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.
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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.
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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
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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.
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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).
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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
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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.
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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.
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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.
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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.
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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.
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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.
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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). Profiling E-buyers in Saudi Arabia: Demo graphic, experiential, and
attitudinal factors. Cross- Cultural Communication, 7(2), 92- 100.
Alsharif, M. (2011). E-Commerce adoption factors and their implications for E-Commerce
business strategy in Saudi Arabia. Master's Thesis submitted to Simon Fraser University.
Retrieved from: http://summit.sfu.ca/item/13024.
Al-Somali, S. A., Gholami, R. & Clegg, B. (2011). An Investigation into the adoption of
Electronic Commerce among Saudi Arabian SMEs. Journal of Electronic Commerce in
Organizations, 9 (2), 41-65.
Hunaiti, Z., Masa'deh, R., Mansour, M. & Al-Nawafleh, A. (2009). Electronic Commerce
adoption barriers in Small and Medium-sized Enterprizes (SMEs) in developing
countries: The case of Libya. IBIMA Business Review, 2, 37-45.
MacGregor, R. C. & Vrazalic, L. (2006). The effect of small business clusters in prioritising
barriers to E-commerce adoption in regional SMEs. Journal of New Business Ideas and
Trends, 4(1), 24-44.
Migiro, S.O. (2006).Diffusion of ICTs and E-commerce adoption in manufacturing SMEs in
Kenya. Journal of Libraries & Information Science, 72( 1), 35-44.
Ndyali, L. (2013). Adaptation and barriers of E-commerce in Tanzania Small and Medium
Enterprises. Developing Country Studies, 3 (4), 100 - 105.
Orloff, A.K.B. (2012). E-commerce in Saudi Arabia: Driving the evolution, adoption and
growth of E-commerce in the retail industry. Sacha Orloff Consulting Group. Retrieved
from https://sachaorloff.files.wordpress.com/2012/06/e_commerce-in-saudiarabia_driving_the_evolution_adaptation_and_growth_of_ecommerce_in_the_retail_ind
ustry_socg_2012june1.pdf.
Pearson, J. M. & Grandon, E. E. (2005).An empirical study of factors that influence ECommerce adoption/non-adoption in small and medium sized businesses. Journal of
Internet Commerce, 4(4), 1-21.
Sutanonpaiboon, J. & Pearson, A. M. ( 2006).E-Commerce adoption: Perceptions of
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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