E-Business, SMEs & Risks

Suresh Gyan Vihar University International Journal of Economics and Management

Vol 6(4)

ISSN : 2278-2478

E-Business, SMEs & Risks

Mohammed .B. Shettima

Research Associate, (Economics Dept). School of Interdisciplinary & Liberal studies, Suresh Gyan Vihar University, Jaipur, India.

Corresponding Author: Mohammed .B. Shettima, e-mail:mrbee4real@gmail.com,

Contact No: +91-9664090841, +2348032333445

 

ABSTRACT

This study is designed to look into the internet-based electronic business of small and medium scale enterprises as well as the risks involved in its usage. Internet usage is fast growing globally, and due to that fact, modern day businesses are fast inculcating technology into their operations which enhances their functions and processes. E-business has its limitations in respect to SMEs, so it is of paramount importance to investigate the findings. Data is going to be obtained through the secondary source and the study will examine the different aspects and nature of E-business risks in existence such as customer risks, legal risks, staff and leadership risks, technology risks etc. Research on E-business risks has been concentrating mainly on issues of information security which arises from working through online medium. However government needs to formulate and implement policies that will encourage e-business for which every country is striving to achieve.

Key words: Electronic business, SMEs, e-business risk, challenges, internet.

 

 

 

 

 

 

 

 

INTRODUCTION

Electronic business is fast growing and becoming a key element of development in the global market. There is however an estimation that in some years to come e-business would be a key indicator of national development. Electronic business is a recent development where much emphasis has been put on its research for a clear and better understanding of its adoption. E-business has become a very important source of competitive advantage amongst many business organisations most especially the SMEs, as the application of e-business technologies, and business transactions are done mainly using the internet.

This internet usage aims towards achieving the ultimate goal of industry efficiency and effectiveness either in its entirety or in specific organizations which enhances their functions and processes. Utilisation of electronic business methods has made it possible for companies to link their internal and external data processing systems more efficiently and flexibly, this however builds a stronger relationship amongst the business organizations and gives them the opportunity to satisfy customer needs and far exceed their expectations.

Most businesses in these modern times have inculcated technology into their business processes where they strive hard to achieve the gains of such inclusion which is basically trade efficiency and effectiveness. They either achieve it in some specific organizational functions and processes or as a whole. This has created so many research interests on how e-business can be used, developed and exploited.

The use of internet technology has reshaped the business world at an extraordinary level. It has actually changed how business processes are designed, implemented and improved upon, as it builds a strong mutual relationship between the business organizations and its customers. E-business could also be seen as a mechanism that is able to bridge the problem of distance between both parties i.e. the business organizations and its customers, where business transactions will take place effectively and efficiently through online medium without having to meet physically. This actually reduces cost, saves a lot of time and in turn maximizes profit for the business organization.

In as much as E-business is considered a stimulant of development in the business world, it is said to face a lot of challenges most especially the risks involved. While a lot of research is been done on E-business, not much research is been done on the risks associated with it.

Beck et al (2002) asserted that the online environment is always changing and its dynamism and constant change has led to the emergence of risks that are difficult to measure and respond.

LITERATURE REVIEW

Electronic business has actually evolved in all the functions and processes of many modern day businesses. (Krishnan, 2003), asserted that the impact of e-Business is felt in every industry of the economy.(Safran & Franklin, 2002), did a research and forecasted that purchases of goods and services over the Internet is expected to increase by 60 percent annually by 2006. (Tapscott, 1998), opined that the reason why e-business is well known and why its adoption level is so high is because of the gains realised by making use of internet and related technologies. (Daniel & Grimshaw, 2002), asserted that large companies in particular have been quick in adopting e-business initiatives and have been successful in developing new and innovative business models. Though E-business awareness is not only known in the large firms but also in the small and medium scale enterprises. While large firms are increasingly inculcating e-business technologies in to their business processes so as to facilitate collaboration, trade and manage company business, SMEs experience a lot of challenges in its adoption.

In the early times, e-business literature has shown that not much studies is been carried out on the adoption and use of e-business in SMEs (Grandon & Pearson, 2004). However, research has shown that despite the rapid growth of e-business within SMEs, its adoption rate has been relatively low MacGregor and Vrazalic, (2005), and large firms have profited more than the SMEs in both their improved sale and costs saving (Riquelme, 2002).

OBJECTIVES

The objectives of this study may include;

  1. Examine the e-business processes of SMEs
  2. Examine the benefits of e-business in SMEs
  3. Identify the e-business risks and challenges in SMEs

METHODOLOGY

Data collected for this paper is based on secondary source, as it is obtained from various government publications, journal articles, books, web and reports of related government organizations.

BENEFITS OF E-BUSINESS

Gibbs and Kraemer, (2004), are of the opinion that internet usage and e-business have spread out globally where it has brought so many countries together to form a globally networked economy. As e-business is considered a very important indicator to the development of the business market, every business organisation is striving hard to have an online store where they can sell their range of products and services. Actually the internet has changed the way business is done worldwide and every business organisation wants to take advantage of the technology, this is because its benefits are numerous. Some of the most noticeable ones may include;

  1. It gives business organizations the opportunity to market their products worldwide without having to meet with their prospective customers physically.
  2. It is very fast and cheap. Information dissemination, confirmation of orders, advertisements and payment for goods ordered is done within minutes and at a minimum cost.
  3. A direct link is been created between the business organisation and its customers which facilitates decision making and transactions quickly.
  4. It provides an opportunity for new businesses to emerge and enhances a company’s image.
  5. It provides excellent customer service and customer satisfaction.
  6. By making use of e-business, it keeps a business relevant and current with the present day digital market place.

SMEs E-BUSINESS RISKS & CHALLENGES

A lot of factors are responsible for the adoption and successful implementation of e-business in SMEs. The SMEs however, experience a lot of problems in adopting and implementing e-business in their functions and processes ranging from taking ideas, principles, values and methods of e-business technologies. Most of the issues that prevent large firms from adopting e-business, equally applies to SMEs too. As earlier stated, e-business is considered the fastest and most effective way of doing business in modern times. Despite these achievements there are a lot of risks associated with doing business electronically. These challenges and risks may include;

  1. Lack of e-business knowledge:

Knowledge gap of e-business application is a fundamental point that affects its smooth adoption and implementation in small and medium scale enterprises. Most times Information technology experts or consultants are unhelpful in knowledge sharing and charge very expensive fees in transferring such knowledge to firm workers. As a result of this, most of the firm workers remain IT illiterate and become incompetent in doing business, and this poses a lot of threat to the organisation. Since there is no enough IT knowledge, systems could be damaged accidentally either unknowingly or by not following the guidelines and procedures of its usage. This tends to increase the risk profile of the organisation which emanates from the company’s staff. However, lack of knowledge of e-business and an understanding of the technical and non-technical issues have been quoted as the main obstacles in developing online businesses.

  1. Security threats:

One of the most important risks of e-business is that of online security. SMEs have been experiencing so many online threats such as fraudulent internet transactions, credit card fraud, identity thefts, email misuse and attacks by viruses, worms and hackers. This online threat became worse when wireless technologies were invented and introduced into business processes, and it was used illegally by hackers and criminal elements. Most business organizations are very skeptical in accepting e-business fully in their functions and processes due to the security issues involved. Also, when a firm uses the internet for its processes, it is however exposed to so many security risks such as virus risk, client or server risk, transaction risk, fraud, technology risk etc. Once there is insecurity in a business organisation it affects the integrity and image of the organisation. This hinders the smooth implementation of e-business and discourages small firms from adopting it in their way of doing business. Thus, despite all these risk and challenges faced by SMEs there has been no enough official support from government agencies.

  1. Dependency risks:

In setting up e-business applications in an organisation, a huge cost is incurred most especially when setting up the complicated technologies. These costs may include; internet connection cost, hardware & software infrastructures and maintenance cost etc. Most SMEs do not have the financial strength to accommodate these costs due to their nature; hence most of their activities are outsourced. They however tend to depend on contractors or web developers to run their business. Also there is no means for them to access the competence of such outsourced vendors and contractors for their suitability. Since the SMEs are said to depend on the contractors and content developers to run their applications and computer systems, the success of the business also depends on the relationship established between the organisation and the outsourced vendors. This indeed is quite a risky venture because if the relationship is not a positive one the successful operation of the organisation tends to be at stake.

  1. Technological risks:

E-Business is considered as a technology which has sustained and improved business practices around the world but in the same vein it has actually disrupted the traditional way of doing business. Though current e-business practices cannot be compared with traditional business models in so many ways, ranging from privacy, security, robustness, data capacity etc. SMEs tend to face technology risks if there is computer system failure i.e. both hardware and software failures. They tend not to have technological support and as a result of that depend heavily on external partners or contractors to run their business electronically. This technological change can actually hinder SMEs from adopting e-business because SMEs are naturally reluctant to change.

  1. Lack of standards and regulations:

In a situation whereby there are no revised standards and regulations to control the complexities of e-business, SMEs tend to be discouraged in adopting e-business applications. There should be standards, rules and regulations to follow for online transactions, digital signatures, arbitration, intellectual property rights, imports and exports etc. However, some of the most important threat issues that require urgent attention are knowledge gap on legal issues, absence of a legal facilitator who can guide the SMEs in legal matters and also lack of financial resources of SMEs in obtaining legal support to safeguard their online intellectual properties. It is important to note that legal and security risks are very sensitive for SMEs and with that they urge and expect the government to enact rules and regulations for proper guide so as to mitigate the risks and problem of e-business adoption and implementation.

CONCLUSIONS

The importance of e-business applications in SMEs cannot be overemphasized. As earlier stated, taking into consideration the rate at which businesses are inculcating e-business technologies into their functions and processes, a forecast has been made that in some years to come it will be a key indicator of national development. Some few studies on e-business have been done and mentioned with particular emphasis on small and medium scale enterprises, given its importance to the business world in general. Actually there has been some debate on whether SMEs benefit from e-business or not since research has shown that the larger firms benefit more, and the SMEs face lots of challenges and risks in adopting it. A number of limitating factors have been identified which hinders SMEs from adopting & implementing e-business fully such as security threats, technology risks, knowledge gap, legal risks, dependency risks etc. and these factors needs to be addressed on time. The research paper has actually shown that there is a good perception of e-business amongst the SMEs. All the firms that have inculcated e-business in their functions and processes agree that the concept is innovative and important and should be considered as part of their long-term business planning process. Those firms most especially the SMEs that have not been able to embark on e-business applications, state that e-business is not an urgent business objective or not of importance to them at present.

REFERENCES

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  2. Tapscott, D. (1998). Blueprint to the digital economy; creating wealth in the era of e-business, New York: McGraw-Hill.
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