Information and communication adoption in smes

Information and communicationtechnologies adoption in SMEs:

literature reviewHenry Ongori

Department of Management, University of Botswana,Gaborone, Botswana, and

Stephen O. MigiroUnisa School of Business Leadership, Midrand, South Africa

Abstract

Purpose – The purpose of this paper is to examine the driving forces, challenges benefits, barriersand strategies to decrease barriers to information and communication technologies (ICTs) adoptionand assimilation by small- and medium-sized enterprises (SMEs) in this era of globalization.

Design/methodology/approach – The paper is based on a review of literature, both online and print.

Findings – The paper concludes that, ICTs adoption and assimilation in SMEs is critical to enhancetheir competitiveness. In addition, ICTs usage in SMEs will enhance accessibility into the internationalmarkets.

Research limitations/implications – The major limitation of this paper is that it only reviewsrelevant literature and that empirical findings are not obtained to give an insight and holistic view ofICTs adoption and assimilation by SMEs.

Practical implications – Effective use of ICTs in SMEs has great impact on its competitiveness andsustainability. In addition, owners/owner managers, policy makers and other stakeholders would be ina position to understand the challenges faced by SMEs in ICTs adoption and come up with variousinterventions to assist SMEs.

Originality/value – Despite the challenges faced by SMEs on ICTs adoption, SMEs stand to benefitfrom adopting ICTs in their business processes especially in accessing international markets. SMEsplay a great role in the economy and thus need special attention.

Keywords Communication technologies, Small to medium-sized enterprises, Globalization

Paper type Literature review

IntroductionSmall, medium and micro enterprises (SMEs) play major roles in economies by creatingjobs and increasing income levels of a majority of the people. These enterprises serve asdrivers of economic growth and innovation. Small and medium enterprises (SMEs) servethe social goal of equitable income distribution. However, these categories of enterprisesface multiple challenges. To minimise the challenges, several solutions have beensuggested including the adoption of ICTs to boost efficiency and competitiveness.

ICTs refer to the wide range of computerised information and communicationtechnologies. These technologies include product and services such as desktopcomputers, laptops, handled devices, wired or wireless intranet, business productivitysoftware such as editor and spreadsheet, enterprise software, data storage and networksecurity among others (Ashrafi and Murtaza, 2008). ICTs’ adoption and assimilation in

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ICTs adoptionin SMEs

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Received 16 February 2009Reviewed 3 September 2009

Accepted 16 September2009

Journal of Chinese EntrepreneurshipVol. 2 No. 1, 2010

pp. 93-104q Emerald Group Publishing Limited

1756-1396DOI 10.1108/17561391011019041

SMEs offer enormous opportunities to SMEs (Ashrafi and Murtaza, 2008; Schware,2003). That notwithstanding, previous research has indicated that dissemination andassimilation of ICTs in SMEs in Africa is lacking and numerous ideas, theories andperspectives pertaining to the understanding of ICTs’ use in SMEs reflect the views ofthe West (Tsui-Auch, 2003; Martin and Matlay, 2001; Fallon and Moran, 2000).Furthermore, extant researchers have indicated that ICTs’ adoption in SMEs indeveloping economies is at present under researched, conceptually confused andwidely generalised (Ramsey et al., 2003; Mira, 2006).

The main purpose of this paper is to identify gaps in the literature relating to SMEs’adoption of ICTs. Specifically, the review tries to give a full insight into the drivingforces, role and barriers to ICTs adoption in SMEs.

Nature and characteristics of SMEsThere is no universal definition of SMEs that is widely accepted (Mutula and Brakel,2006, p. 403). The definition varies from country to country but is often based onemployment, assets or a combination of the two. Hence, different definitions are used indifferent countries. For instance, the Organization for Economic Co-operation andDevelopment OECD (2004) defines SMEs as enterprises that have less than500 employees. In Britain SMEs are defined as enterprises with annual turnover ofe2 million or less and with fewer than 200 paid employees while in Australia, SMEs aredefined as enterprises having between five and 199 employees (Kotey and Folker, 2007)but in Indonesia an enterprise with five to 99 employees (Mira, 2006, p. 72) whereasin Kenya, SMEs are defined as those enterprises that employ 11-100 workers (Moyi,2003, p. 223).

SMEs are generally distinguished by the nature of their production andmanagement arrangements, trading relations, financial practices and internalcompetence. They are not a homogeneous set of businesses but a heterogeneousgroup of businesses usually operating in the service, trade, agri-business andmanufacturing sector (Lukacs, 2005, p. 3). They vary in size, age, sector, motivation,mode of organization, ethnic background, location, knowledge base, power and controlof resources and innovative capacity (Vivienne and Roberts, 2005, p. 522).

Many studies (Sharma and Bhagwat, 2006; Bunker and Macgregor, 2000, p. 75) haveexamined the differences in management style between large businesses and SMEs.These studies have shown that, among other characteristics, SMEs tend to have asmall management team (often one or two individuals), they are strongly influenced bythe owner and the owner’s idiosyncrasies, they have little control over their ownenvironment and they have the desire to remain independent (Dennis, 2000, p. 289;Drakopoulou-Dodd et al., 2002, p. 212).

Importance of SMEsSMEs play an important role in all the economies of the world (Mira, 2006, p. 70).In developing countries, SMEs contribute to job creation, income generation anddistribution (Temtime and Pansiri, 2006, p. 55; Machacha, 2002, p. 277; Lange et al.,2000, p. 6). They provide a breeding ground for entrepreneurs and employment (Thurikand Wennekers, 2004).

For instance, in India, SMEs have been consistently outperforming large companieson crucial parameters such as growth in production and growth in employment.

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The sector accounts for 40 per cent of the industrial production, 35 per cent of the totalexports and provides about 80 per cent of employment in the industrial sector (Sharmaand Bhagwat, 2006). In Singapore, 51 per cent of the total workforce is employed in thesmall- and medium-scale sector, and in particular SMEs in the manufacturing sectoraccounts for 15 per cent of gross domestic product (Lukacs, 2005, p. 4). In Hong Kong,SMEs are the largest employers with over 1.4 million people and in Japan 81 per cent ofthe employment is in the SMEs sector (Lukacs, 2005, p. 2).

In Africa, SMEs employ more than 40 per cent of all new entrants to the labour forcebecause they tend to be more labour intensive than large firms and are thus betterplaced to alleviate unemployment (Muuka, 2002, p. 2). Further, extant research hasindicated that SMEs have contributed greatly to job creation and in promoting socialeconomic development (Mutula and Brakel, 2006, p. 403). Thus, according to a baselinesurvey conducted in 1999 in Kenya, the SME sector employed 5.1 million people,accounting for 74 per cent of the total employment. In recognition of the importance ofthe sector, in 2003 the Kenyan Government created a SMEs policy framework topromote employment creation, income generation and poverty reduction.

Challenges hindering SMEs development and competitivenessThe challenges faced by SMEs include limited access to manufactured inputs,especially high-quality imported goods and lack of skilled human capital to exploit andimprove ICTs within the business (Mutula and Brakel, 2006, p. 403; United NationsDevelopment Programme (UNDP), 2006, p. 1). In addition, lack of managerial skills,finance, market information and commercial intelligence gathering have beenidentified in the continuum of challenges facing SMEs (Qiang et al., 2006; Hanqin andAllison, 2007, p. 277). SMEs are also faced with problems of small markets, inadequateregional integration, poor infrastructure, bad governance, legal and administrativehindrances and failure to access credit (Ongori, 2008).

Potential use of ICTs in SMEsThe term ICTs is defined in a broad sense as technologies dedicated to informationstorage, processing and communication (Rao, 2004, p. 262). According to Martyn et al.(2003, p. 307) ICTs constitute a range of software, hardware, telecommunication andinformation management technologies, applications and devices that are used tocreate, produce, analyze, process, package, distribute, retrieve, store and transforminformation. Thus, ICTs are organized communication networks and data resourcethat collect, transform and disseminate information within and among organizations(Seyal et al., 2000, p. 8; Sharma and Bhagwat, 2006, p. 204).

Adoption of ICTs provides many benefits across a wide range of intra- andinter-firm business processes and transactions. ICTs’ adoption improves informationand knowledge management inside the firm and can reduce transaction costs andincrease the speed and reliability of transactions for both business-to-business (B2B)and business-to-consumer (B2C) transactions. In addition, they are effective tools forimproving external communications and quality of services for established and newcustomers (OECD, 2004, p. 1).

Through the use of ICTs infrastructure, SMEs can engage in e-commerce. Electroniccommerce will aid them in increasing their efficiency in their day-to-day business


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operations and sustain their business growth through the opening of new marketchannels, and to increase the flow of information.

Access to information is a critical factor for the success and survival of SMEs in theglobal market (Rasmussen, 1997). Through the effective use of ICTs, SMEs are able tosell their products to international markets and favourably compete with largecorporations (Ramsey et al., 2003, p. 255). Thus, ICTs can be used as a strategic weaponto underpin the business strategy of SMEs (Maguire et al., 2007, p. 39).

In addition, ICTs enhance SME efficiency, reduce costs and broaden market reach,both locally and globally. Since the SME sector plays a major role in nationaleconomies, these factors to individual SMEs collectively translate into positive resultsin the form of job creation, revenue generation and overall country competitiveness.Governments, therefore, have an interest in the promotion of access to and use of ICTsby SMEs (Mutula and Brakel, 2006, p. 404).

Unfortunately, a number of factors hinder or discourage SMEs from fully realisingthe benefits of ICTs, including lack of knowledge, resources and trust. There are also ahost of other challenges faced by SMEs in different countries. For instance, KenyanSMEs are faced with problems of limited access to markets, finance and e-commercetechnologies (Migiro, 2006, p. 35). Thus, the productivity of Kenyan SMEs hasremained low over the years due to multiple challenges such as lack of awareness,inaccessibility to global markets due to fragmented and incomplete information,technology, policy regulations and lack of strategic vision (Migiro, 2006, pp. 36-7; Moyi,2003, p. 229; Martin and Matlay, 2001, p. 340; Miller and Besser, 2000).

Conceptual frameworkIn light of the existing gap and factors that hinder SMEs from fully realising thebenefits of ICTs, the conceptual framework has been developed to facilitate the processof ICTs as shown in Figure 1. This conceptual framework is based on four elements.These elements are the driving forces for ICTs adoption; restraining forces (barriers) to

Figure 1.Conceptual frameworkfor ICTs adoption

Driving forces for ICTs adoption

Barriersto ICTs

ICTstools

Outcomes ofICTs adoption

Lack of human capital

Lack of support bygovernment

Lack of security

Lack of infrastructure

Lack of financial

Human capitaldevelopment

Infrastructure

Government support

Strategies toICTs

Access tointernational markets

Increase customer base

Robust information

Personal computers

Laptops

Faxes

Scanners

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ICTs adoption; ICTs tools and benefits of ICTs adoption. The driving forces include thechange in technology, globalization, competition, market advantages and personalconsideration of SME owner managers. These forces compel owners/managers toadopt ICT tools in their business processes. However, despite these driving forces,SMEs have failed to adopt ICTs in their business processes successfully because ofrestraining forces. These restraining forces (barriers) include unfamiliarity withsoftware application, lack of infrastructure, lack of human resource and skills, lack ofinformation system knowledge, high cost of internet connectivity, lack of security andreliability. Although they are restraining forces to ICTs adoption in SMEs, SMEowners/owner managers need to put in place strategies to minimise these challenges.Some of these strategies include human capital development. This will be done withthe assistance of other stakeholders like the government. The government should putin place the infrastructure and formulate policies in promoting ICTs’ adoption in SMEs.In addition, the non-governmental organizations will assist SMEs in terms of financingthan to buy ICTs tools and developing their manpower. Despite the restraining forces,ICTs adoption in SMEs, will improve their customer service, flow of information,inventory management, control and accountability, opportunities for internationalmarkets, managing resources effectively and efficient administration. But in case offailure to adopt ICT tools in their business process, SMEs stand to lose in accessinginternational markets, inadequate robust information, resources will not be managedproperly and this will lead to inefficient administration.

Drivers to ICTs adoptionThe impact of globalization has compelled SMEs to adopt ICTs, so that they cansurvive and compete with large companies. The business environment is not static andgeographical distances are of no importance for customer-supplier relationships(Sharma and Bhagwat, 2006, p. 200). Evidence shows that durable productivity gainshave been achieved in enterprises which use ICTs (Bresnahan et al., 2002). The rate ofexpansion of globalization has encouraged, among other things, the effective flow ofdata in organizations, which would only be facilitated by the use of ICTs. A studyconducted by Sharma and Bhagwat (2006, p. 201) indicates that the flow of informationin an organization is the bloodline of any business operating unit irrespective of itssize.

The evolution of technology has affected the way businesses operate. First, it haschanged the industry structures and altered the degree of competition. Second, it hascreated a competitive advantage for the businesses which have adopted ICTs in theirbusiness processes. Third, it has affected business operations. This change compelsSMEs to adopt ICTs in their business processes to cope with these changes in thebusinesses environment (Ongori, 2008).

ICTs’ adoption in SMEs would provide a means to access, process and distributegreater amounts of data and information quickly in order to make thoughtful decisions(Jimmy and Li, 2003, p. 168). Hence, there is need for SMEs to embrace thestate-of-the-art technologies in order for them to penetrate the international marketsand remain competitive despite challenges posed by globalization, liberalisation andtechnological changes (Sharma and Bhagwat, 2006, p. 200; Dangayach and Deshmukh,2001, p. 256). This situation has forced SMEs to adopt ICTs in their business processesin order to counter the competition posed by large and multinational companies.


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Windrum and de Berranger (2002) argued that business action strategy, which isdriven by the top management and information intensity of the business, facilitatesICTs’ adoption in SMEs. The business action strategy is driven by theowner/manager’s ICTs goals, ICTs’ needs and financial resources. In addition, alarge volume of information intensity compels SMEs owner/managers to adopt ICTs toassist in management and operational control.

Extant researchers have found that the driving forces for ICTs’ adoption by SMEsinclude competition, organization’s ICTs readiness, external pressure to adopt,customer/supplier dependency, structural sophistication of the business, need toimprove customer services and increase in sales (van Akkeren and Harker, 2003, p. 208;Vrazalic et al., 2002, p. 114).

There are several challenges that make it difficult for SMEs in developing countriesto adopt ICTs. Moodley (2001, p. 96), Mutula (2004, p. 151), Jain (2002, p. 57) and Mutulaand Brakel (2006, p. 410) identified some of these challenges as high cost of access totelecommunications, lack of government policy towards ICTs, use of obsoletetechnologies, under utilization of existing technologies, a limited indigenous base anddigital illiteracy, lack of skilled and trained manpower, poor communicationinfrastructure; ignorance of ICTs benefits, high cost of internet connectivity, cost ofICT equipment and resistance to change.

Cragg and King consented that one of the strongest inhibiting factors for small firminformation technology implementation is lack of information system knowledge. MostSMEs employees do not have the necessary knowledge on information technologies; itbecomes difficult for them to adopt ICTs in their business. Similarly, Chiware and Dick(2008, p. 112) and OECD (2004) indicated that the ignorance surrounding technologyfuels concerns about security, lack of physical infrastructure, costs, legislation andinteroperability of the ICT tools. Besides, ICTs adoption theoretically fails to benefitSMEs due to several challenges from the external business environment.

Strategies to decrease barriers to ICTs adoptionIn this era of globalization, SMEs are compelled by external and internal forces toadopt ICTs in order to position themselves strategically in the environment. SMEsstand to benefit in adopting ICTs in their business process, however, SMEs are facedwith many challenges which hinder ICTs adoption. For instance, lack of infrastructureand human capital are some of the barriers to ICTs adoption. Despite all thesechallenges, there many strategies suggested by various scholars in the literature onhow to resolve barriers encountered by the SME owner managers in ICTs’ adoption asshown in Figure 2. These strategies are infrastructure, human capital development,financing and legal framework.

Infrastructure strategy is normally provided by the government in assisting SMEsby offering them subsidies and encouraging ICTs providers to have special discountsfor SMEs at a reduced cost. The government interventions therefore tend to frameworkICTs policy which is crucial in building infrastructure, investing in research anddevelopment, facilitating technological transfers, creating science parks and creating alegal framework (UNDP, 2007, p. 13). In addition, there are ICTs policies which providetax incentives for investing in ICTs, subsidising ICTs training for SMEs, thus creatingincentives for e-procurement and other online activities. Lastly, there should be anSMEs policy, for instance, in providing SMEs financing and business consulting

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services, simplifying registration procedures, providing tax breaks and in creatingincubation centres (Chiware and Dick, 2008; Mutula and Brakel, 2006, p. 410). Thegovernment should boost SMEs in ICTs adoption process by increasing affordabilityof ICTs through grants, credits, leasing options and tax incentives (UNDP, 2007, p. 19;Chiware and Dick, 2008).

SMEs will benefit if government takes initiatives to establish a legal framework tolegitimate ICTs’ usage or adoption in SMEs. This legal policy and regulatoryframework would encourage the usage of ICTs in SMEs by removing the restrainingforces of ICTs’ adoption in SMEs and thus, create a conducive business environment.In addition, internal barriers will be resolved by owner’s motivation and experience toaccess resources (money and people) with more management focus on profits ratherthan on sales, and this will make SMEs to develop a stable financial resource (Mutulaand Brakel, 2006; Chiware and Dick, 2008).

Benefits of ICTs adoption in SMEsIn the contemporary business world, ICTs enhance the competitiveness of businessenterprises. ICTs have enormously contributed to improved knowledge management,access to robust business information, efficient administration, control andaccountability, access to markets and growth of SMEs in both developed anddeveloping economies. ICTs also contribute to the management of enterprise resourceseconomically and effectively as shown in Figure 3.

ICTs’ adoption improves information and knowledge management in the firm,reduces transactions cost and increases the speed of transactions for both B2B and B2Ctransactions. In addition, ICTs are effective tools for improving externalcommunications and quality of services for established and new customers (Lukacs,2005, p. 4; Rosemary and Craig, 2004).

ICTs enable SMEs to have access to robust business information that leads toorganizational effectiveness (Irani, 2002, p. 12). These tools are no longer viewed as atechnical “service”, but as a critical resource to enhance the competitiveness of SMEs inany business environment (Kohli and Devaraj, 2004, p. 56; David et al., 2002, p. 51;Tumolo, 2001, p. 55).

Figure 2.Strategies to decrease

barriers to ICTs’ adoption

ICTs adoptionstrategies

Financingoption strategy

Human capitalstrategy

Legal framework strategy

Infrastructurestrategy


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The adoption of ICTs is essential for the efficient administration of SMEs, and in thedelivery of quick services. ICT tools enable information to be electronically stored,accessed, delivered and retrieved for use in the organization for decision making(Schware, 2003; Brunn et al., 2002, p. 287). Similarly, Mutula and Brakel (2006, p. 409)asserted that most SMEs across the world are increasingly adopting ICT tools toenhance their e-readiness status to identify, acquire, organize, disseminate and applyinformation for informed decision making. In addition, ICTs play a great role instrengthening accountability systems of business enterprises. For instance, theperformance of employees in SMEs can be tracked and budget processes can betransparently implemented (Carlos, 2007, p. 4).

As the world economies continues to move towards increased integration as a resultof advances in information communications technologies, SMEs are likely to derive thebenefits by participating in regional and international markets. ICTs’ adoption inSMEs is critical for their survival in this era of globalization. For instance, in theCaribbean, several SMEs have grown and expanded into international markets bylargely using ICTs, improving customer service and information access. Also inJamaica, there is increasing adoption of ICTs in the SMEs sector, which is attributed toincreased awareness and declining global costs of hardware and software (Southwood,2004); whereas in Singapore; ICTs’ adoption has greatly contributed to the growth ofSMEs businesses and their competitiveness both regionally and globally (Saheer andChris, 2003, p. 95).

The seamless transfer of information through shared electronic files and networkedcomputers increases the efficiency of the business in terms of documentation, dataprocessing and other back-office functions like organizing of incoming orders andpreparing invoices. ICTs’ adoption in SMEs to a certain degree can reduce greatly theoperational costs by decreasing material, procurement and transaction costs, resultingin lower prices for intermediate and finished goods, and they can also use more andbetter information to improve the value of their output (OECD, 2004, p. 9). In China, thevibrant and promising growth of internet business is highly encouraged in SMEs inorder to manage resources effectively (Martin and Matlay, 2001, p. 403).

Figure 3.Benefits of ICTs adoption

Benefits ofICTs adoption

Efficient,administration,

control andaccountability

Knowledgemanagement

Access torobust

informationAccess to markets and

growth

Managingresources

economically

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ICT tools aid in sharing information within and outside the organization. Inaddition, ICTs tools improve SMEs responsiveness to customers/client feedback andinformation on employees’ professional experience (Saheer and Chris, 2003).

Conclusions and implicationsAdoption and assimilation of ICTs by SMEs is critical in this era of globalization.SMEs are the major drivers for economic growth of an economy. The majordeterminants of ICTs’ adoption by SMEs are competition and access to internationalmarkets. ICTs adoption by SMEs increases the productivity process, efficiency ofinternal business operations and connects SMEs more easily and cheaply to externalcontacts locally or globally. Although ICTs’ adoption will increasingly empower SMEsto participate in the knowledge management economy, still SMEs are faced with manychallenges which impede SMEs not to adopt ICTs in their business processes. Thesechallenges include lack of financial, human resources, unsuitability for the type of thebusiness and security and trust of ICTs tools. In addition, most SMEsowners/managers do not understand the benefits of ICTs adoption, lack of legalframework and inadequate infrastructure.

This review of literature will contribute to the body of knowledge by identifying tothe owners/managers, policy makers and other stakeholders the driving forces,benefits and barriers to ICTs adoption. SMEs play a significant role in an economyespecially through their contribution in economic growth and innovation.

The limitation of this paper is that it is a preliminary work that needs to becontrasted with empirical findings to give a holistic view on ICTs adoption by SMEs.In addition, there is need for triangulation methods to be applied so that one can makeconcrete conclusions on the determinants, benefits, barriers and strategies to resolveICTs adoption and assimilation in SMEs.

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Further reading

Cragg, P., King, M. and Hussin, H. (2002), “IT alignment and firm performance in smallmanufacturing firms”, Journal of Strategic Information Systems, Vol. 11, pp. 109-32.

MacGregor, R.C. (2004), “Factors associated with formal networking in regional small business”,Journal of Small Business Enterprises Development, Vol. 11 No. 1, pp. 60-70.

Corresponding authorHenry Ongori can be contacted at: [email protected]

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