Adoption of Information and Communication

Technology in Small and Medium Enterprises:

A Synthesis of Literature
Shefali Nandan

Abstract
Small and Medium Enterprises (SMEs) are an important component of the economy of a country.
Information and Communication Technology (ICT) offers tremendous opportunities for the
growth and development of SMEs. A number of researchers have tried to explore and investigate
issues related to the adoption of ICT. This paper reviews the studies that emphasize the need to
adopt ICT in SMEs, benefits of ICT in SMEs, identifies problems in adoption and offers suggestions
for overcoming barriers to adoption. An attempt has been made to link various recent researches
to present an integrated picture and identify the gaps in the existing research. The study also
provides a direction for future researches.
Key Words : e-business, Information and Communication Technology (ICT), Small and Medium
Enterprises (SMEs).

1. Introduction
Small businesses make substantial contributions to national economies and are estimated to
account for 80% of global economic growth (Jutla et al., 2002). Small and Medium Enterprises
(SMEs) are seen as a critical component in the economic growth of
developing countries because they are a major source of income,
Dr. Shefali Nandan
promote entrepreneurship, and provide employment. For this reason,
Faculty, School of
considerable attention is paid to positioning SMEs to capture emerging
Management Studies
business opportunities that have been created by the emergence of
Motilal Nehru National
Institute of Technology,
knowledge-based societies. Many of them are already demonstrating
Allahabad-211 004
their potentials and capabilities by grasping the opportunities offered
India
by Information and Communication Technology (ICT). Luetkenhorst
(2004) found that on average, they represent over 90% of enterprises
Email:
and account for 50-60% of employment at the national level. He further
eshefali@rediffmail.com
argues that SMEs are particularly important in supporting economic

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Adoption of Information and

Communication Technology in SMEs
growth and livelihoods in developing countries because they (inter alia):

tend to use more labour-intensive production processes than large enterprises, boosting
employment and leading to more equitable income distribution;
provide livelihood opportunities through simple, value-adding processing activities in
agriculture-based economies;
promote entrepreneurship; and
create linkages between small and large enterprises, and hence support the building
up of systemic productive capacities and the creation of resilient economic systems.

Despite their potential to contribute to economic growth, Medium and Small Enterprises
(SMEs) are unable to compete well due to exogenous and endogenous constraints (Harvie
and Lee, 2002; Kirby and Watson, 2003; Brown, Earle and Lup, 2005; Fogel, Hawk, Morck and
Yeung, 2006). Institutional analysis has been used in a variety of ways to diagnose and offer
remedies for functional, performance and competitiveness issues associated with SMEs (Basu
1998; Busenitz, Gomez and Spencer, 2000; Carlsson, 2002; Carney and Gedajlovic, 2002). This
paper draws upon the recent literature to identify the needs and benefits of ICT adoption in
SMEs, factors influencing ICT adoption, barriers faced and finally the solution offered. An
attempt has been made to identify the lesser explored areas, which can have a substantial
impact upon the adoption of ICT by SMEs.

2. Meaning of SMEs
SME's are usually defined as enterprises that employ no more than 250 employees. The
definitions of "small" and "medium" sized enterprises differ from one country to another. SMEs
have been defined against various criteria such as the number of workers employed, the
volume of output or sales, the value of assets employed, and the use of energy. The EU defines
a micro-organization as employing up to nine workers, the small enterprise having between
10 and 99 employees and the medium-sized enterprise having 100-499 employees. The US
defines small businesses as having up to 500 employees. In the Asia-Pacific region, SMEs are
defined based on employment, assets or a combination of the two. The most common range
in many countries is from 50-200 employees. Other definitions are based on whether the
owner of the enterprise works alongside the workers, the degree of sophistication in
management, and whether or not an enterprise lies in the "formal" sector. For example, the
Organisation for Economic Cooperation and Development (OECD) defines establishments
with up to 19 employees as "very small"; with up to 99 as "small"; from 100 to 499 as "medium";
and with over 500 as "large".
The most widely accepted definition is still one based on the ideas of the Bolton committee
(1971). The committee identified the following three important factors of an SME:

they have a relatively small share of their marketplace;

they are managed by owners or part owners in a personalized way, and not through
the medium of a formalized management structure;
they are independent, in the sense of not forming part of a larger enterprise.

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Volume 14, Number 2
In India the Micro, Small and Medium Enterprises Development Act, 2006, defines SMEs on
the basis of investments in plant and machinery. For enterprises engaged in the manufacture
of goods:
Micro - Investment in plant and machinery is less than Rs 2.5 mn

Small - Investment in plant and machinery is over Rs 2.5 mn but not exceeding
Rs 50 mn

Medium - Investment in plant and machinery is in excess of the SSI limit but less than
Rs 100 mn

For enterprises engaged in providing or rendering services:

Micro - Investment in equipment does not exceed Rs 1 mn

Small - Investment in equipment is over Rs 1 mn but not exceeding Rs 20 mn

Medium - Investment in equipment is in excess of the SSI limit but less than Rs 50 mn

Thus, there seems to be no universal definition of SMEs but most of the definitions seem to be
based upon the number of workers employed. Table 1 captures the definitions of SMEs in
selected countries.
Table 1: Definition of SMEs According to Number of Workers Employed
Defining country/ Micro
Enterprise
body

Small
Enterprise

Medium

SME
-

EU

Up to 9

10-99

100-499

US

500

Thailand

Less than 50

S. Korea

Less than 300

OECD

Upto 19 (very small) Upto99

100-499

Bangladesh

Less than 50 workers 51-200 workers

Lebanon

5-8 workers

10-30 workers

Pakistan

1-9 workers

10-300 workers

Syria

1-40 worker

40-200 workers

3. Need for Integrating ICT and SMES

SMEs inherently are small in size and in investment, due to which it is essential for them to be
able to deliver quality products and services at reduced cost. Businesses can reduce operational
costs by decreasing material, procurement and transaction costs, resulting in lower prices for
intermediate and finished goods, and they can also use more and better information to
improve the value of their output, in order to gain competitive advantage. The researches on
ICT assimilation in SMEs have mainly focused on the need to do so in the changing global
business environment. The emergence of the Internet and developments in ICT have opened
new markets and considerably altered existing ones (Brynjolfsson & Kahin, 2002). The

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Adoption of Information and

Communication Technology in SMEs
emergence and ongoing development of new forms of communication have benefited
traditional markets by bringing efficiencies in cost of goods and services (Chaston, 2001;
Matlay & Addis, 2002). ICT can also facilitate global connectivity, resulting in new ways of
creating and delivering products and services on a global scale. New business models and
market configurations enabled by ICT, including business process outsourcing and value chain
integration, provide SMEs with access to new markets and new sources of competitive
advantage, to drive income growth. The efficiency and effectiveness of the delivery system
can be achieved through the utilization of Information and Communications Technology
(ICT), which integrates SMEs into the global supply chain. Developing countries have the
potential to achieve rapid and sustainable economic and social development by building an
economy based upon an ICT enabled and networked SME sector, capable of applying affordable
yet effective ICT solutions (UNDP, 2004). Duncombe & Heeks (2001) have discussed the
opportunities that ICT provides for SMEs in developing countries.
Due to the opportunities offered by ICT, virtual companies and electronic markets were
proposed as new models of organization and transactions, where ICT is considered as the
driver of a firm's competitiveness (Kelly, 1998; Malone & Laubacher, 1998; Davidow & Malone,
1992; Malone et al., 1987; Malone et al., 1989; and Hagel & Singer, 1999).
Large firms vs. Small firms
Most researches in this area seem to have focused upon big enterprises. This view is supported
by Scott Morton (1991) and Drew (2002), who believe that researches have mainly addressed
the impact of ICT on the evolution of big corporations. Many studies have derived their critical
factors from macro perspectives at country level and have not considered the important
factors at micro level for SMEs in an integrated way.
There are many differences in every aspect in the adoption of ICT by small and big firms. The
purpose and extent of ICT adoption may differ in both type of firms, as both have different
characteristics. Storey (1997) identifies three key areas where small firms differ from the large
firm: (1) Uncertainty: the small firm tends to have a limited customer base and product line and
there is a greater diversity of owner-objectives. The motivation of the owner is a key influence
on small firm performance; (2) Innovation: Small firms tend to be more likely to introduce
essentially new innovations and are less committed to existing practices and products;
(3) Evolution: small firms are more likely to evolve and change than the large firm, which may
be due to the existence of a more flexible culture within the firm.
According to Deschoolmeester, Vanpoucke & Willaert (2004), larger companies are less
sensitive for investing in e-business than SMEs, because larger companies are mainly driven
by cost cutting to implement e-business and see more opportunities in translating their ebusiness strategy into a formal long-term plan. Yet, large firms have exploited the opportunities
offered by ICT and redesigned their organizational models around technologies. Those firms
have been able to achieve efficiency through applications aimed at increasing process
integration and automation (i.e. enterprise resource planning), which are important goals for
large companies (Venkatraman, 1994; Bradley et al., 1993).

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Technology has improved internal co-ordination among scattered employees and teams
through electronic infrastructures for communication, document sharing and co-operative
work (workflow management) (Sproull & Kiesler, 1991; Fulk & Steinfeld, 1990). Business-tobusiness (B2B) technologies have been predominantly exploited by larger firms downstream
in the supply chain rather than by upstream SMEs (Hawkins & Prencipe, 2000). Thus, big
corporations have taken advantage of network technologies to support their communication
and manufacturing processes, and also to increase the value of their internal knowledge and
competencies (Davenport & Prusak, 1998; Scott Morton, 1991).
From the 1990s, new solutions built around the Internet network have been tailored specifically
to small businesses. In particular, researchers and analysts have emphasized the opportunities
for firms to manage transactions directly through electronic commerce, by enhancing the
reach and richness of the firm's connections with the market (Kalakota et al., 1999; Bakos &
Brynjolfsson, 2000; Evans & Wurster 2000). Traditionally, research on ICT has studied implications
for firms through an evaluation of technological solutions available in the market, in order to
explain how such applications could satisfy the firms' needs based on the perspective of
technology suppliers (Goldman Sachs, 2000).
Zheng et al. (2004) believe that it is possible to obtain a complete understanding of the real
present and future impact of ICT on firm processes only through a buyer-side analysis, by
exploring how SMEs refer to technological solutions to support or transform their business
strategies.
Though the benefits of embracing technology as competitive advantage and the opportunities
resulting from globalization were identified by Levitt (1983), and despite e-business technology
facilitating improved business practice (Whitely, 2000), a number of small firms have not
capitalized on this approach (Smyth and Ibbotson, 2001). Big businesses identified the need
for integrating ICT with their processes and successfully did so. Small businesses also need to
understand the benefits of integrating ICT, from their perspective. Cooper & Burgess (2000)
identify that there has been limited academic investigation into the evolutionary process
followed by SMEs into their use of ICT.
Thus, researchers and practitioners (SMEs) both seem to have a kind of disinterest in
understanding the need for integrating ICT in SMEs.

4. Benefits of ICT for SMEs

Researchers have tried to identify the benefits of ICT for SMEs. Small businesses can leverage
inherent strengths to incorporate ICT enabled practices. The size of small businesses enables
them to be more adaptable and responsive to changing conditions than larger organizations
and to further benefit from the speed and flexibility that the electronic environment offers
(Arbore & Ordanini, 2006).
Wattanapruttipaisan (2002-03) identifies the opportunities as inter-firm linkages for enhanced
collective efficiency, technological and innovation capabilities, and hence competitiveness,

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Communication Technology in SMEs
subcontracting and outsourcing relationships, which cover processing and manufacturing
activities and services of high value-addition .
Appropriate ICT can benefit SMEs in cost cutting by improving their internal processes,
improving their product through faster communication with their customers, and better
promoting and distributing their products through online presence. (Small and Medium
Enterprises and ICT/SME Adoption, n.d.). In fact, ICT has the potential to improve the core
business of SMEs at every step of the business process.
With the use of ICT, networking with other firms, which was previously not possible due to
high co-ordination costs or high transaction risks, may become feasible. SMEs attach, next to
cost-savings, high importance to cooperation between their suppliers and clients.
Evans and Wurster, (1997) believe that ICT provides the ability to reduce transaction costs, the
development of a more level playing field with larger firms, being able to extend marketing
efforts, improve communications, identify and develop new markets, cost reduction and
developing relationships with suppliers . Improved procurement procedures and staff
recruitment are also identified as benefits (Taylor, 2001).
Fillis & Wagner (2005) have categorized perceived benefits as direct short-term,
(communication cost savings) indirect short term, (possible business and marketing
opportunities), long-term direct benefits, (customer retention and the development of business
relationships) and long-term indirect benefit (development of new business initiatives). Tse &
Soufani (2003) identify the benefits resulting from virtualization, or the electronic transaction
process as communication with a large number of customers, in a variety of geographical
settings, and distribution of product information to them and information can be accessed to
the same degree as in the large firm.
The potential benefits of e-business have also been recognized as improved communication,
establishing competitive advantage, marketing and sales promotion, and improved information
search (Ellsworth & Ellsworth, 1995; Poon & Swatman, 1999; Sterne, 1995). Enhanced
internationalization of business and being able to function 24 hours per day are further benefits,
as the owner-managers of these face-to-face and online software-training organizations
demonstrate (Hamill & Gregory, 1997; Quelch & Klein, 1996).
Thus, researches indicate that ICT can enable SMEs to improve the quality of services, operations,
efficiencies, employee management and customer satisfaction. Table 2 summarizes the
benefits of ICT adoption in SMEs. The benefits explored are from the perspective of various
operational efficiencies and customers. Not much has been explored from the perspective of
employees. This gap needs to be filled.

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Table 2: Benefits of ICT to SMEs
Benefits

Authors

Leveraging inherent strength (size)

Arbore & Ordanini, 2006

Improved communication, establishing

competitive advantage, marketing and sales
promotion, and improved information
search, cost cutting

Ellsworth & Ellsworth, 1995; Sterne, 1995; Evans

& Wurster, 1997; Poon & Swatman, 1999; Fillis &
Wagner, 2005

24-hour service

Quelch & Klein, 1996; Hamill & Gregory, 1997

Improved customer service

Evans & Wurster, 1997; Zineldin, 2000; Tse &

Soufani, 2003; Fillis & Wagner, 2005

Improved procurement procedures and staff

recruitment

Taylor, 2001

Supplier management

Evans & Wurster, 1997; Zineldin, 2000

Inter-firm linkages, value addition to services, Wattanapruttipaisan, 2002-03

manufacturing

5. Factors Determining ICT Adoption in SMEs

Despite the proven need for adoption of ICT and various benefits highlighted by various
studies, the adoption may not be very easy. Commitment to e-business adoption is influenced
by many factors. Level of adoption of IT among SMEs was not found to be of the same level as
is advancement in IT (Marshall & McKay, 2000). This low level of adoption particularly impedes
SMEs in developing countries. Since the 1980s, researchers, for example, Davis (1989, .have
attempted to investigate factors that influence the adoption of IT.
Adoption has been viewed as an outcome of a complex process of evaluation of various
internal and external factors, which may act as enablers or barriers to adoption (Cragg and
King, 1993; Dandridge and Levenburg, 2000; Lefebvre et al., 1991; Mehrtens et al., 2001;
Walczuch et al., 2000; Windrum and De Berranger, 2003).
Durkin & McGowan (2001 a, 2000b) believe that in order to develop e-business in the
entrepreneurial small firm, this must be contingent on the degree to which competencies
such as vision, value, technical ability and control can be developed. The owner-manager
must possess innovative, opportunity-focused characteristics and be open to change. Qirim
(2007) found that CEO's innovativeness was the only determinant of external-email adoption.
CEO's involvement was found to be the only determinant of Intranet adoption in New Zealand.
Bayo-Moriones & Lera-Lpez (2007) have highlighted the need to study the importance of
establishment size, multinational ownership, and a high-skilled workforce in ICT adoption.
Quality control systems and team-based organization of work were also found to play a
relevant role in the diffusion of certain elements of ICT within firms. Internal factors are
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Communication Technology in SMEs
important for the small business, where organizational and managerial factors seem to integrate
due to the high locus of control exerted by the key decision maker (Boone et al., 2000).
The determinants of the intention to use an information technology such as the Internet were
established by Chang & Cheung (2001) and complexity and long-term consequences were
not found to influence the intention to adopt the Internet/WWW. Mirchandani & Motwani
(2001) investigated the factors that differentiate adopters from non-adopters of e-commerce
in small businesses and found that factors such as compatibility, perceived usefulness, external
pressure, perceived ease of use, and organizational readiness were found to be statistically
significant as determinants of e-commerce adoption. Compatibility between e-commerce
and the firm's culture, values, and preferred work practices as well as consistency with the
existing technology infrastructure turned out to be the most influential ones as perceived by
top managers. (Grandon & Pearson, 2002).
Subramanian & Nosek (2001) and others (e.g. Barua, Kriebel, & T. Mukhopadhyay 1995; Tallon,
Kraemer, & Gurbaxani, 2000) have attempted to identify the strategic value of certain
information technologies (IT) as seen by top managers and others (e.g. D Adams, Nelson, &
Todd, 1992; Lederer, Maupin, Sena, & Zhuang, 2000), primarily through the Technology
Acceptance Model . A vast number of studies regarding the strategic value of IT have been
carried out over the last decade. These studies have typically focused on the relationship
between IT investment and the firm's performance. For example, Hitt & Brynjolfsoon (1996)
investigated how IT affects productivity, profitability, and consumer surplus. They found that IT
increases productivity and consumer surplus but not necessarily business profits. Barua et al.
(1995) concluded that there are productivity gains for firms from IT investments.
Tallon et al. (2000) argued that executives rely on their perceptions in determining whether
or not a particular IT investment creates value for the firm. Amit and Zott (2001) have focused
on identifying the perceptions of top management regarding the strategic value of
e-commerce.
Subramanian and Nosek (2001) created an instrument to validate the strategic value that an
Information System (IS) may provide by testing three factors that were found to create strategic
value in IS: operational support, managerial productivity, and strategic decision aid.
Beatty et al. (2001) found that the factors involved in the corporate website adoption process
differ depending on the time in which the technology has been adopted.
There is research in SME e-adoption and IS management, but little on SMEs e-adoption in the
context of supply chains. A number of issues emerge from research in SME e-adoption and
supply chain management. SME e-adoption approaches appear to be different to those used
by large firms ( Cox et al., 2001). Levy & Powell, 2001 demonstrate that the introduction of
ICT into SMEs is fragmented, based around operational support and transactions processing.
Typically, owner-manager interest and enthusiasm drive ICT adoption, though often in an
unplanned fashion. Customer pressure is one of the main factors in SME e-adoption.
Various models that address the appropriate use of e-commerce and IT-induced business
transformation have been proposed. Yet, these models tend to be derived from research in

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large firms; and there is little investigation of the applicability of e- across all businesses in
supply chains. For example, approaches used in managing websites with IT developed for
large firms may not be applicable to many SMEs ( Tesar & Moini, 2001). The problems
encountered by SMEs are often different from those of large firms and require different
approaches ( Blili & Raymond, 1993). Some of these models have been developed by GarciaDastugue & Lambert (2003); Kraljic (1983) with their focus on contingency and (Willcocks et
al. (2000) and Venkatraman, 1991), with their focus on development. The SME focus-dominance
model ( Levy et al., 2001) addresses both the contingent and development issue. The Internet
adoption model with its focus on factors that influence SME decisions was given by Mehrtens
et al., (2001) . The e-marketplace model was given by Kaplan & Sawhney (2000).
Recent work focuses on issues such as the service sector, e-opportunities and barriers where
e-business models are formed on a network perspective (Ramsey et al., 2003).
There are differences across industries in terms of the ability and willingness to develop
e-business and, industry-specific competencies are often needed in order to grow the business
(Carson & Hill, 1992; Drew, 2003; Poon, 1998; Ramsey et al., 2003).
Firm size, degree of exporting, awareness of benefits and customer type appear to dictate
how information communication technology (ICT) strategies develop in the small firm (Lauder
& Westall, 1997). In order to encourage the use of e-business opportunities, Government
programmes of assistance are offered (Jutla et al., 2002). Matthews (2007) has identified key
variables and challenges facing SMEs in harnessing ICT for growth, and indicated a need for
more general support to the sector to accompany government subsidies.
Although studies on the adoption of e-commerce by SMEs are relatively recent, research
antecedents are well established. Rogers' (1995) work highlights the important roles of
change agents (intermediaries) in influencing innovation decisions, including developing a
need, establishing communication, diagnosing problems, creating an intent to change and
then action. Intermediaries may also act as a means to facilitate the adoption of ICT as
observed by Swan & Newell (1995) and Newell et al. (1998, 2000).
Within the specific domain of ICT adoption by SMEs, recent studies utilizing Rogers'(1995)
model of innovation include Kendall et al. (2001) and Mehrtens et al. (2001). Technologypush and need-pull models of technology innovation adoption in information systems (IS)
(Zmud, 1984; Chau & Tam, 2000) have been proposed. These models typically identify 'push'
factors or facilitating forces such as government initiatives or technological drivers, and 'pull'
factors or restraining forces such as organizational crises. Redoli, Garca-Dez and LpezCoronado (2008a) proposed a model that helps to understand how an enterprise is using
information and communication technologies (ICTs) and "how" and "when" a company should
incorporate new technological elements. The model can also be applied to marketing research
to understand the small and medium enterprises (SMEs) emergent market related to ICTs and
to plan government policies devoted to fostering ICT introduction in SMEs.
There has been emphasis on the strategic logic in the decision to adopt ICT (Blili and Raymond,
1993; Daniel et al., 2002; Kowtha and Choon, (2001); Sadowski et al., 2002). Blili and Raymond

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(1993) concluded that Information Systems planning needed to be integrated with business
strategy. Hagmann and McCahon (1993 found that few SMEs plan their adoption of IS and that
the limited planning that was evident was focused on operational improvements and was not
concerned with competitiveness. Thus, there seems to be a lack of overall effective planning
for all the aspects of business. Southern and Tilley (2000) observed that there is an incremental
build up of knowledge and expertise in ICT to be established within the firm. This may be due
to problems in adopting increasingly complex e-business applications. This view appears
highly pertinent. Lockett, Brown (2006) emphasize the need to analyze social factors before
the initial decision to adopt by SMEs can be made as these can identify the antecedents that
need to be satisfied.
The researches have focused upon various factors including those relating to owner-skills and
vision, technology innovation, government assistance, intermediaries, operational support
and so on. A wide spectrum of issues has been considered in this area (Table 3).
Table 3: Factors determining adoption of ICT in SMEs
Factors

Authors

CEO's innovativeness, perceptions

Storey, 1997;; Tallon et al.,2000; Amit & Zott, 2001;

Levy & Powell, 2001; Knol, WHC & Stroeken, JHM,
2001; Grandon & Pearson 2002; Quirim, 2007

Orgaisational competencies (vision, value,

technical ability and control)

Poon, 1998; Carson & Hill, 1992; Durkin &

McGowan, 2001 a, 2000b; Drew, 2002; Drew,
2003; Ramsey et al., 2003

Vision, value, technical ability and control

Bayo-Moriones, Lera-Lpez , 2007

Compatibility, perceived usefulness, external

pressure, perceived ease of use, and
organizational readiness

Mirchandani & Motwani, 2001; Cox et al., 2001;

Grandon & Pearson , 2002

Strategic value of information technologies

(IT)

Subramanian & Nosek, 2001; Barua, Kriebel, &

Mukhopadhyay, 1995, Tallon, Kraemer, &
Gurbaxani, 2000; Adams, Nelson, & Todd, 1992,
Lederer, Maupin, Sena, & Zhuang (2000); Amit
& Zott, 2001; Blili & Raymond, 1993; Daniel et al.,
2002; Kowtha & Choon 2001; Sadowski et al,
2002

Productivity, profitability, and consumer

surplus

Brynjolfsoon, 1996

Time of adoption

Beatty et al., 2001

Operational support and transactions

processing

Levy & Powell, 2001

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Volume 14, Number 2

Customer pressure

Lauder & Westall, 1997; Levy & Powell, 2001

Role of intermediaries

Rogers 1995; Swan & Newell, 1995 & Newell et

al., 1998, 2000.

Appropriate business model development

Kraljic 1983; Willcocks et al. 2000; Venkatraman,

N. 1991; Levy et al., 2001; Mehrtens et al., 2001;
Kaplan & Sawhney, 2000); Ramsey et al., 2003;
Levy & Powell, 2003; Garcia-Dastugue & Lambert,
2003; Redoli, , Garca-Dez & Lpez-Coronado,
2008

Size and other characteristics of SMEs

Lauder & Westall, 1997; Storey, 1997; Boone et

al., 2000; Bayo-Moriones, Lera-Lpez , 2007

Government assistance

Jutla et al., 2002; Matthews, 2007

Technology innovation

Chau & Tam, 2000; Kendall et al., 2001; Mehrtens

et al., 2001; Zmud, 1984; Drew, 2002

6. Barriers in Adoption
A number of studies have been conducted to identify the barriers in adoption of ICT by SMEs.
One reason which inhibits adoption is the perception by SMEs that they obtain fewer benefits
than anticipated (Cox et al., 2001). Access to finance is also a major difficulty for some small
firms (Doole and Lowe, 1999; Thong, 2001; Fillis & Wagner 2005).
The use of Information Communication Technology (ICT) is low in SMEs because of lack
infrastructure, high cost Internet connection and lack of skill in ICT use. For example, 70 % of
SME in Indonesia lack skill in ICT use. ( Setyawati 2008). SMEs in the Asia-Pacific region have
been slow to adopt ICT due to poor telecommunications infrastructure, limited ICT literacy,
the high cost of ICT equipment, and incomplete government regulations for e-commerce
(Vadim) . Ninety percent of Thai SMEs still use basic communication technology such as fixed
phone line and fax, and only 1 percent use CRM software. The PricewaterhouseCoopers
(1999) Report contains a useful survey of the main issues and options relating to e-commerce
and SMEs in the Asia Pacific Economic Cooperation (APEC) region. The United Nations
Conference on Trade and Development (UNCTAD) (2001) gave an analysis of e-commerce in
the context of low-income countries and economies in transition, specifically China. In India,
the majority of Small and Medium scale categories are still in the nascent stages of ICT
adoption. They lack the knowledge of business performance improvement potential of ICT.
ICT is used as office administration and accounting automation tools at best. One cause of
limited adoption is the lack of dynamism between ICT firms and SMEs outside the ICT sector.
ICT firms have not provided goods and services tailored to SMEs in the past because demand
from SMEs has been low. However, their demand is low in part because ICT products available
in the market are too complex and expensive. The result is a vicious cycle of limited supply
and limited demand that ultimately excludes SMEs from the benefits of ICT. (Small and
Medium Enterprises and ICT/SME Adoption, n.d. )

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Although SMEs have the advantages of flexibility and rapid response to change, there are also
disadvantages due to their absolute size limitations, which may have increased due to
increased global competition (Narula, n.d.). According to the OECD (1998), there is a positive
correlation between adoption of ICT and firm size. SMEs in all sectors in the prosperous
regions of the UK, France and Italy use ICT, but only in a rudimentary fashion (Baptista, 2000).
Many small firms are failing to develop an appropriate strategy and have not, as yet, realized
the cost and time benefits of e-business (Quayle, 2002). There is a degree of dissatisfaction
with the perceived failure to deliver the early promises of the new business approach (Wallace,
2000). This is accompanied by a lack of research in the area of small firm e-business
development and an under-estimation of the importance of the small firm in general (Quayle,
2002). Challenges for SMEs to harness ICT also include high initial set up costs , problems in
the payment mechanism, low usage of credit cards, and lack of strategic focus that could
build upon power on ICT, amongst others ( Bhattarai).
Knol, & Stroeken, (2001) found that a number of factors that affect the adoption of e-commerce
relate to owner/manager characteristics, including the lack of knowledge of how to use the
technology and low computer literacy. Mistrust of the IT industry and lack of time are two
other factors that affect the decision to adopt e-commerce and SME owners' concerns about
return on their investments (Akkeren, J. & Cavaye, A.L.M., 1999). Kapurubandara and Lawson
(2006) have classified the various factors identified as causes for the reticence about internal
barriers, which can be resolved within and by the organization and external barriers, which
need to be addressed either by government intervention or by collaboration of SMEs. The
challenges faced by the SME sector in adopting ICT could be listed as follows (Veerawalli,
2008):

Cost of investment in ICT infrastructure, software and application packages;

Low PC penetration in semi urban / rural areas (In the four most populous regions in
Asia -India, China, Indonesia and the Philippines- about 75% of small businesses that
employ under 100 staff were not found to own any computers (Raymond Tan);

Communication network and bandwidth availability;

Availability of funding for the initiatives;
Lack of awareness / appreciation of the benefits of automation;
Confusion regarding choice of right products;
Problems in acquiring and retention of technical personnel to manage ICT.

There is also limited knowledge, awareness and skills on the part of SMEs concerning the
promise and requirements of ICTs as well as e-business. Moreover, significant barriers exist in
the form of insufficient access of SMEs to ICT infrastructure, hardware plus software of suitable
quality, and at affordable cost in terms of time and money.
Potential barriers include increased competition with the larger firms as they attempt to
follow small firm strengths such as flexibility and closeness to the customer (Kleindl, 2000).
The technical and Internet-specific knowledge and competence of the smaller firm, the rate

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Volume 14, Number 2
of market growth, the rate of specific industry innovation, competitive technological
competencies and industry structure also have a considerable impact on how e-business
develops (Drew, 2002).
ICT adoption among small businesses in India is less than 30%, and if the IT firms in the SME
segment are not considered, the number will be significantly less. The main reasons for low
adoption are: reluctance to adopt technology, high cost of enterprise solutions and unsuitability
for Indian markets, low level of telecom density especially in rural and semi-urban areas and
lack of funds.
Owners and managers suffer from various apprehensions like low benefits, high costs, mistrust
of IT industry and so on, which may be due to lack of proper information and awareness. Table
4 summarizes the barriers identified by various researches.
Barriers to adoption in developed and developing countries may be different . There seem to
be very few or no researches on studying this difference.
Table 4: Barriers in adoption of ICT in SMEs
Barrier

Authors

Perception of low benefits

Cox et al., 2001

Finance

Doole & Lowe, 1999; Thong, 2001; Fillis &

Wagner, 2005; Veerawalli, 2008

High cost internet, lack of skill and knowledge

of IT, poor infrastructure

Akkeren, & Cavaye, 1999; Drew, 2002; Setyawati,

2008; Veerawalli 2008 ;
Vadim; Small & Medium Enterprises & ICT/SME
Adoption; Bhattarai, n.d.

Lack of customized ICT products for SMEs

Small & Medium Enterprises & ICT/SME

Adoption , n.d.

Small size

Narula; OECD, 1998; Drew, 2002.

Inability to realize the cost and time benefits

of e-business

Akkeren & Cavaye, (1999); Quayle, 2002

Lack of research in the area

Scott Morton, 1991; Burgess, 2000; Quayle, 2002;

Non attainment of expected benefits

Fathian, Akhavan & Hoorali, 2008

Lack of strategic focus

Wallace, 2000; Veerawalli, 2008

Mistrust of IT industry

Bhattarai

Classification as Internal barriers (within

organization) and external barriers (outside
organizations)

Akkeren & Cavaye, 1999

Competition with the larger firms

Kapurubandara & Lawson, 2006

Kleindl, 2000

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Communication Technology in SMEs

7. Suggestions
Many suggestions have been offered, and models have been proposed to improve and
optimize the assimilation of ICT in various SME operations.
For the growth of SMEs, Poon (1998) identified the importance of the interplay between
market conditions, supply chain issues, industry characteristics, particular style of management,
innovation ability and entrepreneurial thinking. Jones et al (2003) developed a model of
Web-based commerce adoption. Lohrke et al. (2006) highlight the benefits of reducing SME's
transaction costs. Gupta (2007) proposed a cooperative model of learning to make each
enterprise more competitive.
Initiatives like the "VIKAS" Project in India (collaboration between NMCC and Microsoft India),
which aims at stimulating ICT absorption in the manufacturing sector may be a positive step
in that direction. (http://www.projectvikas.com/)
Business process re-engineering (BPR) is recognized as a means of either improving efficiency
or of enabling full value-added changes to be achieved , within the small- and medium-sized
enterprises (Levy and Powell, 2005).
Wong & Lu (2005) identified the key factors of successful computerization in SMEs, which
include focus on allocating their limited resources in implementing information systems
efficiently. Setting up a good plan is a critical step, and the success of information systems
strongly depends on external information technology expertise, the cost incurred to improve
the environment within an enterprise for implementing information systems, and the support
of chief executive officers. SMEs adoption of e-business is different to that of large firms. The
implication is of a need for a contingent, SME characteristic-based approach to determining
how SMEs employ ICT, rather than a 'one size fits all' solution (Zheng etal, 2004).
Bhattarai suggests that competitiveness of SMEs in the emergent business environment may
be increased by price restructuring, customized services to IT product/ service users, cultural
and intellectual shifts, among other measures. Managers need to align ICT adoption and the
strategic focus of the firm more consistently (Bayo-Moriones, Lera-Lpez 2007).
Poon and Swatman (1999) identified the importance of entrepreneurship and managerial
support as the way in which sustainable advantage can be obtained. As the small firm moves
from traditional business to e-business, this must be accompanied by the development of
appropriate knowledge and competence among the employees. e-business competitive
advantage can be achieved through the exploitation of relevant hard and soft competencies.
Fillis and Wagner (2005) believe that it can be achieved by thinking entrepreneurially about ebusiness issues. The internal competencies of the organization are central to the efficient
production of products and services through the construction of profitable relationships with
customers (Schuppel et al., 1998). The small firm grows through its ability to exploit its internal
knowledge competencies and the entrepreneurial small firm is best placed to do so with its
higher levels of creative thinking (Blackle, 1995; Fillis, 2002r). Thus, there is a need to view
SME e-business development in terms of how well the owner-manager and related key

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Volume 14, Number 2
decision makers can develop and exploit an appropriately built competency portfolio (Fillis
and Wagner 2005).
Though many suggestions have been offered in the form of business models, restructuring
and optimum utilization of firm resources and employee training, researches need to provide
specific solutions for problems in developed countries and in developing countries.
Differentiation may also be made on the basis of location, for example, rural area and urban
areas. The same solution may not fit problems everywhere.

8. Conclusion and Implications for Future Research

Researches have identified SMEs as a driver in boosting the economy of a country. Researches
have emphasized the need for adoption of ICT by SMEs in today's globalized world. Its
adoption is still low, particularly in developing countries. Researches in the recent past explored
various dimensions of application of ICT in big firms only, but now researchers have begun to
explore the implications of adopting ICT in small firms also. There are a number of factors that
affect the decision of owner-managers of these enterprises to adopt ICT. These factors are
internal and external, some are related to owners while others are related to employees.
Studies have also explored the barriers to adoption and ways have been suggested to overcome
these barriers. Various business models have been developed and critically analyzed. Though
differences between small and large firms have been studied, differences between developing
and developed countries also need to be identified in the context of ICT adoption. Models
also need to be proposed for problems arising from issues, which are specific to developing
countries. Researchers also need to focus on sector specific (for example, garments and food
processing) issues of SMEs in ICT adoption, which seems to have caught little interest.
Another issue that seems to be little explored is whether the gender of the owner-manager
has any impact on ICT adoption by SMEs.
The studies clearly indicate that ICT adoption is still very low in SMEs, but whether the increased
adoption of ICT by SMEs will result in increased researches in this area or whether the increased
researches will lead to increased adoption of ICT by SMEs remains to be explored.

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