The Impact of E-commerce Adoption on Malaysian SME Financials

This research report examines the impact of e-commerce adoption on the financial performance of Small and Medium Enterprises (SMEs) in Malaysia. The study investigates the background of e-commerce adoption, reviews past work, and identifies gaps in existing research. The report outlines the research problem, questions, objectives, justification, scope, limitations, and methodology, including both qualitative and quantitative approaches. It details the literature review, covering domain and technical research, with specific focus on SMEs in Malaysia and their financial performance. The methodology chapter describes the research approach, variables, hypothesis, design, primary research, data analysis methods, sampling, research instruments, and ethical considerations. The report then presents the findings, including survey results, pilot testing, response rates, and statistical analysis. It analyzes qualitative results and regression analysis. The conclusion and recommendations chapter summarizes the findings and suggests ways to enhance the financial performance of SMEs through e-commerce adoption. The report includes references and an appendix with the questionnaire used in the study. The research aims to determine the level of e-commerce adoption, its influence on financial performance, and the support required from top management for business growth.

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.