Electronic Business in Small-to-Medium Size Organisation

Introduction

Today’s world is moving at a faster speed through technology in every aspect of business while e-business has recognised as the most modern aspect of that technology integration. It influences organisations for discovering newer customs for expanding the competitive marketplace; draw the attention of customers through customisation their offerings and format the overall business process and functionalities to ensure efficiency and effectiveness via e-business.

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Background of the Problem

Meas (2006) mentioned that SMEs are the main branches of economy from developed to developing countries and in UK SME accounted for almost all of the private business. SME mainly implies the small to medium enterprises having less than five hundred employees and limited annual turnover. On the other hand, e-business is the concept that all the business processes of the organisation done through the digital technology. There are processes like the production process, supply chain process, procurement process, decision-making process etc. Big organisations have already adopted the e-business process in their operations and find them in a competitive position against the competitors. There are two broader sense of SME in the world and the first one is the firm SMEs those deal with the agriculture and farming and secondly, non-Firm SME that deals with the production and services in normal economy. The Firm SME is very common in lower developed countries and some developed country. In this paper, would focus on the non-Firm SMEs rather than Firm SMEs as they have very common and wider practice worldwide and it has engaged its efforts to the target market is the small to medium organisation of the UK that engaged in manufacturing and service.

As a key members of European Union, UK is a country with a flourished economy where a large number of private enterprises doing business in both manufacturing and service industry. With a high standard of living and per capita income, the country is technologically advanced from any other country of Europe. Robertson (2007) added that the influence of technology is everywhere including the operation of the businesses. All business large to medium heavily relied upon on the digital technology like internet, networking for their operation and large firms invest huge amount of money in developing IT infrastructure for the organisation. To compete with this big organisation there is no alternative for the small to medium organisation to adopt ICT in their operation. In UK, the SME firms fall into two broad classification that is the manufacturing industry and the service industry. The manufacturing firms mainly adopt the production technology for their operations and service firms adopt the technologies to build and maintain the relationship with the customers.

Rationale for the research

Levy et al (2005) argued that in UK, the SME manufacturing industry included the producers of commodity and electronic products that used e-business concept in their production process. The manufacturing industry of the country-generated employment for 3834000 people and the annual turnover for the industry was £442776 million DTI (2002). The total number of firms in manufacturing industry was 298425 within which 99% were small to medium firms. These manufacturing firms invested a large sum of money in research and development for developing new products. The R&D of the manufacturing firms was technologically sophisticated that used latest technology for new product development. The researcher used the software package like CAD, CMA etc for new product development and the importance of new product development was high in IT manufacturing industry. For the production plant, the SME firms used plant layout plan, process layout plant, and TQM plan to gear up the production. The use of technological sophistication in production plant substantially reduced cost and time of the producers, which affect the price of the product. As a result, the producers could supply product with low price that ultimately increase the sales volume and turnover of the firm.

Jahankhani (2009) mentioned that the service industry of SME in UK mainly consists of the firms that provided various services like internet, utility services, bank etc. The number of total service firms of SME in UK was 1207000 and it represented 25% of the total private enterprises of the country. This service organisation adopted the e-business process more from the manufacturing firms as they dealt with customer directly. In UK, the customers used to take services through the internet and e-commerce was popular among the service firms and customer of the country. More than half of the total customers spent time in internet and they wanted to get the expected service through the internet. The firms also placed the advertisement and promotional offer in the internet both in their own website and in website of the other company. Another way of giving advertisement was maximizing the use of search engine so that the customer could easily get the required services through searching on the specific services.

Here the process of conducting SMEs’ business transaction through digital networks, internet, and other similar technologies has been termed as e-business while retailing involves direct selling to the end users, multi- purpose business involves in serving such multiple products and services to customers while segregation is the process of presenting an entity or its offerings unique from market competitors. Various patterns of SMEs’ e-business applications are helpful in obtaining comparative uniqueness of retailing and multi- purpose businesses in terms of internet service, network facilities, cable networking, and digital channels or even ease of selling through online networks. Thus, it is essential to investigate e-business strategies of SMEs, how effective are they to creating such advanced level of customer satisfaction along with meeting both organisational and individual exchange objectives.

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Research question and objectives

The main purpose of this research is to examine the impact of e-business on the medium to small organisation. This dissertation has formulated to answer the basic research question as- which e-business techniques of SMEs are most influential for developing competitive advantage for acquisition of customer satisfaction for a retailer or multi- service operator?

To answer this question and to enable a marketing manager for implementing various forms of e-business tools to differentiate corporate offerings far from competition by increasing customer level of satisfaction, this paper would investigate-

  • To explore the degree on interdependency of regular business operation and e-business application of SMEs,
  • To examine the use of internet and high tech networking technology in medium enterprise,
  • To identify the development of technologies applicable for selected sectors

Literature Review

SME Definition

O’Regan et al (2006) explained that Small and Medium Enterprise (SME) is the lifeblood of the economy of the most of the country around the globe including the flourish economy like USA. In USA, more than fifty percent of the businesses are small to medium size business and it contributes a substantial amount of dollar in the national GDP. In spite of this contribution, it was very surprising to know that there was no specific definition of SME, as it was vary from country to country and even within the country. The definition of SME depends on the size of the organisation and some other factors like total number of employees, amount of investment, annual turnover and the nature of the business. Suppose the capital range of SME for the manufacturing firm is not as same as that of the retailing business (Hammer et al 2010).

Definition of SME.
Figure: Definition of SME. Sources: Hammer et al (2010).

In the above figure, the definition had given based on some factors like number of employee and amount of revenue. According to SBA Advocacy, in case of Manufacturing and non-exporting service firm small and medium enterprises were those that have less than 500 employees and were similar to USDA. In case of Exporting service firms and farms, the number of employees was also less than 500 for SME. In the light of revenue, the revenue of small and medium Exporting service firms should not exceed $7 million for most enterprise and $25 million for high value enterprise. The limit of revenue for small and medium farms was less than $ 250,000.

According to Siropolis (1998), there were a number of yardstick for measuring an enterprise whether it was a small to medium or big enterprise. These yardsticks were as follows:

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  • Total Asset: Total assets of a firm included the total cash, inventories, machineries, lands, and tangible and intangible resources.
  • Owners’ Equity: Owner’s equity encompassed two streams like the shareholders or owners’ investment, which also known as capital and money supplied by the creditor, which known as liability.
  • Yearly sales Revenue: Yearly sales revenue was the annual sales turnover of the firm, which in the previous definition limited to various amount according to the nature of enterprise.
  • Number of employees: No of employees refers to the number of employees employed in a particular organisation which should less than 500 in every small to medium organisation and it was a very popular method of defining small to medium enterprise.
  • Inflation proof: Inflation proof was the measurement of changes in firm’s financial position by the inflation rate of the economy. It generally assumed the small to medium enterprise was not responding to the change in inflation rate that was the purchasing power of the firm and buyer not constant.
  • Transparent: The small to medium business was easy to understand and the function of the business was not that much complicated as compare to that of the big organisation.
  • Comparable: Comparable refers to the comparability of the firm to the industry where it operated. Small to medium firms were easily comparable to the big organisation with in the industry.
Manufacturers Employing Fewer Than
Petroleum refining
Electronic computer
Macaroni and spaghetti
1500 persons
1000
500
Wholesalers Employing Fewer Than
Sporting goods
Furniture
Paints and varnishes
500 persons
500
500
Retailers Earning Sales of Less Than
Groceries
Automobile dealership
Restaurants
$13.5 million a year
11.5
10.0
Services Earning Sales of Less Than
Computer
Accounting
Television repair
12.5 million a year
4.0
3.5

Table: Definition of SME. Source: Siropolis (1998).

Classification of SME

By observing the operation of small to medium enterprise in different countries, it had explored that there were mainly two basic types of SME operated around the world.

Firm SME

Renner et al (2008) pointed out that Firm SMEs included those organisation involved in agriculture and agro business. In USA, a large number of Firm doing business on agriculture and agro based product. Agriculture was very important for every economy and world’s large demand for the food grains fulfilled by this sector. In most of the cases, Firm business required a small to medium level of investment and few numbers of workers (Herrera & Ramirezy, 2003). The farmers of the different country made a good contribution in the national GDP with a vary low level of investment and due to the increase pressure of population, the current demand for the food ingredient was much higher than the any other time. Almost all of the Firm in third world country including Asia, Africa, and Latin America were small to medium in size and owned by the single proprietor or with one to two person. However, in USA, some big organisation produced agricultural product.

Non-Firm SME

Sun (2006) added that, Non-Firm SME included the small to medium organisation that produced products or generated services with small capital and limited number of employees. Collins et al (2003) explained that, this kind of non-Firm SME includes small to medium manufacturing firm, wholesale, retail business, and service providing firms. These categories of non Firm SME business were as follows:

  • Manufacturing firm: Manufacturing firms were those that produced food items, refining petroleum, produced computer, and electronic items etc. The capital of this kind of firm was limited and the employees or workers did not exceed more than 500. These kinds of manufactures were very common in third world countries and their contribution to the economy is very crucial.
  • Wholesaler: Wholesaler was those who brought product from the manufacture, sold it to the retailer and usually wholesaler buy a large amount of product from the producers, and sold it to the different retailers in small lots. Sometimes wholesalers supplied raw materials and semi finished product to the producers and sold the produced good to the retailers. The number of employees for small to medium size wholesale business was not more than 500. The example of wholesale business includes the sporting goods, furniture, paint, and varnish and so on.
  • Retailer: Retail small to medium business organisation were those who directly brought product from the wholesaler, manufacturer, or supplier and sold it to the final consumer. The retail business included the small retail shop to the big retail super stores like Wal-Mart, Harold etc. The retailer may be the grocery, whose annual income should no go beyond $13.5 million, may be automobile dealers whose income should not go beyond $11.5 million annually and it may be restaurant that income should not exceed $10 million per year.
  • Service provider: service providers included the general service providers like television repair, computer repair or professional service such accounting, legal etc. generally the size of this kind of business is small and handled by single person or with very limited number of employees. In the third world country this service providers were small but in the developed world, the size may be medium to large. The income level of computer service providers should not exceed the limit of $12.5 million in a year, the income level of profession service providers should not cross the limit of $4 million per year, and the income of the service providers of television repair should not cross the level of $3.5 million per year.

Main feature of SME

Clayton (2002) added that small to medium business organisation was important in every economy and got the special attention of the government and other stakeholders beyond the national boundaries. In every economy, SME had a great contribution the employment, business growth, GDP, and innovation. In this section, the main features of SME were given based on economy of USA.

Business and Employment: Though the limit of employment in SME was 500, most of the case the number of employment in this kind of firm was very limited which was not more than 20. In USA from the total number of 26.8 million SME, only 6 million firms had employee for their businesses. In spite of employer or non-employer, SME presented approximately 99.9 percent of the total number of firms in USA.

Non-farm private employer firms by firm size, 2006.
Figure: Non-farm private employer firms by firm size, 2006. Source: Hammer et al (2010).

Though SME presented the big portion of the total firms, the number of the employment by this sector was not satisfactory and this big number of firms only provided fifty percent of the total employment. Total SME including the Firm and non-Firm business provided approximately 119 million employment and more than seventy percent of this employment generated by non-Firm firms who has less than 100 employees.

Non-Firm private employment by firm size, 2006.
Figure: Non-Firm private employment by firm size, 2006. Source: Hammer et al (2010).

Another important aspect of the employment was most non-Firm employers were services provider and not the production firm. This was also true for the big organisations because the large firms, which provided jobs, were service in nature and in USA most of the employment was in service sectors.

  • Employment Growth: The number of total employment provided by the SME in USA was roughly constant in nature that from 1998 to 2006 it was fluctuate not more than one percent. As it already mentioned in the previous section that the share of employment in USA by SME was not more than 50%, it was constant for a decade. Statistics showed that the number of employer more than one hundred in SME showed upward trends and the portion of employment increased by this large SME firm in the country.
  • Economic Activity: SMS showed a great contribution to the economy of the country of the world including lower developed country (LDC) to higher developed country (HDC). The total contribution of SME in US economy in the year of 2006 was $4.7 trillion. It was not surprising to look that 70% of the total GDP generated by SME came from the service sectors. In the first world country, the number of service firm fall in the category of SME increased in good pace. However, the situation was little bit different in LDC where the number of SME of manufacturing was increasing over the service firm. It was due to the transition of economy where the economy of the western world shifted from manufacturing base to the service base. In the case of LDC, the vice versa was happening.

Affect of Globalisation on SME

McMaster et al (2005) explored that the globalisation is a concept made the world more closely than ever before and in effect, the world became small but the market became large. The main benefits of globalisation were it broke the national boundaries and made all country under one roof. This concept was much influential for business organisation around the world and it affected the way of business done by small to medium organisation. Previously, SME focused on the local market and served the demand of the local customers. The level of operation was also limited to a specific location whereas now a day beside the big business giant, SME also served the customers or buyers outside the locality. Increased rates of exporting firm of USA fall in the category of SME due to the globalisation. It created opportunities for the less developed countries like Asia, Africa to increase there national Income (NI) through exporting to the first world countries. The rapid changes in technologies created room for this SME business to flourish in the world market. The world market was freer now which called the enterprise economy where free market was the basic (Hawkins et al, 1999). Any business organisation could enter into any market of the world without any economic or political barriers. Using this concept, the Chinese economy had advance far through entering into the European and US market. The SME of the Chinese economy had been developed faster than the SME of any other countries through using the benefits of globalisation.

The cultural diversity was another factor affected the way of business done by the SME around the world. Previously, the cultural differences were more intense among the different cultural groups that hiders the free flow of business from one country to another country. As a result, the product and service generated by the SME was served only one cultural group. Currently, due to the advancement of technology and globalisation SME served the customer beyond the national boundaries.

E-business

Darby et al (2003) argued that e-business refers to the business, which perform all of its business processes through utilisation of internet and digital technology. E-business included all the functions of a business like e-commerce, internal management processes, and external processes of maintaining relationship with suppliers and customers. The major business processes of e-business were as follows:

  • Production Process: Production process included the use of information technology and internet in procuring, processing the raw materials. The producers were also used information technology to maintain the relationship with the suppliers and payment system. When a business organisation decided to use e-business in its operation the focus was on the production function if the organisation produced products. The production involved collection of raw materials, maintain inventory, continue the production process in the plant and finally put the finished product into the stock before collected by the sales department. During the process production department needed to collaborate with the suppliers and sale department for accurate information about the demand of the raw materials and finished products (Anon, 2002). Whenever an organisation turned into an electronic business then all this process was done through the computer and internet. All the information required by the production department was available in computer and delivered the information to the other stakeholders through using the internet of intranet. It made the business far easier than before and overall efficiency of the organisation increased.
  • Customer relationship process: Customer was the key for every organisation success and almost all of the organisations given the highest importance on the customers. Previously big organisation took various studies on the taste and preference of the customer for enhancing the viability of the product it entailed expending of a large sum of money in research. This kind of research for customer demand was quite impossible for the small to medium size organisation for their capital constrain (Laudon & Laudon, 2004). With the introduction of e-business, all the business process done through the e-commerce that made the use of IT and networking for prompt transmission of data over various destination and it required a small amount of investment and expenditure. As a result, beside the big organisation, SME also could get the data on customer within short time less expenses. They can made efforts on enhancing the relationship with the customers through the internet, which was very difficult in manual systems.
  • Knowledge Management Process: It was a distinct process of the organisation adopting the information system and e-business in its operation. One of the main functions of the e-business organisation was the transmission of the information on various aspects of the organisation. Knowledge management systems helped the organisation to collect, store and use the necessary expertise and knowledge to operate successfully the business. Most of the time, this system served as a distinct competency or core competency for the organisation.
  • Enterprise Process: It was a holistic view of the e-business of the organisation though which all the major process of the organisation coordinated with each other to made the overall goal attainable. Previously, the functional department of the organisation worked on its own goals not able to coordinate the function of department with another. As a result, the departmental goal might attain but main goal of organisation might not be attainable. This could happen due to the lack of proper coordination among the various functional departments. By introducing the enterprise system in the organisation now, organisation can attain this objective of coordination more fruitfully than ever before. Through the enterprise system, organisation could make good coordination with the production process to supply chain, production department to sales department and finance department could best assess the financial needs of the various departments.

E-commerce

Hicks (2004) argued that most of the times, people used the concept of e-business and e-commerce interchangeably but there were some fundamental difference between e-commerce and e-business. As already described, e-business was making the major business process digital whereas e-commerce indicated use of digital technology in the transaction of a business. E-commerce was one of the components of e-business and it was the most important effective elements of e-business. In a true sense, e-commerce referred to the use of digital information technology to transfer goods and services to the customers without physical transaction and generating the value and exchange of ownership through internet and digital technology (Andam, 2003). E-commerce also served as a basis for building a long-term relationship with its customers and stakeholders of a particular business. In the year 2000, the revenue generated from the e-commerce was amounted to $350 billion around the world the figure in 2004 was $3.14 trillion which clearly indicated the growth of the e-commerce around the world. Within these huge amount of transactions, good number of transactions crated by the SME around the world.

Worldwide E-Commerce Revenue, 2000 &2004.
Figure: Worldwide E-Commerce Revenue, 2000 &2004. Source: Andam (2003).

Types of E-commerce

There are four types of e-commerce that includes the B2B (business to business), B2C (business to consumer), C2C (consumer to consumer) and M-commerce (mobile commerce). These types of e-commerce served the different purposes of the organisation.

  • B2B (business to business): This e-commerce involved with supplying goods or services to the retailers for selling to the final consumers. Small to medium organisation could produced goods or products to sell to the retailers that indicates the business-to-business transaction. To make the transaction easy and simple with the retailers, SME might use e-commerce through which all the transaction made via internet digitally. As a result, the business organisation made higher profit without entailing much cost.
  • B2C (business to consumer): Business to consumer transaction most of the time took place in retail business where the final consumer collect their necessity directly from the retail outlet. Through the introduction of e-commerce, the consumer not required to go to the retail outlet for collecting the goods rather they can collect it through internet and payment system also available there for the consumer. This substantially reduced the time and cost for making the transaction for both the consumer and the seller.
  • C2C (consumer to consumer): Through e-commerce, consumer can exchange goods and services with other consumer and the transaction took place between two consumers known as the C2C transaction. There was some website in internet, which developed under SME plans gave the consumer the chance to deal with one another in safer way.
  • M-commerce (mobile commerce): M-commerce was a concept derived from the e-commerce where business and consumer can deal with each other through the wireless phone, which was known as mobile or cell phone. It made the transaction of business with the business or consumer easier, took last time, and cost that increase the efficiency of the business.

Methodology

Motivation for the Research

The researcher motivated to initiate the research to explore the impact of e-business on the small to medium organisation, especially in UK where the technological advancement in higher than any other places of Europe. It helps to understand the interdependency of e-business and SME.

Research type

It is a Descriptive research where the researcher tries to explain the concept of e-business and explore the implication of the concept in small to medium enterprise in UK. Here the researcher only explains the current conditions of e-business and its effect on the SME in UK. The researcher has no influence over the factors, which influences the e-business or SME.

Research Approach

In this research, researcher uses both qualitative and quantitative techniques of research where the researcher uses the objective evaluation in some area and subjective evaluation in other area of SME where e-business concept used. In this research, there are scopes for use both the quantitative and qualitative approaches. Researcher uses interview and observation for evaluation.

Sample Design

Researcher interview a sample of 20 SME firms and interviewed 20 executives form those firms for the judgment. The researcher does not use any types of sampling techniques so that the sample selection falls in the random sampling.

Measurement technique

In this report, the researcher uses the simple technique, which is also known as nominal scale technique. With this technique, the researcher put the opinion in the tabular forms for graphical presentation.

Testing of sound measurement

  • Validity: the validity is a concept that dictates the degree to which the result differentiates if actual measurement is used. (Kothari, 2008). To measure the validity the researcher used historic data on this topics and the result confirms to the result generated in other research.
  • Reliability: Reliability is the consistency in result as the reliable research shows consistent result in repetitive study (Zikmund, 2006). The common problem of any research is the inconsistent result in different study on same issues. To reduce this problem, the researcher carefully design the research plans and in some areas conduct repetitive research for confirmation.
  • Generalizability: The researcher uses Generalizability concept when using the secondary data for research purpose. This paper also can generalize as when using primary data it compared with the existing result.

Data Collection Method

For collecting the primary data for research purpose, the researcher uses the following techniques:

  • Interview method: Through the development of a simple questionnaire, the researcher collects primary data by interviewing the executives of different SME in UK.
  • Observation: The researcher also uses the observation method when visiting the SME firms for interview purpose. Due to the time and resource limitation researcher used this method in some area

Secondary Data

  • Existing literature: Researcher using the literature existing on the e-business and SME in UK and other country,
  • Internet: Researcher uses the internet for previewing the literature, journal, and blogs on this topic (Malhotra, 2009).

Limitation of Data Collection Process

However, the researcher gave the maximum effort to do make the research a good one but there are some limitations in conducting the research. The financial constrains and time limitation is mentionable limitation of the research. To conduct a research like the present it requires large sum of money and sufficient level of time.

Viva Section

For this paper, viva is not applicable in a sense that it is a descriptive dissertation and only few sections used primary data for analysis purpose. Most of the data used in both literature and analysis part is mainly based on the secondary sources that is the analysis done by other. However, few sections address the primary data for analysis as the using ICT in different operation of the SME. Here the researcher of this dissertation contact with some SME companies like Softcat, Christians Against Poverty, Brand Learning, Qedis, Lane4, Shine Communications, Fairbairn Private Bank etc. where the researcher talk with some executives who are cooperating me by giving me the required data. Using the data I make some analysis on use of ICT like Internet, E-commerce, E-business, networking etc. Again, the focus is on the secondary data and as a qualitative and descriptive research, the viva portion is not applicable for this dissertation paper.

Results and Analysis

Analysis of The effect of E-business on SMEs

Small to medium organisation operated in an environment with limited number of employees and resources constrain. It was difficult to implement all the e-business application within a single firm and was especially true for the SME operating in the LDC. In the context of Europe, a large number of firms adopted e-business application. In case of UK, the government of the country took initiative to make the all business including the SME digital through the using of e-business application. Recently, a good number of SME in UK used e-business application in their business and new technology had adopted instead of the old technology that prompt the operation of the SME. Historically, 99% of the total business enterprises of UK were SME and it accounted for 58.9% of total employment and 51.9% of total turnover of the country. One of the main features of e-business was the use of internet in business operation and UK was one of the top most internet users in SME operation in the world.

SMEs with Internet Access.
Figure: SMEs with Internet Access. Sources: Dharssi & Murray (2001).

Effect of E-business on Manufacturing Sectors

Manufacturing industry was one of the major sources of SME business around the world. In UK, the number of manufacturing firm was approximately 298425 within which 99.3 was small to medium firm. These manufacturing firms generated 3834000 numbers of employments where the share of SME was 52.8%. Total turnover from the manufacturing firms was £442776 million in which 38.5% was providing by the SME. This tremendous performance of small to medium firm on manufacturing in UK presented the position of SME in the total economy of the country.

To stimulate the performance further, the government of UK took some initiatives to make these firms digital through extensive use of digital technologies and the government gave subsidy to implement this projects. Response to the government initiatives, almost all of the firms in manufacturing industry implemented partially or fully the application of e-business and e-commerce in their operations. There were some specific operations of manufacturing which were different from that of the service industry and these firms mainly focus on these operations to turn it from the manual to digital operation. Here, the effect of e-business on the special operations of manufacturing industry had been explored.

Research, Development, and Engineering

Currently, in every manufacturing industry new product had been developing in every 24 hours around the world. To sustain in the competition, there were no alternative to develop new product in the market. For this reason, most of the manufacturing firms invested huge amount of money in new product development that was in R&D and engineering. In UK, from the total SME of 4.8 million, 38% of this was the manufacturing firms that contributed to the national economy largely. In examining 20 small to medium manufacturing firms of London, UK the following result dictated the involvement of ICT in R&D and engineering of those manufacturing firms.

ICT in R&D

In the following figure, it showed that within the 20 firms, 11 firms used almost 85% of its R&D activities through the various computer applications, which made the work flawless. Another 6 firms used ICT in 60% of their R&D activities and only 3 firms used lower level of computer application and various simulation programs in developing new products. The applications mainly used in new product or process development by the SME of UK were CAD, CMA, and CME. From this scenario, the effect of E-business in the research, development and engineering in Europe, especially in UK would clear. Other research done by the various person and organisation also supported this result as most of these works showed the upward trends in using ICT and e-business tools in manufacturing in general and in R&D in particular.

Production

Production was the main function of the manufacturing firms and the success of the firm depend upon the proper implementation of the production plan. From the time of industrial revolution, most of the industry relied on the machine for production and human was the key to handle the machine. In SME, the size of the machine was also small to the medium, which was previously handled by the man. Due to the rapid expansion on technology and implication of e-business forced the manual industry to turn into the digital industry run and controlled by the computer. In UK, the small and medium manufacturing industry took ICT in their production plant and through the using of computer it would required less time and energy to produced goods. Beside this, using technology in production reduced the rate of error and increased the accuracy in production.

According to the e-business survey 2002, 31% of total manufacturing SME adopted integrated electronic system in their operation and these firms employed more than 1000 people in their firms. After than, within this eight to nine years the situation had changed more and a substantial number of firms adopted the electronic technology in their production plant and process. Developing applications for plant layout, process layout etc. largely contributed to productivity and most of the new SME used this application when developing new plants. It substantially saved the time of the worker and they could use full time in production without any idle time. Previously, the coordination among the workers was poor so that workers had to wait for the completion of one process to start their own process. As a result, the cost of production was increasing and it would tough for the SME to compete with the large organisation in the market.

Inventory management & Quality control

Previously one of the main problems for the manufacturing firm was the inventory management that was the production department could not able to maintain an inventory level for both the raw materials and finished product, which could match with the plant capacity and market demand. There was a special dilemma for small to medium firms such as if it maintained a high-level inventory that would increase the cost whereas if it maintained low-level inventory that would lose the customer. To make the problem solved, e-business model generated a process based on computer application, which automatically calculated the optimum level of inventory for the definite period and also gave the signal to the department when the level of inventory was lower required to fulfil. Using this software application, small to medium firms could able to save the time and cost over the inventory management. In UK, a large number of firms used inventory management application to maintain the optimum level of inventory for storage. In surveying 15 firms, it was found that 12 of these 15 firms used the inventory management application for maintaining their inventory. They mainly used the software developed by the Microsoft and other companies in the industry.

Quality was one of the most important parameter for customer acceptance of a particular product or service. In the third world country, quality did not get that much attention but in the first world country including the European region, quality was the supreme priority to the customer for buying a product. In UK, the firms were competing highly on the quality and less on the price. SME basically had not that big plant like big manufacturer to realize the economics of scale and ultimately compete on the quality of the product. With the introduction of e-business, a radical change had took place in the quality and using various quality control package, manufactures were able to reduce the flaw in the product. The concept of total quality management (TQM) had developed through the use of ICT in the quality control where TQM was not possible in the manual industry, it required automated industry to achieve the total quality not only in the production process only but also in every steps of the organisation. The following result had explored through surveying the TQM of 20 SME firms of UK. There were twenty firms within where 15 firms used TQM application to maintain the product quality in every process of their production, while five firms used direct monitoring through the supervisor during the production process.

Labour Productivity

The labour productivity of UK had tremendously improved through the introduction the e-business and e-commerce in manufacturing firms and industries. This improvement was identical in SME of UK as this sector of business showed radical improvement in labour productivity and as a result, 99% of the total manufacturing firms occupied by the SME. Research showed that firms having more than 250 employees used the electronic links in business process around 50% that was the medium firms and firms having less than 20 employees used electronic links in business process around 10% that was the small firms. It also depicted that, the success rate of the firms using electronic business process in labour productivity was greater than the firms who are not using the electronic business process.]

Average labour productivity in Services, by type of e-business link. 
Figure: Average labour productivity in Services, by type of e-business link. Source: Goodridge & Clayton (2004).

From the above figure, it observed that the labour productivity of the manufacturing firms per employee was approximately £35000 per year using the ICT in the business process. In every sector, the overall productivity of the current year increased from the previous years. Human resource was the most important resource of any organisation and in manufacturing industry, without labour, no production would take place. Many one believed that the automation and increased dependence on machine would lose the weight of human and would result in job loss. However, the actual scenario was little bit different from the assumption and the research showed that the use of e-business in major business process increased the overall productivity of labour in SME of Europe including UK.

Average labour productivity in Production, by type of e-business link. 
Figure: Average labour productivity in Production, by type of e-business link. Source: Goodridge & Clayton (2004).

In case of labour productivity of manufacturing firms, those firms that adopted the e-business in their business process showed an increased rate of productivity in all the functions of the manufacturing firms. In UK, every employ of small to medium manufacturing firms showed nearly £40000 labour productivity annually which tends to grown further.

Effect of e-business in Service Sectors

Beside the manufacturing sectors, service sectors served as the major portions of SME in developed worlds including the UK. The recent trends in business in the developed country showed the economy of those countries transit from the manufacturing base to the service base (Westermeier & Plave, 2004). In UK, the total number of SME in service sector was 1207000 that represented 25% of the total private sector of the country. Within the service sector mining, water, gas, electricity etc showed 19% growth and financial intermediaries showed a growth of 10% but the other service industry exhibited a negative growth. The private sectors SME accounted for 4,502,000 numbers of employments in UK, which was the 15% of employment of the total private sectors. This SME sector generated a turnover of £454 billion per year that was the 15% of total turnover of overall private sector of the country.

The number of SME in wholesale and retail business in UK was 583000 that generated employment of 4963000 that represented 21% of total employment of service sectors in the country. In the following figure, the total number of enterprises in private sectors showed according to the different area of UK. In London, highest number of enterprise established which was 800000 and South Wales ranked in the second position. From the figure, it was clear that a large portion of the total SME established in the developed area where the demand was top most. Another reason behind this position was that in comparatively developed area the opportunity for using the information technology was higher than the less developed area. As an example, in London most of the SME operated in service sectors used advanced technology and e-business implication in main business processes that gave those a competitive edge.

Enterprises in each region and country, UK private sector, start of 2008. 
Figure: Enterprises in each region and country, UK private sector, start of 2008. Source: Anon, (2009).

Sales, Marketing and Promotion: Most of the SME used e-business and e-commerce in their advertisement and promotional campaign to attract more customers to the business. The popular concept of marketing among the SME was e-marketing that implied the use of internet in marketing the product or service to the customers. In UK, most of the SME in service sectors used this newer concept in their marketing and promotion. Within the total customers of UK, age ranged from 15 to 45 frequently used internet for searching the product or service required. The SME targeted this segment of the market for their services. Every SME had the database for the customers and whenever new services came, it communicated with the customers through the internet. Those could use some social networks as a means for communicating with the target customers. In UK, the number of sales through the internet increased and within one year, it was almost double of sales through the online. Approximately 45% of medium retail firms used internet for selling their products and 38% of total sales in retail business in UK done through the internet. However, big retailers did not use online for their product sale on 5% of the total sales done through the internet by this firms. A good number of medium firms used internet for selling their product or services and the sales in internet fall in between 26% to 50% of the total sales of those companies. In last five years, it showed in research that, both the number of sellers and volume of sales through internet had increased by 50% previously, which was on only 10% to 15%. By observing the selling of 20 firms, the following result has found as

Number of firms Internet Sales
10 38%
6 27
4 51

Internet Sales by Different Firms

From the following figure it showed that with in the twenty firms, only four firms had more than 50% sales through internet. It also showed that ten firms had 38% sales over internet and six organisations had less than 27% sales over internet. The main reason behind this decrement was the security problem and the buyers were not satisfied with security system of internet. The increased cyber crime was the instance of low level security in online and the online payment system might hiked by those criminal that loss the loyalty of the customers.

percentage of companies ordering supply goods / services online
Figure: percentage of companies ordering supply goods / services online (by sector and size, 2007). Source: The European Commission, (2008).

In above figure, the use of computer in business and customer service had shown in the various sectors including the retail and transportation services. From this figure it observed that the degree of used of computer largely depend upon the size of the firms including the employees.

Marketing was the main activities of any service organisation and successful operation and profit gaining of the service firms largely depends on the marketing of the company. The SME firms took two approaches in marketing when using the e-business concept and advertisement through internet. Firstly, it placed advertisement in the website and secondly, it tried to optimise the affiliation in search engine so that the customer can easily get the information of the company while searching in the internet (Adam, Mulye, Deans & Palihawadana, 2002). In advertising in internet, most of the time firms used the website of the other big renowned company where most of the customers visit. Though placing advertisement in other company’s website might increase the level of cost, the benefit of this kind of advertisement frequently surpassed the cost (Bui, Le, and Jones, 2006). There were some search engines that customer used for searching their necessary commodities or services from the internet (Chaston & Mangles, 2003). The optimisation of search engine treated as an important tool for marketing by the service organisation. Research showed that in food industry, approximately 52% of the SME firms engaged in the technique of search engine optimisation for marketing and 40% non-food SME firms used it as a marketing tool. However, in comparison, the SME firms of UK in online marketing was lag behind the online marketing of US firms.

percentage of Uses of internet by firms of different size and country.
Figure: percentage of Uses of internet by firms of different size and country. Sources: The European Commission, (2008).

In the following figures, the percentages of using search engine for marketing given on the country basis. In UK, firms including the large to small firms used this technique of marketing was 64% and within this framework, 52% to 59% of small to medium organisation used search engine optimisation. The share of using e-marketing in large organisation was higher in every country including UK, where roughly 76% of large firms used e-marketing as the main tools for marketing their product and services.

Procurement

Procurement was a very important from the viewpoint of the retailers as these retailers took an important place in the supply chain. To fulfil the customer order retailer had to procure the product or services from the suppliers or producers and placed it to the customers. Procurement was the process of information transmission and material flows between the suppliers and retailers. Whenever the whole process was doing through the ICT then it called the e-procurement. Basically, retailer did not produce goods or services rather it sales the products or services of the producers or suppliers, and in order to compete with the other retailers of other products, it had to build the competitive advantages on the procurement process. A substantial cost involved in procurement process and reducing the level of cost in this area was the major challenges for the retailers. Retailers were responsible for at least 55% of the total employment in SME and tried to use the technology or computer network for ordering the product from the suppliers such as EDI. Within the retail sector, at least 43% of the retailers used ICT in their procurement system and these retailers responsible for generating 35% of employment in the industry. These retailers placed at least 5% of their order from supplier through internet and 40% of the firms used full implication of e-procurement in their procurement process. The number of SME in retail business in UK used e-procurement system was increasing during last five years and some firms which did not use the e-procurement system could also used the online order for their procurement from the suppliers.

Banking

Banking service was one of the important areas of every economy around the world and in UK; banking sectors represented a large portion of SME operation. Unlike the other sectors, banking firms were more responsive to the technological change and adopted the most recent technology for its operation. All the business processes of the bank were doing through the implication of e-business. Banking provided financial services to the customers, which required a high level of securities and easy operation, which was not possible through the manual system that might increase the security but kill the time of the customers. In whole Europe, the banking sectors employed more than three million people and generated €490 billion from value added service and UK banking sector provided approximately 21% of this total value added services in whole Europe. The business process of banking services included the general banking process, advance process, cash receipt and withdrawal process etc. Modern bank provided various value added services like, Q-cash, ATM, Credit Card services, e-shopping and so on which heavily relied on the internet and digital technology. To compete in the market there were no alternative to adopt these services for the customers.

The new concept of e-banking had developed in UK bank industry and 30% of the all transaction in bank executed through the online banking that created an extensive pressure for SME bank to acquired more technology in different branch. In UK, in every ten banks, six banks offered online banking to the customers and the customers were not willing to come to the branch for their transaction rather they preferred to do the transaction through the internet. SME banks tried to build customer relation management (CRM) that was important for building the customer loyalty for the bank and it required not only the technology but also some skills and efficiency to handle the customers.

In banking industry, the effect of e-business was not always positive but the concern for security was identical. Research showed that every year banks and customers lose three million euro for hacking by the hacker. Not only the financial loss, but also other personal concern like the hack of personal data of the customers and the business data of the bank represented the real challenges for the bank. In the manual system, the data had preserved in papers but ICT reduced the use of paper, which caused the permanent loss of the data if the system crashed in any way. To protect the data system it required a large sum of investment which sometime not possible by the small to medium bank of the industry. Another important issue in this regard was the development of internal and external network of the bank for providing the integrated service to the customers. To solve the problem the banking sectors of European zone adopted Single Euro Payment Area (SEPA) that was not implacable to UK as it did not accept the euro as a single currency. In the following research, it showed the use of e-banking in UK by the SME bank.

Service Use of ICT
E-banking 75%
Loan processing 45%
ATM 90%
Intranet 65%
Extranet 52%

Use of ICT by Banking Industry

From the following figures, it was clear about the use of ICT in various service areas and in the survey of twenty banks, the use of Automated Taller Machine (ATM) was higher among the banks and the use of extranet for networking lower in the industry. The research also showed the use of e-banking among the bank was 75% that was mandatory for doing banking business in current market where customers were used to make transaction through online.

Logistics and transportation

Logistics and transportation was very important for the manufacturing firms as without these supports no manufacturing plants can run their production. In UK, the transportation and logistics services developed in a way so that it could best support the manufacturing firms. SME manufacturer of UK had limited capital and workforce to run it individually and as a result, some independent firms had developed in this area for supporting the manufacturing firms. The transportation services included the rail road transportation as well as the freight transportation fro raw materials and finished products. On the other hand, logistics support included the warehouse facilities, cargo handling etc. In UK, the 1.6% of national GDP came from the road transportation facilities that carried the goods through the trucks, vans etc. and within the industry nearly 4.3 million people worked on this sectors. About 45% of the total goods in UK moved through the truck 85% of the total passenger moved through the car.

Logistics included all the activities like moving the raw materials to finished goods, storing these goods in the storages, inspection of the quality of the goods etc. In the whole world, the turnover from the logistics industry was €5.4 trillion that contributed 13.8% of the total GDP of the world. Around 97% of the SME transportation and logistics services (TLC) in UK used internet for connecting the various stakeholders in different locations. The use of Enterprise Resource Planning (ERP) system was a computer based system used by the TLC firms in UK but the ratio of use of this technology among the SME firms were less than the large firms. Using this system substantially reduced the use of paper in the industry, which directly contributed to the efficiency of the firms. 13% of the total SME firms in this industry reported that they used the electronic system in communicating with their business partners but on the basis of paper format.

Within the industry, the ERP system has adopted by only 9% of the small firms in comparison to 41% by large firms and 23% by medium firms. There were some specific applications for these sectors, which included the Cargo Handling Technology, Management System for International Transportation, Fleet Control System and so on.

companies using software in Procurement. 
Figure: companies using software in Procurement. Source: The European Commission (2008).

In the following figure, it showed that within the small firms the use of application was very low that was only 3% to 8%. On the other hand, 43% of large organisation, this employed more than 250 employees to use these technologies in their operations.

Conclusion

Recommendations

This paper explored the effect of e-business on the SME firms based on the UK market and the result was that most of the big and medium organisation used e-business in performing their major business processes. The customers of UK were more technologically sophisticated and the rate of use of internet was high. To cope with these customers, most big and medium organisation developed technology infrastructure in the organisation at various levels.

  • A large portion of SME was the small firms where the use of e-business was literally absent and the possible reason behind this might be the lack of both financial and human resources, it should take immediate measure in these concern;
  • SME companies should try to bring flexibility in payment system by letting the users more options for making an easy online trade;
  • To make this large small firms digitally enabled, the government of UK should take some initiatives and these initiatives may include reducing the cost of the technological product, give subsidy to the small industry, the rules and procedures should make easy, the rate of tax should reduced or even made free etc.
  • The SME companies should asses all possible risks and issues of vulnerability and it should develop security policy to minimise the information risks;
  • The number of firms used e-business in all of its operation but online trading process suffers problems of security, safety, and expenses. This firms also faced financial constrains and the overall IT infrastructure can also lead to the wastage of huge money and time for those company to exploit all the benefit from it. To solve the problem the government of the UK can spend on this IT sectors to develop a well structure;
  • Not only the government, but also the private enterprise should come up with investment in this sector to facilitate the other business operation of the SME firms;
  • Finally, firms that produced the IT products and provided IT facilities can reduce the cost of these products to ease the use of these products and services by the small to medium firms.

Conclusion

The effects of e-business on the SME are identical as most of SME firms adopted the technology in their business processes to compete in the market. In the developed world, the SME was the main base of the economy and major portion of the GDP of those countries generated from this sector, for example, UK is one of most developed country of the world where the contribution of SME was higher than any other format of business. Almost 99% of the private enterprises were SME and generated most of the employment and revenue for the country. The modern e-business had a profound affect on this huge number of SME of the UK and to compete with the large scale of business in the industry, there were no alternative to adopt the e-business application in the business of the SME. As one of the most important part of e-business e-commerce was mandatory for the SME especially for the SME operating in the service industry. In this research, it showed that, in UK most of the SME both in manufacturing and in service used the e-business in at least some of their operation. The manufacturing industry used ICT in order to develop new products and services and maintain the supply chain for the raw materials and finished products.

Some firms also used application for the factory and process layout, which substantially reduced the cost and time of the producers. The implication of e-business found much in the service industry that directly interacted with customers. This service sector mainly used the e-commerce technology for dealing with the customers and the use of internet was very common in marketing the product and services by the various SME firms. Some company also maintained the database of the customers to directly contact with the individual customer for direct marketing campaign. Beside this firms, banking service was another sector where almost all of the business process done through the e-business and customers preferred to make their transaction through the internet which commonly known as e- banking. One of the major findings of this paper is that, the small to medium organisations are increasingly involving with e-business application and generating more boosted revenue than ever before, thus SMEs has shaped the modern business world in a stage of dynamic enough to create adequate charm and scope of more expectation by adding extra value in their own field.

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