AN ASSESSMENT OF POTENTIAL BENEFITS AND CONSTRAINTS ASSOCIATED WITH SMALL BUSINESS USE OF E-COMMERCE

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Small businesses are essential for economic development (Van Praag & Versloot, 2007; Acs et al., 2008; Fumo & Jabbour, 2011), and in Nigeria they make up 91% of the formal businesses, contribute 34% towards the Gross Domestic Product (GDP) and absorb 60% of the labor force (Small Medium Enterprise, 2015). Small businesses are in a better position than larger businesses to assume a more expedient role in economic development, especially within the economies of developing countries (Kayed & Hassan, 2011). Booyens (2011) confirms that Nigerian small businesses play a significant role in job creation and poverty alleviation.

Nigeria is not regarded as a robust entrepreneurial economy. Small businesses struggle to grow, despite Nigeria’s efforts to foster their growth (Maye, 2014). This lack of growth and robust entrepreneurial economy is because Nigeria has a larger necessity- motivated rather than opportunity-motivated nascent entrepreneurial population (Lindsay, 2014). This is to be expected against the background of a high unemployment rate of 25.27% from 2000 until 2015 (Trading Economics, 2016).

Small businesses, however, face numerous constraints (Bridge et al., 2003; Department of Trade & Industry, 2004), impairing both their performance and survival rates (Reiss, 2006). The survival of small business is influenced by the business life cycle. Little is documented on small business constraints in Africa (Irwin, 2011a) and in Nigeria. Some small businesses want to grow, but are constrained by attitudinal, resource, operational and strategic barriers to business development (Westhead, et al., 2011), which lead to most businesses failing within a year or two (Brink et al., 2003; Kuratko, 2014).

Small and medium size enterprises (SME) are regarded as the engine of economic growth in all economies of the world. Not only in the developing or the least developed countries (Wooldie & Adersua, 2004; Gerrad et. al, 2003; Hamilton & Dana, 2003) of the world, SMEs play a major role in developed economies. It accounts for 85% new job creation in the United States. However, the small business sector also has the highest birth as well as mortality rates across cultures. From a review of recent comparative literature on the small business, certain common issues of concerns may be identified: Morris et al, (2006) discuss the growth dilemma especially of female entrepreneurs. In another study, Morris et. al (2000) report about the lack of understanding of the business concepts by the historically disadvantaged South African owners/Managers. Madill et al. (2006) highlights the issue of access to debt financing; Tagoe, et al, (2005) examine the challenge of affordable credits to urban SMEs in Ghana; Mambula (2002) examines how the issue of collateral for lending to small business becomes an impediment for the growth of small business in Nigeria. Morris et. al (2002) discuss ethical dilemmas of the entrepreneurs.

E-commerce is a pervasive Information Technology (IT) phenomenon in the information economy. It represents one of the most important and profound transformations that IT makes to our society in the way that business is conducted, managed and communicated.   The uptake of Internet usage has increased rapidly in recent years. In the UK, 62% of the total population, 37.4 million people, use the Internet regularly. The UK is now 6th in the league table of internet-enabled countries, with 3.4% of global Internet users. The table is topped by the US with 19.2% of the world’s Internet users and closely followed by China with 12.1% (Internet World Stats, 2007). Governments see the adoption of e-commerce and other information communication technologies (ICT) by Small Medium-sized Enterprises (SMEs) as crucial since the vast majority of new jobs, some 80% in Europe during the 1990s, were generated by this sector (DTI, 2003). For these reasons the UK Government have been keen to ensure their actions and legislation encouraged more businesses to adopt e- commerce (Price Waterhouse Coopers, 2001; Zhu, 2006).           

E-commerce refers to a range of transactions in which organisations prepare or transact business or conduct their trade in goods and services electronically (Department of Communications, Information Technology and the Arts 1999, p.1). These activities cover such things as internet retailing, EDI, internet banking, electronic settlements and browsing and selection of products and services over the net.

Participation in e-commerce is important - not just from the perspective of commercial transactions but rather in the way it encourages transformation of internal systems and the subsequent efficiencies in terms of cost, responsiveness to customers, customisation of offerings and the potential emergence of new products and services (Crawford 1998, p.6).

Small and Medium Enterprises (SMEs) need encouragement and assistance to adopt and productively engage in e-commerce. A number of bodies have been established in the Australian context to provide this, or at least to consider e-commerce in the SME context.

1.2 STATEMENT OF THE PROBLEM

The rapid uptake of the Internet in recent years, where it is being used for pleasure and business, has meant that all businesses, irrespective of size, organisational form and industry sector, have begun to realise they could no longer escape from nor ignore, the fast developing digital economy. Information Communication Technologies (ICT), including the Internet and Web technologies, are increasingly recognised as a source of innovation and economic growth, and national ICT strategies have pushed towards further integration of IT and economic development policies to meet emerging challenges (OECD, 2006). The advent of international e-commerce is creating dramatic changes in the competitive markets for all types of businesses and SMEs in particular (Tiessen et al, 2001), forcing these businesses to adapt or re-engineer their core business processes. Although the Web offers these businesses an inexpensive way to access buyers around the world, it is not always clear how or why they are using the new technology.

1.3 OBJECTIVES OF THE STUDY

The main objective of this study is to examine the potential benefits and constraints associated with small business use of e-commerce. Other objectives of this study are:

i.          To determine whether small businesses are aware of e-commerce.

ii.        To determine the extent small businesses use e-commerce.

iii.      To determine whether small businesses encounter benefits in the use of e-commerce.

iv.      To determine whether small businesses encounter constraints in the use of e-commerce.

1.4 RESEARCH QUESTIONS

The following research questions will be answered in this study:

i.          Are small businesses are aware of e-commerce?

ii.        To what extent does small businesses use e-commerce?

iii.      Does small businesses encounter benefits in the use of e-commerce?

iv.      Does small businesses encounter constraints in the use of e-commerce?

1.5 SIGNIFICANCE OF THE STUDY

This study will be beneficial to the small businesses as the findings of this study will reveal the importance of e-commerce to their business. The study will also reveal the benefits and the constraints of using e-commerce in their businesses.

This study will be beneficial to the scholars as it will be added to the body of existing materials for further studies and future reference.

1.6 SCOPE OF THE STUDY

This study focuses on examining the potential benefits and constraints associated with small business use of e-commerce. Specifically, this study focuses on determining whether small businesses are aware of e-commerce, determining the extent small businesses use e-commerce, determining whether small businesses encounter benefits in the use of e-commerce and determining whether small businesses encounter constraints in the use of e-commerce.

Small business owners in Ibadan, Oyo State will serve as respondents for the survey of this study.

1.7 LIMITATIONS OF THE STUDY

This study is limited to examining the potential benefits and constraints associated with small business use of e-commerce. Specifically, this study is limited to determining whether small businesses are aware of e-commerce, determining the extent small businesses use e-commerce, determining whether small businesses encounter benefits in the use of e-commerce and determining whether small businesses encounter constraints in the use of e-commerce.

Small business owners in Ibadan, Oyo State will serve as respondents for the survey of this study, thus the sample size was limited because only a few respondents were chosen to answer the research instrument, therefore the results cannot be generalized to other secondary schools outside the state.

1.8 DEFINITION OF TERMS

Examination: A detailed inspection or study.

Small businesses: Are corporations, partnerships, or sole proprietorships which have fewer employees and/or less annual revenue than a regular-sized business.

E commerce: Ecommerce is the buying and selling of goods and services over the Internet. It is conducted over computers, tablets, smartphones, and other smart devices.