E-commerce Adoption and Financial Performance in Malaysian SMEs

Research studies on Small and Medium-sized Enterprises (SMEs) in Malaysia have been conducted. The studies explored various aspects, including internet adoption, innovation, corporate governance practices, e-commerce adoption, and its effects on financial performance. The assignment appears to be focused on validating the SMEs' adoption of e-commerce in Malaysia, with a questionnaire designed to evaluate SMEs' awareness, adoption, and management. The aim is to identify factors that influence SMEs' decisions regarding e-commerce adoption and assess its impact on their financial performance.

Research Report

Table of Contents
Chapter-1 Introduction to the study.................................................................................................2
Introduction......................................................................................................................................2
Background of the research.............................................................................................................2
Review of past work & identification of gaps.................................................................................3
Research problem............................................................................................................................3
Research question............................................................................................................................4
Research objective...........................................................................................................................4
Justification of research...................................................................................................................4
Scope of the study............................................................................................................................5
Limitations.......................................................................................................................................5
Methodology....................................................................................................................................6
Conclusion.......................................................................................................................................6
Chapter-2 Literature Review...........................................................................................................6
Introduction......................................................................................................................................6
Domain Research.............................................................................................................................7
Technical Research..........................................................................................................................8
SMEs in Malaysia............................................................................................................................9
Financial performance of SMEs in Malaysia.............................................................................10
Conclusion.....................................................................................................................................11
Chapter-3 Research Methodology.................................................................................................12
Introduction....................................................................................................................................12
Research Approach........................................................................................................................12
Research Variables........................................................................................................................12
Hypothesis.....................................................................................................................................13
Research design.............................................................................................................................13
Primary Research.......................................................................................................................14
Data analysis methods...................................................................................................................14
Sampling........................................................................................................................................14
Research instrument.......................................................................................................................14

Ethical consideration.....................................................................................................................15
Conclusion.....................................................................................................................................15
Chapter-4 Presentation and Data Analysis....................................................................................15
Introduction....................................................................................................................................15
Survey Findings.............................................................................................................................16
Pilot testing................................................................................................................................16
Response rate.............................................................................................................................16
Analysis from statistical packages.................................................................................................16
Response format.........................................................................................................................16
Reliability test results.................................................................................................................17
Conclusion.....................................................................................................................................17
Chapter-5 Findings........................................................................................................................17
Reliability tests...........................................................................................................................19
Analysis of Qualitative results.......................................................................................................19
Regression analysis....................................................................................................................19
Chapter-6 Conclusion and Recommendations...............................................................................20
References......................................................................................................................................21
Appendix........................................................................................................................................24
Questionnaire: EC and it affects financial performance of Malaysian SME’s..............................24

Chapter-1 Introduction to the study
Introduction
The research study topic is an adoption of e-commerce and its effect on the financial
performance of the Malaysian SME's. The research is conducted on the ninety-eight SME's of
Malaysia in order to determine the impact of e-commerce adoption on the financial performance
of the company.
Background of the research
The Small and Medium Enterprises are expanding rapidly which is contributing towards the
economic development of the country as well as the worldwide economy through the growth of
the businesses and the development of practical knowledge. In the year 2011, the Small and
Medium Enterprises has contributed approximately thirty-five percent in the overall GDP of the
economy, and the accounting of all the registered establishments shows that approximately sixty
percent of the workforce is employed in the Small and Medium Enterprises.
The importance of the Small and Medium Enterprises in Malaysia manifests in numbers, and it is
estimated that the Small and Medium Enterprises employed approximately sixty-five percent of
the workforce. The Small and Medium Enterprises contributes approximately 50% towards the
GDO of the country in the year 2013 which is half of the whole country’s level of income
generation.

The adoption of electronic commerce is important for the Small and Medium Enterprises in
Malaysia because it provides various advantages to the country such as the increase in the
profitability of the companies, minimization of costs, standardization and streamlined of
operations, increases the market reachability and enables to enter into the new market. The
research study shows that the adoption of EC enables to develop the healthy relationship with the
customers as well as the suppliers which lead to improving the sales volume of the company and
overall performance within the particular period of time. The performance of Small and Medium
Enterprises has also improved with the adoption of EC through improving the operations of the
company which enables to relocate the resources, but it can sometimes be limited to enhance the
operations of the company in order to maximize the growth.
Review of past work & identification of gaps
The previous research shows that adoption of e-commerce and its benefits but the relationship
between the financial performance of Small and Medium Enterprises and adoption of e-
commerce are not analyzed in the previous study. So this research work contributes towards the
awareness of the business regarding the adoption of e-commerce in order to achieve the mission
and vision of the company.
Research problem
There are four measures which are used to determine the impact of e-commerce adoption on the
performance of Small and Medium Enterprises. According to the previous research studies, there
are various factors which influence the use of e-commerce in Small and Medium Enterprises.
Furthermore, other research studies are conducted in order to determine the impact of e-

commerce adoption on the financial performance of the company. It is also studied that the e-
commerce influence the operations of the company by adding additional facilities such as e-
marketing, customer service, new business opportunities and others.
Research question
1. How the financial performance of SME's is influenced by the adoption of E-commerce?
2. How many levels of awareness is required by SME's in Malaysia for the business
growth?
3. What is the current level of e-commerce adoption by SME's in Malaysia?
4. How the adoption of e-commerce is supported by the top management in order to
improve the financial performance of the company?
Research objective
1. The primary objective is to find the impact of e-commerce on the financial performance
of SME's in Malaysia.
2. Another objective is to find the empirical evidence in context to the awareness of e-
commerce on the overall performance of the company.
3. The objective is to determine the support of top management for the adoption of e-
commerce and to recommend the findings in order to enhance the financial performance
of the company.

Justification of research
According to the researchers, the adoption of EC by the Small and Medium Enterprises leads to
improve the performance of employees, and it also improves the efficiency of the employees in
order to perform the job in a most efficient and effective manner. The internal and external
communication of the Small and Medium Enterprises is improved by the adoption of EC through
accessing of information by all the stakeholders of the company which aids strategic planning for
the expansion and growth.
The purpose of the research is to evaluate the relationship between the adoption of EC and the
financial performance of the Small and Medium Enterprises of Malaysia. The analysis involves
the identification of significant factors which increase the awareness of EC and its adoption in
order to achieve the goals and objective of the company. The SME's are unable to determine the
potential of adopting the financial performance of the company, so the research enables to
provide the insight in order to implement the e-commerce within an organization.
Scope of the study
The application of e-commerce by the SMEs in Malaysia is a limited research. The factors
which are related to the adoption of e-commerce and impact on the financial performance of
SMEs in Malaysia are selected various economic sectors in Kuala Lumpur. The interview is
conducted by the financial department and management of the SMEs. The SMEs are taken who
has annual sales turnover is less than 25 Million with the total employees range between 20 and
50.

Limitations
There are various limitations which come at the time of conducting the research such as the
difficulty of gathering information due to cost as well as a time constraint. Another limitation is
to contact with the top level management in order to collect the information. The research is
conducted through internet source due to which there was the lack of interaction with the
respondents, and the reliability of data is limited. The customer feedback and other stakeholders
response are absent in this study.
Methodology
The qualitative as well quantitative research methodologies are used in order to conduct the
research study. The qualitative research is used to analyze the results, and quantitative data is
used to analyze the data by using the statistical tools.
Conclusion
It can be concluded that the research study provides an insight to the SME's in Malaysia. The
background of the study shows that the adoption of e-commerce enhances the operations of the
SME's which enables to achieve the mission and vision of the company.

Chapter-2 Literature Review
Introduction
In this chapter, the conceptual background and theoretical framework of the previous research
study related to the adoption of e-commerce by the SME's in Malaysia are discussed.
Domain Research
According to the Daniel et al., 2002 the e-commerce usage is divided into four areas, namely,
marketing, communication, business with customers, business with suppliers and for the
information research (Abdullah et al., 2010). Martin and Matlay et al., 2003 states that the
marketing activities are the application of e-commerce. There is various application of e-
commerce such as website, emails, and others which are very cost effective marketing tools in
order to build the brand image in the eyes of the customers. Michalak and Jones et al., 2003
states that the application of e-commerce includes internet based order processing which
improves the customer service that directly improves the sales volume of the company (Alam et
al., 2011). Auger &Gallaugher et al., 1996 suggests from his study that the internet
infrastructure can be improved by the SME's in order to develop the virtual community which
encourages the interaction between the service providers, manufacturers, suppliers, and
customers through exchanging information by websites (Frambach R et al., 1993) .
Hsieh & Lin et al., 1998 states that the use of websites can be divided into various categories
such as promotion, commerce, search agent, content and corporate information (Hussey J et al.,
1997). Hoffman et al., 1995 found in their study use of commercial websites lie under the

marketing communication. Sulaiman et al., 2000 found in his study that the application of e-
commerce can be categorized as the electronic advertisement, electronic marketing, services of
customer support, and online payment.
The empirical studies show that the adoption of e-commerce is not completely adopted by the
SME's. Poon and Swatman et al., 1997 conduct the study which shows that the internet is used as
a mode of communication in the small businesses and internet based communication is email
which is one of the most popular tools that is used by the SMEs (Beatty RC et al., 2001). But the
usage of conventional communication tools is higher than the email by SMEs. Chapman et al.,
2000 found in his study that the use of e-commerce in SMEs is lagging behind the large
companies because the SMEs have fewer resources are expertise for the implementation of e-
commerce in an organization (Daniel E et al., 2002).
Technical Research
Pool et al., 1997 conduct the survey in order to determine the implementation of e-commerce by
the SMEs and it is founded on the research that the advanced applications of e-commerce are not
implemented by most of the companies, for example, electronic payment, online order
processing and others (Ates et al., 2013). Ho et al., 1997 apply the model in order to conduct the
research study regarding the importance of commercial websites from the various parts of the
world. The study has categorized the use of e-commerce as into research for information,
promotion of products, business transaction processing and others (Ali et al., 2000). The model
is further used by the Burgess and Cooper et al., 1998 and merged with the internet business
model which is further developed as the graphical model (Molla et al., 2015). Sulaiman et al.,
2010 and Khatibi et al., 2003 conduct the research study in order to determine the barriers in the

SMEs regarding the adoption of e-commerce however both the studies were explanatory due to
which in-depth study regarding the hindrance factors was not considered (Chong S et al., 2001).
Paynter and Lim et al., 2001 has conducted the research regarding the determination of
hindrance, but they focus on the internet users rather than the companies (Sekaran U et al.,
2003).
SMEs in Malaysia
According to the Malaysian Bureau of statistics 2012, it is shown that 645,136 Small and
Medium Enterprise are the main sectors of economies, namely, agriculture, manufacturing and
services which contribute towards the Gross domestic product of the country (Alam et al., 2009).
According to the reports in the year 2013, there is approximately 89.8 percent registered SMEs
are under the manufacturing and financing sectors which contribute towards the development of
the economy (Anggadwita et al., 2014). Taylor & Murphy et al., 2008 states that there are some
limitations such as lack of innovative technological applications, financial resources, business
support, and operations scope due to which most of the SMEs are not able to survive in the in the
business world (Seow et al., 2006). Mckisney et al., 2001 states that approximately 8% of the
Asian companies have adopted the application of e-commerce (Mehrtens J et al., 2001).
Thyagarajan and Seetharaman et al., 2003 found in his reports that the e-commerce is adopted by
approximately 23.7% in the Asian countries in which the Malaysian wired population is
approximately 1.2% that is highly lower as compare to the US countries (30%) (Huff S et al.,
2000). According to Sulaiman et al., 2000 it is found that the adoption of e-commerce is
encouraged, but the usage of e-commerce is still limited. According to the Economist

intelligence unit et al., 2001 there are approximately 30% SMEs who have adopted e-commerce
which is relatively lower than the adoption in Europe which is 80% (Alam et al., 2009).
Financial performance of SMEs in Malaysia
The growth of SMEs in the year 2011-12 is nearly 5.9% which is supported by the various
government programs. Porter et al., 2001 states that the adoption of internet enhances the
profitability of the company through increasing its reachability. Abouzeedan and Busler et al.,
2002 states that the various opportunities are improved by the adoption of the internet. Brakel
and Mutula et al., 2006 explained that the internet based SMEs are enabled to compete around
the world which helps to maximize the profitability of the company (Eurostat et al., 2004). Tan
et al., 2009 states that there is the positive correlation between the Malaysian SMEs and internet
adoption. Jon et al., 2002 explained that the adoption of innovation is positively related to the
adoption of e-commerce which improves the financial performance of the SMEs through
improving the efficiencies in operations (Öztürk et al., 2005). It is shown in the reports that the
one-stop powerhouse had US$3 Million profit in the year 2001 which directly contributes
towards the GDP of the country (Kurnia et al., 2015). The SMEs who have implemented e-
commerce their financial performance is improved.

Source: (IDC et al., 2001) the Internet commerce market model
In the Malaysia, SMEs are defined as any organization which has less than two hundred people
with the turnover of not more than RM 50Million yearly in the manufacturing sector, maximum
75 employees with the maximum turnover of RM 20 Million yearly in the service sector. It is
founded in the reports that the SMEs have presently hired 30% of the total labor in the market of
the 99% of the business (Kinfack et al., 2012). The SMEs contribute 30% of the overall GDP of
the country, but the nineteen percent of the total export is still lagging behind as compared to the
contribution of SMEs in ASEAN countries which is fifty percent of the total value of exports.
Approximately 72% of the Malaysian SMEs are family owned, and 60% are not practiced by the
corporate governance (Khan et al., 2014). There are eighty-one government funds with the total
allocation of RM 12.7Billion (Shuid et al., 2012).
Conclusion
It can be concluded that the adoption of e-commerce and financial performance of the SMEs has
a direct relationship and the performance of the SMEs have been improved which contributes

towards the GDP of the economy (Kuan KKY et al., 2000). The literature review in this area is
wide and immense, and it is also enough to understand that the adoption of e-commerce has
improved the financial performance of SMEs.
Chapter-3 Research Methodology
Introduction
In this chapter, the research methodology is described which includes the research framework
and approach followed by the research hypothesis which is based on the research variables. The
chapter also discusses the samples, questionnaire, the methodology used to conduct the research.
Research Approach
The qualitative and quantitative research approach is used to conduct the research study. The
deductive approach is used in order to determine the conclusion.
Research Variables
There are two types of variable, namely, independent and dependent variables and it is assumed
that there is the casual relationship between the variables. The financial performance of SMEs is

considered as dependent variable and e-commerce level of adoption, management support
towards the adoption of e-commerce.
Hypothesis
H1: High level of e-commerce awareness impacts positively on the financial performance of the
SMEs.
H2: High level of e-commerce adoption impacts on the financial performance of the SMEs.
H3: High-level support of top management positively impacts on the financial performance of
the SMEs.
H4: There is no significant relationship between the adoption of e-commerce and financial
performance of SMEs.
Research design
The qualitative research is conducted with the explanatory variables and the qualitative as well as
quantitative are attributed that involves the impact of e-commerce on the financial performance
of the SMEs. The questionnaire is used to collect the quantitative data, and there are twenty
questions in the questionnaire. The questionnaire includes four sections, namely, personal
information, e-commerce awareness, the level of e-commerce adoption, supported by
management for e-commerce adoption.

Primary Research
The primary research is defined as the first-hand information which is collected from the
respondents in order to conduct the research study. The research is conducted on the SMEs in
Malaysia in order to determine the impact of e-commerce adoption on the financial performance
of the company.
Data analysis methods
The statistical tools are used to conduct the data analysis, namely, SPSS version 17 which
enables to compute the information which is collected from the questionnaire. The descriptive
tools are used to conduct the analysis, namely, mean and standard deviation. The inferential
analysis is conducted in order, to sum up, the data which is collected.
Sampling
The data is collected from the ninety-eight SMEs in order to conduct the research study. There
are three dimensions of the research which are constituted in the questionnaire. The
questionnaire is developed on the basis of previous research study then the pilot study is
conducted in order to determine the validity of the usability of the data after that the data is
modified in order to achieve the objectives of the research.
Research instrument
The questionnaire is used as the instrument in order to conduct the research, and the data
information is collected via emails, personal interview, phone calls in order to collect the
information. The secondary data is collected from the documents, journals and research papers.

Ethical consideration
Following are the ethical consideration of conducting the research study:
1. The permission has been taken from the respondents before conducting the research.
2. All the intellectual properties are discussed in the research reports.
3. The confidentiality and privacy of an individual are maintained in the research.
4. The research has also considered states and federal law as well as regulations.
5. The practical security measures have been taken in order to maintain the confidentiality
of data.
Conclusion
It can be concluded that the qualitative as well quantitative methods are used to conduct the
research study. The sample size is ninety-eight. The questionnaire is the research tool which is
used to conduct the research and data analysis is done through using SPSS version 17. The pilot
study is conducted in order to determine the reliability of data and regression analysis is
conducted in order, to sum up, the data which is collected from the survey.
Chapter-4 Presentation and Data Analysis
Introduction
In this chapter, the data interpretations and analysis is conducted in order to determine the
findings of the research study.

Survey Findings
Pilot testing
The feedback of the respondents is adequate and satisfactory, so there is no improvement
required in the questionnaire. The aim of the pilot study is to analyze the validity of the questions
in every section. The group of respondents is selected in order to conduct the pilot study which
was SMEs from Malaysia. The Factor analysis was conducted through using SPSS in order to
determine the validity of the data. The factor loading is relatively contributed towards the
questions and questionnaire consists three parts.
Response rate
There were total 188 questionnaires which were dispersed out of it 98 feedback were received.
Hussey and Hussey et al., 1997 states that the mail distribution method should be used to avoid
the sample bias. The total response rate of the research is 52.1%.
Analysis from statistical packages
Response format
The mean and standard deviation is used to conduct the research analysis for determining the
level of e-commerce adoption among the respondents and its impact on the financial
performance of the SMEs in Malaysia. The five-point scale is used to measure the results and
from three points and above the response is considered as good.

Reliability test results
It is conducted in the research in order to determine the reliability of the data and Cronbach's
alpha is used to determine the results.
Conclusion
It can be concluded that the regression analysis, mean, standard deviation, reliability tests, pilot
study, and the response rate is conducted by the researchers in order to determine the adequate
results.
Chapter-5 Findings
In the below table 1 the mean and standard deviation of the three predictors are shown. The
results show that the mean varies from 3.93 to 4.67 and the overall mean 4.24. It can be stated
that the majority of respondents agrees that all the three predictors are essential to improve the
financial position of the company. The results are derived from the demographic information
which is extracted from the table 2.
Table 1: The distribution of the respondents’ opinions about EC adoption
and how it affects financial performance of Malaysian SME’s
Items Mean S.D.
IV1 EC awareness 4.67 1.3
IV2 Level of EC adoption 4.12 1.0
IV3 Support by management towards EC adoption 3.93 0.9
Total 4.24 1.1

Table 2 Demographic information of respondents (N = 98).

Variable Frequency Percentage
Industry Financial 98 100
Year in business
Less than a year
1-4
5-8
10
20
50
10.2
20.4
51.0
9-11 12 12.2
> 12 6 6.2
Total 98 100
No. of employees
Less than 5
5-50
51-99
12
67
10
12.2
68.4
10.2
100-150 9 9.2
Total 98 100
Annual sales turnover
< RM250,000
> RM250,000 < RM10m
56
28
57.1
28.6
> RM10m < RM25m 14 14.3
Total 98 100
No. of personal computer
(PC)
< 10
> 10 < 20
> 20 < 30
63
20
12
64.3
20.4
12.2
> 30 3 3.1
Total 98 100
Access to the internet Yes 65 66.3
No 33 33.7
Total 98 100
Website availability Yes 24 24.5
No 74 75.5
Total 98 100
Utilization of EC Yes 24 24.5
No 74 75.5
Total 98 100

Reliability tests
The Cronbach's alpha coefficient is used to determine the internal consistencies and reliability of
the scale. Cronbach's alpha can be interpreted as a correlation coefficient in which the range
varies between 1 and 0. All the factors are determined to be good reliability which is determined
in table 2, and all the Cronbach's alpha result are above than 0.6 which shows that the results are
good,
Table 2. Reliability tests result.
No. Variable Cronbach's alpha result Result
1. EC awareness 0.921 Good scale
2. Level of EC adoption 0.737 Good scale
3. Management EC adoption 0.910 Good scale
4. Supposed benefit 0.609 Good scale
5. E-commerce adoption 0.703 Good scale
Analysis of Qualitative results
Regression analysis
The multiple regression analysis is conducted in the research in order to determine that which
independent variable is significant to predict the outcome of the dependent variable of the
adoption of e-commerce and its impact on the financial performance of SMEs. The R-square test
is conducted in order to determine the proportion of mean variance of the dependent variable
which is explained by the independent variables.
The adjusted R-Square results show 0.465 which shows the acceptable medium predictive power
of the independent variables on the dependent variables. The Dublin Watson test is 1.418 which
shows that there is no autocorrelation is present because the ideal results are near to 2. There is

the significant difference which is presented between the independent and dependent variables.
The results show that there is e-commerce adoption is supported by the management and it
influences the financial performance of the SMEs.
Table 3 Adjusted R-square and Durbin-Watson test.
Test Result
R-Square 0.483
Adjusted R-Square 0.465
Durbin-Watson 1.418
Chapter-6 Conclusion and Recommendations
From the above analysis, it can be concluded that the adoption of e-commerce has a significant
impact on the financial performance of the SMEs and it is supported by the management of the
company. The results show that there is a significant relationship between the variables. It is
recommended to adopt the e-commerce by SMEs in Malaysia in order to improve the financial
performance of the company.

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Appendix
Questionnaire: EC and it affects financial performance of Malaysian SME’s
Contact person:
Telephone number:
Email:
This evaluation is part of the validation of the SMEs adoption in Malaysia: E-commerce
adoption and how it affects the financial performance of Malaysian SME's. The questionnaire
aims to evaluate the SMEs in terms of its awareness, adoption, and management. This
questionnaire consists of 17 questions grouped into 3 sections.
Personal information
1. Current level of education
Degree Master Ph.D. Post-doctorate
2. Department
Auditing Accounting Others
3. Position:
4. Specialization:
Please answer the below questions based on your experience related to SMEs.
Section 1: EC awareness
Please mark (X) on your answer.
1 2 3 4 5

Strongly Disagree Disagree Not Sure Agree Strongly Agree
Question Rating
1 2 3 4 5
1. Is there any difficulty occurred in adopting EC?
2. Did you see the benefits of adopting EC in other businesses?
3. How profitable the adoption of EC as innovation is thought by
the SMEs?
4. Does the market share is improved by the adoption of EC?
5. Does the productivity improve with the adoption of EC?
6. Does the dealing with suppliers is improved by the adoption of
EC by SMEs?
7. Does the flow of the business process is improved by the
adoption of EC?
8. Does the adoption of EC improves the
9. Does SMEs adoption increase accessibility to the end-users?

Section 2: Level of EC adoption
Please mark (X) on your answer.
1 2 3 4 5
Strongly Disagree Disagree Not Sure Agree Strongly Agree
Question Rating
1 2 3 4 5
10. Do the benefits gained from the adoption of EC is measured
through coverage of the wider market, low business cost, and
others?
11. E-commerce is more acceptable if the business conversion is
carried out and if the grant is given to cover the high costs of
startups?
12. Please rate the security over the online credit payment
transactions.
13. How would you rate the lack of skilled workers in order to
maintain the EC system?
14. Will the adoption Improve business processes flow?
Section 3: Support by management for Enhancement

Please answer the questions. This is used to take the feedback which will be used to improve the
SMEs for EC.
15. What problems had you experienced at the time of adopting EC?
16. What improvements do you want to recommend for the adoption of EC?
Thank you very much for your feedback!