The Strategic Implication of Electronic Commerce for Small and Medium Sized Enterprises

Article excerpt

The objective of this paper is to examine the strategic implication of electronic commerce for small and medium sized enterprises. This paper explores how electronic commerce has the potential to transform the marketplace by changing firms' business models, by shaping relationships, and by contributing to changes in the market structure. Thus, by changing firms' competitive advantages and the nature of the firms' competition, electronic commerce may have strategic implications for small and medium sized enterprises. From the research undertaken, the paper draws conclusions on the interviewees understanding of how electronic commerce fits into the broader context of their business and its strategy


Electronic commerce has the potential to accelerate existing trends and introduce new ways of conducting business, co-ordinating work and interacting in society. Accepting that e-commerce has the capacity to transform the marketplace by changing firms business models, by shaping relationships, and by contributing to changes in the market structure, then e-commerce may also change firms' competitive advantages and the nature of the firms' competition. Given the nature of these process, the impact of e-commerce for small to medium size enterprises (SMEs) may have strategic implications. With the explosion in Internet use, now SMEs can be potential users of e-commerce. For them, business communications often are easier with email, website serving as brochures can be used to build brand awareness, and online catalogues can be used for distribution.

When e-commerce is still so new, can anyone really be sure what it is, and what a company needs to do to succeed at it? With the pace of change, one thing is clear: once an enterprise starts to put an e-commerce strategy into effect, they will be moving at speed. A common issue with e-commerce is that many companies do not carefully formulate their e-commerce strategy. They may believe that they should have a website, but they do not have a specific goal for the site and what it should achieve and what they want to do with it. A popular perspective is to launch a website and see what transpires (Kalakota and Whinston, 1997). Since, for many the Internet is viewed as revolutionary. Companies frequently fail to examine sufficiently the numbers to build a business case for website development. The elements of compelling business case vary, but could contain the goals of cost reduction, switching customer behaviour from one channel to a lower cost one, increased customer retention, acquisition of new customers, and increased value-added transactions (Mougayer, 1998; Watson et al., 1998).

It is important that a company understands how e-commerce fits into the broader context of the business and its strategy. The primary question for a company to ask itself is whether the Internet is strategic to their core business or whether it is a new business for them. If this question is neither posed nor answered, the outcome may be a situation where either the wrong strategic path is chosen or there is substantial under investment. Since the company's core business is affected by the annual growth rate of the market and the market share of the company, e-commerce has to be evaluated in terms of how its adoption can enhance the current position of the company.

For example, decisions made by enterprise may be seen as tactical instead of strategic. Many companies have established attractive websites, and allowed customers to use them for electronic ordering, or perhaps they used the Internet to offer services. That tactic has succeeded to the extent that the system works and the customers like it, but there is not necessarily a sustainable competitive advantage. According to Hoffman and Novak (1996) these tactics are the more obvious ways of employing the new technology just as automating payroll was an obvious use of computer technology some decades ago. It was not until later that our vision expanded to embrace notions that the computer can be a strategic weapon, an electronic postal system, and so forth. …