Correspondent author: Jetol Bolongkikit, Labuan School of Informatics Science, Labuan International Campus-Universiti Malaysia Sabah, P.O. Box 80594, 87015 Labuan Federal Territory. Tel: 087-460448. Email: jetol2000@yahoo.com

I am currently teaching in University Malaysia Sabah (UMS),Labuan International campus, Malaysia.

Previous studies have indicated that e-commerce development offers a promising way for business to meet the challenges of the ever-changing environment. It provides effective and efficient ways, such as buyers can gather information rapidly about the availability of the products or services, evaluate, or negotiate with vendors. However, previous studies on Small and Medium Enterprises (SMEs) in Malaysia have shown that the application of e-commerce is still at its infancy. Thus, this study investigates the usage level of e-commerce application for the SMEs in West Coast of Sabah, Malaysia. This achieved by circulating a set of questionnaire to examine the awareness and adoption of e-commerce application by the SMEs, and recognize the impeding factors to adopt e-commerce and the perception of e-commerce benefits towards incorporating e-commerce in their business. The study found that the awareness and adoption level among the SMEs are still in its infancy, although the potential benefits were perceived to be important.

Keywords: Electronic Commerce; Usage Level; Small and Medium Enterprises

For decades, firms have used various communication tools to conduct different kinds of business transactions. Banks have used EFTs to move customer?s money around the world, many kinds of businesses have used EDI to place orders and send invoices, and retailers have used television-based advertising to generate telephone-based orders from general public for various types of merchandise. It is increasingly and widely accepted that it is important for business to embrace e-commerce and adopt e-commerce applications. E-commerce applications include searching for products, services or information, advertising and the buying, selling and paying for products and/or services. This is particularly important for small businesses. They may not have the sufficient fund and expertise to build a sophisticated web presence. But they need to adopt e-commerce applications because it is important for their on-going survival. It improves the ability to compete with the larger organizations and also enable them to operate on an international scale. In addition, e-commerce applications provide a cost effective approach for small organizations to market their business, launch new products, improve communications, gather information, and identify potential business factors.

There is now an interesting and growing study addressing the e-commerce adoption in specific context of small and medium enterprise (SMEs) (see for example Iacovou et al., 1995; Akkeren & Cavaye, 2000; Sathye & Beal, 2001; Tung et al.,2001; Mehrtens, 2001; Cloete et al., 2002; Danieal & Grimshaw, 2002). However, despite these interests in the effect of e-commerce adoption in small firms, only a few researches have been conducted in Malaysia and in Sabah particularly in relation to e-commerce adoption among the SMEs. Thus, this paper seeks to investigate the adoption level of e-commerce applications for the Small and Medium Enterprises (SMES) in West Coast of Sabah, Malaysia.

There is no universal accepted definition of e-commerce. Laudon and Traver (2002) defined e-commerce as digitally enabled commercial transactions between and among organizations and individuals. Schneider (2002) has defined e-commerce as business activities conducted using electronic data transmission technologies such as those used in the Internet and the World Wide Web to implement and enhance business processes. Malaysian External Trade Development Corporation (MATRADE, 2002) gives a broad definition of e-commerce as generally used to cover the distribution, marketing, sale and delivery of goods and services by electronic means. In this study, the definition by MATRADE is used.

The Internet has created a universal platform for buying and selling goods and services as well as driving important business process inside the organization. Small and large companies that are using the Internet can make product information, ordering, and customer support immediately available and also can help buyers and seller making contact (Laudon, 1999). Organizations are finding some of the greatest of the computer technology come from the e-commerce applications that significantly lower purchase transaction costs by eliminating intermediary in the distribution channel. In some categories such as information services and digital products, providers can potentially decrease the financial cost of distribution to zero (Jones, 1995; Hoffman et al., 1995). Low cost and ease of use (Timmers, 1999) has resulted in widespread adoption, high degree of interconnectivity between many parties (Shapiro & Varian, 1999) and the richness of information that can be exchanged between parties (Evans & Wurster, 1999).

Fewer studies have been carried out in the specific context of SMEs as majority of studies undertaken to date in e-commerce domain has addressed the specific context of large companies or those that are dot.com players. For the purpose of this study, SMES are defined as having an annual sales turnover not exceeding RM25 million and full-time employees not exceeding 150 and must be registered under the Companies Act 1965 (Malaysia). In addition, at least 60% of the equities in a company must be held by Malaysian and operating in an approved premise (SMIDEC, 1996). In Malaysia, SMEs play a significant role in the country?s economic development, particularly in the manufacturing sectors. SMEs performance in manufacturing sector in year 2002 and January ?June 2003 shows that SME?s output grew by 2.5%, an increase from RM60.9 billion in 2001 to RM62.4 billion (SMIDEC, 2003). It indicates the importance of SMEs sector that leading to a steady growth in studies of e-commerce adoption by such firms. A study of Poon and JEvons (1997) suggested that Internet create an unprecendented opportunity for small businesses to engage in national and international marketing campaigns that previously would have been unaffordable. Findings by Sillince et al., (1998) indicated that the usage of email has resulted in efficiency gains and the ability to perform new tasks, such as sharing documents and working remotely. Poon and Swatman (1999) further support this in their study that SMEs are finding email useful for business communication and document transfer. Julta (2002) indicates the e-commerce can improve SMEs ability to compete with the larger organization and bring smaller suppliers to compete internationally or regionally from being lack of knowledge and expertise about international trade issues and foreign markets and thus upgraded a company to international scale. Hoi et al., (2003) also observes that increasing international exposure and enhancing customer service quality and responsiveness are considered as one of the perceived benefits of e-commerce to SMEs. Kleindle (2000) found that Internet technologies can help SMEs enter niche for e-commerce penetrate market with minimal cost compare to traditional business. This finding has been reinforced by other studies of the e-commerce adoption by SMEs such as by Tung et al., (2001). They found that e-commerce can open up the market for them, as well as lower their business costs. Some other benefits of e-commerce are improved information exchange with customers or suppliers, improved customer service, expanded business reach, access to international markets and reducing costs (Iacovou et al., 1995, Harrison et al., 1997).

There are many factors that influence the adoption of e-commerce applications among SMEs. Poon and Swatman (1999) found that perceived benefits are a key why organizations adopt and continue to use the Internet. The perception of long-term benefits and potential business opportunities is what driving small businesses to go online. Cloete et al. (2002) stated that, the adoption of e-commerce into SMEs is heavily reliant the people?s acceptance of the technology and its important to understand that factors lead to an individual?s acceptance of e-commerce technology. Technology Acceptance Model (TAM) (Davies, 1986) can be used to describe this situation (See Figure 1.). The potential user of e-commerce must not only be convinced of the relevant usefulness of e-commerce, but also have positive attitude towards it. The TAM Model further stated the user must be comfortable with the technology deployed, although expecting external variable factor affecting acceptance, which is beyond the user control. In determining why SMES e-commerce adoption is at a certain level, it is important to identify the affecting factors. Coutney and Fintz (2001), has identified the affecting factors are the owner?s business outlook as well as the organization?s characteristics which comprises of owner?s characteristics, organization?s characteristics and contextual characteristics. They also suggested that other additional issues that can have impact to the adoption of e-commerce are low use of e-commerce by customers and suppliers, the concern about security aspects, the concerns about legal and liability aspects, high costs of development in computer and networking technologies, limited knowledge about e-commerce and unconvinced of e-commerce benefits to the organization.

Given the lack of empirical research in this area especially in Sabah, an exploratory investigation was considered the most justifiable approach. In summary, data was collected using postal questionnaire. A total of 500 questionnaires were sent out to companies in which 300 responses were returned but only 175 of the returned responses are usable.

Questionnaire was the main instrument or tool for this research, which was divided, into three sections; section I, section II, and section III. Section I collected information related to the company profile such as location, sectors, year of establishment, major product, and etc., and also information pertaining to awareness level of the companies toward e-commerce. Section II focused on the usage of the e-commerce applications and organization?s hindrances from adopting e-commerce application. Lastly, section III to collect information related to the perceived benefits of e-commerce by the SMEs.

The questionnaire was adapted from the one constructed and used by Dr. Ainin Sulaiman in a research on e-commerce applications in Malaysia in 1999 for National Productivity Corporation (NPC) with major modification to suite the industry environment especially in the West Coast of Sabah. Before the actual survey was started, prospect respondents were identified through multiple sources such as the relevant ministries and through yellow pages. The entire survey questionnaires were divided equally among six major towns, which constitute the West Coast of Sabah, Malaysia, namely Kota Kinabalu, Penampang, Inanam, Tuaran, Kota Belud, and Ranau with no constraint on the type of industry sectors. Statistical analysis was performed using SPSS program version 11.5. In this research, the analysis was focused on the various data tabulation, where frequency and percentage were displayed.

The population of this study was the SMEs in West Coast of Sabah and limited in the six major towns: Kota Kinabalu, Penampang, Inanam, Tuaran, Kota Belud, and Ranau, irrespective of whether they are using e-commerce applications or not. As discussed earlier, SMEs are defined as having an annual turnover not exceeding RM25 million and full-time workers not exceeding 150. Table 1.0 shows the response rate for the survey.

The total of reusable responses received was 175. These respondents were from six major areas in the West Coast of Sabah namely Kota Kinabalu (61.1%), Penampang (9.1%), Inanam (17.7%), Tuaran (5,1%), Kota Belud (3.4%), and Ranau (3.4%). Table 2.0 shows the sample distribution among the six major areas. The responses received were then categorized into sectors. Referring to Table 3.0, a total of 29.7% of the respondents were from tourist and leisure services sector, the second highest respondents, 19.4% was from the manufacturing sector, followed by 13.1% from the IT sector, and 12.6% from the retail sector. The remaining sectors are agriculture (1.1%), construction (9.1%), wholesaler (5.7%), transportation (1.7%), finance (3.4%), and education (4.0%).