Documente Academic
Documente Profesional
Documente Cultură
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c Taylor & Francis Group, LLC
ISSN: 0197-2243 print / 1087-6537 online
DOI: 10.1080/01972240701224028
Alemayehu Molla
School of Business Information Technology, RMIT University, Melbourne, Victoria, Australia
Richard Heeks
Development Informatics Group, IDPM, University of Manchester, Manchester,
United Kingdom
95
96 A. MOLLA AND R. HEEKS
Rather, the aims of the article are: (1) to explore the benefits When transactions are coordinated through the use of
of e-commerce through a survey of business organizations, intermediaries, there is always the danger of intermediary
(2) to assess if the achieved benefits match the potential opportunism (Robins, 1987). They could use their market
described in current literature, and (3) to discuss some position, experience, and power to extract opportunistic
broader issues related to e-commerce in developing coun- “rents,” typically to the detriment of upstream suppliers.
tries. Beyond contributions to the literature and the poli- To mitigate this threat, businesses need to invest in ex-ante
cymaking process, the article seeks to inform practitioners safeguards and ex-post enforcements, adding to transac-
contemplating e-commerce investments about what bene- tion costs. Using network applications, such as middle-
fits to realistically expect. ware and electronic markets, organizations can internalize
The article is organized in four sections. In the next sec- and automate activities that in the past have been per-
tion the theoretical foundations of e-commerce research in formed by intermediaries (such as wholesalers, retailers,
general and developing countries in particular are reviewed agents, distributors, brokers, warehousing operations, and
and the research questions of this study discussed. After a forwarders). This can reduce producer—intermediary and
description of the research methodology, the results of the intermediary—producer costs, and minimize the danger
field survey are presented. Analysis of the results is then of intermediary opportunism (Bakos, 1998; Barua et al.,
followed by a conclusions section. 2004).
theoretical frameworks. Of the various potential benefits Market access. Enterprises in developing countries
derived from these frameworks in the literature on have been characterized by absolute levels of “informa-
e-commerce and development, four broad and interlinked tion poverty”, and by location-based constraints to access-
themes can be identified: improving market efficiency, ing information about markets and, hence, to accessing
improving operational efficiency, market access, and markets (Duncombe & Heeks, 2002). The networking ca-
linkage. We review each theme in turn. pacities that underlie e-commerce have the potential to
Market efficiency. Most businesses (including those enable these businesses to overcome their informational
involved in agriculture; typically a developing country’s barriers by increasing the speed, richness, and volume of
key economic sector) depend on long supply chains and information flows between a given enterprise and other
on one or more intermediaries to market their products and market actors. The outcome of this should normally lead
to purchase required inputs (Dolan & Humphrey, 2001). to better inter-firm information flows and increased market
More often than not, the intermediaries demonstrate op- reach.
portunism by taking the lion’s share of profits, and by The question to be asked in relation to this area of po-
deciding which products are to be delivered to the market tential benefits is:
and from which supplier to purchase equipment and other “Has the use of e-commerce enabled firms in developing
necessary inputs: so-called “biases of dealers” (Kebede, countries to improve their market access?” (Question 3)
2001). They also add to the cost of input materials and
finished products. For firms in developing countries, then, Linkage. Market access is often conceived in relation
any disintermediation effect of e-commerce could deliver to greater access to customers but—given that global busi-
significant benefits. By enabling direct marketing of goods ness is increasingly organized around commodity chains
to clients (including those in global markets), direct pur- and supplier networks; it more generally means an ability
chasing from suppliers, and better sharing of information to link with and integrate into global supply chains (Dolan
with partners, e-commerce could not only reduce costs but & Humphrey, 2001; Gereffi, 2001). At present, most busi-
also significantly increase firm control over its place in the nesses in developing countries are excluded from such
supply chain. chains, but e-commerce offers the potential to change this.
The question to be asked in relation to this area of po- This could increase the visibility of firms in developing
tential benefits is: countries. Linkage to supply chains could also support di-
versification by opening up new technology-enabled op-
“Has the use of e-commerce enabled firms in developing portunities with digital data flows, such as business process
countries to improve their market efficiency?” (Question 1) outsourcing, and hence could increase overall firm com-
Operational efficiency. It has been argued that busi- petitiveness (Palvia et al., 1996; UNCTAD, 2005).
nesses in developing countries incur particularly high costs The question to be asked in relation to this area of po-
in coordination of their economic activities because of in- tential benefits is:
efficient systems of procurement, communication, inven- “Has the use of e-commerce enabled firms in developing
tory control, and operation (Mann, 2001; Murillo, 2004). countries to improve their competitiveness?” (Question 4)
Traditional data communications infrastructure in these
countries is also expensive to access and use. Such high From the preceding review, we can see a range of poten-
costs normally add to the market price of products and tial benefits from e-commerce: benefits that are generic to
adversely affect the competitiveness of developing coun- business but that have particular values to firms in devel-
tries’ products in the global market. Using transaction oping countries (DCs), given the exclusions, costs, asym-
cost theory, one can argue that developing country busi- metries, and other challenges that firms in these countries
nesses’ use of e-commerce could reduce the costs of face. As noted, though, existing empirical data on the ac-
intra-firm coordination, thus also addressing some of the tual achievement of such benefits are very limited, with the
inefficiency problems these firms face (Moodley et al., few studies that exist tending to focus more on e-commerce
2003). As well as improving cost competitiveness of their adoption and use. In seeking answers to the four questions
products in local and global markets, any e-commerce- just listed, we have also explored the possible impacts of
induced reduction in transaction costs could also reduce firm size, industry sector, and e-commerce capability on
the costs of engaging in partnerships and strategic al- realized e-commerce benefits. Figure 1 lays out the con-
liances, and reduce the perceived and actual barriers to ceptual framework of the study reported here.
trade.
The question to be asked in relation to this area of po-
tential benefits is: RESEARCH METHODS
“Has the use of e-commerce enabled firms in developing The data reported in this article are extracted from a survey
countries to achieve operational efficiency?” (Question 2) of 150 South African businesses conducted as part of a
98 A. MOLLA AND R. HEEKS
Income categorya Low income Low income Middle income Middle income Middle income Middle income Middle income
Gross domestic product 393 560 1040 1096 2293 2864 6328
(US$ per capita)a
Internet users (% population)b 1.1 3.6 6.0 7.9 9.9 12.3 16.4
Number of Internet hosts 0.08 1.3 0.5 1.2 78 193 145
(per 10,000 population)a
Network readiness rankingc 86 39 57 41 34 46 60
Digital access index (DAI)d 0.15 0.32 0.40 0.43 0.45 0.50 0.50
(low access) (middle access) (middle access) (middle access) (middle access) (upper access) (upper access)
a
ITU (2005).
b
InternetWorldStats (2005).
c
Dutta and Lopez-Claros (2005).
d
ITU (2003).
99
100 A. MOLLA AND R. HEEKS
TABLE 2
Characteristics of firms in the sample
and that had completed the e-commerce benefits part of The data were further analyzed using exploratory sta-
the questionnaire. For the purpose of analysis, we referred tistical techniques such as analysis of variance and fac-
to this subset as e-commerce users and the remaining re- tor analysis. The results of all analyses are presented
spondents as e-commerce nonusers. next.
A range of demographic characteristics was analyzed
from the extracted data subset (Table 2). The majority of
the respondents held a job title of managing director or FINDINGS
CEO or general manager. The surveyed firms represent a
Descriptive Results
fairly broad range of economic sectors, albeit with some
emphasis on service firms. Most were large1 businesses In order to assess the benefits of e-commerce to the firms,
operating for more than 10 years. A comparison of the e- we counted the number of respondents who agreed or
commerce users with e-commerce nonusers indicates that strongly agreed and compared it with those that disagreed
the two groups were significantly different only in terms or strongly disagreed on each of the survey items. The
of size (t-value 2.93; p = .004, df = 148), not in terms results are summarized in Table 3 and the comparison
of sector or number of years in business. The data there- (which excluded the respondents who neither agreed nor
fore reflect the experiences of larger-than-overall-sample- disagreed) is plotted in Figure 2.
average firms—something that might not be unexpected, Examination of Table 3 and Figure 2 indicates that e-
given the greater constraints that small and medium en- commerce benefit is seen as largely limited to internal
terprises have faced in adopting e-commerce (Tucker & (77% of respondents either strongly agreeing or agreeing)
Lafferty, 2004). and external (71%) communications improvements. The
E-COMMERCE BENEFITS IN A DEVELOPING COUNTRY 101
TABLE 3
Responses on e-commerce benefits
only other benefits supported by a greater or equal number customer loyalty and retention benefits of e-commerce.
to those disagreeing are improved company image (65%) Overall, just 30% of the respondents were satisfied with
and improved process speed (50%). Thus e-commerce did the performance of e-commerce. These findings are ex-
not appear to enable most of the businesses in the survey plained later in the discussion and conclusion section.
to reduce the cost of operations (83% disagree or strongly
disagree), of purchasing and recruitment (81%), of market-
E-Commerce Benefit Constructs
ing (76%) or of maintaining information (66%). Further,
84% of respondents did not appear to realize increased rev- Exploratory factor analysis was used in order to identify
enue as a result of e-commerce. Another 74% and 72% of underlying constructs and investigate relationships among
respondents respectively either disagreed or strongly dis- the 16 items used to assess e-commerce benefits. Consis-
agreed with the improved supplier relationships and the tent with the exploratory nature of the study, the factors
TABLE 4
E-commerce benefits factor analysis
were extracted using an iterative sequence based on the Cumulatively, these three main factors explain 68% of the
principal components extraction technique. To facilitate variance in the data. The factor loadings indicate the degree
interpretability, this was followed by varimax rotation. The of correlation that exists among the items grouped under
criterion used for assigning an item to a factor was a min- the same variable, implying that the items under each block
imum factor loading of 0.5. In each cycle of the iteration, can be used to measure three categories of e-commerce
we retained only factors with eigenvalues greater than 1. benefits. Cronbach alpha values show the reliability of the
In addition, single item factors, items with factor loadings measure.
less than 0.5 on any one factor and items with a factor Examination of the results of factor analysis in Table 4
loading greater than 0.5 on two or more factors were ex- indicates that the first factor with six items accounts for
cluded from subsequent iterations. The final factor struc- 42.9% of the variance in the data. This means the benefits
ture with three factors containing 12 items was obtained grouped under this factor explain more of the variations
after the third iteration (Table 4). In addition, Cronbach’s in responses than any other group. This factor is related to
alpha was calculated; the scores (.87, .71, and .78 for fac- both the linkage and market access benefits of e-commerce
tors 1, 2, and 3, respectively) were above the acceptable and we labeled it here as the market performance gains of
level (Cronbach, 1979). e-commerce. The results of our survey (Figure 32 ) indi-
As can be seen in Table 4, three main categories of cate that market performance e-commerce benefits among
benefits are identified from the data (factors 1, 2, and 3). the South African businesses generally fall short of the
3.4
3.2
Mean Perceived Benefit
3.0
2.8
2.6
2.4
2.2
2.0
Market Performance Transaction Cost Reduction
Communication
TABLE 5
Correlation coefficients
Correlations: e-commerce benefits
(all correlations are significant at p < .05)
Market Transaction
Variable performance Communication cost reduction
potential indicated in the literature. Therefore, based on of e-commerce. The items under factor 3 appear to relate
the evidence in this study, the answer to questions three to both hierarchy (operational) and market transaction cost
and four above appears to be generally negative: Use of savings. Such savings are expected from reductions in op-
e-commerce in this developing country has typically not erating costs (such as personnel, rent, and order process-
enabled firms to improve their linkages and market access. ing), supply acquisition and supplier management costs,
The second factor, with two items, accounts for 14.7% and improving internal processes. However, such benefits
of the variance and is labeled communications improve- of e-commerce appear to have rather eluded our respon-
ment benefits of e-commerce. Communication is one di- dents (Figure 3). This leads to a negative answer to ques-
mension of e-commerce (Kalakota & Whinston, 1996). tions 1 and 2: Firms in this developing country have typ-
Use of e-mail, intranets, and extranets might help organiza- ically not achieved market or operational efficiency gains
tions to improve the reach and richness of the information through use of e-commerce.
to be communicated. In addition, as noted earlier, such net- The three factors extracted above demonstrate some
works can improve the speed and cost of communicating interrelationship (Table 5). Particularly, there is a rela-
the same unit of information and enable the design and tively stronger relationship between market performance
deployment of strategic linkages among market players and transaction cost reduction than between the other fac-
(Malone et al., 1989). Our findings (Figure 3) indicate that tors. This implies that if a business is not successful in
this is one area in which there is more sign of businesses reducing transaction costs, then it is unlikely for that busi-
benefiting from e-commerce. We might thus modify the ness to perform better in the market, which means it would
answer to questions three and four: while recognizing no find itself at a competitive disadvantage.
strong sign of outcomes such as market access or competi-
tiveness or diversification there are signs of improvements
Impact of Demographic Variables
in the communications that underlie linkages.
The third factor, with four items, accounts for 10.66% of To explore differences in e-commerce benefits between
the variance. This factor is related to the efficiency (market small and medium and large enterprises, the size-wise
and operational) theme identified in the literature review mean score values of the three factors were plotted
and is labeled here as the transaction cost reduction benefit (Figure 4). Examination of Figure 4 indicates a more or
3.4
3.2
Mean Perceived Benefit
3.0
2.8
2.6
2.4
2.2
Large
2.0 SME
Market performance Transaction cost reduction All Group
Communications
3.4
3.2
2.8
2.6
2.4
Primary sector
2.2 Service sector
Manufacturing
2.0 ICT
Market performance Transaction cost reduction Trade and Transport
Communications
less consistent pattern across enterprises. In both small e-commerce capability and those that have developed in-
and medium and large size groups, improvements in tegrated e-commerce capability. As would be anticipated,
internal and external communications were reported by businesses that have developed integrated e-commerce ca-
most organizations while cost reduction and market per- pability seem to have obtained greater benefit from their
formance benefits remained the least experienced. The e-commerce investment in all the three areas. However, the
graph also indicates relatively better e-commerce benefits ANOVA did not produce a statistically significant result
for small and medium enterprises in the first two factors, for these differences.
i.e., market performance and communications. However, Finally, in order to benchmark the impact of demo-
on further testing of this difference using a one-way analy- graphic variables reported here, we compared the results
sis of variance (ANOVA), it was not found to be significant on firm size, industry sector, and e-commerce capability
(Wilks lambda = 0.97, F(3,83) = .96, p = .417). with the Globalization of E-Commerce study (Kraemer
In addition to size, e-commerce benefit variations due et al., 2002). Our two studies used different instruments
to sector differences were tested. The sector-wise mean and different sample populations, so direct comparison is
benefit scores are plotted in Figure 5. The result has not not possible. However, the summary in Table 6 indicates
produced a single pattern indicating one particular sector that the findings of our study more or less conform to
benefiting more from e-commerce than other sectors. The the Kraemer et al. (2002) results. One difference is the
ANOVA test (Wilks lambda = 0.88,F(12,211.95) = 0.84, effect of e-commerce capability on e-commerce benefits.
p = .6102), produced an insignificant result, reinforcing While the current study shows a statistically insignificant
this finding. relationship, Kraemer et al. found a strong positive asso-
We anticipated that the e-commerce capability of ciation (although not causality) between these two. Possi-
businesses—captured in terms of the informational or in- ble explanations for such differences could be the medi-
teractive or transactional or integrated status attained— ating role of the globalization of the firm (a variable we
would have some impact on e-commerce benefits. The have not studied) and significant inclusion of experience
mean plot (Figure 6) appears to indicate a distinction in of firms from industrialized countries in the Kraemer et al.
terms of benefits between businesses with informational analysis.
3.6
3.4
Mean Perceived Benefit
3.2
3.0
2.8
2.6
2.4
2.2
Informational
2.0 Interactive
1.8 Transactional
Market performance Transaction cost reduction Integrated
Communications
TABLE 6
Benchmarking e-commerce findings
Number of countries covered Single country—South Africa Ten countries, of which only three (Brazil,
China, and Mexico) are developing
countries.
Effect of firm size on e-commerce Firm size has no significant impact on Firm size was unrelated to efficiency,
benefit differences in market performance, coordination and commerce performances
communication, and transaction cost of businesses (p. 18).
reduction benefits of e-commerce
Effect of sector on e-commerce Sector differences have no significant Industry sector was unrelated to efficiency,
benefit impact on variations in e-commerce coordination and commerce performances
benefits. of businesses (p. 18).
Effect of e-commerce capability on Organizations with higher e-commerce The level of e-commerce adoption had
e-commerce benefits capability seem to have obtained greater strong positive impacts on all three types
benefit from e-commerce. However, of firm performance (p. 19).
this was not statistically significant.
DISCUSSION AND CONCLUSION We can also step back to look at some of the broader eco-
nomic benefits identified in the theoretical development
Our findings about the benefits of e-commerce for busi- section. These saw e-commerce as potentially valuable in
nesses in South Africa suggest that, by and large, the poten- addressing challenges that negatively impact business in
tial for e-commerce in developing countries—as summa- developing countries: information poverty and asymme-
rized in the section on theoretical foundations—is not be- try, exclusion from global supply chains, loss of profits
ing realized. As noted earlier, there is very little empirical and control to intermediaries, and poor cost competitive-
evidence till date on e-commerce benefits in developing ness. We find no strong evidence from this survey that
countries, but our work is in line with the two field studies e-commerce is delivering the precursory benefits neces-
that have been reported (Humphrey et al., 2003; Moodley sary to address these challenges. These findings therefore
et al., 2003). While they focused on individual sectors and contradict the optimism surrounding e-commerce in de-
a limited range of benefits only, they did report a lack of veloping countries expressed by some authors identified
evidence of disintermediation, trade/reach facilitation, or in the introduction. E-commerce may be producing some
reduction in transaction costs. limited communicational benefits but there is no evidence
Our study has been more comprehensive in both con- that it is systematically delivering strategic business ben-
ceptualization of benefits and breadth of sectoral cover- efits. Our finding seems to suggest that a realistic view on
age. In relation to the literature-based conceptualization, e-commerce benefits in developing countries (at least in the
we find the majority of businesses do not appear to have short to medium term) will not necessarily be an optimistic
obtained e-commerce benefits in terms of expanding their one. This is of particular concern if set alongside evidence
access to markets, improving their reach or linkages to that some firms in industrialized countries do appear to be
customers or suppliers, or in relation to cost savings or achieving such benefits (Fitzgerald et al., 2005; Soliman
other efficiency gains. Our field data suggested a slightly & Youssef, 2003). This raises the possibility that foreign
different conceptualization of benefits may be useful for firms may be able to use the benefits of e-commerce to
those working on e-commerce. Again, though, the story on penetrate markets in developing countries while firms in
benefits was much the same: overall market performance developing countries may not be able to counterpenetrate
and reduction of transaction costs was typically not seen. industrialized country markets. Hence, e-commerce may
Firms only reported basic communications improvements; be part of a broader historical pattern that has seen new
a significant shortfall from the promise of e-commerce. technologies tend to increase global inequalities (Heeks &
This also implies that the findings here do not support Kenny, 2002).
the transaction cost and strategic management theses of Our focus in this article has been on reporting the extent
e-commerce benefits. Nevertheless, it has to be noted that to which e-commerce is producing benefits for businesses
the results are based on a synchronic single-country survey in one developing country. However, we also feel it would
and cannot be generalized. be appropriate to comment on an issue that—while not
106 A. MOLLA AND R. HEEKS
the core focus for conceptualization or data-gathering—is Therefore, to turn the somewhat disappointing realized
very much related: the issue of why such limited benefits e-commerce benefits around, there needs to be a multi-
have been seen. The most obvious explanation would be prong strategy aimed at reducing the many facets of tech-
one that calls implicitly on a chronological picture, with nological divides and improving the local and international
developing countries being further behind on a timeline institutional arrangements that support the conduct of busi-
than industrialized countries. This could be seen as a ness. This requires a public–private partnership to develop
timeline of e-commerce capabilities, with arguments that the resources and capabilities of businesses and improve
as businesses progress along the six capability categories the national e-readiness factors. It also requires developing
from no e-commerce to integrated e-commerce, they country firms to constantly improve their e-commerce ca-
achieve greater e-commerce benefits (Barua et al., 2004; pabilities in both downstream functionalities and upstream
Kraemer et al., 2002; Zhu & Kraemer, 2002). Hence, integration. Further, favorable international trade regula-
the argument would run, developing countries see fewer tions have to be negotiated at a global scale. There may
benefits from e-commerce because they have more lower well be some merit in these ideas that would warrant fur-
level capability firms and fewer higher level capability ther investigation.
firms. Further, these findings could arise because e- To summarize, we have shown the reality of e-
commerce in developing countries is still developing and commerce benefits in a developing country to contrast
has yet to achieve full traction (Dutta & Lopez-Claros, sharply with some of the dominant theoretical perspec-
2005). tives and the more optimistic literature that seems rooted in
However, we would just note some caveats thrown up potentiality rather than actuality. Our cross-sectoral study
by this research and other sources. First, there seems to has investigated a range of benefits and strikes a caution-
be strong evidence from developing countries of a pat- ary note for practitioners: expectations should be muted
tern of many more lower level than higher level capa- about what e-commerce can deliver for developing country
bility firms: not just from this research but also other firms. This must be particularly true of expectations about
studies in Brazil (Tigre, 2003), China (Tan & Ouyang, returns on e-commerce investments, given that costs of
2004), Malaysia (Le & Koh, 2002), and Mexico (Palacios, information systems implementation in developing coun-
2003). However, that is equally the pattern seen in indus- tries are higher than global averages (Heeks & Kenny,
trialized countries (Brousseau & Chaves, 2005; Kraemer 2002). This is not to suggest that practitioners—business
et al., 2002). Second, there is some discounting of any ef- staff, consultants, business advisors, even policymakers—
fect in the current research because the first two capability should turn against e-commerce. However, they do need to
categories—more than one-third of surveyed businesses— stay aware of its opportunity costs, and see it as one busi-
were excluded from statistical analysis. In turn, this anal- ness improvement initiative among a number of options,
ysis, while showing a pattern of higher benefits related to rather than as “the solution.”
higher capability levels, failed to identify this pattern as We hope, too, that we have provided a contribution for
statistically significant. researchers and to knowledge in the e-commerce litera-
All this at least suggests we might look for other ex- ture. At root, this has been an addition to a very limited
planations, and these have been offered within another data pool on e-commerce benefits in developing coun-
timeline concept: that of e-readiness. Here, the sugges- tries but it has also outlined a data-led categorization of
tion would be that businesses in developing countries reap those benefits into three core areas of impact, and an in-
comparatively fewer benefits from e-commerce because stance in which three factors—sector, size, even level of e-
they lag behind industrialized countries in contextual en- commerce capability—did not demonstrate a statistically
ablers such as technological infrastructure, human infras- significant relation to benefits.
tructure, institutional support, and legislative framework Of course, we must avoid being too sweeping in the
(Mansell, 2001; Patterson & Wilson, 2000). This may be a generalization of these results. They come from a survey of
more robust explanation but it lies beyond the scope of ev- mainly large firms in just one country that, as noted earlier,
idence in this article. We do, though, note one final point— is at best representative of only one tranche of developing
one cannot assume that it is simply a matter of time be- countries. Given the general lack of data on impact of e-
fore developing countries “catch up” in e-readiness terms commerce in those nations that are home to more than 80%
and, hence, in terms of e-commerce benefits. There are of the world’s population, we will end by a call for much
arguably structural features of globalization, of national more survey data on e-commerce in developing countries.
economies, and of business characteristics that maintain Such further research can focus on the extent of benefits
infrastructural inequalities and institutional and organiza- but also, as noted, on investigation of the antecedents of e-
tional differences that may serve to maintain the uneven commerce benefits in developing countries, including the
benefits pattern found in this article (Molla & Licker, 2005; key issue of whether or not current global inequalities are
Schech, 2002; Sutz, 1989). likely to be reduced.
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