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Proceedings of 14

Conference of SEAANZ, Wellington, 13-5 September 2001

Adoption of Information Communication Technology by New ZealandSMEs.

Author: Stuart Locke

Department of FinanceUniversity of Waikato Management Schoolsmlocke@waikato.ac.nz

Abstract

The speed at which new information communication technology (ICT) is beingadopted by small to medium size enterprises in New Zealand is discussed in thisstudy. Against a background of recent government and private sector initiativesdirected toward increasing SME utilisation of ICT the results of empirical work onSMEs’ perception of barriers to more rapid adoption are presented.Government has shown a concern to promote the use of ICT by New Zealand SMEs.There has been an enquiry into telecommunication regulation and an ongoingcommitment to an E-summit programme. The latter involves both Government andenterprise in ongoing dialogue and public fora. The nature of these works isdescribed as a significant part of the environment in which ICT is being promulgatedto SMEs in New Zealand.Telecommunication companies (Telcos), internet service providers (ISPs), applicationservice providers (ASPs) and service related businesses are actively promoting toSMEs, business to business (B2B) and business to consumer (B2C) solutions to growrevenue, reduce costs and generally make the SME a better business to own. Newbusiness portals are coming online and the barriers to participation are centralconcerns for their future success.The extent to which the various advertising promotions and information sharingcampaigns are successful is investigated in this study. The chosen method is througha quarterly SME Benchmarking Survey including additional questions concerning thebarriers, which proprietors and managers perceive on relation to adoption of furtherICT in their SME. The SME Benchmarking survey is FRST funded as part of a largerresearch contract into ICT adoption by New Zealand Business.The study concludes with highlighting potentially beneficial policy changes forGovernment.

Proceedings of 14

Conference of SEAANZ, Wellington, 13-5 September 2001

Adoption of Information Communication Technology by New ZealandSMEs.

Author: Stuart Locke

Department of FinanceUniversity of Waikato Management Schoolsmlocke@waikato.ac.nz

Introduction

The perceptions of various groups integrally involved with the small mediumenterprises (SMEs) sector, regarding information communication technology (ICT)are analysed in this paper. The Economist Intelligence Unit/Pyramid Research (EIU)study (2001) (www.ebusinessforum.com) into levels of E-preparedness ranked NewZealand 20

down from 16

the year before. While the impact of ICT across thewhole business sector is important, it is essential that the SME sector, including themicro businesses, should capture some of the efficiency gains.Trade NZ notes the importance of unleashing the potential gains from ICT for SMEsin underpinning their recent programme of assistance:

New Zealand has no other option but to adopt e-business and increase participationof its SMEs in the global economy. E-Business has the potential to expand thecountry’s current exports and grow the number of new exporters. Since uptake of truee-commerce is slow among exporters and other companies, the New Zealand Trade Development Board (Trade New Zealand) has taken on a leadership role through a NZ$10 million project supported by additional funding from the Government.

(TradeNZ 2001).Within the popular business magazine literature, it appears, the emphasis has movedfrom the rise and fall of dot-coms, and away from the heavy emphasis on Business toconsumer (b2c) marketing to a business-to-business (b2b) emphasis. While supplychain management remains a hot topic there is an increasing move toward the generalbusiness opportunities that ICT may afford. There appears to be an increasingprevalence of smaller scale success stories with a distillation of some key learning asthe core of these articles.

In the absence of a commercial imperative or a large stick/carrot regime it may berelatively easy to succumb to complacency in times of reasonable economic growth.Currently, agricultural exports are doing relatively well given the higher internationalprices for commodities and the low New Zealand dollar. Nevertheless, it is generallyrecognised that long-term sustainable competitive advantage needs to be built upon astrong foundation in the knowledge economy. With a small population, a relativelyopen economy, heavy compliance regimes relating to occupational-safety and health,resource management, employment relations, and the burden of social welfare vis

vis other emerging knowledge economies there are multiple challenges to be faced.The SME sector, and in particular the micro business sector, is a very largecomponent of the New Zealand economy. If ICT offers the opportunity of reducing

Proceedings of 14

Conference of SEAANZ, Wellington, 13-5 September 2001costs and enhancing supply chain efficiency, then it is important that these potentialgains accrue to the SME sector.The proportion of commerce that is undertaken by the smaller businesses in NewZealand is not completely clear. Dependent on the definition used and the datachosen SMEs represent something in excess of 90% of New Zealand business. Thenumber of businesses as a proportion of all business is, according to Cameron andTweed (1997) over 99.4% and the workforce engaged by SMEs relative to the totalnumber employed is also large, at 60%.A major issue facing the economy is the dead weight losses associated with businessfailure. If ICT were to impact to any significant extent upon business failure the gainswill be considerable. Anecdotal evidence, in New Zealand, points to a significantnumber of business failures resulting in the personal bankruptcy of the owners (TVONE (1999)). From a general perspective such failures in financial and social termsappear to be less than desirable. It is a concern in economic terms due to both the lossof productive efficiency and the extent to which there is transference onto the publicpurse through welfare payments.Berryman (1983) surveyed the literature concerning failures and in 1993 updated thefindings. In many respects the situation had not advanced much from what Cochran(1981) observed. If the high level of SME failure is the result of informationasymmetry, poor signaling and classical market failure conditions, then there arepotentially sound reasons for government to intervene in the market place. While theevidence of SME failure is problematic with official figures for two governmentagencies differing there does appear to be a sufficient reason for concern. Both theDepartment of Statistics and the Ministry of Commerce indicate that in excess of 60%of SMEs will fail in the first three years.Government policy in a range of areas appears, among SMEs to have a lowcredibility. Changes by successive governments through the late 1980s up to thepresent time have resulted in low credibility for new policy initiatives. Scrimgeourand Locke (2001) review the decade from 1990 considering such events as the demiseof Regional Development Councils, introduction and destruction of BusinessDevelopment Boards, and the Biz Programmes mark 1 and 2. The issues combinedwith discriminatory personal taxation rates, slow progress in the reduction of compliance costs impacting upon SMEs, patchy regional development initiatives, andan inability to sort out the telecommunication and power switching arrangements havecombined to create a low impression of Government policy.Government policy, in New Zealand, relating to small to medium enterprises (SMEs)has altered significantly during the last decade (Nyamori and Lawrence, 1997). Thechanges have not followed a consistent pattern but rather have promoted considerableuncertainty in the environment. Commenting on the then most recently announcedpolicy for SMEs Welham (2000, p41.) suggests, “they are ‘reinventions of the wheel’for it has all been done before.”At the national level telcos (telecommunication companies) continue to disputeinterconnection agreements. “After Telecom refused to switch WorldxChange’s tollbypass phonecalls to Clear’s network, WorldxChange complained to the Commerce