionnaire, it was attempted to find out whether the steel was
ever procured online or not, and if it was ever procured online then the query was; from
which site was it procured. The third section was aimed at knowing if the organisation
had never procured steel online. Further questions were asked on whether it was the
sheer outcome of their non awareness of online availability. Moreover the knowledge of
the buyers regarding the various online sites was also investigated.
4. Findings
The survey of the website related factors amongst the marketing professionals of Kolkata
revealed the following: on a 5 point scale, related to agreement on the information
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5. content (5 – Fully agree, 1 – Not at all agree). The mean scores of the sides are
illustrated in table 4.1.
It may be observed from the table, that the rating with respect to information related to
price, contact through e mail and ease of online ordering were low in majority of the
cases.
The survey of SME steel buyers revealed that about 90.6% of the buyers procure steel
with standard specifications available in the market. Only 6% of the organisations were
procuring steel that was customised to their requirements, while the rest of the steel was
procured as a mix of customised and standardised specifications.
78% of the organisations procured steel form listed suppliers while about 22% procured
directly 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 Sites
Serial 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 3.31
The survey clearly revealed the fact that quality of the product was the prime concern of
the SMEs for procurement of steel, followed by timely delivery and the speed of response
of the supplier to the buyer’s needs. Relationship with vendors and the supplier’s
response to damaged / inappropriate goods (reverse logistics) are the other factors that
gained prominence in the steel procurement process for the SMEs.
57% of the organisations are aware of the online steel procurement system. However, a
notable factor was that of all those who were interviewed about 70% required assistance
in remembering the names implying the fact that though SMEs are aware of online
procurement, yet they are not very conversant with it. 22% of the organisations were
aware of Metal Junction as an online procurement hub. 57% claimed the fact that the top
management is supportive towards online procurement. More than 72% of the SMEs also
feel that it was not quite safe to transact over the internet, which is actually a prime
concern for online transaction.
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6. 5. Managerial Implications
The evaluation of the websites revealed that majority of them lack information regarding
price. Also, it was not easy to establish contact over e mail or to order online which is
very basic requirement for success of online B2B marketers. Online B2B marketers need
to make their websites more user – friendly in terms of online ordering and availability of
price information.
It was revealing to observe that none of the SMEs have ever purchased steel online, even
though 90.6% of the buyers procure steel with standard specifications. Even though the
owner – managers are interested in e-business, they lacked confidence in the security
systems and are not sure of the reverse logistics. The SME buyers attach lot of
importance to the relationship with the vendors and the buyers are still not educated with
the opportunities available within the B2B channel. Majority of them could not even
name 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 intermediaries
and relationship with the vendor is an important criterion in the buying decision. As such
the steel manufacturers may also help the vendors in developing their website. Steel
manufacturers need to educate the vendors as well as the end users regarding service
benefits which may accrue through transacting on the web resulting in overall cost
reduction. 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 education
6. Direction of Future Research
The study was more of an exploratory nature limited to a particular sector, steel, amongst
SMEs within the scope of the city of Kolkata. Further research needs to be undertaken in
the other sectors and amongst other user groups in different geographical locations of
India.
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7. References
Chaffy, D., Mayer, R., Johnston, K. and Ellis-Chadwick, F. (2000), Internet Marketing,
CII, 2000 “E-Commerce in India: How to make it happen?”, Report of CII national
committee on E-Commerce 2002- 2001.
Cronin M.J. (1996), The Internet Strategy Handbook: Lessons from the New Frontier of
Business, Harvard Business School Press, Boston, MA.
Gronroos, C. (1990), “Relationship marketing: The strategy continuum”, Journal of
Academy of Marketing Science, Vol.23, pp.252-254.
Gummesson E. (1987), “The New Marketing: Developing long-term interactive
relationships”, Long Range Planning, Vol.20, No.4, pp.10-20.
Jackson, B.B. (1985), “Building customer relationships that last”, Harvard Business
Review, November – December, pp.120-8.
Johnson, G.F. and College, M. (2001): “B2B Trends and Opportunities in Two Emerging
Markets: Brazil and China”, Journal of E-Business, Vol.1, Issue 2.Prentice-Hall, London.
Raven, R. (2002): “Feasibility of Global e-Business Projects”, Seattle University, pp.34.
Riyad Eid, Myfanwy Trueman, Abdel Moneim Ahmed (2002): “A Cross Industry
Review of B2B Critical Success Factors”, International Research: Electronic
Networking Applications and Policy, Vol.12, No.2, pp.110-123.
Vaidya S.D. and Nandy M. (2005): “Determining Business-To-Business Website
Use: A Study of the Causal Factors”, Working Paper Series, WPS No.
557/July2005, IIM Calcutta.
http://www.3isite.com/articles/whitherb2b.htm.
http://www.clickz.com/stats/sectors/b2b/article.php/3607621
http://www.laghu-udyog.com/smeshowcase/smeshow.htm
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