ABSTRACT
Despite going through different challenges as a country, China has managed to have an upward trend in their economy. Among the areas that the country has benefited a lot is increase in GDP and the number of employment created for their citizens. Small and Medium Enterprises in China have played a huge role in ensuring the country have progressed to the current status. Many investors have opted to invest in SMEs sector dealing with different goods and services. To stay relevant to the market and gain competitive advantage from the ever growing market most of the owners use different innovative measures to be unique and attract more customers. Also, with the interruption brought about by Covid-19 outbreak and restrictions the owners of SMEs had to seek or come up with other innovative ways to ensure they continue operating and offer their goods and services to the consumers. One of the widely spread and commonly used method is e-commerce technology where different e-commerce platforms are used to display their goods and service, reach out to consumers and convince them to buy as well as finalize the transaction. Since e-commerce was first innovated in China many enterprises have absorbed it in their operations with the absorption rate increased to almost 80% of all the business during the Covid-19 pandemic period. In as much as previous researchers have looked at how the adoption of e-commerce took place in China, they generalized all categories of business and looked into how the adoption benefits the economy of the country and the effect of the adoption to GDP of the country.
This research intents to fill the existing research gap by focusing on how the SMEs adopted e-commerce and the three main question that are to be answered by the research include the factors that influence e-commerce adoption by SMEs in China, major barriers encountered by SMEs while adopting e-commerce in China and the impact e-commerce has to the operation of SMEs in China. To answer this question this research will use a quantitative research approach specifically using previously collected data content and online data obtained from online survey/questionnaire which will be filled by SME owners operating in different parts of China. The findings of this research will help other SMEs who wishes to adopt e-commerce to smoothly do that while avoiding the numerous barriers as well as help the enterprise owners to clearly understand when and why they need a specific e-commerce technology in their business, how to incorporate it and the benefits they will get from incorporating the specific e-commerce technology in their business.
CHAPTER 1: INTRODUCTION
1.0: Overview
This chapter focuses on introducing the research concept or idea using 6 sections the background of the study which explores the existing gap and the essence of conducting a research in the selected topic. The second section is problem statement which explores the problem ought to be solved by this research then the research objectives and questions which looks into specific aim of the study, elements and questions that will be answered by the research.
1.1: Background of the Study
Every business or organization has a journey whether they are small or large enterprise. Despite going through different transformations or journeys the ending, challenges especially externally are mostly the same and they all have an impact on the economy of their respective regions. In recent years China has been reported to be among the countries with economies that have realized drastic growth in their economy as compared to other economies across the world. Even after the outbreak of Covid-19 which affected the whole world economically Chinese businesspeople were among the categories of people who quickly adapted to the new way of doing things brought about by the harsh restrictions put in place by different countries to curb the spread of the virus. Among the restrictions that proved to be hard for most of the businesses to cope with was lockdown where the movement of persons was completely restricted unless they belong to the essential service provision category. Small and Medium Enterprises (SMEs) which heavily relied on the movement of people either the customers or the service providers for their operations to succeed were among the businesses that were heavily affected by Covid-19 restrictions. Cunningham, (2011) describes SMEs as motors to the growth of the economy in China contributing approximately 60-80% of the growth experienced in the year ending 2010. This implies that the economy of China can shift positively or negatively depending on the performance of SMEs.
Figure 1: Contribution of SMEs to China adapted from Robu, 2013
Figure 2: Number of SMEs in China as from 2012 -2022
In China, technology plays a major role in shaping the status of many businesses including SMEs. The probability of an enterprise succeeding heavily relies on their ability to choose an appropriate technology that suits their business and how they effectively implement or adopt the technology in their operations. According to research conducted by Qu and Chen, (2014), the number of internet users and internet penetration rate adopted an increasing trend as from the year 2005. This implies that with the current challenges facing China and the world at large the likelihood of consumption preference decisions being made based on the information found on the internet is likely to increase with time. E-commerce, which entails buying and selling goods and services over the internet, is therefore taking over from brick and mortar shops and is more likely to take over fully the operations of most of the enterprises in China. However, there is no clear analysis of how the SMEs in China have adopted E-commerce and the challenges they are facing in the adoption process, especially during the Covid-19 outbreak period.
Figure 3: The number of internet users and internet penetration rate from 2005-2012 adapted from Qu and Chen, (2014).
1.2: Problem statement
SMEs play a very great role to individuals and most important building the economy of China with at least 60% contribution in the year 2021. According to Blazyte, (2022) the population of SMEs in China increased from 23.55 million in 2015 to 40.03 million in 2022. In recent years many sectors have faced a lot of challenges in their normal operations from the Covid-19 outbreak to changes in technology which has played a major role in changing buying and consumption behavior. To adapt and to stay relevant in their specific markets many SMEs were forced to change from how they used to operate to adapt to new measures which include bringing the goods or service to where the consumers are instead of waiting for consumers to make the first approach. This was facilitated through the adoption of different technologies the most common one being e-commerce technologies. However, in as much as the impact of e-commerce adoption is evident in the Chinese market, there is no clear research on the challenges encountered by the SMEs during the adoption as well as a reflection of how successful the adoption has been to SMEs and the economy of China at large. Also, no research provides clear recommendations that will help other SMEs to successfully adopt e-commerce in their operations while avoiding the common barriers.
1.3: Research objectives
RO1: To analyze the factors that influence E-commerce adoption by SMEs in China.
RO2: To analyze the major barriers encountered by SMEs in China while adopting e-commerce in their operation.
RO2: To determine the impact e-commerce adoption has had on the operation of SMEs in China.
1.4: Research questions
RQ1: What are the factors that influence e-commerce adoption by SMEs in China?
RQ2: What are the major barriers encountered by SMEs in China when adopting e-commerce in their operations?
RQ3: What sis the impact of E-commerce adoption to the operations of SMEs in China?
1.5: Significance of the study
The study aims at clearly looking into how e-commerce has been adopted by SMEs in China. Among the sectors that ought to benefit from this study include the economic planning committee of the Chinese government since SMEs play a major role in its economy, existing and new SMEs aiming at adopting e-commerce in their operations, and the consumers. The study will analyze the major challenges or barriers that SMEs face while adopting e-commerce, the impact of adopting e-commerce on the growth of SMEs, and service provision and provide recommendations that will simply adoption of e-commerce by SMEs and guarantee positive impact to the enterprise and consumer’s needs. With this information, it will be easier for relevant government agencies and SMEs to smoothly adopt e-commerce and enjoy guaranteed efficiency in their operations hence increasing the amount of GDP contributed by SMEs in China.
1.5: Limitation of the study
Based on the topic of study, focusing on a single area in the study is a major limitation. This is because it limits the study to the specific zone hence no room for making a comparative analysis of how e-commerce was adopted by SMEs in other regions or countries. Area of study also weakens the study results in terms of understanding other related barriers that are essential and affect other regions.
Also, the study completely relies on qualitative research technique in which previous research is analyzed and conclusion and recommendation are derived from the same. In as much as the methodology completely satisfies the objectives of the research the results and recommendation are completely confined to previous research and neglect other reliable data that could be obtained directly from SME owner’s experience.
1.6: Operational Definitions
OPERATIONAL DEFINITIONS |
|
| SMEs | Small and Medium Enterprises |
| GDP | Gross Domestic Product |
| E-commerce | Electronic Commerce |
| DOI theory | Diffusion of Innovation theory |
| DIT | Disruptive Innovation Theory |
CHAPTER 2: LITERATURE REVIEW
2.0: Overview
This chapter analyzes previous literatures related to e-commerce adoption globally and in China and describes e-commerce and the current status of its adoption by companies across the world and in China, factors influencing e-commerce adoption and the barriers. Other elements covered in this chapter include description of SMEs and the features of SMEs in China, their significance and challenges they are going through as well as analysis of some theories that supports the research topic.
2.1 Small and Medium Enterprises in China
According to Couper (2019), small and Medium Enterprises in China play a significant role in their economy and its development. In recent times, Small and Medium Enterprises have witnessed an overwhelming increase in numbers since it is approximated around five more million SMEs are established every year. In that case, this represents a growth rate of ten percent each year thus explaining the role of these SMEs towards Chinese economic development. Additionally, it is claimed that more than half of the Chinese GDP has been contributed by these SMEs and it is poised to have created more job opportunities than other sectors.
2.1.1: Characteristics of Small and Medium Enterprises in China
According to Wignaraja and Jinjarak (2015), SMEs in China can be characterized into major groups external or internal features which constitute the operation and day-to-day activities of the enterprises.
Internal Features
Internal features in this case refer to the general policies and characteristics that can impact the innovativeness of SMEs. For instance, the proportion of competent and qualified personnel can determine the success of SMEs in that a qualified and competent workforce who is knowledgeable can impose significant innovation skills on the company. Some of the internal features include:
Labor intensive – According to Umidjon et al. (2014) SMEs in China and all the others across the world do not require sophisticated or heavy machinery for them to operate, only a few equipment and skills if need be. This is an indication that they don’t rely more on skills and are therefore more labor-intensive.
Number of Employees – As compared to large operations SMEs require a small number of people for them to operate effectively and achieve their objectives. This results from their small scale of operation.
Management – SMEs in China and across the world are known to be having the simplest form of management as compared to other large enterprises. Most of the management role is fully handled by a single owner or a small group of individuals.
Financing – Fan, (2019) describes financing as how the SMEs raise capital to fund their operations or ideas. The author further clarifies that SMEs in China rely solely on the personal savings of the owners, gifts they receive, or small business or personal loans from banks and other lending institutions. However, the author also notes that recently especially with the internet has spread in different parts of China and across the world, some SMEs use internet platforms to attract funding from outside investors or use online funding campaigns.
External Features
The external properties of SMEs in China which also affect the SMEs in different ways are refer to the number of opportunities that can be utilized by these SMEs from their local surrounding environment and that can have significant impacts on their innovativeness. Similarly, market dynamics in the Chinese economy have also affected the day-to-day activities of SMEs since they have been forced to adjust to new dynamics to maintain relevance in the business. Other features include:
The area of operation – Umidjon et al. (2014) argue that most of the SMEs in China and other parts of the world operate in local environments specifically the home area of the owners and they ought to remain in that location for longer periods. This is essential for their growth because the management has a clear understanding of the community around their needs and they freely interact with the consumers making it easy to note any changes in demand, consumption pattern, or needs.
Market – As compared to large companies or organizations which offer different goods and services in wide regions SMEs tend to only focus on a niche market and as they grow they tend to spread their wings opening branches to new markets offering the same or new products and services to increase their sales and income.
Legal structure – In China, most SMEs operate as sole proprietorships or partnerships where a sole owner or a group of owners are fully in control of every aspect of the business. These include taxes, profits, and business debts.
2.1.2: Significance of SMEs in China
According to Xiangfeng, (2007), SMEs play a very crucial role in boosting the economy of most countries China is one of the greatest beneficiaries. The author emphasizes that the growth of SMEs in China is directly proportional to the economic growth of the country because the output or output resulting from the SMEs directly contributes to at least 60% of the whole GDP. This is supported by Fan, (2019) who emphasizes that SMEs in China make up to at least 99% of all the enterprises in China, and they contribute to at least 82 percent of the employment opportunities in the country. This is an indication that in as much SMEs boosts the economy of China through direct revenues and taxes there are other indirect ways in which SMEs have impacted the economy of China, these are through the introduction of new technologies or ideas to China, introduction of new products that helps satisfy the needs of consumers, patent, facilitating importing and exporting of goods in and outside china, tax revenue among many others.
Figure 4: Contribution of SMEs to China in %. Adapted from Zhu and Peng, (2012)
2.1.3: Major Challenges Facing SMEs in China
Recruiting and retaining the right staff
As noted by Cunningham and Rowley, (2018) much-qualified personnel in China want to be associated with huge companies or corporations with operations in and out of China. This has created a huge vacuum for small and medium enterprises. The author further clarifies that it is even hard to retain one if SME is lucky enough to recruit one. This is because they need higher wages and other conditions that are hard for SMEs can’t accommodate. This has forced many SMEs to settle for an incompetent workforce that requires regular training for them to be efficient enough, which is costly for growing enterprises.
Government regulations and policies
To start and operate as SME in China the government requires one to be registered, licensed, and possess necessary permits from different government organs. All these requirements limit their profit margin making it hard for the SMEs to even start in the first place as well as grow and expand their business.
Limited access to finances
As compared to larger organizations Zhu et al. (2020) argue that SMEs find it hard to access funds and most of the financing is sourced from the owner of the firm. Banks and other lending institutions in China prioritize lending money to large corporations as compared to SMEs with most based on the fact that large enterprises have clear financial statements and therefore have a lower risk of default. Also, even if they agree to offer loans to the SMEs they offer personal loans to the owners and not the enterprise which makes it hard for SMEs to implement some of the reliable ideas or expand their operations.
Low levels of business and technology Research and Development in the SME sector
As argued by Tang et al. 2020 enterprise expenditure to R&D is crucial for its innovation and economic growth. This also helps the business predict any forthcoming uncertainties and prepare or counter them before it makes a serious negative impact on the operation of the business. The author notes that the SME sector in china does not spend in R&D at all and the few that have tried to invest in it allocate minimal resources possible which results in minimum benefits to their enterprises. This is due to the small profit margin experienced by most of them.
Undeveloped sales channels
According to Surya et al (2021), most of the SMEs in China rely on direct sales where the consumers visit their brick and mortar stores to view and buy goods or receive services. In as much as using direct sales mechanism they spend less capital, they also receive minimum profits as compared to when they would have utilized other developed sales channels such as online platforms or sites.
Stiff competition
According to Tang et al. (2017) so, many SMEs in major towns of China find it hard to reach their timely targets even after operating in business streets. This is because so many SMEs offering similar goods and services are confined in the same places, therefore, increasing the competitiveness of the business. The author further clarifies that SMEs that have proven to have gone the extra mile including unique features or being innovative enough in their operation or service provision are the ones who benefit a lot from the congested markets.
2.2: E-commerce in China
Since e-commerce is poised to be the best approach in ensuring that the Chinese SMEs thrive in the business, the urgency to effectively adopt this method should be considered. According to Tan and Ludwig (2016) before the adoption of e-commerce, the process should involve a structured plan that clearly defines the steps to be followed. For instance, structured interviews must be put in place to explore the cost-effectiveness of using e-commerce over other methods in the business by Chinese SMEs. Similarly, data analysis should also be considered whereby all data collected on the field of e-commerce is critically analyzed before making concrete decisions.
2.2.1 Factors Influencing the Adoption of E-commerce in China
The rate of adoption of e-commerce by SMEs and consumers has been considered to be slow since many of the SMEs have been reluctant to integrate this method of doing business. Several numbers of factors have consequently led to this slow rate of adoption and these include demographic characteristics of the consumers such as age, income, and gender. As a consequence of these factors, the SMEs in China have been left reluctant to adopt e-commerce hence negatively impacting the businesses. Akram et al. (2021) categorize these factors into four major categories, which include technological, environmental, individual, and organizational contexts.
Technological context
The author categories three major factors in the technological context, these are the alleged compatibility of e-commerce with the operations of the business, alleged benefit, and its cost. All the three alleged technological factors completely rely on the ability of the management of a business to relative advantages of e-commerce to their areas of specialization. With a clear knowledge about their business, the management, and the benefits of the e-commerce the management will then be able to ascertain whether the e-commerce is relevant to their operations n the first place as well as determine whether adoption of e-commerce to their operations will affect the business positively. To gauge the impact factor such as the function of the technology and the cost as compared to the existing finances of the enterprises will be put in place. Akram et al. (2021) further clarify the technological factors using three major conclusions this is: if an e-commerce technology is perceived to be beneficial to the operation of the organization if the perceived e-commerce technology is compatible with the specific business and if the e-commerce technology is affordable business owners or managers are more likely to adopt it in their business.
Organizational context
This refers to the components of the firm that influences the adoption of e-commerce technology. These include the size of the firm and how ready and flexible are they to incorporate new ideas or changes in their business. The size of the firm is a great factor that directly influences the adoption of e-commerce to businesses in China. A larger firm has more resources both human and financial that can perfectly incorporate any applicable e-commerce technology. On the other hand, the readiness and flexibility of the firm refer to how equipped the company is, in terms of technology, systems, human resources, infrastructure. The more equipped the company is technologically and in terms of skills the higher the chances of adopting e-commerce in their operations.
Environmental context
This entails external factors that are beyond the control of the business. It includes pressure from the consumers, competitors, and government policies. As clarified by Li et al. (2020) the customers have the power through their preferences to influence the direction in which a business or an enterprise will take. If the customers prefer using a certain e-commerce technology and the owner of a business does not incorporate their needs in their operation the business is more likely to lose the customers to competitors who have the technology. This also applies to suppliers and other crucial stakeholders in the organization. Therefore the consumers’ and competitors’ pressure, as well as external support positively, influences the adoption of e-commerce by organizations in China.
Individual’s context
Individual, the owners, or the management perspective is among the strong influencers of e-commerce adoption in businesses. Akram et al. (2021) identify three major individual context factors that play a major role in the adoption of e-commerce in an enterprise. These include the owner or the managers’ innovativeness, IT experience, and abilities. If the owner or the manager of the enterprise is innovative enough there is a huge capability that they will see the relevance of specific e-commerce technology to their operation and they will find a way to incorporate it in a way that fills the existing gap or improves the operation of the business. Similarly, if they have IT experience and ability or sufficient IT skills they will be more confident to adopt and use e-commerce in reducing uncertainties in their business.
2.2: Theoretical Foundation in E-commerce adoption
2.2.1: Disruptive Innovation Theory
According to Si and Chen, (2020) disruptive innovation theory focuses on the process by which small enterprises adopt a new idea or technology in their operation and with limited resources they challenge big and already established organization in the same market. This therefore makes the highly sophisticated idea, product or service available to consumers at affordable rates. This theory insists on displacement of long standing, previously established competitors who are not ready to change or upgrade.
2.2.2: Diffusion of Innovation (DOI) theory
DOI theory is a social science theory developed in 1962 by E.M Rogers. The theory explains how over time a product or an idea spreads or gains momentum or diffuses through an explicit population structure. In the end the people in that location or region adopt the new product, idea or behavior. This means that the people change their initial mode of operation to use the new idea. The theory also emphasizes that in a social system adoption of a new idea doesn’t happen abruptly and to everyone but it is procedural where some individuals are more likely to adopt it first while others learn from them. According to the theory there are five categories of adopters the first one being the innovators who try the idea first, then the early adopters who are the persons who represent the opinion leaders (Min et al. 2019). The third category are the Early majorly are hardly leaders but they usually adopt the new idea before other normal persons then late majority who are skeptical to change who adopt an innovation after it has been tried and there is prove that it works well. Last category is the laggards who are conservative and skeptical to change and they are very hard to convince.
Figure 5: Categories of adopters according to diffusion innovation theory. Adopted from Min et al. 2019
CHAPTER 3.0: METHODOLOGY
3.1: Research Design Diagram
Figure 6: Research Design diagram
3.2: Qualitative Research Approach
This research will entirely be based on qualitative research approach where previous related researches will be analyzed and information collected from the online survey/questionnaire.
3.2.1: Content Analysis Approach
This is a qualitative research tool in which a relationship between specific concepts using some qualitative data. This task will utilize this tool to analyze data from recently researched work related to the two studied theme e-commerce adoption and SMEs in China.
3.2.2 Online survey/questionnaire
To get real picture of how SMEs in China operate this research will use online question or survey which will be sent to 20 owners of SMEs in different towns in China. The owners will be randomly selected at least in five major towns with four owners participating in each town. The survey will comprise of different types of questions, multiple choice questions, Likert scale questions and short answer questions.
| Name | Value/Weight |
| Absolute Disagree | 1 |
| Disagree | 2 |
| Neutral | 3 |
| Agree | 4 |
| Totally Agree | 5 |
Table 2: Likert Scale
3.3: Questionnaire Design
| SECTION | VARIABLE | ITEMS | REASON |
| Demographic | SME owners in China | 3 | To obtain the background information of the SMEs owners who participated in the study. This increases the accuracy of the results since data will be analyzed based on specific context. |
| Dependent Variable | SMEs Performance in China. | 8 | Adopted from Blazyte, (2022, January 27). |
| Independent Variable | Adoption of e-commerce | 8 | Adopted from Akram, et al. (2021) |
