Important Role Of Small Medium Enterprises Business Essay Example
Important Role Of Small Medium Enterprises Business Essay Example

Important Role Of Small Medium Enterprises Business Essay Example

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  • Pages: 15 (3870 words)
  • Published: September 23, 2017
  • Type: Research Paper
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Small and Medium Enterprises (SME) have a significant impact on various national economies.

The text highlights the significant role of small and medium-sized enterprises (SMEs) in the developed universe, particularly in the European Union. These SMEs account for 99% of businesses and play a crucial role in employment and GDP contribution to states (Nachira 2002, pg 3).

This paper aims to comprehend the barriers faced by SMEs in adopting e-business, identify the most suitable e-business model for them, explore the significance of SME networks, and assess the importance of "Service Ecosystems" trend for national economies.

According to Magretta (2002), a business model is a narrative that explains how different structures within a business interact to achieve its objectives. It involves determining what services or products will be offered to customers, how revenue will be generated, pricing strategies, and methods of delivering these offerings.

An SME network refers to

...

a group of small and medium-sized businesses that utilize their collective strength through economies of scale for mutual benefit or collaborate to provide services or exploit market opportunities (Yelmo et al.).

The concept of a service ecosystem, as defined by (2009), refers to a vibrant and inclusive marketplace where a collaborative community of third-party service providers offers diverse services. These services are accessible and utilized through web service technologies within a specified business service delivery environment. This structure encompasses all stakeholders involved, including service providers, infrastructure support services, and clients. The growth of a business within this marketplace involves progression through stages such as establishing a business model, building an SME network, and eventually becoming integrated into the service ecosystem.

What are the factors impeding the adoption of e-business among SMEs?
There are tw

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primary categories of barriers hindering the adoption of e-business among SMEs: general barriers that affect businesses globally regardless of their location (whether in developed or developing countries), and specific barriers observed in developing or third-world countries with distinct characteristics.

SMEs often face obstacles in implementing e-business due to a lack of capital, resources, skilled labor, user-friendly technology, and information about the benefits. Financial support from banks is necessary for SMEs to afford the cost. Despite decreasing ICT infrastructure costs over time, funding remains challenging. Developing countries also struggle with preparing required business plans and viability statements for bank assistance. Moreover, there is considerable risk in investing heavily in e-business infrastructure as most SMEs cannot afford potential failures.

The entire process involves planning, organizing, acquiring, implementing, and potentially hiring staff to manage this new system. Small and medium-sized enterprises (SMEs) typically lack the necessary technical and managerial personnel to operate a business in an e-business environment. They are unable to afford recruiting these skills from the open market as they compete with larger organizations that may provide more enticing opportunities. In Europe, there is an estimated shortage of 1.9 million skilled ICT and e-business professionals. Considering the various deficiencies in developing nations (such as lower education standards and limited infrastructure compared to Europe), it can be assumed that the scarcity of skilled personnel in this field is even more severe.

The lack of user-friendly technologies for SMEs hinders their participation in e-business, restricting their flexibility and ability to serve a wider customer base. Some SMEs fail to see the value of adopting e-business models or technologies, making it difficult for them to financially commit to implementing such practices. Additionally,

there are other obstacles preventing SMEs from embracing e-business, especially those interested in cross-border transactions and business opportunities. These obstacles include concerns about customer data validity, challenges with data privacy, absence of a system for resolving legal disputes, difficulties in managing virtual identities, fears of intellectual property rights violations, lack of independent assessment for compliance with standards, discrepancies in IT standards, and absence of policies and laws addressing non-traditional business structures like networked organizations. Certain writers argue that validating client details is particularly challenging for SMEs relying on client information for micro recognition purposes. Furthermore, the lack of regulatory structures like a recognition agency in developing countries adds another layer of difficulty in verifying information.

Furthermore, the hesitation to use e-business channels is largely driven by concerns about information privacy. Users require assurance that their private data will not be stolen and used fraudulently. The reluctance of SMEs to adopt e-business practices can also be attributed to several contributing factors including the absence of regulations for dispute resolution, unclear definitions of valid electronic documents and signatures, as well as issues surrounding Intellectual Property Rights. SMEs fear that without clear regulations in place, disputes or perceived irregularities may not receive proper attention, especially in cross-border transactions. Consequently, this can result in protracted and costly conflicts that SMEs may struggle to manage due to limited manpower and resources. Additionally, non-traditional businesses like networked organizations or service ecosystems lack laws or governing structures to oversee their operations.

These Torahs and administration constructions will ensure that SMEs comply with the expected standards, creating a mutually beneficial environment for all SMEs. Another obstacle for SMEs is the variation in IT standards across

different national boundaries. This obstacle makes it more difficult for SMEs that wish to establish cross-border relationships to provide certain services, thus discouraging the formation of networked organizations (Ren and Hassan 2007, pg 247,248,250,252-253). The second category of barriers includes challenges that are specific to the developing world and the unique characteristics of that environment. Barriers such as infrastructure challenges including the lack of identification cards, electricity, slow internet diffusion, low tele-density, lack of purchasing power, logistics challenges, and limited bandwidth availability. These challenges make implementing e-business a very challenging task.

Research shows that cash is still widely used for transactions in countries like Russia, India, and Latin America, accounting for 35-40% of all transactions. This indicates the prevalence of e-payment systems in these regions. In contrast, limited access to electricity, low income levels, and low teledensity have resulted in minimal usage of rural internet services in Tanzania. This is especially important considering that a significant portion of Sub Saharan Africa's population resides in rural communities.

Furthermore, some experts argue that traditional business activities such as agriculture are not as attractive for internet usage. Studies have revealed that cost savings from e-commerce in agriculture only amount to 2%, whereas sectors like electronics can achieve savings up to 40%. Nonetheless, traditional business activities continue to play a crucial role in developing economies.

Logistics capabilities are not as easily accessible in developing economic systems compared to developed countries. It can be challenging for the Caribbean to attract reputable companies like FedEx and UPS, who have a proven track record in logistics. These companies can also help build trust, which is crucial for successful implementation of e-business channels. Additionally, bandwidth restrictions

limit customers' ability to engage in e-business activities.

SMEs in developing economic systems face a cognitive barrier when adopting e-business practices due to limited English language literacy. The lack of proficiency in English is a significant obstacle for non-English speaking countries to accept e-business. According to Nir Kshetri (2007, p445), only 1% of non-English speakers in Slovenia used the internet compared to 75% of the English-fluent population.

The number of websites in non-English languages is very low, such as Quechua (spoken by 10 million people in Bolivia, Ecuador, and Peru) or Ibo (spoken by 15 million people in Nigeria). These websites lack interactive services and do not encourage non-English speakers to visit the internet, resulting in limited web content in their native languages. Therefore, it is important to find suitable e-business models for small and medium enterprises (SMEs) to adopt.

Timmers (1998) identifies 11 basic categories of e-business models: E-shop, E-procurement, E-auction, E-mall, Third Party Marketplace, Virtual communities, Value Chain service Provider, Value Chain Integrators,
Collaboration Platforms Information Brokerage Trust and Other Services. These models can be classified into two categories: traditional business methods that have become IT-enabled or implemented using ICT like E-shops,
E-mall and Third Party Marketplace.There are many traditional alternatives available for these theoretical models. For example independent businesses like E-shops sell products directly to customers in our communities who can either purchase them at the store or have them delivered.

The E-mall includes examples of various Community promenades or Community Centres. In these locations, different businesses establish their stores with the hope that being located next to other businesses will increase support for their stores. Third Party Markets, such as local council-organized carnivals, are also examples of

the E-mall. These events promote business activities and increase sales by offering discounts on products. The second category refers to innovative business models that rely on ICT.

The value proposition of a community is centered around the power of ICT. For example, a successful community relies on its members contributing valuable content, which in turn attracts more members and creates a viable advertising platform. Without ICT, this concept cannot be implemented. Additionally, the concept of a "Value Chain Service Provider" is dependent on the existence of ICT infrastructure.

This refers to a situation where an external administration is willing to pay to eliminate a function within an administration's value chain. Examples include logistics or electronic payment. ICT ensures transparency and accountability of transactions. If ICT did not exist, it would be unwise for one company to provide a service while another company collects payment on behalf of the service provider.

Similarly, Value Chain Integrators consolidate the value concatenation of third parties by offering information based on performed illustrations. This is especially prevalent in the Gaming industry, where Value Chain Integrators provide information on the performance of newly developed Games. Additionally, theoretical models like Collaboration Platforms, Information Brokerage, and Trust Services all rely on IT infrastructure. Collaboration Platforms, for instance, provide a forum for third parties to collaborate on various projects, typically in a real-time online environment. This platform facilitates document sharing, teleconferencing, and other collaborative activities. The advantages of such platforms include reduced travel costs, improved utilization of human resources, and expertise from multiple locations.

Information Brokerage and Trust services provide valuable information to third parties about consumer behavior and trends in different countries. This information is derived from

the company's existing services that have an impact on consumer activity. Examples include search engines and companies that secure websites and transactions. This information is valuable to companies seeking insights into consumer behavior to aid in planning and product development. According to Timmers (1998, pg5-6), various e-business models exist depending on the company's goals and how they plan to achieve them.

According to Tang et al. (2003), ICT is crucial for companies aiming to improve their competitiveness. This can be achieved by transforming the company's relationships with stakeholders such as suppliers, business partners, and employees. However, the choice of a specific business model depends on the company's ideas and cost-effective methods for implementation. The concept of a business model involves finding innovative ways to deliver value that customers perceive as valuable and are willing to pay for. Margaretta (2002) stresses that the success of a business model lies in its creators' ability to explain how it will be implemented and provide evidence of its profitability. Therefore, while there are various e-business models mentioned above, they do not cover all future options in this field. Furthermore, determining the most suitable e-business model for small or medium-sized enterprises (SMEs) requires conducting a comprehensive SWOT analysis and examining the elements comprising their value chain.

According to Tang et Al (2003), conducting a thorough value chain analysis and combining it with a SWOT analysis of a business, along with aligning key areas with potential e-business bundles, will uncover a unique business model that fits the company's overall competitive strategy. They also argue that simply having a business model does not guarantee profitability, as it primarily explains how different components of the

business interrelate. On the other hand, the business strategy defines how the company aims to differentiate itself in the market and attract sustainable funding. Thus, it can be concluded that an SME should adopt an e-business model that effectively implements its strategy while utilizing e-business technologies to incorporate its entire value chain in order to provide optimal value to customers.

What is meant by an SME network?

An SME network refers to a group of small and medium-sized enterprises that form alliances and partnerships in order to capitalize on market opportunities.

According to writers, SMEs are adopting this concern construction as a response to the emergence of new digital markets. To remain competitive in these markets, SMEs need to update their ICT and Human Resources infrastructure. To achieve this efficiently and maintain their unique characteristics and strategies, the concept of SME networks has evolved. This structure allows SMEs to leverage economies of scale in their collective operations while still maintaining differentiation at the market level.

(Nachira, 2002) Moreover, according to O'Callaghan (2007), writers argue that small and medium-sized enterprise (SME) webs can be categorized based on distance and type of relationship. The categorization includes Local, Extended, Static, and Dynamic webs. The diagram below represents this categorization. Inactive SME webs are those with well-defined relationships typically outlined in agreements or service level agreements (SLAs) that define how the web operates. These agreements may also include details on profit sharing and cost allocation among members. The distinction between local and extended SME webs depends on the geographical location of its members. It is suggested that inactive webs can span different regions, municipalities, states, or even countries. Conversely, dynamic SME webs have

flexible relationships between SMEs that can be redefined to match market demands and opportunities.

The passage suggests that SMEs can benefit from joining a community of service providers, which allows them to adapt their skills and services to new market opportunities. This community serves as a platform for the development of emerging industries and exploration of unfamiliar technological territories. By integrating with similarly sized organizations already operating in a specific industry, an SME network gains access to greater resources and economies of scale. In return, the SME contributes its industry expertise and potentially gains exposure to new technologies. The passage also emphasizes the importance of IT in this business structure.

According to O'Callaghan (2007, pg6), IT has the potential to support SME networks by capturing, analyzing, and interpreting market intelligence data. This helps in understanding market trends and acquiring knowledge about new phenomena in the market. IT also aids in resource allocation and task coordination among different teams within SMEs, ensuring that individual efforts contribute effectively to the group's corporate goals. It serves as a repository of all activities for audit and quality assurance purposes.

Dini et al (2005) explain that an SME network can result in a business structure depicted in the diagram below. Cooperation at the bottom of the pyramid supports competition, market separation, and individual SME strategies at the top. The author emphasizes that openness is crucial for the success of this structure. SMEs should have unrestricted access to corporate knowledge, expertise, and infrastructure. The foundation of the entire structure is the Open-Source infrastructure at the bottom of the pyramid.The unfastened beginning substructure will give rise to different theoretical models for industries, enterprises, and individual

SME business models.

This attack offers multiple benefits. Firstly, the presence of basic, industry, and enterprise models ensures that SMEs created at any point within the SME web's lifecycle will have high levels of interoperability with other SMEs. This is because these models will serve as guidelines for deploying SMEs within the web. Additionally, the existence of these models will reduce the deployment costs of SMEs within the web, as the new SMEs will leverage existing concepts from the models in place. The telecoms sector provides an example of how this can be implemented, as a telecoms operator collaborates with third-party service providers to form a service ecosystem that offers value-added services to customers in a mutually beneficial manner. (Yelmo et al.)

According to (2009, pg174-175), the telecom industry has undergone changes that have led to the creation of service platforms that connect service providers, consumers, and the operator. This has transformed the operator's role from being just a conduit for services to becoming the central entity in service provision. The operator is now responsible for creating a service ecosystem around its core business - the network. The term "service ecosystem" refers to a dynamic marketplace where third-party service providers collaborate to offer a variety of services using web services technology. In the context of SME networks, the term "the web" refers to a shared infrastructure that all SMEs invest in through their combined economies of scale. This open-source infrastructure includes elements such as Customer Relationship Management Infrastructure, Supply Chain Management System, Payment mechanisms, Accounting systems, Service Level Agreements, and technology.

The small and medium enterprises (SMEs) can access a shared infrastructure provided by 3rd party service suppliers

on the web. Each supplier offers its own service and strategy to ensure optimal performance. This allows SMEs to gather information about their corporate clients, consumer behavior, and trends while maintaining privacy in certain data areas. The availability of service level agreements (SLAs) establishes standards for new SMEs and also helps resolve any disputes that may arise. As explained by Dini et al (2005) in the pyramid model, this framework defines the enterprise model for all SMEs, resulting in time and resource savings for new SMEs.

The increasing tendency towards 'service ecosystems' and their significance in national economic systems

Service Ecosystems have a significant impact on administrations across industries and markets. This is particularly important for small and medium-sized enterprises (SMEs), which make up a large percentage of businesses in most national economic systems. In Europe, for example, SMEs comprise 99.8% of all endeavors in the Union (Leon 2007, pg84). Therefore, this section of the paper will focus on how service ecosystems affect SMEs. These ecosystems provide SMEs with a platform to effectively utilize available knowledge within their industry. By learning from and leveraging the experiences of other businesses within the ecosystem, enterprises can enhance their efficiency.

For example, if an SME wants to conduct a study to assess its service delivery to customers, it can use the findings from similar studies conducted by other companies in the same industry or collaborate with other companies within the same ecosystem to reduce the cost of the study for their own corporate benefit. This ability to share knowledge within the same ecosystem has the potential to reduce the knowledge gap between large companies and SMEs. Additionally, it is argued that

the interconnectedness among companies in an ecosystem can result in global value chains comprising different enterprises, enabling these companies to enhance their services and make a positive impact in their respective areas of influence. Some of these impacts could manifest as increased competition resulting from an improved ability to provide superior services to customers. This competition will further compel businesses to seek innovative ways or strategies to differentiate themselves in the market.

The establishment of an ecosystem encourages increased investments in technology, resulting in larger economic systems. However, the high cost associated with procuring, installing, and training personnel to use new technology limits the use of e-procurement software among SMEs. A service ecosystem allows SMEs to leverage the collective strength of the group to improve negotiations with technology providers and reduce the cost of deploying new ICT infrastructure per unit. Moreover, the presence of service ecosystems helps increase the resilience of SMEs, reducing their mortality rate and preventing job losses in the economy. Additionally, service ecosystems contribute to the longer sustainability of SMEs, allowing national economies to access the special benefits inherent in SMEs and their operational nature.

Some of these advantages include: increased gross revenues, increased profitability, reduced costs, and human capital development/training. Increased gross revenues result in the need for SMEs to increase their inherent capacity to cope with the increase in demand. This results directly in job creation, thus creating additional opportunities for the unemployed to secure jobs. Increased profitability and decreased costs provide the opportunity for SMEs to experience expansions and invest in technology to improve their service to clients. These result in additional demand for the services of enterprises engaged in other

service industries such as Construction, Information Technology, Logistics, and so on. One of the ancillary activities that results from investing in new technologies, expansions, and/or restructuring is the development of human capital.

Peoples need to be trained or retrained in using new technologies and in managing new service establishments. This leads to communities that are better prepared to meet the workforce needs of businesses in their area and beyond. Additionally, some authors believe that small and medium-sized enterprises (SMEs) are an important source of entrepreneurship, encouraging change and providing a platform for innovation in economies. SMEs have been found to be less risk-averse than larger companies, allowing them to start ventures in developing industries and generate new ideas and concepts for traditional or new activities.

The enthusiasm shown by small and medium-sized enterprises (SMEs) for exploring paperless technology in their districts can be attributed to the different approach SMEs have towards intellectual property rights. In large organizations, individuals are not recognized for their innovations. The company takes credit for the ideas, and innovative concepts often have to go through multiple layers of bureaucracy to be considered viable. However, in SMEs, individuals are able to express their ideas more freely because the originator of the ideas receives recognition for them. The approval process for ideas is also much shorter, and the consequences of failure are borne by a smaller group of people. Additionally, SMEs are an important source of Foreign Direct Investment (FDI) in national economies, which is a significant economic indicator for developing countries in an economy.

Examples of this can be seen in companies like Oracle, who purchase already established companies in countries where Oracle wants to

offer services to clients. Larger companies often invest in SMEs involved in inventions and engineering, aiming to profit from their expertise in new technology. As a result, SMEs have also become significant channels for the dissemination of technology and the export of expertise to other countries (Acs and Preston 1997, pg 2-6).
Conclusion/Summary
This paper explores various barriers to the adoption of e-business by SMEs.

These barriers encompass two perspectives. The initial perspective delves into barriers that impede all small and medium enterprises (SMEs) in both developed and developing countries. These barriers include the lack of capital, skilled labor, user-friendly technologies for SMEs, information about the advantages of e-business, challenges with verifying customer data, data privacy concerns, the absence of a comprehensive dispute resolution mechanism for e-commerce transactions, apprehensions regarding privacy breaches, discrepancies in IT standards across regions, and difficulties with managing virtual identities. The second perspective focuses on barriers specific to SMEs in developing nations, such as sluggish internet penetration, bandwidth limitations, low rates of telecommunication density, limited purchasing power among the general public, and a lack of proficiency in the English language.

To answer the question of which business model is most suitable for SMEs, various arguments have been examined by studying the research of multiple authors. These arguments describe different business models and their reliance on ICT. The business models were also categorized into those that redefine traditional methods and those that introduce new value propositions in the market through enhanced ICT capabilities. Overall, it has been concluded that the perfect business model for an SME remains uncertain.

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