Barrier of e commerce adoption in SMEs

BARRIERS TO THE E-COMMERCE ADOPTION BY SMEs IN TERENGGANU
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CHAPTER 1
1.0 INTRODUCTION
This chapter will discuss mainly about the introduction, background of the study, problem
statement, objectives of the study, scope of the study and significance of the study.
1.1 Overview of e-commerce application by SMEs
Recent decades have seen the explosive growth of the e-commerce in the business world and
it has become one of the key players which brought some unexpected advantages to a
business which adopt it. However, usually big companies and corporation are those which
reap the benefits of e-commerce while Small and Medium Enterprises (SMEs) are still on the
initial steps.
In Malaysia, the number of SME increases rapidly from year to year. Nowadays, information
communication technology (ICT) is something that should be learnt and practiced by SME in
order to be successful in business. The number of internet users in Malaysia is very huge and
SME should take advantage on this opportunity. According to Minister of Information
Communication and Culture, Dato’ Seri Utama Dr. Rais Yatim (2011) revealed that Malaysia
currently have 17.5 million Internet users as of 2011. This could mean that there is a high
potential of internet marketing of products and services for the SMEs in Malaysia alone.
Electronic commerce, commonly known as ecommerce, ecommerce, eCommerce or e-comm,
refers to the buying and selling of products or services over electronic systems such as
the Internet and other computer networks. Watson, Berthon, Pitt and Zinkhan (2000) and

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Reedy, Schullo and Zimmerman (2000) define e-business as any business carried out over an
electronic network by exchanging data files, having a website, using other companies’
websites or buying and selling goods and services online. A website, also written as Web
site, web site, or simply site, is a set of related web pages containing content such
as text, images, video, audio, etc. A website is hosted on at least one web server, accessible
via a network such as the Internet or a private local area network through an Internet address
known as a Uniform Resource Locator. All publicly accessible websites collectively
constitute the World Wide Web (Wikipedia, 2012).
E-commerce is fundamentally changing the economy and the way businesses are conducted
today (Barua, Konana, Whinston & Yin, 2001). It forces firms to find new ways to expand
markets in which they compete, to attract and retain customers by tailoring products and
services to their needs, and to restructure their business processes in order to deliver high
quality products and services more efficiently and effectively (Chan & Davis, 2000; Shin
2001). Therefore, this is one of the many ICT tools that can be implemented by SMEs in
order to be more productive.
Internet has transformed the traditional marketing model system. Besides functioning as a
communication medium, it has been used as a market space where buyers and sellers
exchange information, goods and service without the hindrance of time and geographically
constraints (Khatibi, Thyagarajan & Seetharaman, 2003).
E-commerce adoption is believed to bring a lot of benefits which include improved customer
service, better inventory control, lower marketing and distribution costs, reduced cycle time,
increased market reach, and reduced operation costs (Nath, Akmanligil, Hjelm, Sakag &

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Schultz, 1998; Riggins & Rhee, 1998; Senn, 2000). Other benefits include global
connectivity, high accessibility, scalability, interoperability, and interactivity (Turban, Lee,
King & Chung, 2000; Rayport & Jaworski, 2001).
However, there are still a small numbers of SMEs that adopt ICT in their daily business. The
application of E-commerce in Malaysia even though is encouraging, but it is still at its infant
stage (Norudin & Ahmad Faisal, 2010). According to Sivanandan (2011), in November 2011,
only 100,000 of the 700,000 SMEs have a website. Therefore, this study attempts to identify
the level of e-commerce adoption by SMEs and to examine the barriers for SMEs not to
adopt e-commerce in their daily operations.
1.2 Background of the study
Researchers will use the previous research on E-commerce in Northern Malaysia: Analysis of
the State of E-Commerce Adoption by the SMEs in Northern Malaysia and Factors that
Might Hinder its Adoption: An Empirical Study by Liew (2004) as reference. Referring to the
paper, researchers are focusing on 20 identified barriers which may influence adoption of e-
commerce.
1.3 Problem Statement
The dramatic and steady increase of the number of Internet users around the world combined
with the rapid development of Internet and related technologies are one of the most
significant economic trends to conduct business by the use of Internet of e-commerce.

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Based on the report provided by World Internet Statistic (http://www.internetworldstats.com),
usage of the internet is the highest in Asia region compared with Europe and other part of the
world.
Figure 1.1: Internet Users in the World Distribution by World Regions – 2011
At the end of year 2011, there are 1,016,799,076 individuals from Asia using internet,
representing 44% from the whole world internet users which is 2,267,233,742 people.
Whereby, Europe is the second highest region with 500,723,686 of users, approximately half
of the Asia users. Followed by North America with 12% internet users representing
273,067,546 of people and the least internet users comes from Oceania and Australia region
which contributes only 1.1% that comprises of 23,927,457 people. As for Asia countries,
Malaysia is one of the top 10 internet user countries in December 2011.

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Figure 1.2: Asia Top Internet Countries
From the chart in Figure 1.2, Malaysia has more than 17 million internet users which have
increased tremendously as compared to internet users in the 2000 with only 3.7 million users
(www.internetworldstats.com). This could mean that there is a vast potential of internet
marketing of products and services for the SMEs in Malaysia alone. Therefore, SMEs should
take this opportunity to increase their business performance.
Usage of e-commerce in a business is really helpful for business marketing and selling.
Besides, e-commerce is said to promise many benefits such as it can reduce communication
and administration costs and improve the accuracy to transformative advantages including

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enabling business process reengineering or supporting industry value chain integration
initiative such as just-in-time inventory, continuous replenishment, and quick response
retailing.
Thus, every SME should be aware and informed of the outcomes from using e-commerce.
Unfortunately, many of them do not take this opportunity and there are still a small numbers
of SMEs in Malaysia especially in Terengganu that adopt e-commerce in their daily business.
However, there is no data published by SME Corporation Malaysia Terengganu and Yayasan
Pembangunan Usahawan (YPU) regarding companies that apply e-commerce in their
business.
Therefore, researchers had conducted a fact finding on the usage of internet and e-commerce
in Terengganu. First, the most popular website was ranked and it was found that the top
website in Malaysia was Facebook (alexa.com, June 2012). Then, by looking at the internet
traffic, it was discovered that the highest access of Facebook website is from Terengganu.
Therefore, it can be implied that the highest online user is from Terengganu.

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Figure 1.3: Rank of Top Website in Malaysia
With regard to e-commerce, mudah.my is the top e-commerce website in Malaysia
(alexa.com, June 2012) and Terengganu ranks at number two as highest viewer. Thus, it can
be said that online community in Terengganu is familiar with online transaction.

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Figure 1.4: Access (hit) rate of MUDAH.MY according to STATE
From the fact finding above, it is a wonder for SMEs in Terengganu not adopting e-
commerce in their daily businesses activities. Therefore, researchers were inspired to figure
out the barriers that hinder these Terengganu SMEs from using e-commerce.
1.4 Research Questions
a) What are the extents of e-commerce adoption among the SME in Terengganu?
b) What are the barriers to e-commerce adoption by SMEs in Terengganu?
c) What are the appropriate actions recommended for government in nurturing the e-
commerce adoption by SMEs in Terengganu?
1.5 Research Hypotheses
H1: Complexity has a negative relationship with e-commerce adoption.
Whereby, when complexity is high, e-commerce adoption will be low.
H2: There is a negative relationship between cost and e-commerce adoption.
When cost is high, e-commerce adoption will be low.

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H3: There is a positive relationship between security and e-commerce adoption.
When security is high, e-commerce adoption will be high.
H4: There is a positive relationship between suitability for business and e- commerce
adoption.
When suitability is high, e-commerce adoption will be high.
1.6 Research Objective
1. To study the extent of e-commerce adoption among the small and medium enterprises
(SMEs) in Terengganu.
2. To examine the factors that could become barriers to the e-commerce adoption by
small and medium enterprises in Terengganu.
3. To propose appropriate actions towards motivating the SMEs in adopting e-commerce
in their business.
1.6 Scope of the study
This study focuses on barriers to the e-commerce adoption by SMEs in Terengganu. The
scope of the study will cover 74 SME owners or managers of Terengganu under Bumiputera
Enterprise Enhancement Programme (BEEP) which is being monitored by SME Corp.
Malaysia. The researchers followed the sample size suggested by Sekaran (2003).

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According to Mohd Farid Awang, SME Corp. Malaysia Terengganu State Director (June
2012), all SMEs in Terengganu do not practise e-commerce even though they already
received grants from government.
1.7 Significance of study
1.7.1To the Researchers
Besides being a requirement to graduate, the main purpose of this study is to gain exposure,
knowledge and information to complement prior knowledge on SMEs in the adoption of e-
commerce through daily business transactions. Research findings will contribute to the
government authorities by providing useful and accurate data that can be used in planning on
future economic development growth. Additionally, this study will provide the next
researcher input on this scope of study.
1.7.2To the Entrepreneur
It is also expected that the results will contribute to the SMEs and entrepreneurs to overcome
barriers and speed up the rate of e-commerce adoption so that they are more competitive in
business operations.
1.7.3 To the government
It is hoped that the research findings would be able to provide useful insight for government
and other interested parties to understand current state of e-commerce usage in Terengganu.
This study can be used by the SME Corp. Malaysia with the supervision of Ministry of
International Trade and Industry Malaysia to formulate better strategies and policies to help
SMEs in Terengganu in order to overcome the proposed barriers.

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CHAPTER 2
2.0 LITERATURE REVIEW
Literature review is notation and quotation of references such as text, journal, thesis,
magazines and other written published. This chapter covered information related to this
study, E-commerce, Small and Medium Enterprises (SMEs), barriers to the e-commerce
adoption by SMEs and previous literatures from researchers to serve as supporting facts to
the whole study.
2.1 Introduction of E-commerce
2.1.1Definition of E-commerce
There are many definitions of E-commerce. The World Trade Organization (WTO) defines
E-commerce as “... the production, distribution, marketing, sale of delivery of goods and
services by electronic means” (Baker & McKenzie, 2001 cited by MacGregor & Vrazalic,
2006).
Grandona and Pearson (2004) define e-commerce as “the process of buying and selling
products or services using electronic data transmission via the Internet and the www.”
Meanwhile, Watson, Berthon, Pitt & Zinkhan (2000) and Reedy, Schullo & Zimmerman
(2000) define e-business as any business carried out over an electronic network (exchanging
data files, having a website, using other companies’ websites or buying and selling goods and
services online).

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While e-commerce focuses primarily on transactions with a firm’s customers, e-business
expands the connectivity of the organization to include its suppliers, employees and business
partners (Rodgers, Yen & Chou, 2002; Martin & Matlay, 2001). This expanded connectivity
makes e-business solutions much more prominent than the use of e-commerce (Pavic, Koh,
Simpson & Padmore, 2007).
On the other hand, Van Hooft, and Stegwee (2001) defines e-business as a secure, flexible
and integrated approach to delivering differentiated business value by combining the systems
and processes that run core business operations with the simplicity and reach made possible
by the Internet technology.
Croom (2005) views e-business simply as the use of systems and open communication
channels for information exchange, commercial transactions and knowledge sharing between
organizations. Evans and Wurster (2000) and Croom (2005) stated that the rise of the Internet
as a communication channel (and its supporting systems and software) has changed the
economics of information, gives rise to opportunities, new forms of affiliation between
organizations, new forms of relationship between organizations and new forms of transaction
between organizations.
2.1.2Types of e-commerce applications
According to Daniel and Wilson (2002), usage of e-commerce could be categorized into the
following areas: communication, researching for information, marketing, business with
suppliers and business with customers. Hence, Martin and Matlay (2003) found that the main
applications of e-commerce are related to marketing activities. It is suggested that common e-

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commerce applications such as e-mail and websites employed as cost-effective marketing
tools in terms of information dissemination, advertising, customer support and servicing as
well as brand building (Korgaonkar & Wolin, 2002).
Tetteh and Burn (2001) suggested that SMEs should employ internet infrastructure to develop
a virtual community or a virtual marketplace that could encourage interaction between
manufacturers, service providers, suppliers, and customers through exchange of information
via websites. A study by Sulaiman (2000) in the Malaysian context suggested that e-
commerce is used as electronic marketing, electronic advertising, customer support services,
ordering and delivery and online payment.
Although there are many possible uses of e-commerce, empirical studies showed that most
SMEs have not fully adopted e-commerce application (Liew, 2004).
2.1.3Benefits realised through e-commerce adoption
Xu, Duan, & Ravni Rohatgi (2007) states that e-business technologies allow small and
medium enterprises (SMEs) to gain capabilities that were once the preserve of their larger
competitors. Nabeel (2007) supported saying that the SMEs would benefit immensely from
adopting different technological e-commerce solutions in order to bridge the technological
gap between them and large enterprise. Moreover, IT adoption often requires close
collaboration and coordination that can be easily achieved in small firms (Oliveira & Martins,
2010).

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According to Hempel and Kwong (2001) and supported by Molla and Licker (2005), e-
commerce will contribute to the development of businesses in developing countries which is
driven by the perceived potential of the internet and communication technology in reducing
transaction cost of the intermediary and facilitating linkages to the global supply chains.
Furthermore, Chwelos, Benbasat and Dexter (2001) believed that e-commerce promises
many benefits such as it can reduce communication and administration costs and improve the
accuracy to transformative advantages including enabling business process reengineering or
supporting industry value chain integration initiative such as just-in-time inventory,
continuous replenishment, and quick response retailing.
Likewise, prior literature, (Ordanini & Rubera, 2010; Zhu & Kraemer, 2002) has proven a
significant relationship between e-commerce adoption and performance gain, in particular in
developed countries. The e-business value of ICT-enabled EC was found to lead to improved
firm performance in sale, internal processes and customer/supplier relationships through
market expansion, improved information sharing efficiency, and improved transactional
efficiencies (Melville, Kraemer & Gurbaxani, 2004; Zhu & Kraemer, 2002; Zhu, 2004).
Therefore, it is likely that not using e-commerce will be a disadvantage for SMEs in the
future.
2.2 Introduction to Small and Medium Enterprise
There are a number of definitions of SMEs that are based on quantitative measures such as
staffing levels, turnover or assets, while others employ a qualitative approach (MacGregor &
Vrazalic, 2006). Meredith (1994) suggests that any description or definition must include a

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quantitative component that takes into account staff levels, turnover, assets together with
financial and non-financial measurements, but that the description must also include a
qualitative component that reflects how the business is organised and operates. As this study
involves Malaysian SMEs, the Malaysian definition will be used.
In Malaysia, the most widely adopted definition is the one defined by Small and Medium
Development Corporation Malaysia (SME Corp. formerly known as SMIDEC) and Bank
Negara Malaysia (BNM) whereby SMEs can be grouped into three categories: Micro, Small
and Medium (Norudin & Ahmad Faisal, 2010). These groupings are based on either the
number of people a business employs or on the total sales revenue generated by a business in
a year. The definition of SMEs based on size is summarized as:
Table 2.1: Characteristics of Small and Medium Industry
Sector Category
Definition
Sales Turnover (RM) Number of employees
Manufacturing
Micro
Small
Medium
Less than 250,000
250,000 – less than 10 million
10,000,000 – 25 million
<5
5 – 50
51 - 150
Services
Micro
Small
Medium
Less than 200,000
200,000 – less than 1 million
1 million – 5 million
<5
5 – 19
20 – 50
Sources: SME Corp. Malaysia (2012)
In terms of qualitative, any description of a small business must be premised on the notion
that they are not simply scaled down large businesses (Westhead & Storey, 1996; MacGregor
& Vrazalic, 2005) and although size is a major distinguishing factor, small businesses have a
number of unique features that set them apart from larger businesses (MacGregor &
Vrazalic, 2006). SMEs are known to possess unique features. Therefore, to better understand
the SMEs, it is best to know all those unique features which have been summarised in Table
2.2.

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Table 2.2: Features unique to small to medium enterprises (SMEs) as cited from MacGregor
& Vrazalic (2006)
Features Unique to SMEs Reported By
Features Related to Management, Decision Making and Planning Processes
InternalFeatures
SMEs have small and centralized management with a short range
perspective
Welsh & White (1981)
Bunker & MacGregor (2000)
SMEs have poor management skills Blili & Raymond (1993)
SMEs exhibit a strong desire for independence and avoid business
ventures which impinge on their independence
Reynolds et al (1994)
Dennis (2000)
SME owners often withhold information from colleagues Dennis (2000)
The decision making process in SMEs is intuitive, rather than based on
detailed planning and exhaustive study
The SME Owner(s) has/have a strong influence in the decision making
process
Intrusion of family values and concerns in decision making processes Reynolds et al (1994)
Dennis (2000)
SMEs have informal and adequate planning and record keeping processes Markland (1974)
Rotch (1981)
Miller & Besser (2000)
Tetteh & Burn (2001)
Features Related to Resource Acquisition
SMEs face difficulties obtaining finance and other resources, and as a
result have fewer resources
Cragg & King (1993)
Blili & Raymond (1993)
Gaskill & Gibbs (1994)
SMEs are more reluctant to spend on information technology and
therefore have limited use of technology
MacGregor & Bunker (1996)
Abell & Limm (1996)
Poon & Swatman (1997)
Walczuch et al (2000)
Dennis (2000)
SMEs have lack of technical knowledge and specialist staff and provide
little IT training for staff
Blili & Raymond (1993)
Cragg & King (1993)
Martin & Matlay (2001)
Features Related to Products/Services and Markets
ExternalFeatures
SMEs have a narrow product service range Reynolds et al (1994)
SMEs have a limited share of the market (often confined towards a niche
market) and therefore heavily rely on few customers
Lawrence (1997)
Hadjimonolis (1999)
Quayle (2002)
SMEs are product oriented, while large businesses are more customer
oriented
MacGregor et al (1998)
SMEs are not interested in large shares of the market Reynolds et al (1994)
MacGregor et al (1998)
SMEs are unable to compete with their larger counterparts Lawrence (1997)
Features Related to Risk Taking and Dealing with Uncertainty
SMEs have lower control over their external environment than larger
businesses, and therefore face more uncertainty
Westhead & Storey (1996)
Hill & Stewart (2000)
SMEs face more risks than large businesses because the failure rates of
SMEs are higher
Brigham & Smith (1967)
Cochran(1981)
DeLone (1988)
SMEs are more reluctant to take risks Walczuch et al (2000)
Dennis (2000)

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2.3 Introduction to Bumiputra Enterprise Enhancement Programme
Bumiputra Enterprise Enhancement Programme is an initiative programme held by SME
Corporation Malaysia (formerly known as SMIDEC) to assist selected Bumiputra SMEs in
enhancing their operation, marketing, management and productivity. The strategic partner of
this programme is Yayasan Pembangunan Usahawan (YPU) Terengganu. The programme
started in 2006 funded by Ministry Of Finance. Participated SMEs will receive a matching
grant to reduce the financial burden for investment in improving the company products,
process, packaging, quality certification and application of Halal certification. Every
application and selection of SMEs will go through a Technical and Approval Committee
consisting of YPU, MARDI, SME Bank and SIRIM. SME Corp State office will be the
secretariat and processing officer for all the applications. All the successful applicants were
given grants of RM50,000 to RM400,000 from SME Corp. Malaysia based on evaluation by
Technical and Approval Committee. As at June 2012, the total SMEs participated in BEEP is
74 companies and the total grants approved are RM13 million (Mohd F. A., 2012)
2.4 Introduction of website
In this modern day, the web is the most popular internet service. More and more business
managers nowadays use this service in their business activity especially through the web site.
Laudon and Laudon (2012) define a web site as a collection of web pages linked to a home
page which are accessible through the internet. There are many choices for building and
maintaining web sites which depends on the money a company is willing to spend. Since
2000, the cost of hardware, software, and telecommunications for building and operating a
web site has fallen over 50 percent. Thus, it enables small entrepreneurs to build fairly
sophisticated sites.

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2.5 Barriers to E-commerce Adoption by SMEs
E-commerce has been widely touted as providing small businesses with an opportunity for
instant access to global markets and customers (Coviello & McAuley, 1999 as cited by
MacGregor & Vrazalic, 2005).
However, research shows that it is mostly larger businesses that have benefited from e-
commerce adoption (Riquelme, 2002 as cited by MacGregor & Vrazalic, 2005) with small
businesses showing a much slower pace of adoption.
The reasons for this are diverse and have been examined in various studies as inhibitors or
barriers that prevent small businesses from adopting and, subsequently fully reaping the
benefits of e-commerce. A summary of different e-commerce adoption barriers in small
businesses based on an extensive literature review is presented in Table 2.3 (as cited from
MacGregor & Vrazalic, 2005).
Since the barriers are too many to be listed, the researchers focus only on four groups of
barriers which are based on previous literature and findings.
MacGregor and Vrazalic (2005) had conducted an empirical research in Sweden and
Australia and found that the basic factors for not adopting e-commerce can be termed into
“Too Difficult” and “Unsuitable”.

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Table 2.3: Summary of e-commerce adoption barriers in small businesses
Barriers to E-commerce adoption Related literature
High cost of e-commerce implementation; internet
technologies are too expensive to implement
Iacovou et al. (1995),
Lawrence (1997),
Purao and Campbell (1998),
Van Akkeren and Cavaye (1999)
Quayle (2002), and
Riquelme (2002)
E-commerce is too complex to implement Quayle (2002)
Small businesses require short term ROI and e-commerce is
a long term investment
Lawrence (1997) and
McGowan and Madey (1998)
Organizational resistance to change because of fear of new
technology amongst employees
Lawrence (1997) and
Preference for and satisfaction with traditional manual
methods, such as phone, fax and face-to-face
Lawrence (1997),
Poon and Swatman (1999) and
Venkatesan and Fink (2002)
Lack of technical skills and IT knowledge amongst
employees; lack of computer literate/specialised staff
Iacovou (1995),
Lawrence (1997),
Van Akkeren and Cavaye (1999),
Chau and Turner (2001),
Quayle (2002), and
Riquelme (2002),
Lack of time to implement e-commerce Lawrence (1997)
Walczuch et al. (2000),
E-commerce is not deemed to be suited to the way the
organization does business, or the way our clients do
business
Iacovou et al. (1995)
Hadjimonolis (1999)
E-commerce is not deemed to be suited to the
products/services offered by the small business
Hadjimonolis (1999)
Walczuch et al. (2000),
Kendall and Kendall (2001)
E-commerce is perceived as a technology lacking direction Lawrence (1997)
Lack of awareness about business advantages/opportunities
that e-commerce can provide
Iacovou et al. (1995) and
Quayle (2002)
Lack of available information about e-commerce Lawrence (1997)
Concern about security of e-commerce Purao and Campbell (1998),
Van Akkeren and Cavaye (1999),
Poon and Swatman (1999)
Hadjimonolis (1999)
Quayle (2002),
Riquelme (2002),
Lack of critical mass among customers, suppliers and
business partners to implement e-commerce
Hadjimonolis (1999)
Heavy reliance on external consultants (who are often
considered by small businesses to be inadequate) to provide
necessary expertise
Lawrence (1997),
Chau and Turner (2001 )
Lack of e-commerce standards Tuunainen (1998)

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The “Too Difficult” factor is related to the barriers which make e-commerce complicated to
implement, including barriers such as the complexity of e-commerce implementation
techniques, the difficulty in deciding which standard to implement because of the large range
of e-commerce options, the difficulty of obtaining funds to implement e-commerce, the lack
of technical knowledge and the difficulty of finding time to implement e-commerce.
The “Unsuitable” factor is related to the perceived unsuitability of e-commerce to small
businesses. The barriers in this group include the unsuitability of e-commerce to the
organisation’s products/services, its way of doing business, and its client’s way of doing
business, as well as the lack of perceived advantages of e-commerce implementation. From
this, we have derived our first two barrier factors that are Complexity and Suitability of the
business.
Then, by referring to the Table 2.3 of summary of e-commerce adoption barriers in small
businesses, it was found that one of the most commonly cited barriers to e-commerce
adoption is that it is too expensive to implement, a barrier that arises from the fact that small
businesses face difficulties obtaining finance. Therefore, it is concluded that the third variable
is Cost. From Table 2.3 too, it is seen that security of e-commerce is frequently cited. Thus,
the fourth factor should be on the Security.
To validate our selection of main barriers to e-commerce adoption, we further analysed the
recent researches conducted that are closely related to Malaysia so that it is more relevant to
our scope of study. The analysis is summarized in the Table 2.4.

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Table 2.4: Summary of barrier factors under selected variables
Barriers to E-commerce adoption Related literature
Complexity
Lack of knowledge to use ICT KShetri (2007)
S. Rosnafisah et al (2010)
Lack of access to technology, telecommunication and
equipment
Lawrence & Usman A.Tar (2010)
Khan et al (2010)
Lack management and workforce expertise/ trained
manpower
KShetri (2007)
Sayed Shah Alam (2009)
Khan et al (2010)
Ali Khatibi et al (2003)
Lack of understanding on the e-commerce application
and strategy formulation, and regulation
Khan et al (2010)
Ali Khatibi et al (2003)
Perceive ease of use Khan et al (2010)
Azyanee Luqman & Nurmuslimah (2011)
Muneer Abbad et al (2011)
Mohd Rizaimy Shaharudin et al (2012)
Problem of keeping up and understand the technology Ali Khatibi et al (2003)
Suitability
Prefer face-to-face Kshetri (2007)
Relationship with customers, limit social interaction
and personal contact
Kshetri (2007)
Lawrence & Usman A.Tar (2010)
Language/content Lawrence & Usman A.Tar (2010)
Perceived usefulness/benefits Sayed Shah Alam (2009)
Khan et al (2010)
Azyanee Luqman & Nurmuslimah (2011)
Mohd Rizaimy Shaharudin et al (2012)
Cost
High access cost Lawrence & Usman A.Tar (2010)
Lack economies of scale Kshetri (2007)
High fixed cost Khan et al (2010)
High switching cost Ali Khatibi et al (2003)
Affordability S. Rosnafisah et al (2010)
Security
Risk aversion Kshetri (2007)
Privacy issue Khan et al (2010)
Norudin Mansor et al (2008)
Trust issue Lawrence & Usman A.Tar (2010)
Safety of data and information Norudin Mansor et al (2008)
Safety from computer hackers and virus Norudin Mansor et al (2008)

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Referring to the previous findings from researches conducted with close relevancy to
Malaysia, we therefore conclude that the four factors that become barriers to the adoption of
e-commerce by SMEs in Terengganu are acceptable.
2.5.1. Complexity
Complexity in IT adoption will hinder SMEs from adopting e-commerce. When a company
does not have a website, it will not have e-commerce capability. Lin (2006) identifies
determinants of organizational size, CEO’s characteristics, CEO’s perception of relative
advantage, compatibility and complexity have strong influence on the adoption of IT by
SMEs.
From a previous study by Rogers (2003), complexity can be described as “the degree to
which an innovation is perceived as relatively difficult to understand and used”. Therefore it
is similar to perceived ease of use (Wu & Wang, 2005) and reflects the level of physical or
mental efforts essential for an innovation (Malek & Nik Kamariah, 2011). Complexity is
assumed to be negatively related to innovation adoption and implementation (Tornatzky &
Klein, 1982).
Extensive research over the past decade provides evidence of the significant effect of
perceived ease of use on usage intention, either directly or indirectly through its effect on
perceived usefulness (Agarwal & Prasad, 1999; Venkatesh & Morris, 2000). In order to
prevent the “under-used” useful system problem, information systems need to be both easy to
learn and easy to use. If the system was easy to use, it will be less threatening to the
individual (Moon & Kim, 2001). This implies that perceives ease of use is expected to have a

23
positive influence on users’ perception of credibility and intention of using internet banking
system.
Prior researchers, Grover and Goslar (1993) found most of the SMEs do have their own PC
embedded with modem, but they still refuse to use their web site as a medium to promote
their products and services. Most of these SMEs are just interested to show that their
companies are all computerized. Most of the managers are still lack of skills and knowledge
on surfing the internet and some even do not know how to log in to the internet. These
managers recognize that learning and adopting the web site is a waste of time and they do not
willing to bear a high cost to train their employees if they use web site in their operations.
2.5.2 Cost
The cost of adoption is an important factor in the adoption and usage of the Web (Ernst &
Young, 2001). In general, the higher the costs required for the adoption of the innovation, the
slower the rate of innovation development is likely to be (Mansfield, 1968; Davis, 1979). The
cost factor was studied by various Information System (IS) researchers (Seyal & Rahim,
2006; Premkumar, Ramamurthy & Crum, 1997; Drury & Farhoomad, 1996; Cox &
Ghoneim, 1996) and found negative relationship between cost and adoption of technology.
The lower the cost of adoption the higher the new innovation such as the ICT will be adopted
by the organization and vice versa.
Syed (2009) found that technical compatibility and cost of adoption have a positive effect
upon internet adoption among Malaysian SMEs. The findings show that manager’s
characteristics, perceived benefits, organizational culture, technological competency and cost
of adoption have significant relationships with internet adoption. The lower the cost of

24
adoption, the higher the new innovation such as the web will be adopted by the company and
vice versa. Besides that, company with high profit and income will be more likely to adopt
new innovation compared with a low earning company.
According to survey conducted by The Associated Chinese Chambers of Commerce and
Industry of Malaysia (2012), the second main factor hindering SMEs in peninsular Malaysia
to adopt e-commerce is due to lack of finance.
Figure 3.2: Main Obstacles Faced in Promoting E-commerce

25
Perceived cost is another independent variable included in the framework. The reason cost is
included in the framework is because it plays an important role for SMEs in determining
adoption of E-commerce in their business.
2.5.3. Security
The security issues are also one of the serious problems that these SMEs have to deal with.
Either consumers or members of the SMEs feel that they might not be secure while
performing their transaction over the internet. There are fears associated that while browsing
the web site or putting their information or database in the web site, there will be a theft of all
these private and confidential information. Erwin (2000) added that ICT can lead to other
security threats, crime, loss of sensitive business information, harm to corporate or brand
reputation, and loss of privacy because everybody can retrieve information freely.
According to Noor (2009), SME managers looked for security on online transactions when
buying online.

26
Literature also shows that ICT security and privacy is one of the main reasons that determine
innovation adoption. Bhimani (1996) has mentioned that the important thing about Internet
payment protocols is that the data involved in the transaction is secured, even if the medium
is not. Beale (1999) shown that many consumers are unwilling to practice ecommerce mainly
because of their concerns towards security issues and lack of confidence in the current e-
commerce set-up. Security and the ability of organisation to ensure confidentiality, integrity,
and availability of information assets is the major barrier to wider adoption of e-commerce
(Rose, Khoo & Straub, 1999).
Light (2001) revealed that companies may face many problems such as payment security
problems, the privacy and confidentiality of the information (Bird, 1997) or viruses and
denial-of-service attacks (Light, 2001). Furthermore, based on Ratnasingam (2001), he found
that perceived lack of security as one of the main barriers to the adoption of e-commerce. As
reported by Aljitri (2003), small businesses may face problems with security and trust when
they plan to adopt e-commerce. Based on survey conducted on Malaysian companies’ interest
in e-business, 70% believed that security was the most important barrier to e-commerce
development (Abdul Mukti, 2000).
Therefore, a serious attention need to be given in order to build confidence of the agencies in
using internet as an effective marketing tool that needed a strategic deployment of security,
technology and cost effective concerns (Chen & Yen, 2004; Wan, 2002).

27
2.5.4. Suitability for Business
Further literatures discovered that majority of the SMEs in Malaysia prefer to be involved in
retailing, agriculture, restaurants, canteen and cafeteria, handcrafts, tailoring, small-scale
manufacturing, beauty salon, direct selling, and door-to-door business (Norudin, 2005 cited
by Norudin & Ahmad Faisal, 2010) which are less-capital intensive and requires personal
communication with the customers. Thus, e-commerce adoption is found to be less desirable
due to suitability to the nature of the business.
Noor (2009) stated that some SME managers also said e-commerce was not relevant in their
businesses because they served only local people. They said the nature of their business and
the product mix offered needed face-to-face interactions. This, according to the managers, did
not come with e-commerce.
“I have been selling medicine for more than a decade. My firm website is only to display the
kinds of medicine we have. We are reluctant to sell online because not all medicine is
suitable for everybody. We need to talk to our customers first and give proper advice to
them.”
Some of SMEs feels they do not need online capability in their business. SMEs involved in
the food and beverages industry found that these companies are still not ready to adopt and
promote websites among their employees, customers and vendors (Phau & Sui, 2000). The
reason for this is essentially due to the fact that when they post their products information and
dimension as well as ingredients on their web pages, they can only appeal to sight and sound
out of the five senses. Meanwhile, customers need to feel, smell and taste the products. That

28
is why these entrepreneurs choose to continue with the traditional mode of purchase rather
than using internet website.
After all, electronic and related products are more likely to fit with the online channel (Hart,
Doherty & Ellis-Chadwick, 2000). This is because of the predominant demographic
characteristics and interests of early internet users, the possibility to spread a lot of
information about the product, and the opportunity for comparison-shopping. Furthermore,
Mahajan, Srinivasan and Wind, (2002), also mentioned that the internet channel presents a
better opportunity to maximize information for certain product categories.

29
CHAPTER 3
3.0 RESEARCH METHODOLOGY
This chapter explains the research methodology and design that were adapted by the
researcher. The discussion is about the research design, sampling procedure, data collection
method, questionnaire design, procedure data analysis, research work plan and the study
framework flow chart.
3.1 Introduction
According to Martin and Guerin (2006), research is defined as a systematic inquiry into an
issue to investigate or resolve a problem. It should be done in an organized, systematic, data-
based, objective, scientific inquiry or investigation into a specific problem to find the solution
(Sekaran, 2003).
3.2 Data Collection Method
The primary data through the questionnaire was distributed and collected from the target
populations which are the entire 74 respondents of SMEs owner in Terengganu via few
channels which are email, fax and post. The duration given to return back the feedback is up
to 1 month in order to give them ample time to reflect honestly in answering the
questionnaire. Because this project has been monitored and with the support of SME Corp
Malaysia (Terengganu), researchers are able to collect back the entire distributed
questionnaire within the time period.

30
3.2.1 Data and sources of Data
According to Sekaran (2003), data can be collected in a variety of ways, in different settings
and from different sources. He stated that there are two sources of data. It can be primary and
secondary data. Choosing appropriate methods can enhance the value of the research.
Therefore researchers will gather primary and secondary data throughout the study and the
best research methodology will be used in order to ensure reliability and validity of the
information given.
3.2.2 Primary Data
Primary data are data gathered by the researcher for the specific purpose and assembled
specifically for the research project at hand (Malhotra, 2010). It is the first-hand data and also
known as raw data. The main instrument used to collect this type of data is using
questionnaire which was distributed to 74 respondents of SMEs owner in Terengganu that
participated under BEEP. The respondents were requested to answer the questionnaire which
consists of three sections honestly.
3.2.3 Secondary Data
Secondary data are indispensable for most research. Malhotra (2010) defines secondary data
as information that is gathered by others than the researcher conducting the current study. It is
usually historical, already assembled and do not require access to the respondents’ subjects.
Even though the data was collected by individuals or agencies for other purposes, it can still
be used to support our research findings. We had gathered data from journals, websites,
books and report by government agencies.

31
3.3 Research Design
The research work plan is shown below:
Figure 3.1: The study design process
THE AREA OF STUDY
PROBLEM STATEMENT
OBJECTIVES:
1. To study the extent of e-commerce adoption among the small and
medium enterprises (SMEs) in Terengganu.
2. To examine the factors that could become barriers to the e-
commerce adoption by small and medium enterprises in Terengganu.
3. To propose appropriate actions towards motivating the SMEs in
adopting e-commerce in their business.
S
HYPOTHESES TO PROVE:
1. Does complexity acts as a barrier to e-commerce adoption by SMEs?
2. Does cost acts as a barrier to e-commerce adoption by SMEs?
3. Does security acts as a barrier to e-commerce adoption by SMEs?
4. Does suitability of business acts as a barrier to e-commerce adoption
by SMEs?
THEORETICAL FRAMEWORK:
SURVEY
i) SURVEY PLANNING
ii) PRE-TEST SURVEY
iii) ACTUAL SURVEY
ANALYSIS
FINDINGS
CONCLUSION AND RECOMMENDATION

32
3.4 Sampling Design and Procedures
3.4.1 Definition of Sampling Design
The sampling design is the stage where the researchers determine who will be sampled, how
large a sample is needed, and how sampling units will be selected (Zikmund, 2004).
Sampling is the process of selecting a sufficient number of elements from the population
(Sekaran, 2003). Researchers use absolute sampling framework utilizing primary data
collected from 74 SMEs comprise of both manufacturing and services sector through a
survey questionnaire instrument.
3.4.2 Define the population
The researcher has chosen Terengganu as the scope of geographical location. The targeted
respondents who are the owners or entrepreneurs of small and medium enterprises in
Terengganu will be contacted and the nature of the study will be explained to them. As such,
the owners and or key managers are targeted because they owned or oversee the operations of
their respective organizations.
As there is no data on the actual number of SMEs in Terengganu issued by any department
and local authorities, the sample of this study will be obtained from list of companies
registered with SME Corporation Terengganu. Researchers have utilized primary data
collected from 74 SMEs participating in a special government assistance programme known
as Bumiputera Enterprise Enhancement Programme (BEEP) from SME Corp. Malaysia. This
procedure is in accordance with the rule of thumb developed by Roscoe (1975) as cited by
Sekaran (2003) which stated that sample sizes larger than 30 and less than 500 are
appropriate for most research. The respondents list is attached in Appendix D.

33
3.5 Theoretical Framework
According to Malhotra (2004), in general, a research should be based on objective evidence
and supported by theory. A theory is a conceptual scheme based on foundational statements
called axioms, which are assumed to be true. Malhotra (2004) added that the researcher
should rely on theory to determine variables to be investigated.
According to Sekaran (2003), the theoretical framework is a conceptual model of how one
theorizes or makes logical sense of the relationship among the several factors that have been
identified as important to the problem.
3.5.1 Theoretical Framework
This research consists of two variables which includes:
i) Dependent variable – it is the primary interest of the research whereby
researchers’ goal is to understand and predict it. E-commerce adoption is the
dependent variable in this research. The dependent variable is analyzed in this
research in order to find out the answer or solution to the problem that hinders
SMEs in Terengganu from adopting e-commerce in their business.
ii) Independent variable – researchers decided to focus on four groups of barriers
which were frequently mentioned and discussed. The four barriers are complexity,
cost, security and suitability of the business and will act as independent variables.

34
Complexity
In terms of complexity, researchers will look at the aspect of lack of knowledge
on the IT, lack of trained staff, lack of knowledge on e-commerce system and lack
of telecommunication infrastructure. Besides that, the aspect of support from
management and government are also taken into consideration.
Cost
For this variable, researchers focused on cost of setting up e-commerce, cost of
keeping up with technology that is changing at a fast pace and justifying the cost
with benefits of applying e-commerce.
Security
Security to the researchers is about the safety of online credit payment
transactions, security in preventing hackers and viruses and the issue of standards
and regulations from government regarding e-commerce application.
Suitability
With regard to SMEs, suitability of the business with regard to the market
potential of e-commerce users, suitability from the aspect of sales and marketing,
and the mindset shift on the usage of e-commerce. The aspect of distribution
channels and suppliers with regard to the nature of the business itself are also
main concern of researchers.

35
Independent Variable (IV) Dependent Variable (DV)
Figure 3.3: Theoretical Framework
The schematic diagram of the theoretical framework above is used to show the relationship
between the dependent and independent variables. Essentially, the theoretical framework
shown above is the foundation on which the entire research is based upon.
3.5.2 Statement of Hypothesis
Malhotra (2004) stated that hypothesis is an unproven statement or proposition about a factor
or phenomenon that is of interest to the researcher. Often, a hypothesis is a possible answer to
the research question. Hypothesis goes beyond research questions beyond research question
because they are statements of relationships or propositions rather than merely questions to
which answers are sought. An important role of hypothesis is to suggest variables to be
included in the research design.
Complexity
Cost
Security
E-commerce
Adoption
Suitability

36
The main interest of the research is to investigate the relationship between dependent variable
and independent variables that contribute to e-commerce adoption. Therefore, based on the
theoretical framework, the following hypotheses are formulated.
Hypothesis 1
The first variable is complexity. From previous study by Moon and Kim (2001), in order to
prevent the “under-used” useful system problem, information systems need to be both easy to
learn and easy to use. If the system was easy to use, it will be less threatening to the
individual. This implies that perceives ease of use is expected to have a positive influence on
users’ perception of credibility and intention of using internet system. This brings to the first
hypothesis which is;
H1 : Complexity has a negative relationship with e-commerce adoption.
Whereby, when complexity is high, e-commerce adoption will be low.
Hypothesis 2
Perceived cost is another independent variable included in the framework. The reason cost is
included in the framework is because it plays an important role for SMEs in determining
adoption of ICT in their business. The SMEs will less likely to adopt ICT when its initial set-
up cost is high (Dixon, Thompson & McAllister, 2002). This brings to the second hypothesis
which is;
H2 : There is a negative relationship between cost and e-commerce adoption.
When cost is high, e-commerce adoption will be low.

37
Hypothesis 3
Third variable is the security. Literature shows that ICT security and privacy is one of the
main reasons that determine innovation adoption. Bhimani (1996) has mentioned that the
important thing about Internet payment protocols is that the data involved in the transaction is
secured, even if the medium is not. Beale (1999) shown that many consumers are unwilling
to practice ecommerce mainly because of their concerns towards security issues and lack of
confidence in the current e-commerce set-up. Security and the ability of organisation to
ensure confidentiality, integrity, and availability of information assets is the major barrier to
wider adoption of e-commerce (Rose, Khoo & Straub, 1999). Thus, the third hypothesis is;
H3 : There is a positive relationship between security and e-commerce adoption.
When security is high, e-commerce adoption will be high.
Hypothesis 4
Last but not least is the suitability to the business. Some of SMEs feels they do not need E-
commerce in their business since their nature of business is not suitable for that. SMEs
involved in the food and beverages industry found that these companies are still not ready to
adopt and promote web sites among their employees, customers and vendors (Phau & Sui,
2000).That’s why these entrepreneurs choose to continue with the traditional mode of
purchase rather than using internet website. Therefore, the fourth hypothesis is;
H4 : There is a positive relationship between suitability for business and e-commerce
adoption.
When suitability is high, e-commerce adoption will be high.

38
3.6 Questionnaire Construction
According to Malhotra (2004), questionnaire is a structured technique for data collection that
consists of a series of questions, written or verbal, that a respondent answers. Relevance and
accuracy are the two basic criteria a questionnaire must meet if it is to achieve the
researcher’s purpose (Zikmund, 2004). To achieve this ends, a researcher should determine
what should be asked, how each question should be phrased, the sequence of the questions,
the suitable questionnaire layout and how the questionnaire should be pretested.
The questionnaire was adapted and tailored to meet the needs of the topic under study from
the research instrument designed by the National Productivity Corporation – University of
Malaysia research team. This was validated and used in a nationwide ecommerce research in
Malaysia in 1999 (National Productivity Corporation, unpub.).
These questionnaires however was first transformed into bilingual (English and Bahasa
Malaysia) due to language proficiency level that may become a barrier for respondents to
understand what is being asked and to avoid misleading information received from the
questionnaire feedback. The questionnaire is attached in Appendix C.
The first part of the questionnaire consists of dichotomous questions that require the
respondent to indicate types of e-commerce applications they are using as well as those that
are not being used. These questions are categorized into electronic marketing, electronic
advertising, and customer support service, order and delivery, and payment system. The

39
second part of the questionnaire consists of Likert scale type of questions consisting of 20
items being listed as barriers to e-commerce adoption. The respondents are required to rate
the barriers of adopting e-commerce where 5 indicates very high hindrance while 1 indicates
very low hindrance.
Table 3.4: Likert scale used in the questionnaire
Description
Strongly
Disagree
Disagree Neutral Agree
Strongly
Agree
Score 1 2 3 4 5
The last part of the questionnaire consists of questions about the profile of the firm that
includes questions like what sector the firm is in, type of industry or business involved, sales
turnover, amount of investment in electronic commerce and so on.
3.7 Statistical Method of Analysis
The data was analyzed using SPSS (Statistical Package of Social Science) software version
19.0 and Microsoft Excel. The researcher has used several types of analysis to analyze the
data and get the good result in the end of this research. The methods of data analysis used in
this study are:

40
3.7.1 Reliability Analysis
Reliability refers to the extent to which a scale produces consistent results if repeated
measures are made. Internal reliability is used to examine how unified the items are in a test
or measurement. We use coefficient Cronbach’s Alpha to check the reliability of measure.
Cronbach’s Alpha can be interpreted from ranges in value 0 to 1. The coefficient varies from
0 to 1, and the value of 0.6 or less generally indicates unsatisfactory internal consistency
reliability. The closer the reliability gets to 1.0, the better. Reliability less than 0.6 are
considered to be poor, 0.7 are acceptable and those over 0.8 are good. However, in order to
improve consistency we can remove the lowest corrected item-total correlations. The items
deleted are considered appropriate if the value reliability coefficient is increased.
In this study, the entire 51 question in the questionnaire will be test in Reliability Analysis in
order to measure the reliability of a summated scale where several items are summed to form
a total score. This measure of reliability in reliability analysis will focuses on the internal
consistency of the set of items forming the scale.
3.7.2 Descriptive Analysis
Descriptive analysis involves transformation of raw data into the form that would provide
information to describe a set of factors in a situation. The purpose of descriptive analysis in
this study is to summarize profiles of respondents. It is useful to make general observations
about data collected, for example the extent of IT usage of SMEs, number of IT personnel
and so on using bar chart, histogram or pie chart.

41
This analysis summed up the Company Profile on Section 3 in the questionnaire consisted of
few questions like the IT Investment for the past 3 years, Investment on e-commerce for the
past 3 years, number of IT employee, type of IT training for employee and so on. Through
this analysis, researcher can get to know about the basic and until what extent IT
implementation done for each company. This result will also contribute to the justification
why the adoption of e-commerce is low.
3.7.3 Mean Value Analysis
Mean Value analysis is used to seek the min average of variables in Section B in order to
identify the highest value that contributed to the level of IT adoption and contributing factor
that hindering the IT adoption among SMEs. Through this analysis, researchers were able to
identify the factors hindering the adoption of e-commerce applications by rank. It can easily
be reviewed and allow researchers to recommend the option for improvement for each
barriers identified with the highest rank.
3.7.4 Regression analysis
Regression Analysis is a technique which examines the relation of a dependent variable to
specified independent variables. Regression analysis can be used as a descriptive method of
data analysis without relying on any assumptions about underlying processes generating the
data.
a) Correlation analysis
In probability theory and statistics, correlation, also called correlation coefficient, indicates
the strength and direction of a linear relationship between two random variables. In general

42
statistical usage, correlation refers to the departure of two variables from independence. In
the broad sense there are several coefficients, measuring the degree of correlation, adapted to
the nature of data.
The coefficient ranges from -1 to +1, where a value close to zero is no correlation, while a
value <0.5 or >-o.5 is weak or low correlation. The number of coefficient indicates the
strength of the relationship, while the sign indicates the direction. Pearson product-moment
correlation and Spearman’s Rank Order Correlation are used to measures the relationship of
two variables.
Correlation Analysis is important to this study due to investigation on the relationship
between two quantitative, continuous variables, for example, level of adoption and suitability
factor. This analysis investigated all the independent variables which have been identified.
For the Pearson's correlation coefficient (r), it is needed to discover the strength of the
association between the two variables.
b) Multicollinearity
A statistical term for the existence of a high degree of linear correlation among two or more
explanatory variables in the multiple regression model. In the presence of multicollinearity, it
will be difficult to assess the effect of the independent variables on the dependent variable.
Test of Multicollinearity is to check correlation among predictor variables and it is exists
when any of these conditions exist:

43
1) Correlation matrix of predictor variables, Corr (Xi,Xk) ≥ 10
2) Tolerance (TOL) < 0.1
Multicollinearity is considered common problem in technical analysis. In this study,
multicollinearity test is used to identify if there is any problem raise because sometimes
variables will contribute redundant information and can cause other variables to appear to
be less important than they really are.
c) Regression Model
A multiple regression is to predict one quantitative dependent variable from several
independent variables. Multiple regressions serve two functions. First, this technique
yields an equation that predicts the dependent variable from the various independent or
predictor variables. Second, this technique identifies those independent variables that
relate to the dependent variable, after controlling the other variables.
Regression Model is to determine the model appropriate to level of IT adoption. For the
project, dependent variable is level of IT adoption and the independent variables are
suitability, complexity, security and cost. The data are simply shown in Table 3.5.
Table 3.5: Data
Y Level of IT Adoption
X1 Suitability (mean)
X2 Complexity (mean)
X3 Security (mean)
X4 Cost (mean)

44
Linear Regression Model
Ŷi = β0 + β1Xi1+ β2Xi2+ β3Xi3 + β4Xi4
Where: Yi- value of the response variable in the ith trial
β0, β1Xi, β2Xi2, β3Xi3, β4Xi4 – regression parameter
Xi1, Xi2, Xi3, Xi4 – a known constant (the value of the independent
variable in the ith trail)
εi– random error with mean E (εi)=0 and variance V (εi)=σ2
.
Sample size, n = 74
Hypothesis:
H1 : There a relationship between level of IT adoption and factors of barriers that
hindering it.
A regression analysis is normally done in quantitative analysis. In this study, researchers will
test on regression analysis in order to estimate the effect of some independent variable on the
dependent variable. It also used to predict one variable from one or more other variables.
Regression models will provide the researchers with a powerful instrument that will allowing
predictions about past, present, or future events to be made with information about past or
present results. Through this analysis results, researcher can made a recommendation and also
enhance the better framework for future research.

45
CHAPTER 4: ANALYSIS AND FINDINGS
4.1 INTRODUCTION
The purpose of this chapter is to present an analysis of data together with the discussion of
the output. A sample of 74 responses was obtained from SME Corp Terengganu as discussed
earlier. The questionnaire was translated into bi-language in order to give the better
understanding for the SMEs. Although the sample size is not very big, a sample size of more
than 30 could be considered sufficient for most research (Sekaran, 2003).
4.2 RELIABILITY ANALYSIS
Table 4.1 : Reliability Statistics
Cronbach’s Alpha N of items
0.778 51
The table above shows that Cronbach’s Alpha reliability coefficient for the overall scale is
equal to 0.778. It indicates that there is an acceptable internal consistency. Therefore the 51
items are reliable.

46
4.3 DESCRIPTIVE ANALYSIS
This section was designed to present an overview of the research sample profile.
4.3.1 Profile of the companies
Most of the companies participated in the survey are in the manufacturing sector as shown in
Table 4.2. Out of the total valid sample, 83.7% of the companies are involved in the
manufacturing sector, while the rest of the firms are in services sector.
Table 4.2: Classification of companies by business sectors
Sector Frequency Percentage
Manufacturing 62 83.7%
Services 12 16.3%
Total 74 100%

47
4.3.2 Profile on industry sectors
Figure 4.1 Percentage of SMEs industry sectors
Based on the BEEP holder listed by SME Corp Malaysia (Terengganu), the diagram above
shows the distribution of respondent based on industry sector. 32% of respondent are
involved in food and beverage, 19% in wood, cement and fibre based industry, 12% in oil
and gas industry, 9% in textile and apparel industry, 7% in paper and printing industry, 6% in
machinery and engineering, 4% in environmental management industry, 3% in both animal
feeds and plastic products industry, 2% in professional services and pharmaceutical and herbs
industry and only 1% in chemical industry.

48
4.3.4 Adoption of E-Commerce
Based on data obtained and verified from SME Corp Malaysia (Terengganu), all the BEEP
holders have been identified as not having e-commerce capability.
4.3.5 Usage of E-Commerce Applications
Although all SMEs do not use e-commerce directly in their business, they have applied some
segments in e-commerce such as electronic marketing, electronic advertising, customer
support services, order and delivery and payment transaction.
a) Electronic marketing
From the statistics obtained from Table 4.3, the extent of usage in this segment is
considered low as only 24.3% of the surveyed firms have implemented research on
their customers’ preferences, 33.1% are carrying out research and evaluation on their
suppliers and doing research on competitors.
b) Electronic Advertising
The adoption rate in this segment among the SMEs surveyed is considerably higher
than in electronic marketing. Out of the sample, 58.1% of the SMEs are displaying
their corporate as well as products or services information online. However, there are
large number of websites hosted by other companies (39.2%) and only few SMEs are
having their own web servers (9.5%). In term of doing advertising on third party web
site, 54.1% SMEs have used it as their advertising tools and a large number of SMEs
are not using electronic catalogues (54.1%).

49
c) Customer Support Services
This is the segment that is related to relationship management. It is apparent that most
of the SMEs are providing some support service to their customers through the
Internet as 58.1% of them are using personalized email to communicate with their
customers. However, besides using email, not many SMEs have implemented web-
based support services. Out of the total number of SMEs surveyed, only 12.2% are
providing FAQ (frequently asked questions) service while 32.4% of them are
displaying product updates over the web. In addition, only 14.9% of them are
handling customers; feedback online and 10.8% of them provide online application as
well as registration. The main reasons behind this phenomenon could be due to the
cost constraints and lack of technical expertise. It is proven by the profile analysis on
numbers of IT personnel. It is seen that the use of email is much easier and cheaper
than web-based technologies.
d) Orders and Delivery
This segment comprises two very important functions of the SMEs, namely order
processing and fulfilment. However, not many companies are capitalizing on Internet
technologies in this area. While quite many companies (41.9%) are processing sales
order from customers online, only 18.9% of them involved in online procument and
much fewer companies engage in online orders tracking (12.2%). In addition, EDI
seems to be the least used application in this segment (4.1%). The above facts should
be again due to cost constraints and lack in technological know-how.

50
e) Payment system
It is apparent that the usage of online payment system is very much lower compared
to the other e-commerce segment applications. From the data obtained, only 17.6% of
the sampled companies are using EFT (electronic fund transfer) and 14.9% of them
provide online credit card processing while much fewer are using smart card (2.7%)
and none of them using prepaid card.
Table 4.3: Usage of e-commerce applications by SMEs
E-commerce Applications
Percentage (%)
In Use
Not In
Use
Electronic Marketing
Research on consumer preferences 24.3 75.7
Research and evaluation of new suppliers 31.1 68.9
Research and Competitors 31.1 68.9
Electronic Advertising
Displaying company information and products/services 58.1 41.9
Website hosted by another company 9.5 90.5
Website hosted by own server 39.2 60.8
Advertising on third party website 54.1 45.9
Electronics Catalogues 41.9 58.1
Customer Support Services
Online help- FAQ 12.2 87.8
Online help- products updates 32.4 67.6
Handling customers feedback/queries online 14.9 85.1
Personalised email communication 58.1 41.9
Online application/registration 10.8 89.2
Order and Delivery
Processing sales order from customers online 41.9 56.8
Coordinating procurement with suppliers online 18.9 81.1
Tracking incoming and outgoing goods delivery 12.2 87.8
Electronic Data Interchange (EDI) 4.1 94.6
Payment System
Electronic Fund Transfer (EFT) 17.6 82.4
Online credit card processing 14.6 85.4
Smart card 2.7 97.3
Prepaid card 0 100

51
The results obtained above have adequately answered the first research question segmented in
Section 1 raised in this study, which is to find out the extent of e-commerce adoption. The
subsequent statistical analysis evidence showed that the general level of e-commerce usage
among the SMEs in Terengganu is low.
This was confirmed by examining each and every e-commerce applications as listed in Table
4.3. The result is further supported by splitting the sample into high usage and low usage
group based on the number of applications being adopted whereby those firms which are
using less than 10 applications are classified as low usage group while those firms with more
than 10 applications are considered as high usage group. It was found that 83.7 % belong to
the low usage group while only 16.3 % belong to the high usage group (Table 4.4).
Table 4.4: Extent of e-commerce usage on SMEs
Extent of Usage Frequency Percentage Valid Percentage
Low Usage 62 83.7% 83.7%
High Usage 12 16.3% 16.3%
Total 74 100.0% 100.0%

52
4.3.6 Companies Profile
The preceding finding could also be reflected by the amount of IT investment, number of IT
personnel employed and the training on e-commerce related as shown below:
a) IT Investment
Figure 4.2 Percentage of IT Investment
Based on the pie chart above, it shows that 87.8% of respondents invest less than RM 50,000
on applying IT in their business followed by 10.8% invest between RM 50,000 to RM
249,999 and 1.4% does not use a single cent which means that they did not even invest to
have a unit of computer in business operation.
1.4%
87.8%
10.8%
IT Investment
RM0
< RM 50,000
RM 50,000 - RM 249,999

53
b) Number of IT personnel employed
Figure 4.3 Percentage numbers of IT Personnel
Based on the pie chart above, it shows that 55.4% of respondents do not have any IT
personnel, 31.1% of respondents have 1 IT personnel, 10.8% of respondents have 2 IT
personnel and both 3% of respondents have 3 and 4 IT personnel.
55.4%31.1%
10.8%
1.4% 1.4%
Number of IT personnel
None
1 personnel
2 personnel
3 personnel
4 personnel

54
c) Number of IT personnel employed
Figure 4.4 Percentage of IT E-Commerce Training
From the diagram above, we found that in term of e-commerce training to enhance better IT
understanding, 44.6% of respondents did not attend any training, 35.1% learn by on-job
training, 12.2% of respondents go training by provided by institution and both 4.1% go for
internal training and training given by local supplier.
44.6%
35.1%
4.1%
12.2%
4.1%
E-Commerce Training
No training
On job training
Internal training
Training by institution provider

55
4.4 MEAN FACTOR ANALYSIS
Based on the literature review, we have categorized the factor on barriers of e-commerce
adoption and the results of mean are as follows:-
Table 4.5: Mean results for each interdependent factor
Factor of
Suitability
Factor of
Complexity
Factor of
Security
Factor of Cost
Mean Result 0.5871 0.4981 1.3799 0.8302
a) Factors hindering the adoption of e-commerce applications
From the results, lack of standards or regulations from government on e-commerce
issues was the top perceived barrier (mean=4.27). The second most concerned barrier
by the respondents was the insufficient security to prevent hacking and viruses
(mean=4.12). Three subsequent barriers were need for additional staff to manage e-
commerce application (mean=4.05), insufficient security for online credit payment
transaction (mean=4.03), believe in sales or marketing still requires high degree of
human interaction (mean=3.97). All the barriers are listed in Table 4.6.

56
Table 4.6 : E-Commerce adoption barrier perceived by SMEs
Barriers Adoption Mean
Lack of standards/regulations from government on e-commerce issues 4.27
Insufficient security to prevent hacking and viruses 4.12
Need additional staff to manage electronic commerce application 4.05
Insufficient security for online credit payment transactions 4.03
Our sales/marketing requires high degree of human interaction 3.97
Lack of knowledge about the potential applications of e-commerce 3.77
Market potential of electronic commerce users is too small 3.70
Cost of setting up electronic commerce is high 3.70
Lack of skilled workers to handle or maintain e-commerce system 3.69
Lack of government leadership 3.68
Mindset shift towards using electronic commerce 3.65
Keeping up with changing technology 3.46
Insufficient qualified vendors for developing applications 3.42
Most suppliers do not have access to electronic commerce 3.38
Electronic commerce is not as effective as traditional marketing channel 3.35
Difficult to justify the cost with desired benefits 3.18
Telecommunication infrastructure is not adequate 3.14
It will upset existing distribution channels 3.08
Information from the electronic commerce is not useful 2.95
4.5 CORRELATION ANALYSIS
The correlation analysis only showed that there is an existence of some form of association
among the variables, without specifying which is the dependent variable and which are the
independent variables that could be used to predict the dependent variable. Pearson’s
Coefficient of Correlation will indicate the degree to which two variables are linearly
associated.

57
Table 4.7: Correlation Analysis
VARIABLE PEARSON
CORRELATION
p-value
Level Of Adoption *Mean Of Suitability -0.264 0.023
Level Of Adoption *Mean Of Complexity -0.022 0.854
Level Of Adoption *Mean Of Security 0.000 0.997
Level Of Adoption *Mean Of Cost -0.006 0.958
Table 4.7 shows that there is a strong negative significant relationship between level of e-
commerce adoption and mean of suitability (r=-0.264, p<0.05). Meanwhile, there are no
significant relationship exist between level of adoption and mean of complexity (r=-0.022,
p>0.05), level of adoption and mean of security (r=0.000, p<0.05),level of adoption and mean
of cost (r=-0.006, p<0.05).
4.6 REGRESSION ANALYSIS
Therefore, regression analysis was performed in order to find out whether the extent of e-
commerce adoption is influenced by the factors that are related to various barriers. The
dependent variable of the model is the extent of e-commerce adopted, which is the total
number of e-commerce applications being adopted. The only independent variable worth
consideration here is the factor related to suitability barriers, as the rest of the factors were
excluded because these measures have low reliabilities or low correlations with the extent of
e-commerce adoption.

58
4.6.1 Test Concerning the Regression Coefficient
Table 4.8: Coefficient for each predictor variable using enter process
Model Unstandardized
Coefficients
Standardized
Coefficients
t Sig.
95.0% Confidence
Interval for B
Collinearity
Statistics
B Std. Error Beta
Lower
Bound
Upper
Bound Tolerance VIF
1 (Constant) 1.499 .326 4.596 .000 .848 2.150
mean_suitabil
ity
-1.299 .498 -.348 -2.607 .011 -2.292 -.305 .074 11.351
mean_comple
xity
.129 .605 .034 .214 .831 -1.077 1.335 .051 10.973
mean_securit
y
.084 .230 .056 .363 .718 -.376 .543 .055 11.821
mean_cost .296 .322 .120 .918 .362 -.347 .939 .077 10.291
a. Dependent Variable: Adoption_of_eCommerce
Table 4.9 : Model summary for each predictor variable using enter process
From the table 4.8 and 4.9 above, it shows that only suitability factor can be included into the
model because it has less than 0.05 significance value. The p=value for F-test is 0.042 which
is significant to the model. But, there is only 29% on level of adoption is described by the
suitability, complexity, security and cost. Another 71% level of adoption is described by the
other factors. The VIF and TOL values show that multicollinearity exists in the data.

59
The final estimated regression function:
Ŷi = β0+ β1X1
Ŷ = 1.499 -1.299X1
Where X1= Suitability
The interpretation of model:
β0= 1.499 means when the suitability (X1) is zero, the level of adoption is expected to 1.499.
β1 = 1.299 means for every unit change in suitability (X1), the level of adoption is expected to
decrease by 1.299
4.7 SUMMARY OF THE FINDINGS
The results of the study indicated that SMEs in Terengganu have adopted some form of e-
commerce applications. However, most have only implemented basic e-commerce
applications such as email and simple web sites. Most of the web sites do not provide online
order processing and payments facilitations. Moreover, none of the SMEs seemed to have the
capabilities to perform online procurement and order tracking. The preceding findings
showed that the adoption of e-commerce is still low among the SMEs in Terengganu.
These findings matched the results in similar studies conducted by Sulaiman (2000) and
Khatibi et al. (2003) in Malaysia. Although many studies suggested that firms could gain a lot
of benefits through the adoption of e-commerce, this study found that SMEs in Terengganu
were not reaping many of the benefits advocated by previous studies because of certain

60
extent. Initial analysis of the reasons surrounding the low adoption of e-commerce by the
SMEs in Terengganu found that the factors related to suitability, complexity, security and
cost barriers.
However, further analysis showed that 29% only the factors related to influence on the
adoption of e-commerce by the SMEs in Terengganu. The findings seemed to imply that
most SMEs have overcome other barriers particularly those that are technological and
financial in nature.
In addition, there was also evidence that the government should strengthen the regulation in
order to help the SMEs in this region to adopt of e-commerce applications. The preceding
findings are good news for the SMEs and policy makers, because it means that both the
SMEs and government need to deal with suitability barriers to increase the level of e-
commerce adoption.

61
CHAPTER 5
5.0 CONCLUSION AND RECOMMENDATION
5.1 Conclusions
Looking at the statistic whereby Terengganu ranked highest in accessing Facebook and
Mudah.my, it was an indication of the receptiveness of people in Terengganu to the online
world. Therefore SMEs need to take this opportunity and tapped the online market. However,
it is surprising when most of SMEs in Terengganu do not have e-commerce capabilities.
Most of them have a basic websites and Facebook page as medium to reach online
community, which is focusing more on marketing of their products online.
Logically, SMEs should equip themselves with e-commerce to tap the vibrant online market.
However, it is not the scenario of what happens in Terengganu.
With referring to various journals, articles and papers, the researchers make an assumption on
four possible barriers hindering SMEs in Terengganu from having an e-commerce capability.
The selection of four barriers is somehow influenced by the fact that all the 74 SMEs under
BEEP received thousands of funds from government in the forms of grant.
In the end, after analyzing all the data gathered, it is concluded that the main and only reason
for SMEs in Terengganu did not adopt e-commerce in their business is because of suitability

62
factor. The result also strongly indicates that the other three factors which are cost,
complexity and security is not a hindrance or obstruction for SMEs to start online commerce.
Terengganu state government is actively promoting online business and urging SMEs to
venture into online. YPU as the state agency responsible for the development of SMEs in
Terengganu has offered a free E-Mall as virtual mall for SMEs to promote and sale their
product online. The initiative helps SMEs to
save cost and offer better security for online
transactions. Therefore, it may be one of the reasons influencing SMEs to respond to the
adoption to e-commerce.
Even with all the facilities and assistance provided, still according to an officer in-charged for
E-Mall, En. Engku Mohd Hairulnizam bin Tuan Ahmad, the take-up was not satisfactory.
The reason might be due to most SMEs in Terengganu feel that their product is not suitable to
sell via online.
On that note, SME Corp. Malaysia and YPU have to work hand in hand with SMEs to change
the perception and start to transform SMEs product to be able and suitable with online nature
of business.

63
5.2 Recommendation
Focusing on the factor of suitability in adopting e-commerce, the followings are initiatives
suggested to facilitate, enhance SMEs capability, innovate SMEs products and improve
knowledge of SMEs owners in transforming their products to be able to sell via online.
5.2.1 Recommendation for SMEs
Every products and services can be sold online. SMEs need to make sure their products are fit
with online requirement. Some of the modification that can be done is:
a. Introduce products’ packaging in smaller size and less weight;
b. Increase products life span;
c. Innovate products and services to be more flexible and convenient to use.
5.2.2 Recommendation for Government
SME Corp. Malaysia and YPU have to work together with SMEs in nurturing the online
business. Both agencies may appoint a qualified consultant to be engaged with interested
SMEs and provide business coaching and advisory on the strategy, formula and approach to
make SMEs products suitable for online marketing and transaction. In addition, both agencies
could organize a seminars and workshop on the e-commerce adoption, focusing on products
and services strategy.
According to Norudin Mansor in his research titled The Application of E-Commerce Among
Malaysian Small Medium Enterprises (2010), government may introduce a Strategic
Partnership/Alliance whereby SMEs should consider their current status of business

64
partnerships or alliances to support the development, and on-going maintenance, of web
based applications and e-commerce initiatives, besides enhancing other business activities.
These approaches will be more focused and cost effective.
5.3 Limitations of the study
Although the study has provided some meaningful answers to the research questions, a few
limitations needed to be addressed.
First of all, the sample is not big enough. The researchers have selected Absolute Sampling as
sampling method where all 74 SMEs participated in BEEP was being surveyed. However, the
small number cannot represent the total SMEs in Terengganu. Therefore, it also affects the
ability to generalize findings in this study. Having said that, the samples still is still
considered as a perfect choice in order to study the nature and behaviour of SMEs received
funding from governments.
The second limitation is all respondents are Bumiputera SMEs. Researchers believed that the
result might be a bit different if the respondents include other ethnics. For example, Chinese
business owners indicate cost factor is the main barrier for them to adopt e-commerce
(Survey conducted by The Associated Chinese Chambers of Commerce and Industry of
Malaysia (2012).

65
5.4 Future Research
Based on the findings and result from this research, it is proposed that further research should
be done to study more on suitability factor. The question on why, what, when, where and how
should be discussed thoroughly. The findings will benefit most SMEs and policy makers.
Secondly, future research should try to identify other 74% of possible factors. The factors
may surface from interviews session with business owner, not just via questionnaire.
Thirdly, the same study should be extended to other states, which have similar programmes
with BEEP Terengganu. The result will be a source of reference for SME Corp. Malaysia and
other agencies to promote online business among SMEs. The sample should also be extended
to other ethnics.
Fourth, future research should do a comparative study between SMEs received grant and
SMEs received loan. Researchers believe the assistance from government somehow act as a
push factor for SMEs to gain more market access. The barriers may vary.
Lastly, for future research: the data gathering should be a combination of questionnaire and
interviews. SMEs can easily communicate their views and thought via interviews compared
to survey. In addition, the gathered data will be more accurate.

66
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