The Application of E-Commerce among Malaysian Small Medium Enterprises

Posted: October 31, 2010 by rajaainul in Issues

Prepared By:

RAJA AINUL BISMI BT RAJA ABD HADI (2009212344)

Introduction

The article is about understanding of E-commerce Application among the SMEs in Malaysia. Moving in line with the general assumption of world business community it is agreed that e-commerce application is highly relevant for the survival and meeting the challenges of borderless economy. At the same time, the process of acquiring knowledge and understanding the environment, coping with changes, and speeding up the business decision, able to further enhance the competitive advantage of the SMEs. Marketing, logistic, procurement, security and government policy have been identified as indicators to demonstrate its usefulness towards motivating SMEs to adopt ecommerce. Selected indicators were significant towards enhancing the application of e-commerce and thus maintaining competitive advantage in the industry.

E-Commerce

The emergence of e-commerce is creating fundamental changes to the way that business is conducted. Customer can shop around comprehensively at their leisure anywhere, at any time and always enjoy the same level of services at virtually no costs. Apparently, with paperless transaction, buyers are no longer required to fill in order forms or visit a business premise to place their order. Everything can be done electronically at buyers’ convenience. Even though SMEs might have a difficulty to develop a sophisticated web due to lack of expertise and fund, but they still need ecommerce to prosper and for on-going survival.

Numerous people and organizations interpret Electronic Commerce or E-commerce in typical ways. The term “e-commerce” emerged when businesses started to realize the role of Internet as a powerful medium for conducting business especially in the service sector as it is able to improve customer-supplier relationship. E-commerce is the flow of process which is purchasing, marketing, sales and customer support that is mainly associated with a commercial relationship or transaction over the internet. E-commerce as all about time cycle, speed, and globalization, enhanced productivity, reaching new customers and sharing knowledge across institution, through digitally enabled transaction across boundaries in return for products and services.

E-commerce evolved in various means of relationship within the business circle. It can be in the form of Business to Customer (B2C), Business to Business (B2B), Business in Business (BIB) and lastly Customer to Customer (C2C). Generally, B2B which is between organizations formed the bulk of the e-commerce activities. Although e-commerce implies information between businesses, the technology is equally applicable between business and consumers and indeed between consumers themselves. As such, the significant role of internet as the main tool in ecommerce is becoming more relevant as it also act as a distribution channel on top of involving with the task of the traditional intermediaries.

Statistic revealed by Multimedia Development Corporation (MDEC) indicates the penetration rate of e-commerce in Malaysia which is substantially increased by year provides a huge potential for SMEs to adopt e-commerce in their business. This rate is expected to constantly growing up at substantial rate from year to year. In electronic markets, the principal participants – transaction handlers, buyers, brokers, and sellers are at different locations and even not knowing each other. Some people think that the implementation of e-commerce found to be both costly and cumbersome.

However, in reality it driving down cost factors and able to improve performance which offers opportunities to achieve competitive advantage through product differentiation with particular reference to branding and pricing. Other than that, it provide better avenues for enhancing cooperation between trading parties beside shortening the time in marketing the products or services.

SMES and E-Commerce

In order to survive in today’s challenging environment, it is vital that SMEs be competitive and resilient. Towards this end, SMEs need to continuously strengthen their capacity and capability to produce high quality products and services at competitive prices. Previous studies conducted among Malaysian Bumiputera SMEs indicated that they were weak in product, promotion, and distribution innovation which therefore reflecting the poor performance of the SMEs. In Malaysia, the most widely adopted definition usually those as been defined by SMIDEC (Small and Medium Development Corporation) and BNM (Bank Negara Malaysia) whereby SMEs can be grouped into three categories. Micro, Small, or Medium. These groupings are decided based on either the numbers of people a business employs or on the total sales revenue generated by a business in a year.

SMEs are major employers in the labor market. According to Bank Negara Malaysia, they provided greater flexibility in employment terms whereby 76.5% of total SME workers were hired on a full-time basis. Majority of the SMEs in Malaysia prefer to be involved in retailing, agriculture, restaurants, canteen and cafeteria, handicrafts, tailoring, small-scale manufacturing, beauty saloon, direct selling, and door-to-door business. This type of businesses largely to be less-capital intensive and requires personal communication with the customers. As such, the application of e-commerce therefore found to be less desirable.

The application of E-commerce in Malaysia even though is encouraging, but it is still at its infant stage.

Most of the Malaysian SMEs are still left behind in terms of using internet in their business transaction. One way to promote the application is by speeding the usage among the local MSC status companies which act as the centerpiece of the national IT strategy. Despite of the promotion most of the MSC status companies found to be using the internet for conservative task such as for communication and information gathering purposes. Previous study on the SMEs, indicated the low usage of the application in most business sectors. Similar trend prevailed even for those who had been in operation with the novice status or already established.

Conclusion

According to the survey, the result indicated that the strongest factor contributes to the application of e-commerce among the SMEs is logistics. When SMEs adopted e-commerce in their transaction, they indirectly removed partly the need for intermediary distribution channels while at the same time extending the distribution across the globe. These intermediaries were no longer needed because monopoly on information that they currently hold will no longer be meaningful due to the universal access connectivity. Logistics in e-commerce is much easier because location choice is more flexible, permitting the use of lower cost that would not have been considered otherwise. With the accessibility, the online transaction had provided them with easy, simple and efficient framework to satisfy the customers where everything is at the fingertips which greatly reduced time and cost element in the transaction. Procurement relative important become less desirable when other elements involved in the business transaction.

The relationship between marketing practices and the application of e-commerce found to be similarly importance. With all the opportunities available through e-commerce, several benefits in enhancing the best marketing practices sound to be achievable. With the internet access, SMEs agreed that online business transaction had provided them with easy, simple and efficient framework to satisfy the customers.

The need to enhance internet marketing activities is another strategy for moving forward. Through the internet marketing it can increase or enhance company exposure, improve customer service, market new products or services, add value to existing products or services, create one-to-one relationships with customers, and many other possibilities could be added to the list. If SMEs are serious enough to adopt e-commerce, effort should be done to establish an internet marketing budget. No doubt preparing a budget for this purpose can be a daunting task and entail significant technological cost but effort taken in the long-run may prove worthwhile.

According to the survey, it has been identified that government policy is the obstacle factor for SMEs to adopt e-commerce. With more efforts put by the government to create interest of SMEs in ecommerce application, the lesser were their involvement. Efforts were taken by the government urging the local SMEs not to wait long to adopt e-commerce. Otherwise they will lose out to their competitors who have already use online business. As an example, for the year 2000, the government launched a RM20 million e-commerce grant in its effort to encourage local SMEs to adopt e-commerce culture in their business. The effort also intended to help quickly integrating themselves into the mainstream of the ICT. In fact in another attempt SMIDEC was directed to finance e-commerce activities through a provision of RM 10,000 or 70% grant per SMEs, whichever is lower to cover e-commerce related activities.

Attempting to address the issue of security, cyber laws governing computers and information processing were further reviewed. But until today it is reported that the number of legislation passed through were still very few. In fact those that do exist are subject to a variety of interpretation. Only how are lawmakers beginning to recognize the impact of computers, then only its role will be seriously addressed.

Recommendations

The level of application e-commerce among SMEs is still at its infancy. SMEs need to be convinced rather than coerced into getting their business online. Followings are initiatives suggested to enhance ecommerce application such as conducting seminars and conferences. SMEs were usually not aware about these because of poor promotions and publicity. And even if they were aware, only a limited number of SMEs can join in because of high charges imposed. It is suggested that such programs are to be conducted at open public places which will be much cheaper and easily accessible to them rather ten at hotels or exhibition centers.

Besides that SMEs also could get involved in mentor-mentee programs. Usually these SMEs have no people to guide them particularly in adopting e-commerce. It is suggested that companies with successful track record of e-commerce applications to assist other businesses in adopting e-commerce. SMIDEC can play the role of a mediator or advisor to this program.

In addition awareness campaign and motivation also could assist these SMEs in utilization of e-commerce. Awareness of e-commerce among SMEs was moderate. So awareness campaign and motivational activities, technical support, financial assistance, and many others should be conducted by the Ministry of Entrepreneur and Cooperative Development, SMIDEC and other related agencies to stimulate interest among SMEs.

Besides that, SMEs should consider their current status of business partnerships or alliances to support the development, and on-going maintenance, of web based applications and e-commerce initiatives, besides enhancing other business activities. This means that they are in better financial position to resort to e-commerce. SMEs need to examine all applications of e-commerce by adding value to their individual business. The programs should be initiated by themselves with the assistance or arrangement by DPMM or YPU.

The Application of E-Commerce among Malaysian Small Medium Enterprises

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