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E-Commerce Adoption By Malaysian Organizations

Abstract

The adoption of E-commerce (EC) technologies is revolutionising the way of doing business. Researchers and practitioners have recognised the importance of e-commerce technology and its applications for the success of the organisations. There is a evidence that electronic manufacturing companies in Philippines have benefited through adopting such technologies. However, despite numerous studies about EC there is a dearth of research associated with EC adoption and the factors affecting such adoption. This research attempts to examine the adoption of EC technology by the electronic manufacturing companies in Malaysia using the framework developed on innovation diffusion theory. Considering the necessity of EC adoption in the electronic manufacturing companies in Malaysia, this study has been designed to investigate the major barriers and benefits perceived by the companies under study and the factors influencing electronic manufacturing companies in Malaysia to adopt EC. Methodological approaches were used to investigate the research problem, beginning with the review of the electronic manufacturing companies. personally administered survey of 194 Malaysian electronic manufacturing companies provided evidence about the research problem. T-test was carried out to determine if there were any significant differences between the major barriers and benefits to adopting Internet based EC in Malaysian electronic manufacturing companies between different demographic variables.  From the t-test results it appears that, there is a significant difference on major barriers "lack of privacy" and "hackers intervention" between two groups of Internet users. For the groups SMIs and large scale industries groups (based on employees and annual turnover) "high set up cost" was significant difference between those two demographic groupings. This result also supported the main analysis of this study.

 

Introduction

 

With the technological advancement, global EC is spreading almost in every country, although its usage various widely among the people of the different parts of the world. EC is all about speed, connectivity and sharing and exchange of goods, services and information. This online distribution system has now become an alternative channel of distribution. Use of EC by means of Internet or the World Wide Web by the business organisation is gaining popularity because of its ease to use, lowered access and communication cost, faster delivery of information and the possibility of reaching to the global users. With the opportunity of using this medium interactively has resulted in the creation of virtual communication system.

Kalakota & Winston (1996) argued that E-commerce has emerged as a mechanism enabling business transactions to occur between buyers and sellers on a global scale. E-commerce refers to trade that actually takes place over the Internet, usually by a buyer through visiting a seller's Web site and making a transaction there. Shi and Salesky (1994) asses that the benefits derived from using Internet as a medium of business are varied. They are ranging from introducing a new product to the enhancement of corporate image. Most of the companies' main aim is to increase revenue. However, e-commerce provides companies with new sources of revenues and opportunities to offer new services in addition to and sometimes independent on the traditional products or services sales. These uses of the Internet and World Wide Web has brought about increasing adoption of e-commerce tools by business enterprises to help to achieve efficiencies in production and marketing of products and services.

 

Development of E-commerce in Global context

Electronic commerce began in the 1970s when the larger corporations started creating private networks to share information with business partners and suppliers. It is actually existed almost with the taking place of Electronic Data Interchange (EDI) or Electronic Fund Transfer (EFT). Mostly banks have been using dedicated networks of EFT. Recently, however, with the increased awareness and popularity of the Internet, electronic commerce has come to encompass individual consumers as well as business of all sizes. The Internet is already changing the way, many companies conduct their business. As that influence grows, more companies are to use the Internet. The possibility of conducting business based is being expanded so rigorously on the Internet that in the near future it will be a mere routine part of commerce.

 

Matrade's (1999) study shows that almost 70% of the firms use e-mail for communicating with their stakeholders. Between 21-32% of the firms utilize electronic means either for payment (to suppliers and from customer) and making orders or receiving orders. According to him almost 30% of the firms are currently selling products and services via Internet. Many people think that, e-commerce only includes Internet infrastructure to conduct more advanced business level activities, but e-commerce is more than that. There are dozens of application of e-commerce such as, stocks, jobs, online banking, procurement and purchasing, malls, online marketing, and advertising, consumer service, auctions, travels and online publishing with an effective Web site (Turban et al., 2000). According to Turban et al., (2000) e-commerce is divided into three categories: i) buying and selling of goods and services that is usually referred to electronic markets; ii) facilitating inter and intra-organizational flow of information communication and ii) collaboration.

 

Background of the Study

Various researches on EC have addressed to the several reasons that contribute impeding its acceptance. Studies by Udo (2001); McQuily and Peterson (2000); Avlonites and Karayanni (1998) found that among consumers most often cited barriers are security concern related to credit account theft and privacy on access. For the business critical issues are network security, resources and competence availability. Bauman et al., (1996) argued that security, privacy and legal considerations are the main barriers of EC adoption. These authors have identified the most prevalent security threats when using the Internet and discuss some of the traditional and emerging approaches to ensuring data security and integrity on the Internet.  The study of Kardaras et al., (2000) revealed that there are generally three types of problem such, technical, social and managerial problems, which companies encounter and considered to be obstacle to faster development of e-commerce application.

 

Despite some limitations there is a great opportunity for commercial activity on the Internet. However, some literatures supports (Shi and Salesky, 1994; Zineldin, 2000) that e-commerce will have a more significant impact than others do. They argue that e-commerce will redefine the relationship between customers and suppliers of goods and services. It will provide opportunities afforded by the Internet which include: a new and lower cost channel to market; clicks and mortar synergies; scope for hypermediation; better knowledge of consumer preferences; and scope for diversification of products and services. The study by Riggins and Rhee, (1998) and Senn, (2000) find that benefits of electronic commerce adoption include improved customer services, better inventory control, lower marketing and distribution costs, reduced cycle time, increased market reach and operation costs. Turban et al., (2000) and Rayport and Jaworski, (2001) find other benefits that include global connectivity, high accessibility, scalability, interoperationality and interactivity. There is a substantial amount of research on EC adoption and usage, however much of the research are limited to SME, and adoption model vary from determinants used. In addition research from Malaysian perspective were very limited (Paynter and Lim, 2001). This research provides rich information on Malaysian electronic manufacturing companies' management decisions to adopt or not adopt Internet technologies. Also, valuable information is provided on the types of problems experienced when adopting E-commerce and the level of assistance needed by electronic manufacturing companies in Malaysia to successfully adopt and diffuse these technologies.

 

The main purpose of this study is to examine the barriers and benefits that perceived by the managers in the electronic manufacturing companies in Malaysia, affecting the EC adoption. According to Cheung (1998) electronic commerce pertains to a wide variety of business activities, which are conducted electronically. It covers a range of electronic interactions between organisations and their up and downstream trading partners.

 

Electronic commerce on Internet requires management understanding and commitment to succeed. Study of Thomsen (1998) shows that many companies are lack of multimedia missions and visions. Home pages and customer handling were in many cases are poor and do not take advantage of the opportunity for feed back, interaction and customize. This has contributed to the failure of the use of Internet-based e-commerce. The breadth and depth of customised product information assist customer purchase decisions. However, it was reported that many companies did not recognize this.

 

There has been no research carried out in line with this proposed study to find answers to the following questions: What are the uses of Internet for business? What could be the underlying motivation for business to adopt and make use of electronic commerce? And what are likely to be the major problems or barriers that hinder to adopt e-commerce in the business? All these questions addressed the adoption of e-commerce on the Internet call for analyzing various applications of this new business medium. The analysis will identify the problems that are encountered by the companies, determine the role of Internet in pursuing e-commerce and review the prospects of e-commerce business in the electronic manufacturing companies in Malaysia. This research will examine the use of Internet to business strategy, the critical success factors and the problems that hinder companies to use e-commerce in Malaysia. The potential outcomes of this research are as follows:

• This research will answer the questions about e-commerce adoption, identify key issues that company demotivates and motivates company's' willingness to use or not to use of e-commerce.
• Results of this study will help to extend the body of knowledge on e-commerce.

 

Literature Review

 

An Overview of E-Commerce Development in Malaysia

Although the development of e-commerce is particularly significant in advanced countries such as United States, Australia and Britain, Malaysia is not far behind. There is a nation-wide effort in Malaysia towards developing an electronic environment with the government actively involved in the business of e-commerce within its own systems. To discuss as to the situation of e-commerce in Malaysia these are the five grounds is to be considered:

• Malaysia Online history
• Internet Service Provider (ISP) in Malaysia;
• Involvement of Private Sectors in Malaysia;
• Internet and e-commerce usage in Malaysia and ;
• Govt. Policy Toward e-commerce in Malaysia.

 

Malaysia Online History

 

The year 1995 was considered the beginning of the Internet age in Malaysia. The growth in the number of Internet hosts in Malaysia began around 1996. According to the first Malaysian Internet survey conducted from October to November 1995 by MIMOS and Beta Interactive Services, one out of every thousand Malaysians had access to the Internet (20,000 Internet users out of a population of 20 million) (Beta Interactive Service, 1996). In 1998, this number grew to 2.6% of the population. The total number of computer units sold, which was 467,000 in 1998 and 701,000 in 2000 indicated an increasing growth (Paynter & Lim, 2001).

 

Internet Service Provider (ISP)

 

Joint Advance Integrated Networking (JARING) was the first Integrated Service Provider (ISP) in Malaysia. It was launched in 1991 under the Malaysian Institute of Microelectronic Systems (MIMOS). It was the first ISP in Southeast Asia to install the T3/45 Megabytes per second (Mbps) lines to speed-up Internet Protocol (IP) based (2.5 Gigabytes Per second Gbps) nationwide backbone in the world put in the place. With the installation of a satellite links between Malaysia and USA in 1992, JARING was connected to the Internet, henceforth providing Malaysia users with accessibility to the Internet in more then 140 countries (Seventh Malaysia Plan, 1996).

 

Involvement of Private Sectors in Malaysia

Of the 811 small-and medium-scale enterprise (SMEs), only 7% were selling via the Internet according to a survey conducted by the Multimedia Development Corporation (MDC) in 1999. Out of this, 49% responded that the Internet sales were less than 10% of their total revenue (Malaysian government…, 2000). Another survey carried out in 1999 by Techknowledge Asia on 300 Malaysian companies showed that 34% are planning to set up e-commerce programmes within the year. According to the study, a further 8% have already implemented or is in the process of implementing e-commerce in their businesses. Another service provider, StarHub, offers free Internet access to the public in Kuala Lumpur and Petaling Jaya. This service was extended to Johor Bahru and to states located on the West Coast of (peninsula) Malaysia by the first quarter of 2001. This indicates the private sector's effort in promoting Internet access.

 

E-commerce and Internet usage's in Malaysia

E-commerce is already having a tremendous impact on life and economy in developed countries. In Malaysia, the emergence of e-commerce is hailed as a revolutionary development, which will propel the nation toward a digital economy. Ever since the dotcom fever, numerous corporations launched their businesses online. It has created mainstream e-commerce environment. IDC (International Data Corporation) Market Research Sdn. Bhd. Foresees the B2C arena will attain a CAGR (Compound Average Growth Rate) of 67.6% from 2000 to 2005. The uptake of B2C in Malaysia is not as salient as B2B, with supply chain contributing to the bulk of its business processes. In 2000, the total of purchase in B2B was US$195 million, with supply chain dominating 85% of the total B2B market. Total B2B is projected to increase to US$7.7 billion by 2005.

 

The role of MSC for the development of e-commerce in Malaysia

 

In an e-commerce marketing strategy it is important to note that Internet can also serve as a platform for new product innovations. Companies can use the direct access to consumers to collect information that will help them better develop products to meet the consumers' needs. For international companies this information can provide adaptations and customizations or create new niche products according to the local market. In the case of Malaysia, EC has become a major agenda. From 1997, over a period of five years through Multimedia Development Corporation (MDC), Malaysia country has invested RM 40 billion. The launching of Malaysian Super Corridor (MSC) and other government incentives is a clear indicator that much has been invested to promote EC in this country. Any gains or benefits will certainly be for firms that are located within the vicinity of the MSC. In this context, the increasing usage of EC will encourage and contribute to the growth of businesses particularly in Malaysia in the new Millennium.

 

Electronic commerce involves the use of information technology to enhance communications and transactions with all of an organisation's stakeholders such as customers, suppliers, government regulators, financial institutions, managers, employees and public at large (Watson et al, 1998; Wigand, 1997). The rapid growth and commercialisation of the Internet and world wide web (www) - which makes EC much more accessible - has driven EC to become one of the most used media for sharing of business information within organisations and between business partners.

 

Information Systems (IS) researchers have made significant effects in building theories to examine and predict the determinant factors of information technology (IT) acceptance (Agarwal and Prasad, 1998). Existing models of IT acceptance have their foundations from several diverse theories, most noticeable innovation diffusion theory, where individuals' perception about using an innovation are considered to affect their adoption behavior (Agarwal and Prasad, 1998; Rogers, 1995; Moore and Benbasat, 1991). Other important theoretical models that atempt to explain the relationship between user beliefs, attitudes, intentions, and actual system use include the theory of reasoned action (TRA) Ajzen and Fishbein, 1980), the theory of planned behavior (TPB) (Ajzen 1991) and the technology acceptance model (TAM) (Davis, 1989; Davis et al 1989). These theories and models offer foundations for planning, executing and evaluating the technological projects.

 

A study conducted by Beale (1999) revealed that reluctance among many consumers to embrace e-commerce, based mainly on concerns over security issues and lack of confidence in the current set-up of e-commerce. The results of the study shows that the consumers are worried about the privacy and security of their online transactions; more than half do not consider it safe to do any kind of financial transaction online. Ratnasingham (1998) argued that electronic commerce security is a protection of information resource and system against the threat of its risks in the integrity, confidentiality, authenticity, no repudiation, availability and access control of electronic transactions transmitted and more importantly, the reliability of the direct parties involved in electronic commerce.

 

A recent study done be George J. F. (2002) stressed that privacy and trustworthiness helped to determine attitude towards the Internet, which were thought to affect intent to make Internet purchases. Privacy concerns has often been cited as one of the key reason why consumers do not make on-line purchases over the Internet. A survey conducted in USA, in March 2000 shown that nearly 94% of the respondents felt that the online business provided might have used their information to send unwanted information to them.

 

Siyal (2000) showed that consumers do not trust the existing security technologies and the general e-commerce set-up. This studies also showed that consumers are worried about the delivery of products ordered via Internet and fraudulent e-merchants. Grande, (2000) study found that fears over poor customer service and electronic fraud are perceived as key problems inhibiting the widespread adoption of online shopping. Clarke (1998) argued that consumers are particular about a number of dimensions of trust in adopting electronic commerce such as the security of value about the money paid and received, goods and services offered and acquired as well as the assurance that a refund is available for unsatisfactory goods and services and lost deliveries.

 

Yeugn et al. (2003) found that the progress in adopting EC by the Hong Kong SMEs is slow and is dependent on major corporations as most SMEs will wait to follow because of the lack of capital for investing in EC business. All the SMEs in Hong Kong are typical and have limited scales of operations. They are generally family businesses with just enough capital to conduct day-to-day business and usually cannot spare additional capital to invest EC business. Similarly, Paris et al (2002) in the electronics industries in UK seen cost of enable systems as a big obstacle by 15% of companies, but 49% declare it a less than average obstacle in adoption of EC in their industry.

 

Methodology

Research Methods

Descriptive method of study is more appropriate for the given objectives of the study. Hence it is decided to undertake descriptive research study.  Descriptive research is not merely data gathering, it may include, the investigation of any possible relationship between two or more variables or objects and prediction of future events (Peterson and Lewin, 1982). Such study design will be used not only for descriptive purposes but also for determining the relationships between variables at the time of investigation (Babbie, 1990).

 

Data Type and its source

Two approaches Secondary Data Passive Approach (SDPA) and Primary Data Active Approach (PDAA) can be used for any study (Davis and Cosenza, 1988). SDPA can be used for measuring the certain period of time. The data for this study was obtained from primary sources. The primary data are collected through self administered questionnaire. The required information were collected from the senior managers of selected electronic manufacturing companies in Malaysia. To have a complete knowledge and insight about the activities of the companies through e-commerce and to invite the opinion of the personnel connected with the companies, a carefully designed sample survey has been conducted with the help of questionnaire, specially prepared in the light of the objectives of this study.

 

Sampling Procedure

To make the study free from bias, the designing of the samples and the techniques that may be applied for collecting and using those samples are made in the appropriate manner so as to ensure the reliability of the data. Thus, the selection of the study area, the selection of the respondents etc. are made in the following order. Through judgement sampling Penang and Klang Valley is selected as the study area for this study. Penang has the highest electronic industry (one third of total electronic industry) in Malaysia. Other concentrations of the electronic manufacturing companies are in Selangor and Johor Bahru. The target groups were SMIs and large scale industry considered based on the number of employees in the industry is most commonly used in management research (Ghobadian and Gallear, 1996; Hakserver, 1996; Terziovskiv et al., 1997). The small scale-scale industries are classified as those industries with total workforce of less than 150 employees and large-scale industries were considered more than 150 employees. The Small and Medium-sized Industries Development Corporation (SMIDEC) in Malaysia defines SMI as industrial based companies with annual sales turnover not exceeding RM25 million and with full-time employees not exceeding 150 individuals. From the each group 50 percent of industries were selected and asked over telephone to provided time and date for interview. But about 5 per cent of industries were closed or shifted their business from the address and telephone number mentioned for the FMM. Thus, finally 200 companies were selected and collected primary data through self administered questionnaire.

 

Questionnaire for this study

 

In this study, a structured questionnaire is used to collect the necessary data whereby it serve as primary data to answer the research objectives pertaining to e-commerce adoption in the electronic manufacturing companies in Malaysia. The survey instrument had prepared based on literature collected for this study. These questions have been designed so as to get responses specific to hypotheses proposing to test for this study. In constructing questionnaires, the different types of scales are used to measure the operationally defined constructs and items relating to drafting the questionnaire. The general issues involved in drafting the questionnaire were the question content and wording, response format, sequence and physical characteristics.

 

Methods of Data Analysis

 

In this stage an appropriate statistical analysis technique were selected for data analysis strategy. This step also considered the research problem, objectives, characteristics of the data and underlying the properties of the statistical techniques (Malhotra, 1993). After collecting the data some important steps were followed like handling blank responses, data coding, creating file and programming (Malhotra, 1993; Sekaran, 2000).

 

Descriptive analysis refers to the transformation of raw data into a form that would provide information to describe a set of factors in a situation that will make them easy to understand and interpret (Sekaran, 2000; Zikmund, 2000). This analysis was given information for the data through the frequency distribution, central tendency, and the dispersion. Data were collected on demographic variables are processed and reported in percentages.

 

T- test was carried out to determine if there are any significant differences between the main barriers and benefits to adopting Internet based EC in Malaysian electronic manufacturing companies between different demographic variables.

 

Results and Discussions

 

Respondents' Profile

The respondents of this study were electronic manufacturing companies in Malaysia. With regards to the Internet usages, the sample population was divided into two groups, less than 7 years and more than five years of Internet usage. This survey shows that, less than 7 years Internet users are the largest portion of the sample with a total of 130 respondents (67.0 per cent). The other group, 7 years and above had 64 respondents (33.0 per cent). It is expected that multinational companies are the highest portion of electronic manufacturing companies in Malaysia. This is because, most of the companies are multinational companies and they are selling their goods in the global markets. For this reason, consideration has also been given to provide response to the questions on types of companies. In the present study multinational companies are the highest level of respondents (58.3 per cent), followed by local companies (30.4 per cent) and joint venture companies (11.3 per cent). The highest level of respondents from the 194 companies in the survey is the 7 years and above goods manufactured companies with a total of 139 companies (71.6 per cent), followed by the less than 7 years companies with a total of 55 companies (28.4 per cent). With regards to employees, Table 1 shows the two major groups that compose the sample. The small-scale industries are classified as those industries with total workforce of less than 150 employees. This group composed the highest portion of the sample, 123 (63.4 per cent). The second group was of those from large-scale industries with work force more than 150 employees. They comprised 71 (36.6 percent). Based on this sample, it is noted that the largest group of the respondents were those from the small-scale industries. With regards to annual turnover, the sample population was divided into small-scale and large-scale industries. The small-scale industries are classified as those industries with annual turnover less than RM 6,000,000. This group comprised largest respondents with a total of 112 (57.7 per cent). The large-scale industries group comprised of 82 companies (42.3 per cent). This section gives the support to the past section where company sizes are divided based on the employees. This study found that small-scale industries are the largest group of respondents for this research.

 

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