Proceedings of the International Symposium on Emerging Trends in Social Science Research
(IS15Chennai Symposium) ISBN: 978-1-941505-23-6
Chennai-India, 3-5 April 2015 Paper ID: CF523
Information Technology and Competitiveness:
The Mexico’s SMEs Context
Gonzalo Maldonado Guzman,
Faculty of Management and Economics Science,
Autonomous University of Aguascalientes, Mexico.
E-mail: [email protected]
Gabriela Citlalli Lopez Torres,
Faculty of Management and Economics Science,
Autonomous University of Aguascalientes, Mexico.
E-mail: [email protected]
Maria del Carmen Martinez Serna,
Faculty of Management and Economics Science,
Autonomous University of Aguascalientes, Mexico.
E-mail: [email protected]
Salomon Montejano Garcia,
Faculty of Management and Economics Science,
Autonomous University of Aguascalientes, Mexico.
E-mail: [email protected]
______________________________________________________________________________
Abstract
In order to survive a highly competitive market, small and medium-sized enterprises (SMEs) must
use information technologies (IT) more efficiently than large companies, since this will allow
them to be more competitive. However, increasing competitiveness depends on the skills the firms
possess, in order to implement the IT to their organizational strategy as well as how efficiently
they’re managed. In this study, we analysed the influence of IT on competitiveness skills of 400
SMEs from the state of Aguascalientes, Mexico. The results show a positive influence on both
global competitiveness and each one of the three discussed factors, which is why it can be
inferred that the usage of IT at the core of SMEs may constitute a competitive advantage.
______________________________________________________________________________
Key words: Information Technology, Competitiveness, SMEs
JEL Classification: C 19, G13, G 14
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Proceedings of the International Symposium on Emerging Trends in Social Science Research
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1. Introduction
In a highly changing business environment, as prevails in most countries, all organizations,
aside from sector or size; seek to survive (winter et al., 2009). For that, firm’s need to design and
implement new strategies, and IT is at its peak (Reddy, 2006). However, the bigger firms are the
ones using these strategies since they have better resources (Wainwright et al., 2005), and within
SMEs, a series of barriers have been identified, preventing them from adopting IT as an
organizational strategy (Parke & Castleman, 2007).
In this context, Grosh and Somolekae (1996) identified a series of barriers that prevent SMEs
from adopting IT and from growing. Among those barriers, they found the limited access to
capital, manager’s educational level, and financial and legal barriers. Also, Duncombe and Heeks
(2003), consider that IT may improve information capacity and business knowledge, which are
essential for social and organizational development. However, these authors also think that SMEs
have non-reliable information and networks of low quality, which makes it hard to generate and
diffuse relevant information.
On the other hand, Piscitello and Sgobbi (2004) consider that the biggest barrier when
adopting IT is not the firm’s size, but knowing the processes to implement them within the
organization, and Internet access. Also, these researchers concluded that SMEs need to make
major changes in order to implement IT; plus, these changes must improve the business model so
that using IT will improve the competitiveness rate. Hence, IT represents an elemental condition
to reduce costs and increase organizational benefits (Duncombe & Heeks, 2003; Southwood,
2004; Matthews, 2007).
Even though SMEs are quite important to any country’s economy, especially developing
countries, there are very few studies published on specialized journals, analysing the importance
of IT for SMEs’ essential aspects (Bharati & Chaudhury, 2009). As evidence of the above
mentioned, in the last six years (Street & Meister, 2004), only one article has been published
among the United States’ biggest specialized magazines: MISQ, ISR, and JMIS. This happens
even when SMEs are very important to the U.S. economy.
In this context, is necessary that researchers, academics, and professionals, work harder on
studies analysing the relationship between IT and SMEs’ competitiveness in developing countries
(Bharati & Chaudhury, 2009). This is the reason why, following Bharati and Chaudhury’s (2009)
recommendations, the important contribution of this paper is the presentation of an analysis’s
results on the influence of IT on a developing country’s SMEs’ competitiveness, through the
usage of structural equations as the methodology.
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Proceedings of the International Symposium on Emerging Trends in Social Science Research
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Chennai-India, 3-5 April 2015 Paper ID: CF523
2. Literature Review
The relationship between IT and competitive advantages was first analysed by McFarlan and
McKenney (1983). They suggested that through IT use, firms would achieve major impacts on
their internal development, which can be considered as an alternative to improve their
competitiveness. As such, IT might add a certain economic value to an enterprise by means of
cost reduction and the differentiation of their products (McFarlan, 1984; Bakos & Treacy, 1986;
Wiseman, 1988), which may provide an organizational competitive advantage at a certain point
(Porter & Millar, 1985).
Given that the market changes so rapidly, just like consumers’ expectations and technology, a
company’s newly acquired competitive advantages have a very short life span (Qureshi et al.,
2008). Therefore, Mata et al. (1995) concluded that IT not only brings along competitive
advantages, but can also maintain and, in certain cases, increase the advantages. Also, these
authors emphasised that resources and firm-based capacities provide a set of key competencies
(Clemons, 1991; Barney, 1991), which can substantially improve cost reduction and product
differentiation strategies. This will eventually create organizational value and increase and sustain
a company’s competitive advantages.
In this sense, Mata et al. (1995) also used the resource’s model based on the perspective of
the firm, in order to explain competitive advantages maintenance, from two notions. The first one
regards the heterogeneity of the resources that companies use to compete with each other, which
vary according to their resources and capacities. The second one concept regards resources that
might make a difference among the enterprises competing with each other. Hence, authors
concluded that this model may be applied in order to attain a better access to capital for all ITrelated purposes (McFarlan, 1984), such as technical issues (Copeland & McKenney, 1988) and
IT skills (Capon & Glazer, 1987), which can be understood as maintaining organizational
competitive advantages.
There is empirical evidence suggesting that the use of IT plays a very important role for
SMEs’ development and growth (Sullivan, 1985; Raymond et al., 2005; Qiang et al., 2006;
Matthews, 2007). This indicates that when SMEs adopt IT, the competitiveness rate increases by
increasing productivity and sales, as well as access to new markets and more firm’s efficiency
(Qureshi, 2005; Matthews, 2007). Likewise, Duncombe and Heeks (2003) concluded that IT
might serve as an intermediary between market information needs and clients and suppliers,
which might substantially improve an organization’s functioning.
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On one hand, IT usage requires a series of changes in developed and developing countries in
order to obtain the expected results (Honig, 1998; Hyman & Dearden, 1998; Lichtenstein &
Lyons, 2001; Sanders, 2002; Schreiner & Woller, 2003; Piscitello & Sgobbi, 2004). Particularly,
the most important change to be done, especially in developing countries such as Mexico, is to
improve Internet access in SMEs, in order to face the changes and globalization of market
(Piscitello & Sgobbi, 2004).
And even doing the above mentioned, SMEs generally have trouble adopting IT given the
greater competitive pressure they have, and the fact that they have not really understood its
benefits IT brings to a firm (Riemenschneider et al., 2003). Aside from facilitating
competitiveness rate improvement, IT is directly related to other benefits for the organization,
such as costs reduction, potential market analysis, and searching for new business opportunity
(Grandon & Pearson, 2004; OECD, 2004; Beck et al., 2005; Fink & Disterer, 2006).
On the other hand, SMEs additionally require major changes in order to diagnose and
intervene through IT processes (Wolcott et al., 2007; Qureshi et al., 2008); this means that in
order to acquire or improve competitive advantages through IT adoptions, organizations must
perform changes in two fields. First, basic operations support must be improved, as well as other
processes, like marketing activities (Blili & Raymond, 1993; Levy & Powell, 1998; Foong, 1999;
Poon & Swatman, 1999).
Second, IT must be used to improve organization-client relationships given that SMEs
regularly have influence on consumer’s likes and needs (Qureshi et al., 2008). Also, most SMEs
depend on a limited number of clients that purchase considerable amounts of goods and services;
therefore, clients exercise a very strong influence on goods’ prices (Reid & Jacobsen, 1988).
Thus, in order to improve organization-client relationships, SMEs must rapidly respond to
changes required by their clients.
Levy et al. (2001) designed an analytical model in which these two key elements for IT
adoption are incorporated; they called it Domain-focused model. This model examines the
potential of SMEs to create value through their capabilities, investment in IT and market
strategies. Likewise, this model provides four different results, product of incorporating IT, costs
reduction and client domain. First, we have the efficiency quadrant, which considers that SMEs
can exploit their IT as a simple text processor or as an accounting process (Naylor & Williams,
1994).
The second quadrant is the coordination, which regards SMEs’ needs to increase their market
participation and increasing the number of clients. The third quadrant is cooperation and it is
related to SMEs’ requirements to implement IT within their processes, so that it will improve
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Proceedings of the International Symposium on Emerging Trends in Social Science Research
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Chennai-India, 3-5 April 2015 Paper ID: CF523
business relationships with their customers and, at the same time, increase significantly the
number of clients and consumers via this improvement. Lastly, innovation is the fourth quadrant
which consists of all of SMEs’ requirements to adopt systems of information and implementing
IT that will help them obtain greater competitive advantages.
In the second phase, Levy et al. (2002) applied their model in 43 other SMEs in order to
figure out how these companies could increase their competitiveness by adopting IT. The
resulting data demonstrated that those SMEs that implemented IT along with costs reduction and
improved company-client relationships generated unique consequences that improved their
position and competitive advantages. These results give us empirical evidence of the existing
relationship between IT and competitiveness rate; they are also a great indicator of the importance
and effectiveness of both the resource-based model and the domain-based model (Qureshi et al.,
2008).
There are also several other studies that show the tight relationship between IT and
competitiveness, as is the case of Lefebvre and Lefebvre’s (1993) study, which demonstrated the
close relationship between IT, innovation and competitiveness within SMEs. Levy and Powell
(1998), Quale (2002), Quale and Christiansen (2004), and Beckinsale et al. (2006) who identified
the fact that using the Internet, reduces operational costs, improves customer service significantly,
provide market skills, increases relationships with partners, and brings about more competitive
advantages.
Tse and Soufani (2003) considered that IT substantially improves customer service and
response time, reduces management costs, and improves competitive advantages, while Mehrtens
et al. (2001) concluded that IT provides better business relationships and marketing skills,
meaning more competitive advantages. Likewise, Levy et al. (2005) also concluded that adopting
IT provides a direct strategy that allows SMEs to create new products and markets and so
improving their competitive advantages.
Finally, there is a wide consensus among several researchers who think that adopting IT
improves internal and external exchange of information (Sanders & Premus, 2005), which
generates a positive impact on an organization’s performance (Bharadwaj, 2000; Kearns &
Lederer, 2003), generates more competitiveness (Ives & Jarvenpaa, 1991; Earl, 1993; Kathuria et
al., 1999), and provides a superior competitive capacity (Kathuria et al., 1999). Now we can
present a hypothesis regarding the existing relationship between IT and the competitiveness rate.
H1: Higher adoption of IT, higher level of competitiveness
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Proceedings of the International Symposium on Emerging Trends in Social Science Research
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3. Methodology
In order to respond to the upper mentioned hypothesis, an empirical study was carried out on
Aguascalientes’s (Mexico) SMEs, based on 2010’s Business Directory from Mexico’s Business
System of Information, corresponding to the Aguascalientes state, which had 7,361 registered
companies in June. For this study, only those companies with 5 to 250 workers were taken into
account, which reduced the sample population to 1,322 firms. Also, the sample was selected
through a random sampling of 400 organizations with an error margin of ± 4.5% and 95% of
reliability, applying surveys from January to March 2011.
Lastly, the survey was applied to managers or owners through personal interview on the 400
selected firms; out of those, 54 were eliminated because they did not meet the minimum quality
requirements (lack of information, survey loss, etc.) obtaining 346 valid surveys with response
rate of 87%. The definitive survey obtained information about IT use and the competitiveness rate
obtained during the last two years.
Regarding IT measurement, literature presents different ways and groups of items for its
measurement. However, it is important to take into account its definition before its measurement,
since item usage depends on it (Sanders & Premus, 2005). As such, for this study was considered
the definition of TI provided by Grover and Malhotra (1999) who defined IT as “using
technology to acquire process and transmit information to make decision taking more efficient”.
So, for this paper’s IT measurement, a 7-item scale was used. It was adapted from Kent and
Mentzer (2003), and Sanders and Premus (2005). It was measured with a 5-point Likert scale
with 1= completely disagree and 5= completely agree as limits. Also, for measuring
competitiveness in this study, the 3 factors proposed by Buckley et al. (1988) were used:
financial performance, cost reduction and use of technology, and a 6-item Likert scale was used
on each factor with 1= completely disagree and 5= completely agree as limits.
As a previous step to result analysis, a validity and reliability analysis was carried out on IT
and competitiveness. For this purpose, the Confirmatory Factorial Analysis (CFA) and the
maximum Likelihood methods were used (Bentler, 2005; Brown, 2006; Byrne, 2006). Likewise
ITs and competitiveness’s scale’s reliability was tested using Cronbach’s alpha coefficient and
the Composite Reliability Index (CRI) (Bagozzi & Yi, 1988), obtaining values superior to 0.70
for both coefficients, which indicates that there is enough reliability and justifies the reliability
within each scale (Nunally & Bernstein, 1994; Hair et al., 1995).
The results obtained after applying the CFA are shown in Table 1 and they demonstrate that
there was an appropriate adjustment of the theoretical model (S-BX2 = 741.804; df = 246; p =
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0.000; NFI = 0.894; NNFI = 0.909; CFI = 0.919; RMSEA = 0.076). Likewise, as evidence of the
theoretical model’s convergent validity, the results show that every item of the factors taken into
account are significant (p < 0.01), and the size of all the standardized factorial charges of all the
items is superior to 0.60 as recommended by Bagozzi and Yi (1988).
Table 1: Theoretical model’s convergent validity and internal consistency
Load
Robust t- Cronbach's
Variable
Indicator
CRI
Factor
Value
alpha
Information
Technologies
Financial Performance
Cost Reduction
Use of Technology
IT1
0.767***
1.000a
IT2
0.736***
18.635
IT3
0.718***
18.438
IT4
0.756***
16.016
IT5
0.839***
20.114
IT6
0.885***
22.130
IT7
0.856***
19.523
FP1
0.910***
1.000a
FP2
0.923***
30.859
FP3
0.906***
29.266
FP4
0.869***
24.168
FP5
0.786***
18.866
FP6
0.698***
15.149
PC1
0.890***
1.000a
PC2
0.870***
28.827
PC3
0.896***
26.562
PC4
0.872***
23.804
PC6
0.641***
11.491
TE1
0.868***
1.000a
TE2
0.909***
23.708
TE3
0.917***
24.155
TE4
0.910***
25.119
TE5
0.855***
20.772
TE6
0.888***
23.038
AVE
0.925
0.923
0.634
0.937
0.941
0.727
0.916
0.922
0.706
0.958
0.959
0.795
S-BX2 (df = 246) = 741.804; p < 0.000; NFI = 0.894; NNFI = 0.909; CFI = 0.919; RMSEA = 0.076
a
= Parameters constrained to that value in the identification process.
*** = p < 0.01
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Table 1 indicate that there is an excellent internal consistency on the factors given that, on
one hand, Cronbach’s alpha is superior to 0.70 as recommended by Nunnally and Bernstein
(1994), and on the other hand, the IFC value is superior to 0.60 as recommended by Bagozzi and
Yi (1988). Also, the Average Variance Extracted (AVE) was calculated for each pair of factors,
obtaining an AVE superior to 0.50 as recommended by Fornell and Larcker (1981).
Regarding discriminant validity, Table 2 displays in the lower matrix a 95% reliability
interval none of the latent factors of the correlation matrix have the 1.0 value (Anderson &
Gerbing, 1988), and on the upper matrix, the extracted variance among each pair of factors is
superior to their corresponding variance (Fornell & Larcker, 1981). Therefore, taking into
account the previous results, it can be concluded that the measurements performed on IT and
competitiveness provide enough evidence to determine that there is enough convergent and
discriminant reliability and validity.
Table 2: Theoretical model discriminant validity measurement
Variables
1.
Information Technologies
2.
Financial Performance
3.
Cost Reduction
4.
Use of Technology
1
2
3
4
0.634
0.137
0.135
0.121
0.274 - 0.466
0.727
0.228
0.194
0.272 - 0.464
0.369 - 0.589
0.706
0.108
0.228 - 0.468
0.317 - 0.565
0.208 - 0.448
0.795
The diagonal represents the average variance extracted (AVE), whereas above the diagonal
part of the variance is displayed (squared correlation). Below the diagonal the estimate of factors
in presented with a 95% confidence interval.
4. Results and Discussion
In order to contrast this study’s hypothesis and confirm the theoretical model’s structure, a
structural equations model was used, using IT and the factors that measure competitiveness. Like
that, the nomological model validity was analysed using the Chi-squared test, which consisted of
comparing the theoretical model to the measuring model. The obtained results show that the
model’s non-significant differences are a good explanation for the observed relationships between
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the latent constructs (Anderson & Gerbing, 1988; Hatcher, 1994). The Table 3 indicates this
information.
Hypothesis
Table 3: Results of the model’s hypothesis test
Standarized
Structural Relationship
Coeficient
Robust
t-Value
H1: Higher adoption of IT,
higher level of
Information T. → Competitiveness
0.787***
10.485
competitiveness.
S-BX2 (df = 241) = 664.838; p < 0.000; NFI = 0.896; NNFI = 0.921; CFI = 0.931; RMSEA = 0.071
*** = P < 0.01
Regarding the first hypothesis, the results displayed in Table 3 (β = 0.831, p < 0.01) indicate
that IT has a positive significant effect on SMEs’ competitiveness. However, it may be concluded
that there is a very close relationship between IT and SMEs’ competitiveness located in
Aguascalientes, Mexico.
5. Conclusions and Recommendations
This study suggests that those SMEs that have adopted IT have a broad potential for
economic
growth and development, given
that implementing IT
increases
SMEs’
competitiveness, which means higher firm growth and development. Hence, in order for SMEs to
improve their competitiveness skills, they must take into account, as an firm strategy, adopting IT
and using it efficiently so that they are not under-used, but used at their maximum capacity to
improve all areas of the organization.
On the other hand, not only must SMEs adopt IT, but all barriers and obstacles that prevent
SMEs from adopting them must be eliminated; this means that all managers and businessmen
must be prepared to include IT in the company’s management and decision making, look for the
firm to participate in public or private programmes that finance IT adoption, seek legal advice in
order to eliminate all legal barriers regarding software use, train the staff so that they will use IT
properly, and acquire internet access in order to improve customer service and efficiency, and
generate their own data bases.
In this sense, those SMEs that perform all the changes necessary for IT adoption will have
greater chances of improving their competitiveness than those that do not. Therefore, it is
confirmed that IT represent a key element which must be incorporated into all firms strategies,
especially SMEs since IT represent a unique opportunity to improve all competitive advantages,
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market position, customer service and increase market participation, competitiveness, and like
that strengthen their innovation capacity.
Likewise, SMEs need to acquire and improve their abilities on IT use; since this is necessary
to improve all organizational processes; they are also a support in improving competitiveness and
expanding into new markets. There are very few SMEs those posses the necessary skills for IT
use, which is why the companies that do have them will have more competitive advantages
compared to other SMEs, such as organizational growth and improved competitiveness.
Under this context, SMEs must have access to the Internet, since according to Piscitello and
Sgobbi (2004), this is one of the greatest barriers to be eliminated, and if this is done, SMEs will
have a very powerful tool that will facilitate their product’s displacement to a bigger number of
consumers. Also, internet access will allow SMEs to expand into new rapidly changing markets
and personalise their products, since nowadays consumers are looking for more personalised
products and SMEs have the quality to make quick changes on their production process in order
to adapt their products to consumers’ needs and preferences.
In this sense, this paper’s results are of great importance for researchers, academics,
government authorities, business associations, consultants, etc. First of all, they are important to
researchers and academics because they contribute empirical evidence of the existing relationship
between IT and SMEs’ competitiveness rates in a developing country; plus, it opens up a
theoretical debate about the existing relationship between these two constructs. Second, they are
relevant to our country’s government authorities since the results provide efficacious and timely
information about IT current situation within SMEs, with which authorities will have enough
information in order to design policies and programmes that will tend to adopt and improve IT
usage among SMEs, not only at Aguascalientes, but throughout the entire country.
Third, these results are relevant to business associations given that, on one hand, with this
information, sectorial strategies may be focused on IT adoption in order to significantly improve
SMEs’ competitiveness rates and, on the other hand, to design training programmes for both
managers and administrative personnel, so that the maximum benefit from the acquired
technology can be obtained. Fourth, it is important for consultants because a general outlook of
SMEs’ current situation regarding IT and competitiveness at Aguascalientes is presented, with
which consultants will be able to design attention programmes regarding the efficient use of IT.
These data present transcendental importance for business studies scholars since this study
presents information about the situation Aguascalientes SMEs are currently going through
regarding IT usage. Hence, with this information, researches can deepen into the existing
relationship between IT and competitiveness and even into the discussion about the obtained
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results when measuring competitiveness rates through financial performance, costs reduction, and
technology use, with which it will be able to analyse in more detail the advantages and
disadvantages that represent the implementation and usage of IT within Aguascalientes’s SMEs.
Finally, this paper has a series of limitations. One of them is the size of the sample, since only
SMEs with 5 to 250 workers were taken into account, which will diminish for future studies as
long as all SMEs (1 to 250 workers) are taken into account. Another limitation was obtaining the
information, since only part of it was extracted regarding IT usage and management and
competitiveness. Also, it is important to point out that most of the sampled SMEs regard the
required information as confidential, which is why the collected data do not necessarily reflect
SMEs’ reality.
Additionally, only managers or owners were surveyed because we assumed that they have
certain knowledge regarding IT variables and competitiveness. It would be interesting to replicate
this study with suppliers, clients, and consumers in order to find out their opinion on this matter.
Also, for future studies, it would be important to go even further from this paper’s results and
discuss issues such as what kind of IT is the most related to SMEs’ competitiveness? What size is
the company that has adopted and applied IT the most? Are there any significant differences
according to the company’s size and the relationship between IT and competitiveness rate in
SMEs? These and other questions that might arise may be answered in future research.
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