An investigation of barriers to e-commerce for SMEs in Saudi Arabia
An investigation of barriers to e-commerce for SMEs in Saudi Arabia By Students Munirah Suliman Alakresh Masheal Ebrahim Alyahya Malak Abdulaziz Almesained College of Computer & Information Sciences, Prince Sultan University [email protected] Supervised by Ms. Fatima Khan and Dr. Tanzila Saba College of Computer & Information Sciences, Prince Sultan University 1 Abstract E-commerce has become a critical factor to transform most of the world countries into an information society. However, different studies analyzed the association between the perceptions of e-commerce adoption barriers in developing countries. This paper focuses on the main challenges facing the growth of e-commerce in SMEs in Saudi Arabia. Furthermore, a thorough investigation was carried out to find the barriers in SMEs' ecommerce adoption by exploring different factors such as: postal system suitability, banking system services, internet safety and customer’s culture upon the growth of e-commerce. In order to achieve the objectives of our study, questionnaire surveys have been distributed to forty business managers to get their opinion about e-commerce adoption in Saudi Arabia. The study showed many challenges that the managers are facing e.g. lack of technological skills, unavailability of Internet service at all places, and some other legal and technical issues. Suggestions are provided on the basis of these problems. Keywords: E-commerce, SMEs, Development, Challenges, Saudi Arabia. 2 Introduction E-commerce is becoming more and more used by many businesses all over the world. This is the result of the spread of the Internet and its applications in many fields such as education, health, entertainment, business, and many others. Many people all over the world are using the Internet for many purposes. For example, many adults who want to improve their careers enroll in long distance classes. So, universities started to use the Internet to provide education for such students. Businesses have started to establish themselves on the Internet to serve their customers. Many customers began to use the Internet for online shopping. Customers find it easier to do shopping online. Businesses as well find it more convenient to serve their customers on the Internet. On the part of businesses, business owners believe that there are many positive things in using the Internet: it is less expensive than traditional business, and they can serve more customers. Using the Internet is easier for big companies. Big companies have more skilled people, and they can use more money to invest in the E-commerce business. SMEs may not have the same potentials. So, SMEs may face some problems in using the Internet for e-commerce. However, using the Internet for online trading is not easy. There are many challenges. For example, is the Internet service available for all targeted customers? Are the technical skills to deal with e-commerce available? Is the e-commerce environment safe for people and the business? are there clear legal rules that control the e-commerce? Is the banking system supportive of the e-commerce business? How can these barriers be dealt with? E-commerce in KSA - An overview The Saudi Internet economy contributed SAR37 billion to the overall Saudi economy in 2010, representing 2.2 percent of GDP, and putting Saudi Arabia at 13th place amongst the G-20countries. This figure is projected to rise to SAR107 billion by 2016, representing 3.8 percent of GDP, according to a new report in The Boston Consulting Group’s Connected World series. It found that by 2016 the total size of the G-20 Internet economy will be $4.2 trillion, equivalent to 5.3 percent of GDP, up from $2.3 trillion or 4.1 percent in 2010. 3 Fig. 1 Source: Boston Consulting Group –The Internet Economy in the G-20 In 2010, the share of total retail carried out online in Saudi Arabia was 2.9 percent or $3 billion and is projected to reach 8.0 percent or $15 billion by 2016. Hildebrandt said: “This represents a dramatic increase and to put it into perspective, it would place Saudi Arabia at 5th position amongst the G-20 countries, following only UK, Germany, Australia and South Korea.”(Fig 2) Fig. 2 Source: Boston Consulting Group –The Internet Economy in the G-20 4 E-commerce benefits According to Sutanonpaiboon and Pearson (2006), e-commerce can become an important source of competitive advantage for most business organizations. It can be used to communicate virtually with an organization’s existing customers, gather strategic information about these individuals/businesses, and then personalize the organization’s transactions with these customers. With e-commerce, a company can bypass intermediaries in the value chain and deliver new or existing products and services without the costs that exist via traditional delivery methods. E-commerce can also provide convenience to the customers by allowing them to access information about products or services 24 hours a day, 7 days a week. This allows the company to develop a more direct relationship with customers. Pearson & Grandon (2005) believe that e-commerce reduces logistical problems and can put small businesses on a par with giants. E-commerce can reduce costs, offer quicker and better customer service, increase sales, reduce the time between the inception of an idea and its commercialization and minimize supply chain inefficiencies. Ecommerce barriers to SMEs in global perspective SMEs are facing many challenges in many countries. Migiro (2006) found that in Kenya, SMEs' barriers include: high prices of investment in e-commerce, Non-dominance of PC use, the low number of enterprises communicating through the Internet, customers and suppliers who are not e-commerce compliant, and too small business operations and transactions. MacGregor & Vrazalic (2006) summarized barriers facing SMEs adoption of e-commerce as shown in Figure 3. 5 Fig. 3 Business and Consumer-Level E-commerce Barriers in the Developing World (MacGregor & Vrazalic, 2006) Fig. 4 IBIMA BUSINESS REVIEW: Volume 4, 2012 SMEs in Saudi Arabia According to Al-Somali, Gholami & Clegg (2011) researchers use many measures to decide which companies are SMEs. For example, writers may use measures such as the number of employees and total turnover. On the other hand, the European Union (EU) has proposed a uniform definition that views SMEs as independent companies with fewer than 250 employees and with turnover of less than 50 million Euros (European Commission, 2005). 6 In the case of Saudi Arabia, small enterprises are those which employ between 10 and 25 workers and operate with capital ranging between 200,000 SR and 1 million SR. In contrast, medium-sized enterprises employ between 26 and 100 workers with operating capital ranging between 1 million SR and 5 million SR (Ministry of Economy and Planning, 2005). SMEs are important contributors to national economies and play a critical role in creating employment opportunities. For instance, in the USA, small businesses generate two-thirds of new jobs and produce 39% of the gross national product (GNP). Barriers to E-commerce in SMEs in Saudi Arabia In fact many studies investigated barriers to adopt e-commerce by SMEs in Saudi Arabia. For example, Al-Somali et al. (2011) found out that the level of e-commerce implementation in Saudi Arabia has yet to mature and customer readiness for Internet shopping must improve before e-commerce reaches the levels of maturity seen in other regions of the world. In fact studies to explore the barriers to e-commerce by SMEs in third world countries listed the following basic barriers: Fig. 5 Source: IBIMA BUSINESS REVIEW Research methodology To accomplish the main aim of the study, a survey questionnaire has been chosen as the primary research method for this study. This study targeted top managers of SMEs business from various industries in Riyadh including Sales and Accountant managers, restaurants’ owners, vice-presidents for administrative affairs and corporate governance department 7 managers. The questionnaire consists of 12 questions that cover the basic aspects of ecommerce. For example, whether mangers are in favor of e-commerce, how they rate the capability of the Internet in Saudi Arabia, the availability of legal rules that control ecommerce, how far the banking system is supportive of e-commerce, and whether more and more people are using the Internet for online shopping. Data were collected through the questionnaire and then analyzed to find conclusions. It is observed that results enable us to understand the real barriers facing SMEs in Saudi Arabia to adopt e-commerce. Then, some suggestions are recommended to meet these challenges. Results and analysis 1. 20 strongly agree and 30 agree with this stateent which means that majorty of the sample belive that the Internet is important to remain in business. In other words, 84% of the sample believe that establishing their business on the internet is important for their future success. 8 2. 27 strongle agree and 30 agree to this statement. This means that business on the Internet is less expensive. They also believe that doing business on the Internet is less expensive (80%). 3. 13 strongle agree and 40 agree to this statement . This means that 53 will consider that the number of people doing business on the Internet is increasing. 9 4. 6 strongle agree and 36 agree to this statement. Internet service in the Kingdom does not satisfy the people who answered the questionnaire. It might be that they compare it with international levels where the Internet service is faster and cheaper. 5. 10 strongly agree and 25 agree to this statement. 10 6. 3 strongly agree and 14 agree to this statement. There is also lack of marketing strategy that makes better use of the e-commerce potentials. 7. 3 strongly agree and 14 agree to this statement. This is to say that only 33% are in favor of the legal system. 11 8. 8 strongle agree and 33 agree to this statement. The banking system is yet to improve where only 66% agree that the banking system is supportive of the e-commerce. 9. 6 strongly agree and 27 agree to this statement . 12 10. 15 strongly agree and 28 agree to this statement . 11. 5 strongly agree and 41 agree to this statement . Businesses also believe that they can attract more customers (82%) . 13 12. 10 strongly agree and 26 agree to this statement Discussion The results indicated that there is a strong belief in the benefits of the E-commerce business. 84% of the sample believe that establishing their business on the Internet is important for their future success. They also believe that doing business on the Internet is less expensive (80%). Businesses also believe that they can attract more customers (82%). However, there are certain issues that may have negative effects on e-commerce. For example, only 33% are in favor of the legal system. There is also lack of marketing strategy that makes better use of the e-commerce potentials. Also, the banking system is yet to improve where only 66% agree that the banking system is supportive of the e-commerce. It is interesting to notice that the Internet service in the Kingdom does not satisfy the people who answered the questionnaire. It might be that they compare it with international levels where the Internet service is faster and cheaper. Conclusion We conclude that awareness of the importance of the e-commerce business in Saudi Arabia is good. People are aware that e-commerce is useful for businesses as well as customers. 14 However, e-commerce in Saudi Arabia is still facing certain challenges. The study indicates that people are not happy with the legal system that controls the e-commerce business for SMEs. Also, the banking system is not supportive for SMEs’ ecommerce applications. Quality of the Internet services is still poor in Saudi Arabia. Lastly, the absence of marketing strategy is felt to be an important issue that needs to be addressed by SMEs managers. Recommendations In the light of these results, these recommendations might help to meet the challenges and improve the e-commerce business for SMEs in Saudi Arabia: - Work with the Chamber of Commerce and other official departments to address the legal requirements of the e-business. - Work with national banks to develop and implement a plan to better serve customers. Bankers should be more than happy whenever they improve customers' experience. SMEs owners might make use of this to improve their cooperation with national banks. - Work with Saudi Telecom Company to improve Internet speed and access. It might be that e-commerce SMEs can get special offers with less cost. This might encourage customers and attract more customers to online shopping. - SMEs have to improve their marketing strategy. This might be achieved by using all available channels to reach prospect customers: e-mail, SMS messages, facebook and other social media to promote their e-businesses. - Investigate the possibility of the adoption of new e-commerce applications that provide more security and friendly-user interaction with these applications. - Investigate the environmental aspects of e-commerce and how far these environmental issues are taken care of within e-commerce activities. - Plan and implement cost-benefits analysis studies to determine whether the adoption of Ecommerce by SMEs is cost-effective. - Study how e-commerce adoption by SMEs is likely to contribute to the problem of unemployment in Saudi Arabia. 15 References Almoawi, A. N. & Mahmood, R. (2011). Applying the OTE Model in determining the Ecommerce adoption on SMEs in Saudi Arabia. Asian Journal of Business Management Sciences, 1 (7), 12-24. Almousa, M. (2011). 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Journal of Internet Commerce, 5(3), 53-82. 16 Appendix Survey Questionnaire on Barriers to e-commerce in small and medium sized enterprises in Saudi Arabia We as a group of researchers at the Prince Sultan University are surveying the barriers to ecommerce for SMEs in KSA. We will be grateful if you could kindly fill up this questionnaire. You are assured that all information will solely be used for academic purposes and will be treated confidentially. Please put a (check mark) wherever you think it accords with your point of view: Research statements To remain in the market, it is necessary to establish my business on the Internet. Trading on the Internet is less expensive than traditional trading. More and more people are doing their shopping online. The internet service in Saudi Arabia is available for most customers. Customers find it easier to do shopping online. The marketing strategy is enough to promote yourself in Saudi Arabia. In Saudi Arabia, there are clear legal rules that control doing business on the Internet. In Saudi Arabia, the banking system is strong enough to support safe online trading. The e-commerce service is easy to use and maintain. Customers prefer online shopping with international companies. Strongly disagree 5 disagree Neutral 2 8 30 Strongly agree 20 3 3 12 30 27 2 2 8 40 13 3 12 8 36 6 0 8 12 30 15 3 12 29 18 3 5 12 29 13 6 4 8 12 33 8 0 4 15 40 6 2 3 8 40 12 17 Agree More customers are attracted to your products via internet advertisement. E-commerce makes it easy to keep your customer’s loyalty for your product. 2 4 13 41 5 1 4 15 36 9 18
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