Exploring E-commerce Benefits for Malaysian SMEs
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The provided content appears to be a collection of academic articles and reports related to the topic of e-commerce (EC) and its impact on small and medium-sized enterprises (SMEs) in Malaysia. The papers explore various aspects of EC adoption, including its benefits, challenges, and factors influencing SMEs' decisions to adopt EC. Additionally, there is an assignment content that contains a survey aimed at understanding the level of EC awareness among SMEs and their experience with using EC. The purpose of the survey seems to be gathering feedback on how to improve the EC system for SMEs.
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Table of Contents
Chapter 1: Introduction ……………………………………………………………………….1
1.1 Background of the research ………………………………………………………………………………………………….3
1.2 Research Variable ………………….……………………………………………………………………………………………….4
1.3 Problem Statement …………………………………………………………………………………………………………………4
1.4 Research Questions …………………………………………………………………………………………………………….….5
1.5 Research Objectives ……………………………………………………………………………………………………………….6
1.6 Significance of the research…….…………………………………………………………………………………………….6
1.7 Limitations of the research ………………………………………………………….……………………………………….7
1.8 Scope of the research …………………………………………………………………………………………………………….7
1.9 Feasibility of the research…………………………………………………………………………………………………….7
1.10 Summary……………………………………………………………………………………………………………………………….8
Chapter 2: Literature Review………………………………………………………………….9
2.1 Introduction …………………………………………………………………………………………………………………………….9
2.2 E-commerce (EC)……………………………………………………………………………………………………………………10
2.3 SME’s in Malaysia …………………………………………………………………………………………………………………10
2.3.1 Financial performance of SME’s in Malaysia………………………………………………………......11
2.4 E-commerce awareness in SME’s……………………………………………………………………………………….12
2. 5 Level of EC adoption in SME’s …………………………………………………………………………………………12
2. 6 Support by management towards EC adoption …………………………………………………………….13
2.7 Conclusion …………………………………………………………………………………………………………………….……….13
Chapter 3: Research Methodology…………………………………………………………...14
3.1 Introduction ………………………………………………………………………………………………………………………….14
3.2 Research Framework………………….……………………………………………………………………………………….14
3.3 Research Hypotheses ………………….……………………………………………………………………………………….15
1
Chapter 1: Introduction ……………………………………………………………………….1
1.1 Background of the research ………………………………………………………………………………………………….3
1.2 Research Variable ………………….……………………………………………………………………………………………….4
1.3 Problem Statement …………………………………………………………………………………………………………………4
1.4 Research Questions …………………………………………………………………………………………………………….….5
1.5 Research Objectives ……………………………………………………………………………………………………………….6
1.6 Significance of the research…….…………………………………………………………………………………………….6
1.7 Limitations of the research ………………………………………………………….……………………………………….7
1.8 Scope of the research …………………………………………………………………………………………………………….7
1.9 Feasibility of the research…………………………………………………………………………………………………….7
1.10 Summary……………………………………………………………………………………………………………………………….8
Chapter 2: Literature Review………………………………………………………………….9
2.1 Introduction …………………………………………………………………………………………………………………………….9
2.2 E-commerce (EC)……………………………………………………………………………………………………………………10
2.3 SME’s in Malaysia …………………………………………………………………………………………………………………10
2.3.1 Financial performance of SME’s in Malaysia………………………………………………………......11
2.4 E-commerce awareness in SME’s……………………………………………………………………………………….12
2. 5 Level of EC adoption in SME’s …………………………………………………………………………………………12
2. 6 Support by management towards EC adoption …………………………………………………………….13
2.7 Conclusion …………………………………………………………………………………………………………………….……….13
Chapter 3: Research Methodology…………………………………………………………...14
3.1 Introduction ………………………………………………………………………………………………………………………….14
3.2 Research Framework………………….……………………………………………………………………………………….14
3.3 Research Hypotheses ………………….……………………………………………………………………………………….15
1
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3.4 Research Design………………….…………….…………………………………………………………………………….15
3.5 Data analysis method ………………….…………….…….…………………………………………………………….15
3.6 Sampling ………………….…………….…….………………………………………………………………………………….16
3.7 Research Instrument ………....…….………………………………………………………………………………….16
3.8 Questionnaire Design ………………….…………….…….…………………………………………………………….16
3. 9 Results ………………….…………….…….…………………………………………………………………………………….17
3.9.1 Pilot testing ………………….…………….…….…………………………………………………………………….17
3.9.2 Response rate ……………...…………….…….…………………………………………………………………….17
3.9.3 Response format ……..…………….…………….…….………………………………………………………….17
3.9.4 Reliability tests ………………………….…….…………………………………………………………………….18
3.9.5 Regression analysis ……………..…….…………….…….……………………………………………………..19
3.10 Conclusion………….…………….…….………………………………………………………………………………………20
References
Appendix
2
3.5 Data analysis method ………………….…………….…….…………………………………………………………….15
3.6 Sampling ………………….…………….…….………………………………………………………………………………….16
3.7 Research Instrument ………....…….………………………………………………………………………………….16
3.8 Questionnaire Design ………………….…………….…….…………………………………………………………….16
3. 9 Results ………………….…………….…….…………………………………………………………………………………….17
3.9.1 Pilot testing ………………….…………….…….…………………………………………………………………….17
3.9.2 Response rate ……………...…………….…….…………………………………………………………………….17
3.9.3 Response format ……..…………….…………….…….………………………………………………………….17
3.9.4 Reliability tests ………………………….…….…………………………………………………………………….18
3.9.5 Regression analysis ……………..…….…………….…….……………………………………………………..19
3.10 Conclusion………….…………….…….………………………………………………………………………………………20
References
Appendix
2
E-commerce adoption and how it affects financial performance of Malaysian SME’s.
Abstract
E-commerce (EC)has been predicted to be a new driver of economic growth for developing
countries. The SME sector plays a significant role in its contribution to the national economy
in terms of the wealth creation and employment. The scope of this research focus primarily
on the adoption EC and how it affects financial performance of Malaysian SME’s. Many
factors could be responsible for the low usage of EC among the SMEs in Malaysia. The
finding of the research indicated that adoption factors such as EC awareness, level of EC
adoption and support by management towards EC adoption are positively related to EC
adoption in Malaysia SME. Also, findings implied that more efforts are needed to help and
encourage SMEs in Malaysia to speed up EC adoption, particularly the more advanced
applications and how it affects financial performance. The result was found consistent with
the outcome from former researches in similar area. Hence, such generalization from the
result of the research particularly in Malaysia SMEs can be measured as suitable and
applicable in view of the existing financial competitive marketing environment that demands
a better way of managing business as compared to the traditional means.
3
Abstract
E-commerce (EC)has been predicted to be a new driver of economic growth for developing
countries. The SME sector plays a significant role in its contribution to the national economy
in terms of the wealth creation and employment. The scope of this research focus primarily
on the adoption EC and how it affects financial performance of Malaysian SME’s. Many
factors could be responsible for the low usage of EC among the SMEs in Malaysia. The
finding of the research indicated that adoption factors such as EC awareness, level of EC
adoption and support by management towards EC adoption are positively related to EC
adoption in Malaysia SME. Also, findings implied that more efforts are needed to help and
encourage SMEs in Malaysia to speed up EC adoption, particularly the more advanced
applications and how it affects financial performance. The result was found consistent with
the outcome from former researches in similar area. Hence, such generalization from the
result of the research particularly in Malaysia SMEs can be measured as suitable and
applicable in view of the existing financial competitive marketing environment that demands
a better way of managing business as compared to the traditional means.
3
E-commerce adoption and how it affects financial performance of Malaysian SME’s.
Chapter 1: Introduction
1.1- Background of the research:
Small and Medium Enterprises (SME’s) rapid expansion has put a great contribution to the
economy world-wide, either directly or indirectly, through developing practical knowledge or
growth of different types of businesses (Nejadirani, Behravesh, & Rasouli, 2011). Additionally,
SME’s contribute to approximately 35% of the country’s entire GDP in 2011, accounting for
99% of all registered establishments, employing approximately 60% of the workforce (SME
Master Plan 2012, 2012).
Furthermore, the importance of SME’s to the Malaysian economy manifests in numbers, as in it
was estimated that in 2013 SME’s employed 65% of the workforce, and contributed to the
country’s GDP by at least 50%, accounting for half what the entire country made (Khan, 2014),
which makes developing those SME’s vital for economic growth, and stimulating the economy.
Electronic Commerce (EC) adoption is perceived to be important for SME’s in Malaysia as they
have several advantages, it was reported that adopting E-commerce in SME’s helps reduce costs,
thus increasing profitability, helps making operations streamlined and standardized, and enhance
the company’s market reach, and new market penetration. Research also indicates that EC
adoption in SME’s help them establish relationships with both customers and prospects, which
helps increasing productivity and enhance the overall performance of the enterprise (Kinfack,
2012). SME’s performance was also reported to benefit from EC through making operations
more efficient, which help in reallocating resources available to SME’s, which could be limited
sometimes to optimize operations for maximum growth.
It was also reported that EC adoption in SME’s improves job performance amongst employees of
SME’s, as well as efficiency enhanced with increased levels of EC adoption in SME’s. Cost
reductions associated with EC adoption were also reported to allow stakeholders access to
information relative to performance of the establishment, which in turn enhances communication
4
Chapter 1: Introduction
1.1- Background of the research:
Small and Medium Enterprises (SME’s) rapid expansion has put a great contribution to the
economy world-wide, either directly or indirectly, through developing practical knowledge or
growth of different types of businesses (Nejadirani, Behravesh, & Rasouli, 2011). Additionally,
SME’s contribute to approximately 35% of the country’s entire GDP in 2011, accounting for
99% of all registered establishments, employing approximately 60% of the workforce (SME
Master Plan 2012, 2012).
Furthermore, the importance of SME’s to the Malaysian economy manifests in numbers, as in it
was estimated that in 2013 SME’s employed 65% of the workforce, and contributed to the
country’s GDP by at least 50%, accounting for half what the entire country made (Khan, 2014),
which makes developing those SME’s vital for economic growth, and stimulating the economy.
Electronic Commerce (EC) adoption is perceived to be important for SME’s in Malaysia as they
have several advantages, it was reported that adopting E-commerce in SME’s helps reduce costs,
thus increasing profitability, helps making operations streamlined and standardized, and enhance
the company’s market reach, and new market penetration. Research also indicates that EC
adoption in SME’s help them establish relationships with both customers and prospects, which
helps increasing productivity and enhance the overall performance of the enterprise (Kinfack,
2012). SME’s performance was also reported to benefit from EC through making operations
more efficient, which help in reallocating resources available to SME’s, which could be limited
sometimes to optimize operations for maximum growth.
It was also reported that EC adoption in SME’s improves job performance amongst employees of
SME’s, as well as efficiency enhanced with increased levels of EC adoption in SME’s. Cost
reductions associated with EC adoption were also reported to allow stakeholders access to
information relative to performance of the establishment, which in turn enhances communication
4
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both internally and externally aiding in strategic planning for SME’s growth and expansion
(Seow, 2006).
This research will attempt for the aforementioned reasons to analyze the relationship between EC
availability and adoption in Malaysian SME’s and performance from a financial point of view,
an analysis that requires the definition of different and most important factors which may
obscure awareness of EC to business growth, or the inefficient implementation of EC towards
achieving the organization objectives.
1.2- Research Variables:
The dependent Research Variable is: Financial performance of SME’s.
The first Independent Variable (IV1) is: EC awareness by SME’s.
The second Independent Variable (IV2) is: level of EC adoption by SME’s.
The third Independent Variable (IV3) is: support by management towards EC adoption.
1.3- Problem Statement:
It was found that EC adoption affects the performance of SME’s as a whole, which are usually
measured by four main indicators; productivity, profitability, cost, and sales. Additionally, many
factors have that influence EC adoption in SME’s have been studied, and mostly related to four
major indicators in large firms. On the other hand, few studies have examined how EC adoption
can affect the performance of SME’s if it is applied, and if it is already applied how aware and
supportive the management would be. As well as how can EC influence the enhancement and
optimization of operations, and add new ones such as customer service and E-marketing, which
opens up new business opportunities to SME’s (Sidik, 2012).
This research will attempt to understand the relationship between EC adoption and financial
performance enhancement, as it is thought that there are two factors that may influence
performance in SME’s; internal and external (Ates, 2013), and EC adoption is considered one of
5
(Seow, 2006).
This research will attempt for the aforementioned reasons to analyze the relationship between EC
availability and adoption in Malaysian SME’s and performance from a financial point of view,
an analysis that requires the definition of different and most important factors which may
obscure awareness of EC to business growth, or the inefficient implementation of EC towards
achieving the organization objectives.
1.2- Research Variables:
The dependent Research Variable is: Financial performance of SME’s.
The first Independent Variable (IV1) is: EC awareness by SME’s.
The second Independent Variable (IV2) is: level of EC adoption by SME’s.
The third Independent Variable (IV3) is: support by management towards EC adoption.
1.3- Problem Statement:
It was found that EC adoption affects the performance of SME’s as a whole, which are usually
measured by four main indicators; productivity, profitability, cost, and sales. Additionally, many
factors have that influence EC adoption in SME’s have been studied, and mostly related to four
major indicators in large firms. On the other hand, few studies have examined how EC adoption
can affect the performance of SME’s if it is applied, and if it is already applied how aware and
supportive the management would be. As well as how can EC influence the enhancement and
optimization of operations, and add new ones such as customer service and E-marketing, which
opens up new business opportunities to SME’s (Sidik, 2012).
This research will attempt to understand the relationship between EC adoption and financial
performance enhancement, as it is thought that there are two factors that may influence
performance in SME’s; internal and external (Ates, 2013), and EC adoption is considered one of
5
the internal factors with external influence, as in general SME’s may ignore, intentionally or
otherwise the importance of utilizing EC in order to enhance financial performance.
Furthermore, the level of EC adoption in Malaysian SME’s is not completely understood (Khan,
2014), which makes understanding this issue in this research a step to be built on for further
more detailed research to analyze how performance of SME’s can be developed using EC as a
base for market expansions, increased profitability, customer retention, and increase in market
share. On the other hand, several factors were deemed important when relating EC adoption to
performance, such as technological infrastructure, top management support, and organizational
structure adaptability to EC (Kinfack, 2012).
1.4- Research Questions:
This research will attempt to answer the following questions:
1- How does EC adoption influence the financial performance of Malaysian SME’s?
2- What is the level of awareness of the importance of EC for business growth by Malaysian
SME’s?
3- What is the level of EC adoption in Malaysian SME’s?
4- How does top management support the change towards EC adoption to enhance the
financial position and performance of the enterprise?
6
otherwise the importance of utilizing EC in order to enhance financial performance.
Furthermore, the level of EC adoption in Malaysian SME’s is not completely understood (Khan,
2014), which makes understanding this issue in this research a step to be built on for further
more detailed research to analyze how performance of SME’s can be developed using EC as a
base for market expansions, increased profitability, customer retention, and increase in market
share. On the other hand, several factors were deemed important when relating EC adoption to
performance, such as technological infrastructure, top management support, and organizational
structure adaptability to EC (Kinfack, 2012).
1.4- Research Questions:
This research will attempt to answer the following questions:
1- How does EC adoption influence the financial performance of Malaysian SME’s?
2- What is the level of awareness of the importance of EC for business growth by Malaysian
SME’s?
3- What is the level of EC adoption in Malaysian SME’s?
4- How does top management support the change towards EC adoption to enhance the
financial position and performance of the enterprise?
6
1.5- Research Objectives:
1- The first objective of the research is to research if EC adoption has an influence in
enhancing the financial performance and stability of SME’s in Malaysia.
2- The second objective is to attempt to come up with empirical evidence in regards to EC
awareness effect on performance, and how it can be further enhanced by top management
support.
3- The third objective of the research is to come up with recommendations for further
research on how to enhance performance of SME’s financially utilizing EC tools.
1.6- Significance of the research:
For most SME’s they cannot see the potential that lies in EC adoption and how it can
significantly enhance their financial position and performance, through many ways EC adoption
is mainly concerned with facilitating electronic tools and modern communication, such as the
internet, emails, intranet, and extranet in communication and transaction, whether B-2-B or B-2-
C, EC always reduces costs association normal operations, and increases profitability (Ates,
2013). Also, the great contribution of SME’s to the economy of Malaysia has become more
important in economic instability the world witnesses, whereas, SME’s contributed to more than
half of the entire GDP in 2013, and are anticipated to increase that contribution rate to aid in the
national economic growth (Khan, 2014).
Another importance of this research is that it will add to the body of literature existing on levels
of EC adoption and how it affects the financial performance of SME’s in Malaysia, a subject not
often researched, as this research will attempt to analyze the level of adoption through collecting
information from surveys and questionnaires to selected SME’s from different sectors in the
Malaysian economy to try and understand to what extent is it applied, in order to come up with
recommendations that can be built upon towards the establishment of flourishing economy lead
by contribution from SME’s utilizing the already existing infrastructure necessary for EC
adoption and its positive influence on business development and growth (Khan, 2014).
7
1- The first objective of the research is to research if EC adoption has an influence in
enhancing the financial performance and stability of SME’s in Malaysia.
2- The second objective is to attempt to come up with empirical evidence in regards to EC
awareness effect on performance, and how it can be further enhanced by top management
support.
3- The third objective of the research is to come up with recommendations for further
research on how to enhance performance of SME’s financially utilizing EC tools.
1.6- Significance of the research:
For most SME’s they cannot see the potential that lies in EC adoption and how it can
significantly enhance their financial position and performance, through many ways EC adoption
is mainly concerned with facilitating electronic tools and modern communication, such as the
internet, emails, intranet, and extranet in communication and transaction, whether B-2-B or B-2-
C, EC always reduces costs association normal operations, and increases profitability (Ates,
2013). Also, the great contribution of SME’s to the economy of Malaysia has become more
important in economic instability the world witnesses, whereas, SME’s contributed to more than
half of the entire GDP in 2013, and are anticipated to increase that contribution rate to aid in the
national economic growth (Khan, 2014).
Another importance of this research is that it will add to the body of literature existing on levels
of EC adoption and how it affects the financial performance of SME’s in Malaysia, a subject not
often researched, as this research will attempt to analyze the level of adoption through collecting
information from surveys and questionnaires to selected SME’s from different sectors in the
Malaysian economy to try and understand to what extent is it applied, in order to come up with
recommendations that can be built upon towards the establishment of flourishing economy lead
by contribution from SME’s utilizing the already existing infrastructure necessary for EC
adoption and its positive influence on business development and growth (Khan, 2014).
7
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1.7- Limitations of the research:
The research is expected to face several limitations, first of all it is expected to be difficult to
collect enough information to build a generalized model due to time and cost limitations, as well
as expected employees that will be surveyed and interviewed are expected to be apprehensive in
sharing data related to financial positioning, the research thus for will focus on top management,
such as operational managers, general managers, and executives in obtaining data required to
perform the analysis.
The second major limitations would be the relative absence of information relating to EC
adoption by Malaysian SME’s, as in some cases there is no clear information of how many
SME’s are aware of EC and its importance in today’s business world, as well as the lack of
intention or will to adopt EC towards business development due to several factors relating to the
environment of business and customs of the community (Kinfack, 2012), which will not be
covered by this research.
1.8- Scope of the research:
This research is limited to the application of e-commerce by SMEs in Malaysia. It will cover
factors related to EC adoption which influence the financial performance of SME’s in Malaysia,
100 different SME’s will be chosen from different economic sectors in Kuala Lumpur, and
surveys and questionnaires, as well as interviews will be conducted with management, financial
department if any, and executives to determine how does EC adoption affect financial
performance, and the level of support by management. The research will cover SME’s
employing between 20 and 50 employees and annual sales turnover less than 25 million, for time
and cost concerns towards achieving the objective of the research.
1.9- Feasibility of the research:
This research will be attained through implementing data obtained from SME’s into a model to
measure financial performance and how it affected by EC adoption. Taking a qualitative
approach as it considers the stand point of view of management towards EC adoption, then
applying it in a quantitative model to extract results from financial data collected will aid in
8
The research is expected to face several limitations, first of all it is expected to be difficult to
collect enough information to build a generalized model due to time and cost limitations, as well
as expected employees that will be surveyed and interviewed are expected to be apprehensive in
sharing data related to financial positioning, the research thus for will focus on top management,
such as operational managers, general managers, and executives in obtaining data required to
perform the analysis.
The second major limitations would be the relative absence of information relating to EC
adoption by Malaysian SME’s, as in some cases there is no clear information of how many
SME’s are aware of EC and its importance in today’s business world, as well as the lack of
intention or will to adopt EC towards business development due to several factors relating to the
environment of business and customs of the community (Kinfack, 2012), which will not be
covered by this research.
1.8- Scope of the research:
This research is limited to the application of e-commerce by SMEs in Malaysia. It will cover
factors related to EC adoption which influence the financial performance of SME’s in Malaysia,
100 different SME’s will be chosen from different economic sectors in Kuala Lumpur, and
surveys and questionnaires, as well as interviews will be conducted with management, financial
department if any, and executives to determine how does EC adoption affect financial
performance, and the level of support by management. The research will cover SME’s
employing between 20 and 50 employees and annual sales turnover less than 25 million, for time
and cost concerns towards achieving the objective of the research.
1.9- Feasibility of the research:
This research will be attained through implementing data obtained from SME’s into a model to
measure financial performance and how it affected by EC adoption. Taking a qualitative
approach as it considers the stand point of view of management towards EC adoption, then
applying it in a quantitative model to extract results from financial data collected will aid in
8
determining how EC adoption can aid in bolstering the financial performance of SME’s, and
determine the level and extent of EC adoption in Malaysian SME’s, which in turn can benefit the
economy as a whole.
1.10- Summary
This chapter is the introduction for the topic of the research. Among other, it discusses the
background of research, problems related to the topic, objectives of the research, research scope,
significance of research, limitation of the research and feasibility of the research. In general, this
chapter provides basic ideas of what this research is all about.
9
determine the level and extent of EC adoption in Malaysian SME’s, which in turn can benefit the
economy as a whole.
1.10- Summary
This chapter is the introduction for the topic of the research. Among other, it discusses the
background of research, problems related to the topic, objectives of the research, research scope,
significance of research, limitation of the research and feasibility of the research. In general, this
chapter provides basic ideas of what this research is all about.
9
Chapter 2: Literature Review.
2.1- Introduction:
This chapter presents the theoretical review of previous literature on which the research is built
upon, it will include stating what previous literature and research said about E-commerce, the
variables assumed for the objectives of this research, both, independent and dependent variables
as the research tries to analyze if there is a causal relationship between them.
2.2- E-commerce (EC):
E-commerce as a term (EC) has no exact definition in literature, according to (ALI, 2000), a
general view of EC is the process of selling and purchasing products electronically over
computers via means of the internet and the world wide web, emails, intranet, and extranet in
business transactions and exchanges. E-commerce includes different types of business
transactions, such as business-to-business (B2B), business-to customer (B2C) and even in
internal operations (ALI, 2000). Furthermore, Huff & Yoong (2000) define EC as conducting
business transactions over the Internet, which includes exchange of information of value in the
form of products and services as well as payments, using web-based technologies. Furthermore,
Eurostat (2004) defined e-commerce as transactions conducted over Internet Protocol-based (IP)
networks or over another computer mediated net-works (e.g. EDI if not carried out via IP). The
Internet and e-commerce are transforming the way firms operate by redefining how back-end
operations are conducted (Terzi 2011). Studies of e-commerce issues in developed countries
indicate that issues faced by SMEs in developing countries can be totally different. Many SMEs
in developing countries are not achieving even minimal levels of e-commerce adoption, also the
adoption of web-enabled transaction processing by small business has not been as widespread as
would are expected (Stockdale & Standing 2006). It has been demonstrated previously that the
rate of EC adoption in SMEs has been
In relation to this research, EC in developing countries according to (Molla, 2007) lacks an
empirical base, as EC is perceived to have great deal of benefits for developing countries
economy, especially SME’s as they constitute the biggest portion of most developing countries’
economies, as EC aids in global markets penetration, integration into the global supply chain,
costs saving, as according to the researcher E-commerce in developing countries received little
10
2.1- Introduction:
This chapter presents the theoretical review of previous literature on which the research is built
upon, it will include stating what previous literature and research said about E-commerce, the
variables assumed for the objectives of this research, both, independent and dependent variables
as the research tries to analyze if there is a causal relationship between them.
2.2- E-commerce (EC):
E-commerce as a term (EC) has no exact definition in literature, according to (ALI, 2000), a
general view of EC is the process of selling and purchasing products electronically over
computers via means of the internet and the world wide web, emails, intranet, and extranet in
business transactions and exchanges. E-commerce includes different types of business
transactions, such as business-to-business (B2B), business-to customer (B2C) and even in
internal operations (ALI, 2000). Furthermore, Huff & Yoong (2000) define EC as conducting
business transactions over the Internet, which includes exchange of information of value in the
form of products and services as well as payments, using web-based technologies. Furthermore,
Eurostat (2004) defined e-commerce as transactions conducted over Internet Protocol-based (IP)
networks or over another computer mediated net-works (e.g. EDI if not carried out via IP). The
Internet and e-commerce are transforming the way firms operate by redefining how back-end
operations are conducted (Terzi 2011). Studies of e-commerce issues in developed countries
indicate that issues faced by SMEs in developing countries can be totally different. Many SMEs
in developing countries are not achieving even minimal levels of e-commerce adoption, also the
adoption of web-enabled transaction processing by small business has not been as widespread as
would are expected (Stockdale & Standing 2006). It has been demonstrated previously that the
rate of EC adoption in SMEs has been
In relation to this research, EC in developing countries according to (Molla, 2007) lacks an
empirical base, as EC is perceived to have great deal of benefits for developing countries
economy, especially SME’s as they constitute the biggest portion of most developing countries’
economies, as EC aids in global markets penetration, integration into the global supply chain,
costs saving, as according to the researcher E-commerce in developing countries received little
10
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attention , as the few empirical studies available only discussed issues relating to adoption, rather
than how to adopt it and what effect it has on financial performance (Molla, 2007).
2.3- SME’s in Malaysia:
In Malaysia, about 18,271 or 89.8 per cent registered small and medium enterprises (SMEs) in
both financing and manufacturing sector (“SMEs Performance 2003”, Small and Medium
Industries Development Corporation [SMIDEC] http://www.smidec.gov.my (accessed on
18/4/2005)) give a substantial contribution to the global economics system. However, not all
SMEs are able to survive in this fast moving and ever changing information age. This is due to
some limitation in term of scale of operation, budget, and lack of new technology applications to
support their businesses (Taylor & Murphy 2008).
As more and more people are connected to the Internet, the value of the electronic market place
has increased. The Internet inherently provides businesses with cost-effective means of
distributing as well as obtaining information quickly. Businesses around the world have been
revolutionized with the advent of the Internet, where the electronic commerce via the Internet is
the way of conducting business transactions these days.
The electronic commerce in Malaysia is still in its infancy, but the future is bright. However,
many SMEs are way behind in the involvement of e-commerce. Although quite a number of
SMEs have company web sites, most of them are not fully functional. In order to face the
challenges of conducting business in this new era, SMEs in Malaysia must be aware of the
technologies that are emerging in the business world including the e-commerce technology.
SME’s in Malaysia are defined as any company that employs no more than 200 people with
turnover not exceeding RM 50 million per year for manufacturers, and up to 75 employees with
turnover not exceeding RM 20 million yearly for service sector (SME corporation Malaysia,
2014).
The importance of SME’s for the Malaysian economy shows in their contribution, as SME’s
currently hire 65% of total labor in the market, accounting for 99% of businesses registered. The
financial contribution is as great, as it was estimated that SME’s contributed to one third of the
total GDP about 30%, and account for 19% of total exports which is still lagging behind when
compared to other ASEAN countries in which SME’s contribute up to 50% of the total value of
11
than how to adopt it and what effect it has on financial performance (Molla, 2007).
2.3- SME’s in Malaysia:
In Malaysia, about 18,271 or 89.8 per cent registered small and medium enterprises (SMEs) in
both financing and manufacturing sector (“SMEs Performance 2003”, Small and Medium
Industries Development Corporation [SMIDEC] http://www.smidec.gov.my (accessed on
18/4/2005)) give a substantial contribution to the global economics system. However, not all
SMEs are able to survive in this fast moving and ever changing information age. This is due to
some limitation in term of scale of operation, budget, and lack of new technology applications to
support their businesses (Taylor & Murphy 2008).
As more and more people are connected to the Internet, the value of the electronic market place
has increased. The Internet inherently provides businesses with cost-effective means of
distributing as well as obtaining information quickly. Businesses around the world have been
revolutionized with the advent of the Internet, where the electronic commerce via the Internet is
the way of conducting business transactions these days.
The electronic commerce in Malaysia is still in its infancy, but the future is bright. However,
many SMEs are way behind in the involvement of e-commerce. Although quite a number of
SMEs have company web sites, most of them are not fully functional. In order to face the
challenges of conducting business in this new era, SMEs in Malaysia must be aware of the
technologies that are emerging in the business world including the e-commerce technology.
SME’s in Malaysia are defined as any company that employs no more than 200 people with
turnover not exceeding RM 50 million per year for manufacturers, and up to 75 employees with
turnover not exceeding RM 20 million yearly for service sector (SME corporation Malaysia,
2014).
The importance of SME’s for the Malaysian economy shows in their contribution, as SME’s
currently hire 65% of total labor in the market, accounting for 99% of businesses registered. The
financial contribution is as great, as it was estimated that SME’s contributed to one third of the
total GDP about 30%, and account for 19% of total exports which is still lagging behind when
compared to other ASEAN countries in which SME’s contribute up to 50% of the total value of
11
exports. Most Malaysian SME’s are family owned estimated to be 72%, with about 60% not
practicing any corporate governance (Umrani, 2015).
2.3.1- Financial performance of SME’s in Malaysia:
The financial performance of SME’s is driven by government incentives and support, as such
programs helped to make SME’s growth in 2011-2012 to be approximately 5.9%. Furthermore,
performance was defined by (Shuid & Noor, 2012) as the ability to reach a pre-defined objective
in a preset dimension in relation to a certain target, the researcher also emphasized the
importance of measuring performance of SME’s despite its difficulty when based on qualitative
data, as it is believed that more research should be conducted on quantitative data to represent
internal and external factors affecting SME’s financial performance in Malaysia, as financial
performance is measured using return on investment, return on assets, and profitability (Shuid &
Noor, 2012).
The challenge has been for greater understanding by the financial services industry of the unique
and diverse financing needs of SMEs across all sectors, and to ensure that adequate institutional
arrangements and appropriate financial policies are put in place to address these needs. This has
to be complemented with efforts to strengthen SMEs’ capability, including in the area of
business and financial management. Of importance is for SMEs to maintain rigorous business
and financial records and submit complete information.
In addition to financing from the commercial sector, the Government also provides funds for
SMEs. Government funds for SMEs are mainly for nurturing and developmental purposes. As at
end of December 2005, there were 81 Government funds/financing schemes for SMEs with a
total allocation of RM12.7 billion. Of the 81 funds and schemes, 49 were in the form of soft
loans, while the remaining were in the form of grants (20), equity financing (5) and venture
capital funds (7). These funds and schemes have various objectives that could be summarised as
follows: To encourage SMEs to be more innovative in using and adapting to the existing and
new technologies and processes; To improve product quality; To assist SMEs to conduct market
and technology feasibility studies, prepare business planning and formulate domestic and export
market strategies.
12
practicing any corporate governance (Umrani, 2015).
2.3.1- Financial performance of SME’s in Malaysia:
The financial performance of SME’s is driven by government incentives and support, as such
programs helped to make SME’s growth in 2011-2012 to be approximately 5.9%. Furthermore,
performance was defined by (Shuid & Noor, 2012) as the ability to reach a pre-defined objective
in a preset dimension in relation to a certain target, the researcher also emphasized the
importance of measuring performance of SME’s despite its difficulty when based on qualitative
data, as it is believed that more research should be conducted on quantitative data to represent
internal and external factors affecting SME’s financial performance in Malaysia, as financial
performance is measured using return on investment, return on assets, and profitability (Shuid &
Noor, 2012).
The challenge has been for greater understanding by the financial services industry of the unique
and diverse financing needs of SMEs across all sectors, and to ensure that adequate institutional
arrangements and appropriate financial policies are put in place to address these needs. This has
to be complemented with efforts to strengthen SMEs’ capability, including in the area of
business and financial management. Of importance is for SMEs to maintain rigorous business
and financial records and submit complete information.
In addition to financing from the commercial sector, the Government also provides funds for
SMEs. Government funds for SMEs are mainly for nurturing and developmental purposes. As at
end of December 2005, there were 81 Government funds/financing schemes for SMEs with a
total allocation of RM12.7 billion. Of the 81 funds and schemes, 49 were in the form of soft
loans, while the remaining were in the form of grants (20), equity financing (5) and venture
capital funds (7). These funds and schemes have various objectives that could be summarised as
follows: To encourage SMEs to be more innovative in using and adapting to the existing and
new technologies and processes; To improve product quality; To assist SMEs to conduct market
and technology feasibility studies, prepare business planning and formulate domestic and export
market strategies.
12
2.4- E-commerce awareness in SME’s:
In previous literature, most studies and research on E-commerce did not pay attention to the
importance of E-commerce in the B-2-C environment, however, studies that discussed EC
awareness were rare, and those available only studied the matter qualitatively, as it was estimated
that about 30% only of Malaysian SME’s have internet presence and IT systems used on daily
basis and in regular operations, largely due to oblivion to the importance of EC, financial
obstacles, and lack of support for EC adoption (Alam, 2011).
SMEs are playing an important role in the country’s economy development, the adoption of EC
is considered to be necessary. It does not only give the opportunity for SMEs to compete in the
scope of local market, but also in the international scale. In addition, it helps the company to be
closer to the customers as both parties can communicate via internet at anytime and anywhere.
EC awareness also alleviates the level of services by conducting business operations in an
efficient way which eventually could enhance the supplier-buyer relationships. The effects of
the successful internet implementation especially to the small businesses with lack of wealth are
enormous and essential (Chong et al., 2001).
However, SMEs in Malaysia awareness are not really interested enough in the adoption of EC
and web-based technology. In a study by Zakaria and Hashim (2003), revealed that about only
15% of the Malaysian SMEs are utilizing the internet as a tool to expedite their business
operations, which is still low in adoption quantity. This is further supported by Alam (2009) who
indicated that SMEs in Malaysia is relatively slow in web adoption, where only 20% out of
600,000 SMEs in Malaysia were applying information technology in their daily operations.
Additionally, there is a lack of similar study conducted to the SMEs as most of the studies in the
past were focusing on larger companies (Daniel and Wilson, 2002).
Therefore, this research is deemed appropriate in identifying the determinants towards the EC
awareness particularly in Malaysia’s SMEs financial industry. Though the existence of the
financial industry in Malaysia is only within the scope of SMEs but the effect is enormous to the
overall economy of the country. Hence, the selected area of study can be considered as
significant and appropriate in view of its contribution to the industry and nation as well.
13
In previous literature, most studies and research on E-commerce did not pay attention to the
importance of E-commerce in the B-2-C environment, however, studies that discussed EC
awareness were rare, and those available only studied the matter qualitatively, as it was estimated
that about 30% only of Malaysian SME’s have internet presence and IT systems used on daily
basis and in regular operations, largely due to oblivion to the importance of EC, financial
obstacles, and lack of support for EC adoption (Alam, 2011).
SMEs are playing an important role in the country’s economy development, the adoption of EC
is considered to be necessary. It does not only give the opportunity for SMEs to compete in the
scope of local market, but also in the international scale. In addition, it helps the company to be
closer to the customers as both parties can communicate via internet at anytime and anywhere.
EC awareness also alleviates the level of services by conducting business operations in an
efficient way which eventually could enhance the supplier-buyer relationships. The effects of
the successful internet implementation especially to the small businesses with lack of wealth are
enormous and essential (Chong et al., 2001).
However, SMEs in Malaysia awareness are not really interested enough in the adoption of EC
and web-based technology. In a study by Zakaria and Hashim (2003), revealed that about only
15% of the Malaysian SMEs are utilizing the internet as a tool to expedite their business
operations, which is still low in adoption quantity. This is further supported by Alam (2009) who
indicated that SMEs in Malaysia is relatively slow in web adoption, where only 20% out of
600,000 SMEs in Malaysia were applying information technology in their daily operations.
Additionally, there is a lack of similar study conducted to the SMEs as most of the studies in the
past were focusing on larger companies (Daniel and Wilson, 2002).
Therefore, this research is deemed appropriate in identifying the determinants towards the EC
awareness particularly in Malaysia’s SMEs financial industry. Though the existence of the
financial industry in Malaysia is only within the scope of SMEs but the effect is enormous to the
overall economy of the country. Hence, the selected area of study can be considered as
significant and appropriate in view of its contribution to the industry and nation as well.
13
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2.5- Level of EC adoption in SME’s:
EC is becoming an important factor in developing business locally or globally. This is because
the adoption of information technology is on the increasing trend and consequently leads to
numerous changes in business activities. According to Turban et al. (2002), as the internet has
been commercialized, people are becoming more responsive towards it and thus, lead to the
existence of the term EC.
Throughout literature, few studies discussed the level of EC adoption in SME’s empirically to
determine factors that may influence EC adoption. The level of EC adoption by SME’s have
been found to improve financial performance, as it was estimated in a research conducted by
(Kurnia, 2015) that only 37% of SME’s in Malaysia use EC in their regular operations, and this
was attributed mainly to cost, the lack of IT culture, lack of taxes incentives for E-trade, and
insufficient training for employees, thus another research gap needs to be filled as little is
understood about what influences levels of EC adoption in SME’s from owners’ point of view
(Kurnia, 2015).
In order to adopt new technologies, the existing infrastructure should be compatible with the new
technology. According to Beatty et al. (2001), the existing infrastructure is important to the
firm’s adoption decision. The adoption may fail if the existing infrastructure does not match to
the new innovation. Frambach (1993) stated in his research that technical compatibility is an
important factor for internet adoption that will lead to the utilization of EC. This is supported by
Alam (2009) who in his research surfaced that the technical compatibility affected positively to
the adoption of e-commerce among SMEs in Malaysia.
In terms of the rate of adoption, small firms are likely to adopt e-commerce when they are in
higher level of organizational resources (Kuan and Chau, 2000). On the other hand, according to
Mehrterns et al. (2001), those organizations with high level of information technology tend to
adopt e-commerce much faster in their business systems. More organizations are willing to adopt
e-commerce as long as it is consistent with the current work practices (Beatty et al., 2001).
14
EC is becoming an important factor in developing business locally or globally. This is because
the adoption of information technology is on the increasing trend and consequently leads to
numerous changes in business activities. According to Turban et al. (2002), as the internet has
been commercialized, people are becoming more responsive towards it and thus, lead to the
existence of the term EC.
Throughout literature, few studies discussed the level of EC adoption in SME’s empirically to
determine factors that may influence EC adoption. The level of EC adoption by SME’s have
been found to improve financial performance, as it was estimated in a research conducted by
(Kurnia, 2015) that only 37% of SME’s in Malaysia use EC in their regular operations, and this
was attributed mainly to cost, the lack of IT culture, lack of taxes incentives for E-trade, and
insufficient training for employees, thus another research gap needs to be filled as little is
understood about what influences levels of EC adoption in SME’s from owners’ point of view
(Kurnia, 2015).
In order to adopt new technologies, the existing infrastructure should be compatible with the new
technology. According to Beatty et al. (2001), the existing infrastructure is important to the
firm’s adoption decision. The adoption may fail if the existing infrastructure does not match to
the new innovation. Frambach (1993) stated in his research that technical compatibility is an
important factor for internet adoption that will lead to the utilization of EC. This is supported by
Alam (2009) who in his research surfaced that the technical compatibility affected positively to
the adoption of e-commerce among SMEs in Malaysia.
In terms of the rate of adoption, small firms are likely to adopt e-commerce when they are in
higher level of organizational resources (Kuan and Chau, 2000). On the other hand, according to
Mehrterns et al. (2001), those organizations with high level of information technology tend to
adopt e-commerce much faster in their business systems. More organizations are willing to adopt
e-commerce as long as it is consistent with the current work practices (Beatty et al., 2001).
14
2.6- Support by management towards EC adoption:
Support by management towards EC adoption was found to be an important factor affecting EC
adoption according to (Alam, 2011), as in his research he found that amongst other factors,
support by management was further divided into three categories which were perceived to be
most important, they are: interest of management in EC adoption, feelings of the importance of
EC to the business, and encouraging EC adoption and culture amongst employees (Alam, 2011).
In this research, support by management will be taken in general, and is assumed to include all
three factors under one single expression.
2.7- Conclusion:
In this chapter previous literature and research were surveyed pertaining to EC adoption by
SME’s, it also included what literature had to say about the research variables, and mainly all
previous literature supports the fact that there still is a research gap in EC adoption and how it
affects financial performance of SME’s despite the fact that many studies have discussed factors
affecting EC adoption, but not often discussed how EC adoption might affect financial
performance in SME’s, in the next chapter the research methodology will be discussed in details.
15
Support by management towards EC adoption was found to be an important factor affecting EC
adoption according to (Alam, 2011), as in his research he found that amongst other factors,
support by management was further divided into three categories which were perceived to be
most important, they are: interest of management in EC adoption, feelings of the importance of
EC to the business, and encouraging EC adoption and culture amongst employees (Alam, 2011).
In this research, support by management will be taken in general, and is assumed to include all
three factors under one single expression.
2.7- Conclusion:
In this chapter previous literature and research were surveyed pertaining to EC adoption by
SME’s, it also included what literature had to say about the research variables, and mainly all
previous literature supports the fact that there still is a research gap in EC adoption and how it
affects financial performance of SME’s despite the fact that many studies have discussed factors
affecting EC adoption, but not often discussed how EC adoption might affect financial
performance in SME’s, in the next chapter the research methodology will be discussed in details.
15
Chapter 3: Research Methodology:
3.1- Introduction:
In this chapter the research methodology is discussed, starting with the research framework,
followed by hypotheses development based on research variables. The design, sampling, and
instruments will also be discussed with justifications as why they were chosen, as this research
adopts survey based on questionnaire to obtain data, then to be analyzed using a combination of
qualitative and quantitative analysis, with emphasis on quantitative analysis as the variables
chosen are qualitative by nature, but this research will associate a quantity for each in order to
support any results.
3.2- Research Framework:
This research is based on the assumption of a causal relationship between the dependent and
independent variables, as SME’s financial performance is the dependent variable, and the
independent variables assumed to influence it are EC awareness, level of EC adoption, and
support by management towards EC adoption, the below figure illustrates the research
framework.
Figure 1: Conceptual Framework for EC adoption in Malaysian SME’s
16
EC
awareness
Management
Support to
EC adoption
Level of EC
adoption
Financial
Performance
of SME’s
3.1- Introduction:
In this chapter the research methodology is discussed, starting with the research framework,
followed by hypotheses development based on research variables. The design, sampling, and
instruments will also be discussed with justifications as why they were chosen, as this research
adopts survey based on questionnaire to obtain data, then to be analyzed using a combination of
qualitative and quantitative analysis, with emphasis on quantitative analysis as the variables
chosen are qualitative by nature, but this research will associate a quantity for each in order to
support any results.
3.2- Research Framework:
This research is based on the assumption of a causal relationship between the dependent and
independent variables, as SME’s financial performance is the dependent variable, and the
independent variables assumed to influence it are EC awareness, level of EC adoption, and
support by management towards EC adoption, the below figure illustrates the research
framework.
Figure 1: Conceptual Framework for EC adoption in Malaysian SME’s
16
EC
awareness
Management
Support to
EC adoption
Level of EC
adoption
Financial
Performance
of SME’s
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3.3- Hypotheses:
There are three hypotheses that will be tested in this research; they are:
1- Hypothesis1: A high level of EC awareness by employees and management alike
positively affect financial performance of SME’s.
2- Hypothesis2: A higher level of EC adoption collectively, positively affect the financial
performance of SME’s.
3- Hypothesis3: A higher support by management to EC adoption positively influence
financial performance of SME’s.
4- Hypothesis4: A level of no significant relationship between perceived benefits and
adoption of EC.
5- Hypothesis5: The more visible the result of EC adoption, the more likely EC will be adopted
3.4- Research Design:
This research is a quantitative based research with explanatory variables that are both
quantitative and qualitative attributes as it involves attitude towards EC, which by turn influence
financial performance. Surveys that collect quantitative data can be easier to complete for the
sample, due to the basic layout which enables participants to answer the questionnaire quickly, as
the responses require only a tick or a numerical response as opposed to a written response. The
instrument utilized was through the self-administered questionnaire containing closed ended and
scales to matrix questions. This research is a descriptive research which is interested in
describing the characteristics of a population or phenomenon. We also make use of hypotheses
testing to determine the influence of the three factors such as EC awareness, level of EC
adoption and management to EC adoption in SMEs with regards to financial performance in
Malaysia. Pre-Testing of the questionnaire was made during the pilot research. The type of
sampling is probability sampling. Data collected were based on stratified sampling focused only
to the SMEs in the furniture industry.
3.5- Data analysis method
17
There are three hypotheses that will be tested in this research; they are:
1- Hypothesis1: A high level of EC awareness by employees and management alike
positively affect financial performance of SME’s.
2- Hypothesis2: A higher level of EC adoption collectively, positively affect the financial
performance of SME’s.
3- Hypothesis3: A higher support by management to EC adoption positively influence
financial performance of SME’s.
4- Hypothesis4: A level of no significant relationship between perceived benefits and
adoption of EC.
5- Hypothesis5: The more visible the result of EC adoption, the more likely EC will be adopted
3.4- Research Design:
This research is a quantitative based research with explanatory variables that are both
quantitative and qualitative attributes as it involves attitude towards EC, which by turn influence
financial performance. Surveys that collect quantitative data can be easier to complete for the
sample, due to the basic layout which enables participants to answer the questionnaire quickly, as
the responses require only a tick or a numerical response as opposed to a written response. The
instrument utilized was through the self-administered questionnaire containing closed ended and
scales to matrix questions. This research is a descriptive research which is interested in
describing the characteristics of a population or phenomenon. We also make use of hypotheses
testing to determine the influence of the three factors such as EC awareness, level of EC
adoption and management to EC adoption in SMEs with regards to financial performance in
Malaysia. Pre-Testing of the questionnaire was made during the pilot research. The type of
sampling is probability sampling. Data collected were based on stratified sampling focused only
to the SMEs in the furniture industry.
3.5- Data analysis method
17
For the purpose of this research, we will use the statistical software package for social sciences
(SPSS) version 17 to compute all the data gathered from the questionnaire. The techniques of
analysis used in this research were descriptive (mean, standard deviation) and inferential analysis
(regression) to sum up the data collected. The survey questionnaire was structured into five
separate areas. This structure was established so that the profile of the respondents was reviewed,
along with the EC awareness, level of EC adoption and management to EC adoption.
3.6- Sampling:
In research sample 300 SME’s were selected in this study. 98 of samples chosen were evaluated.
Saunders (2008) illustrated that when are three dimensions in a research, and 2 remain tolerance
to compensate for any invalid responses or refusal to participate. The questionnaire will be built
based on previous literature, then a pilot research will be conducted to test its validity and
usability, then modified accordingly to meet the objectives of the research.
3.7- Research Instrument:
The main instrument use by this research is questionnaires, as they are cost and time effective,
the questionnaires will be distributed to SME’s via emails, phone calls, and personal interviews
to be self-administered and filled by respondents, then key findings from results will be grouped
accordingly. However, since questionnaires can’t be relied upon as a single source of data,
secondary data sources will include documents pertaining to the finances of SME’s when
possible to back up the results.
3.8-Questionnaire Design
Structured questionnaire was used for data collection. The questionnaire was designed based on
the conceptual framework for EC adoption and how it affects financial performance of
Malaysian SME’s. The questionnaire consists of three groups with fourteen suggested questions
as shown in Appendix (I). The participants were asked to rate their perception towards the most
important factors in adopting EC and how it affects financial performance of Malaysian SME’s.
a five-point Liken-type scale, with anchors from ―5 Strongly agree to ―1- Strongly disagree.
The rating is use to assess the degree of importance an effective factor on EC adoption and how
it affects financial performance of Malaysian SME’s.
18
(SPSS) version 17 to compute all the data gathered from the questionnaire. The techniques of
analysis used in this research were descriptive (mean, standard deviation) and inferential analysis
(regression) to sum up the data collected. The survey questionnaire was structured into five
separate areas. This structure was established so that the profile of the respondents was reviewed,
along with the EC awareness, level of EC adoption and management to EC adoption.
3.6- Sampling:
In research sample 300 SME’s were selected in this study. 98 of samples chosen were evaluated.
Saunders (2008) illustrated that when are three dimensions in a research, and 2 remain tolerance
to compensate for any invalid responses or refusal to participate. The questionnaire will be built
based on previous literature, then a pilot research will be conducted to test its validity and
usability, then modified accordingly to meet the objectives of the research.
3.7- Research Instrument:
The main instrument use by this research is questionnaires, as they are cost and time effective,
the questionnaires will be distributed to SME’s via emails, phone calls, and personal interviews
to be self-administered and filled by respondents, then key findings from results will be grouped
accordingly. However, since questionnaires can’t be relied upon as a single source of data,
secondary data sources will include documents pertaining to the finances of SME’s when
possible to back up the results.
3.8-Questionnaire Design
Structured questionnaire was used for data collection. The questionnaire was designed based on
the conceptual framework for EC adoption and how it affects financial performance of
Malaysian SME’s. The questionnaire consists of three groups with fourteen suggested questions
as shown in Appendix (I). The participants were asked to rate their perception towards the most
important factors in adopting EC and how it affects financial performance of Malaysian SME’s.
a five-point Liken-type scale, with anchors from ―5 Strongly agree to ―1- Strongly disagree.
The rating is use to assess the degree of importance an effective factor on EC adoption and how
it affects financial performance of Malaysian SME’s.
18
3.9 Results
At this time, we present the findings of this research. The data are interpreted using the mean,
factor analysis and regression methods of SPSS.
3.9.1 Pilot testing
There was no improvement required to the questionnaires as the respondents’ feedbacks were
satisfactory and appropriate. The objective of the pilot test is to analyse and validate the
questions in each sections of the questionnaire. A group of participants were selected to take part
in the pilot study. The group of participants were SME employees and managers in Malaysia.
The pilot study was conducted in a SPSS.
Eventually, a facture analysis was conducted using SPSS in order to validate the questions by
calculating the factor loading. Factor loading is a relative contribution of all questions in each
section of the questionnaire that a variable makes to a factor. For each correlation greater than or
equal to six, there exists goodness of fit between question and factors. The questionnaire consists
of three different factors each containing different sets of questions.
3.9.2 Response rate
In this research, 98 responses were received from 188 questionnaires dispersed. According to
Hussey and Hussey (1997), “for mail distribution method, in order to avoid sample bias,
response rate should be more than 10%. In this relation, the response rate for this research of
52.1%, this implies that the sample bias was avoided and the responses received represent the
population adequately and appropriately”.
3.9.3. Response format
The findings obtained from the questionnaire have been evaluated according to mean (X) and
standard deviation (S.D) in order to determine the respondents’ score level of determinants
towards the adoption of EC and how it affects financial performance of Malaysian SME’s. From
a five-point scale, the research has taken a position that any score of 3.00 and above indicates
19
At this time, we present the findings of this research. The data are interpreted using the mean,
factor analysis and regression methods of SPSS.
3.9.1 Pilot testing
There was no improvement required to the questionnaires as the respondents’ feedbacks were
satisfactory and appropriate. The objective of the pilot test is to analyse and validate the
questions in each sections of the questionnaire. A group of participants were selected to take part
in the pilot study. The group of participants were SME employees and managers in Malaysia.
The pilot study was conducted in a SPSS.
Eventually, a facture analysis was conducted using SPSS in order to validate the questions by
calculating the factor loading. Factor loading is a relative contribution of all questions in each
section of the questionnaire that a variable makes to a factor. For each correlation greater than or
equal to six, there exists goodness of fit between question and factors. The questionnaire consists
of three different factors each containing different sets of questions.
3.9.2 Response rate
In this research, 98 responses were received from 188 questionnaires dispersed. According to
Hussey and Hussey (1997), “for mail distribution method, in order to avoid sample bias,
response rate should be more than 10%. In this relation, the response rate for this research of
52.1%, this implies that the sample bias was avoided and the responses received represent the
population adequately and appropriately”.
3.9.3. Response format
The findings obtained from the questionnaire have been evaluated according to mean (X) and
standard deviation (S.D) in order to determine the respondents’ score level of determinants
towards the adoption of EC and how it affects financial performance of Malaysian SME’s. From
a five-point scale, the research has taken a position that any score of 3.00 and above indicates
19
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that the respondents perceived the predictors as a fair to good. On the other hand, the result
indicates low perceptions of predictors if the mean value falls below 3.0.
In Table 1, the mean and S.D. values of the respondents’ opinions about the three predictors are
seen. The results show that the ranges of the mean values vary between 3.93 and 4.67 and the
mean of these values (overall mean) is 4.24. It can be translated as; in overall the respondents
agreed that all predictors (EC awareness, level of EC adoption and support by management
towards EC adoption) are essential towards the adoption of EC and financial performance in
Malaysian SME’s. The result in Table 1 is derived from the demography profile of the response
shown in 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).
20
indicates low perceptions of predictors if the mean value falls below 3.0.
In Table 1, the mean and S.D. values of the respondents’ opinions about the three predictors are
seen. The results show that the ranges of the mean values vary between 3.93 and 4.67 and the
mean of these values (overall mean) is 4.24. It can be translated as; in overall the respondents
agreed that all predictors (EC awareness, level of EC adoption and support by management
towards EC adoption) are essential towards the adoption of EC and financial performance in
Malaysian SME’s. The result in Table 1 is derived from the demography profile of the response
shown in 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).
20
21
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 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
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 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
3.9.4 Reliability tests
Cronbach’s alpha coefficients has been utilized to measure the reliabilities and internal
consistencies of the scales used. According to Cronbach (2004), when measuring the difference,
it is appropriate to undertake Cronbach’s alpha tests on the reliability and internal consistency of
the scale. Cronbach’s alpha can be interpreted as a correlation coefficient, it ranges in value from
0 to 1 (Abdullah, 2010). From the reliability analysis in Table 2, all factors were found to be
good reliability with all the Cronbach's alpha results above 0.6. The result of reliabilities that are
under 0.6 is considered to be poor, while in the range of 0.7 the result can be acceptable and if
the result show range between 0.8, it is considered as a good result (Sekaran, 2003).
22
Cronbach’s alpha coefficients has been utilized to measure the reliabilities and internal
consistencies of the scales used. According to Cronbach (2004), when measuring the difference,
it is appropriate to undertake Cronbach’s alpha tests on the reliability and internal consistency of
the scale. Cronbach’s alpha can be interpreted as a correlation coefficient, it ranges in value from
0 to 1 (Abdullah, 2010). From the reliability analysis in Table 2, all factors were found to be
good reliability with all the Cronbach's alpha results above 0.6. The result of reliabilities that are
under 0.6 is considered to be poor, while in the range of 0.7 the result can be acceptable and if
the result show range between 0.8, it is considered as a good result (Sekaran, 2003).
22
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3.9.5 Regression analysis
Multiple regression analysis was applied to identify which independent variable from the three
identified predictors, is significant to predict the outcome of the dependent variable of EC
adoption and how it affects financial performance of Malaysian SME’s. This is essential as the
result of regression is an equation that represents the best prediction of dependent variable from
several independent variables. In order to assess the model, the adjusted R-Square test was
utilized to determine the proportion of mean variance of the dependent variable that is explained
by the independent variables. Table 3 shows the adjusted RSquare and Durbin-Watson test.
Adjusted R-Square test result of 0.465 shows an acceptable medium predictive power of
independent variables on the dependent variable. The auto-correlation with residuals Durbin
Watson test results of 1.418 indicated sign of no autocorrelation is almost present. This is due to
the fact that an ideal result suggested for Durbin-Watson is close to 2 (Öztürk, 2005). However,
it is sufficient for the statistic that falls between 1 and 3 to implicate significant difference which
exists between the dependent and independent variables (no autocorrelation). As for the
interpretation, the test indicates that EC awareness, level of EC adoption and support by
management towards EC adoption have significant influence towards the e-commerce adoption
of SMEs in the financial sector.
23
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
Multiple regression analysis was applied to identify which independent variable from the three
identified predictors, is significant to predict the outcome of the dependent variable of EC
adoption and how it affects financial performance of Malaysian SME’s. This is essential as the
result of regression is an equation that represents the best prediction of dependent variable from
several independent variables. In order to assess the model, the adjusted R-Square test was
utilized to determine the proportion of mean variance of the dependent variable that is explained
by the independent variables. Table 3 shows the adjusted RSquare and Durbin-Watson test.
Adjusted R-Square test result of 0.465 shows an acceptable medium predictive power of
independent variables on the dependent variable. The auto-correlation with residuals Durbin
Watson test results of 1.418 indicated sign of no autocorrelation is almost present. This is due to
the fact that an ideal result suggested for Durbin-Watson is close to 2 (Öztürk, 2005). However,
it is sufficient for the statistic that falls between 1 and 3 to implicate significant difference which
exists between the dependent and independent variables (no autocorrelation). As for the
interpretation, the test indicates that EC awareness, level of EC adoption and support by
management towards EC adoption have significant influence towards the e-commerce adoption
of SMEs in the financial sector.
23
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
3.10- Conclusion:
This chapter presents the research methodology and framework of the research, as this research
is a correlation research that examines the relationship between the variables, it also utilizes
qualitative approaches towards variables using a structured pre-set questionnaire.
The result was found to be reliable with the outcome from the previous research in the similar
area. Henceforth, such generalization from the result of the research particularly in Malaysia
SMEs can be considered as appropriate and relevant in view of the present competitive market
environment that demands a better way of managing financial institution as compared to the
traditional means. Out of the three determinants, EC awareness is the most essential factors that
could motivate SMEs to adopt EC, followed by the second, level of EC adoption and third
support by management towards EC adoption. The establishments of such rankings are essential
especially to the SMEs which have yet to embark on their EC functions by taking the right initial
step to encapsulate them in their organizational EC plan. Such proper measures could be used as
guidelines during the EC implementation stage with a flawless and effective application for the
benefit of the organizations as well as to the whole SMEs financial industry in Malaysia.
24
Table 3. Adjusted R-square and Durbin-Watson test.
Test Result
R-Square 0.483
Adjusted R-Square 0.465
Durbin Watson 1.418
This chapter presents the research methodology and framework of the research, as this research
is a correlation research that examines the relationship between the variables, it also utilizes
qualitative approaches towards variables using a structured pre-set questionnaire.
The result was found to be reliable with the outcome from the previous research in the similar
area. Henceforth, such generalization from the result of the research particularly in Malaysia
SMEs can be considered as appropriate and relevant in view of the present competitive market
environment that demands a better way of managing financial institution as compared to the
traditional means. Out of the three determinants, EC awareness is the most essential factors that
could motivate SMEs to adopt EC, followed by the second, level of EC adoption and third
support by management towards EC adoption. The establishments of such rankings are essential
especially to the SMEs which have yet to embark on their EC functions by taking the right initial
step to encapsulate them in their organizational EC plan. Such proper measures could be used as
guidelines during the EC implementation stage with a flawless and effective application for the
benefit of the organizations as well as to the whole SMEs financial industry in Malaysia.
24
Table 3. Adjusted R-square and Durbin-Watson test.
Test Result
R-Square 0.483
Adjusted R-Square 0.465
Durbin Watson 1.418
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25
Abdullah A (2010). Measuring TQM implementation: a case research of Malaysian SMEs.
Measure. Bus. Excell., 14(3): 3-15.
Alam SS (2009). Adoption of internet in Malaysian SMEs. J. Small Bus. Enterprise Dev., 16(2):
240-255.
Alam, S. S., 2011. An Empirical Research of Factors Affecting Electronic Commerce Adoption
among SMEs in Malaysia/VEIKSNIU, TURINCIU ITAKOS ELEKTORINEI
Alam SS (2009). Adoption of internet in Malaysian SMEs. J. Small Bus. Enterprise Dev., 16(2):
240-255.
Ali, M. I., 2000. E-Commerce/E-Business Definition, Scopes and Uses. Economic review
(Karachi), p. 5.
Anggadwita, G., 2014. Identification of Factors Influencing the Performance of Small Medium E
nterprises (SME's). Procedia, social and behavioral sciences, pp. 415-423.
Ates, G. C. P., 2013. The development of SME managerial practice for effective performance
management. Journal of Small Business and Enterprise Development, pp. 28-54.
Beatty RC, Shim JP, Jones MC (2001), Factors influencing corporate web site adoption: a time-
based assessment. Inform. Manage., 38(6): 337-354.
Chong S, Pervan G, Bauer C (2001). Implementation success of internet-based electronic
commerce for small- and medium-sized enterprises in Australia, in Bob O'Keefe, Claudia
Loebbecke, Joze Griar, Andreja Pucihar, Gregor Lenart (Eds), 14th Bled Electronic
Commerce Conference, Bled, Slovenia: Kranj Mioderna Organizacija.
Daniel E, Wilson H (2002). Adoption intentions and benefits realized: a study of e-commerce in
UK SMEs. J. Small Bus. Enterprise Dev.,9(4): 331-348.
Eurostat (2004): E-commerce and the Internet in European Businesses, European Communities,
Luxembourg, 2004.
Frambach R (1993). An integrated model of organizational adoption and diffusion of
innovations, Eur. J. Market., 27(5): 22-41.
Huff S. & Yoong P., ―SMEs and E-commerce: Current Issues and Concerns: A Preliminary
25
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Past, Present and Future. Business and Management Horizons, 2(2), pp. 38-49.
Kinfack, O. A. A. E., 2012. Regulation, awareness, compliance and SME performance in
manufacturing and retail sectors. International Journal of Social Economics, pp. 933-950.
Kurnia, S., 2015. E-commerce technology adoption: A Malaysian grocery SME retail sector
research. Journal of business research, 68(9), p. 1906.
Molla, A., 2007. Exploring e-commerce benefits for businesses in a developing country. The
Information society, 23(2), pp. 95-108.
Mehrtens J, Cragg PB, Mills AM (2001). A model on Internet adoption by SMEs. Inf. Manage.,
39: 165-176.
Öztürk E (2005). SPSS Uygulamalı Çok Degiskenli _statistik Teknikleri. Editör: Seref. Kalaycı,
Asil Yayın Dagıtım, Ankara.
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New York, NY.
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26
Hussey J, Hussey R (1997). Business Research: A Practical Guide for Undergraduate and
Postgraduate Students. Great Britain: Macmillan Press Ltd
Kuan KKY, Chau PYK (2000). A perception-based model for EDI adoption in small businesses
using a technology-organization environment framework. Inf. Manage., 38: 507-521.
Khan, M. W. J., 2014. An Overview of Small and Medium Enterprises in Malaysia and Pakistan:
Past, Present and Future. Business and Management Horizons, 2(2), pp. 38-49.
Kinfack, O. A. A. E., 2012. Regulation, awareness, compliance and SME performance in
manufacturing and retail sectors. International Journal of Social Economics, pp. 933-950.
Kurnia, S., 2015. E-commerce technology adoption: A Malaysian grocery SME retail sector
research. Journal of business research, 68(9), p. 1906.
Molla, A., 2007. Exploring e-commerce benefits for businesses in a developing country. The
Information society, 23(2), pp. 95-108.
Mehrtens J, Cragg PB, Mills AM (2001). A model on Internet adoption by SMEs. Inf. Manage.,
39: 165-176.
Öztürk E (2005). SPSS Uygulamalı Çok Degiskenli _statistik Teknikleri. Editör: Seref. Kalaycı,
Asil Yayın Dagıtım, Ankara.
PREKYBAI, STUDIJA: MALAIZIJOS PAVYZDYS. Journal of business economics and
management, 12(2), p. 375.
Seow, L., 2006. Innovation in Maintenance Strategy through Six Sigma: Insights of a Malaysian
SME. s.l., University of East London, Business School, pp. 703-797.
Sekaran U (2003). Research methods for business: a skill-building approach, 4th ed., Wiley,
New York, NY.
Shuid, S. & Noor, R., 2012. Effectiveness of financial incentives on SMEs' financial performance
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26
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development, 2008, 11(3): 280 – 289.
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and Behavioral Sciences, 2011, 24: 745–753.
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27
Appendix (I): 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 financial performance of Malaysian SME’s. The questionnaire aims
to evaluate the SMEs in terms of it awareness, adoption and management. This questionnaire
consists of 17 questions grouped into 3 sections.
Personal information
1. Current level of education
Degree Master PhD Post doctorate
2. Department
Auditing Accounting Others
3. Position:
4. Specialization:
28
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 financial performance of Malaysian SME’s. The questionnaire aims
to evaluate the SMEs in terms of it awareness, adoption and management. This questionnaire
consists of 17 questions grouped into 3 sections.
Personal information
1. Current level of education
Degree Master PhD Post doctorate
2. Department
Auditing Accounting Others
3. Position:
4. Specialization:
28
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Based on your experience on SMEs, please answer the questions below. You can choose one
answer for each question.
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. Does the difficulty perceived by SMEs in adopting EC?
2. Does The ability to see beneficial results of using EC by other
businesses in SMEs?
3. How good SMEs think the new innovation will fit into their
existing business
process?
4. Does SMEs adoption increase in market share?
5. Does SMEs adoption increase in productivity?
6. Does SMEs adoption increase the efficiency in dealing
with suppliers?
7. Does SMEs adoption increase Improve business
processes flow?
8. Does SMEs adoption increase increase in Return On
Investment?
9. Does SMEs adoption increase accessibility to the end-
users?
29
answer for each question.
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. Does the difficulty perceived by SMEs in adopting EC?
2. Does The ability to see beneficial results of using EC by other
businesses in SMEs?
3. How good SMEs think the new innovation will fit into their
existing business
process?
4. Does SMEs adoption increase in market share?
5. Does SMEs adoption increase in productivity?
6. Does SMEs adoption increase the efficiency in dealing
with suppliers?
7. Does SMEs adoption increase Improve business
processes flow?
8. Does SMEs adoption increase increase in Return On
Investment?
9. Does SMEs adoption increase accessibility to the end-
users?
29
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. Does the benefit perceived by SMEs in adopting EC to conduct
business as measured by lower business cost, wider market
coverage, etc.?
11. E-commerce is more trialable if business conversion can be
carried out in phases and if grant is provided to cover high start-
up costs?
12. Insufficient security for online credit payment
transactions.
13. Lack of skilled workers to handle or maintain EC
system
14. Will it Improve business processes flow?
Section 3: Support by management for Enhancement
Please answer the following questions in the given space after each question. This to
obtain your feedback to improve the SMEs for EC.
15. When using EC, did you experience any problem?
16. What improvements would you like to see and suggest for the EC?
Thank you very much for your feedback!
30
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. Does the benefit perceived by SMEs in adopting EC to conduct
business as measured by lower business cost, wider market
coverage, etc.?
11. E-commerce is more trialable if business conversion can be
carried out in phases and if grant is provided to cover high start-
up costs?
12. Insufficient security for online credit payment
transactions.
13. Lack of skilled workers to handle or maintain EC
system
14. Will it Improve business processes flow?
Section 3: Support by management for Enhancement
Please answer the following questions in the given space after each question. This to
obtain your feedback to improve the SMEs for EC.
15. When using EC, did you experience any problem?
16. What improvements would you like to see and suggest for the EC?
Thank you very much for your feedback!
30
1 out of 30
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