TOPIC: THE IMPACT OF INTERNAL RESOURCES AND DIGITALIZATION

TOWARDS E-COMMERCE AMONGST SMES IN MALAYSIA.

Abstract???

INTRODUCTION

Digitalization or digital transformation (DT) is becoming a prime topic for business across
the globe (Von Leipzig et al. 2017; Kane et al. 2015; Kaufman & Horton 2015; Fitzgerald
et al. 2013). Nevertheless, most organizations, and especially SMEs, struggle with a
coordinated process of global digital transformation. In fact, digitization has an influence on
much of the organizational strategy of a firm, including market potential creation. The factor
of digitalization that supports the internationalization of SMEs has been found. To integrate
digital technology, however, investment and changes in internal procedures in a firm must be
made through the mobilization of new resources and the implementation of specialized
management competencies. Over the last decade, new processes of innovation, product and
services marketing models and the development of ever strong digital technology and digital
infrastructure have revolutionized and continue to revolutionize business processes,
organizations, and enterprises culturally (Tekic & Koroteev, 2019).

For expressing organizational changes impacted by digital technology, the academic

and industry utilized it under the phrase "digital transformation." However, while a coherent
definition has not been embraced extensively, all scientific papers convey unanimously the
fact that digital transformation leads to a significant shift in organizations (Burki, 2018).
According to Lucas et al. (2013), these changes affect business process adaptation, the
creation of new organizations, changes in customer-organisation interactions, markets, user
expertise, and the quantity of customers. In conjunction with the expanding globalization of
related economies, accelerated digital technical development is also accelerate product and
service innovation cycles, producing new business models, and transforming the operational
and organizational environment for enterprises and customers.

BACKGROUND
Digitalization is raising more and more interest in today’s economic fabric. Its importance
will even grow exponentially in the near and long term. Some talk about “the fourth industrial
revolution” (Manyika J. et al., 2016). The concern about digitalization arises mainly from the
daily presence and usage of digital technologies. It profoundly modifies the strategic context
of companies. It is reshaping the structure of competition, the conduct of business, and as a
result, the performance across industries. Since the digital world is gaining in importance,
companies may raise questions about the place or even the impact of this technology in
organizations. They may inquire whether its influence is limited to information technology
systems or whether its effect is larger and touches other departments of the organization.

With the aim of enlightening part of these questionings, this paper will discuss the
impact of digitalization on SMEs’ strategy. Several companies are aware of the need for
changes, but only a few are searching for solutions to prevent digital disruption. According to
a published study shows that 46% of executives surveyed in the United States think that
digital will have an impact on more than half of their sales in less than 5 years. This proves
the awareness of the potential for this technology to reshape business. Furthermore, these
executives predict that 47% of their revenue will be influenced by digitalization by 2025.
Different business operations, including firm business models, were affected in increasing
digitalization by allowing different forms of collaboration between firms and leading to new
offers of products and services and new forms of corporate connections with consumers and
staff. This digitization has also put pressure on enterprises to reflect on their existing strategy
and to methodically and early on investigate new business prospects (Rachinger et al. 2019).

PROBLEM STATEMENT

Digital transformation has changed sectors and companies and will continue to alter. In a
widely consumed industry like music, publishing, consumer electronics, retail and financial
services (Acker et al., 2015; Hagberg, 2016) the most serious effects of this transformation
have been noted but have also started to affect all SMEs (Wang, Wang, Mohammed, &
Givehchi, 2015). Their economic relevance is unquestionable, but the literature has received
very little attention to their chances and problems in terms of competing in an increasingly
digital sector.

Digital processing in small and medium-sized businesses has become ever more
crucial to increase operational efficiency but also to develop novel approaches. The Industry
4.0 idea allows for combinations of intelligent digital items and linked machines to automate
on a new level and items which will eventually notify machines of their activities
(Regeringen, 2016). Digital transformation in small businesses may bring change through the
supply chain and provide opportunities for the sharing of digital technology and innovation
between organizations, as 'digital ecosystems' grow across industry. Companies need to
embrace digital transformation strategies to meet these high expectations rather than to be
abandoned behind them (Schlaepfer & Koch, 2015).

Research has shown that Malaysia's small and medium enterprise enterprises have
insufficient digitalization adaptation plans and face different issues than bigger enterprises. In
terms of understanding digital transformation in SMEs, this exposes a void in study. Another
digital transformation gap in the existing literature Prior academics concentrated mostly on
digital technology, but not enough on the most crucial feature that companies must take
advantage of or utilize to achieve organizational changes (Matt et al., 2015). For present
research, an organizational transformation focus on digital transformation would thus be
advantageous. This implies that in SMEs, researchers need to look at why and how SMEs
utilize digital technology to alter areas of their companies and show the benefits, but also the
problems, of digital transformation and importance of the Digital transformation.

RESEARCH OBJECTIVE

The main objective of this study is to identify the impact of internal resources and
digitalization towards e-commerce amongst SMEs in Malaysia using the quantitative research
approach. This study also suggests some research objectives that need to be achieved as
follows:

1. To Study the current internal resources for the organization and how do they utilize
for digitalization in current market.
2. To explore the importance of digitalization for SME’s the benefit to them.
3. To examine the factors effecting digitalization’s among SMEs and how can they
manage to go global.
4. T study the issues and challenges SMEs face in term of recourse to go digital.
5. To undertake the study of using TAM model among SME.
6. To make recommendation for SMEs to grow by using personal resources.

RESEARCH QUESTIONS
The following research questions are developed for better understanding the impact of
internal resources and digitalization towards e-commerce amongst SMEs in Malaysia:

1. What are the current internal resources for the organization and how do they utilize
for digitalization?
2. Why digitalization for SME’s so crucial and how can it benefit them?
3. What are the factors effecting digitalization’s among SMEs and how can they go
global with digitalization?
4. What are the issues and challenges SMEs face in term of recourse to go digital?
5. Using TAM model among SME viable or not?

SIGNIFICANCE OF STUDY

This research will assist small and medium-sized companies and governments, to meet the
needs and resources of every organization to enable them to be able to use the necessary
resources in the digital age. The digitalization of SMEs by leveraging internal resources
currently is necessary, since digitization is crucial, where digitalization is the foundation for
digitization, which is defined as the exploitation of digital opportunities (i.e., the process of
transferring analogue data in digital data sets). Digital transformation is thus characterized as
a system-level restructuring process for economies, institutions, and society Pacheco, Edgar,
Miriam Lips, and Pak Yoong. (2018).

CONCLUSION

The research revealed several effects, depending on which type of facilitator is evaluated (e-
commerce, e-marketing, and e-commerce). In fact, those connected to strategic placement,
adjustment of their offer, transparency and organisation are the most influenced export
practices. Export operational procedures will be less affected. In addition, e-business enabled
facilitators with the biggest global influence immediately relate to the inner functioning of a
firm and affect its operations. E-marketing facilitators have also a significant influence but
focus more on communication strategies and consumer relationships.

Your METHODOLOGY?
CHAPTER 2

LITERATURE REVIEW

2.1 INTRODUCTION

Digitalization has been gaining momentum in recent years, being considered one of the major
trends changing society and business (Bican & Brem, 2020; North, Aramburu, & Lorenzo,
2019; Parviainen et al., 2017; Sweden, 2016). The transformative impact of digitalization on
how business, economy, and society operate (also known as digital disruption) (Autio, 2017)
- and the inherent reduction of transaction costs, increase of network activities, speed, and
scalability - creates opportunities for SMEs’ growth, namely through online sales and e-
commerce (Jin & Hurd, 2018; Joensuu-Salo, Sorama, Viljamaa, & Varamaeki, 2018; OECD,
2017).

Therefore, the literature review presents some key definitions on the impact of internal
resources and digitalization towards e-commerce amongst SMEs focusing in Malaysia.
Thereby, this chapter will review the existing literature on: (1.1) Digitalization and industry
4.0 (i4.0), particularly how it affects enterprises strategies, particularly specifically their
business models and value chains; (1.2) how enterprises can improve their digital strategy -
particularly how SMEs are approaching the digital transformation and improving their
strategy; (1.3) and how digitalization affects SMEs’ international strategies.

2.2 SMALL AND MEDIUM-SIZED ENTERPRISES (SMEs)

Every country has its own definition of SMEs and there is no formal categorisation of what
constitutes anSME (Ghobadian and Gallear, 1996; Mohd Asri, 1999; Curran and Blackburn,
2001). Even within countries, defmitions of SMEs vary (Beaver, 2002) rendering definitions
that vary even amongst those government agencies as each seems to have its own criterion.
This is further complicated by defmitions varying over time (Hashim and Wafa, 2002).
However, these varying definitions do suggest that any definition of SMEs must include a
quantitative component that takes into account staff levels, turnover, and assets, together with
financial and non-financial measurements, and that the description must also include a
qualitative component that reflects how the business is organised and how it operates
(Meredith, 1994). In general, though, many researchers defme SMEs using its quantitative
criteria, such as number of employees, amount of capital, amount of assets and sales turnover
(Yap et al., 1992; Hashim and Wafa, 2002).

Nevertheless, there are two common ways of defining SMEs found in the literature. One is
the definitions based on financial turnover and the other is the definitions based on number of
employ (Curran and Blackburn, 2001). Definitions based on financial turnover however, have
been found to be problematic (Curran and Blackburn, 2001) as this is difficult to measure,
and varies by sector (Storey, 1994). Critics argue that financial turnover changes over time
with inflation (Bridge et al., 1998). Thus, definitions based on number of employees are more
acceptable, and most commonly used by policymakers (Curran and Blackburn, 2001) and
researchers (e.g., DeLone, 1988; Raymond, 1992; Cragg and King, 1993; Cragg, 2002).
Employment size is considered more objective and transparent compared to turnover (Curran
and Blackburn, 2001), and also more practical as "information about employment is readily
available and ... considered by managers to be less confidential" (Pratten, 1991, p.93; Mohd
Osman, 2001).

For the purpose of this study, SMEs are defined by the number of people employed by the
firm. More specifically, consistent with Ismail and King (2007) and Mohd. Osman (2001), an
SME is defined as a firm employing 10 to 250 employees. This is also in line with the
definitions of SMEs used in other countries (European Commission, 2002). Very small firms
(fewer than 10 employees) will be excluded since these are likely to approach IT issues very
differently (Hussin et al., 2002) and because their numbers would swamp those of larger
SMEs. The exclusion of very small firms in studies of ICT is consistent with earlier studies,
such as Kula and Tatoglu (2003), Igbaria et al. (1997) and Ismail and King (2007).

2.3 SMEs IN MALAYSIA

After its independence in 1957, the Malaysian government promoted large industrial
enterprises, mainly run by the state, with incentives such as free trade zones and tariff
protection. Industrial expansion was left to the multinationals, while 5MBs development was
limited to quasi-governmental structures designed to assist with the provision of small loans,
advisory services and infrastructure support (Hashim and Wafa, 2002).

The Malaysian government has recognised the need to assist in solving 5MBs problems, such
as inadequate finance and lack of access to commercial banks credit experienced by
Bumiputra small business ownera' since the early 60s. The primary objective in the First
Malaysia Plan (IMP), launched in 1961, was to promote the Bumiputra economic equity
ownership to 30% in a Chinese business dominated economy (Hashim and Wafa, 2002).
After the 1969 crisis, the concern for SMEs expanded. The government formulated and
implemented the NEP to reduce poverty among Bumiputras as their per capita income was
only half of the Chinese (Hashim and Wafa, 2002). The Malaysian authorities further
emphasised the government's effort in promoting and assisting SMEs. This included
acknowledging SMEs as the training ground for future entrepreneurs, restructuring the racial
economic imbalance between Bumiputra and Non- Bumiputras, and mobilizing the private
savings of the middle classes for investment in industrial ventures (Hashim and Wafa, 2002).

In order to help and coordinate the activities of SMEs, the government established the Small
Enterprise Division in the Ministry of Trade and Industry in 1981. The government also
established the Division of Small-Scale Industry in the Ministry of National and Rural
Development at the end of 1981, in an effort to assist the SMEs in the manufacturing sector.
The government expanded the SMEs programme by introducing an incentive system for
SMEs that produce innovative ideas. These incentive systems include grants, financial
assistances, award schemes and tax incentives (Malaysia, 1998). The government also fund
SMEs for research and development, particularly those in the manufacturing sector
(Malaysia, 1998). A number of development programmes was introduced to assist SMEs,
such as the 1988 Vendor Development Programme (VDP) and the 1990 Industrial Technical
Assistance Fund (ITAF). Both programmes were initiated to develop SMEs in manufacturing
into a dynamic sector capable of supporting the larger industries. However, the 1980s did not
provide the rapid industrial development as projected. The ITAF programme overall has not
been successful in enhancing the technological development of SMEs in Malaysia. Two
major constraints inhibited Malaysia's progress in technology: (1) shortage of skilled
manpower, especially those with managerial and technical expertise, both in large
organisations and SMEs; and (2) the failure to make industrial R&D a strategic priority
(Mohd. Osman, 2001).

The rapid development of SMEs in Malaysia may be best observed in the mid- '90s when
Mahathir launched the Second Industrial Master Plan (IMP2). In his message, Mahathir
clearly indicated the importance of SMEs to the country: "The small and medium industries
play an important role in the economy and they must therefore be integrated into the
mainstream of industrial and technological development ... SMIs are crucial in increasing the
Malaysian content of the industrial process in the wake of increasing competition for foreign
direct investment (FDI). Developing competitive Malaysian SMls with a global orientation
and world-class operation structure is imperative to sustainable and resilient growth of the
manufacturing sector." (Mohamad, 1996, p.3)

Foreign direct investment (FDI) is an important component of the national strategy for
economic development and growth (Mohammad, 1996). It facilitates the transfer of assets
like capital and. technology, and access to export markets, skills and management techniques.
It also plays an important role in SME development, either through joint ventures with local
partners or through the establishment of wholly foreign-owned enterprises (Chin, 2005).
Many Malaysian 5MBs rely on FDI, especially in the electric and electronic, and metal
fabrication sectors. It is expected that SMEs will boost their productivity not just by receiving
foreign capital, but by the transfer of technology through FDI which will give substantial spill
over benefits for the entire economy. Despite the proliferation of FDI, the impact on SMEs
remains unclear (Quah, 2007). Many

Malaysian SMEs are still incapable of surviving changes in technology and the demands of
the global market (Chin, 2005). There is an inadequate supply of skilled workers to meet the
needs of home-grown SMEs, in part because foreign firms offer better conditions of
employment (Quah, 2007). The government intends to transform SMEs into a more dynamic
sector with high value added. SMEs are to be capital intensive and to exploit high
technology. ICT is the backbone of the plan, and e-commerce a fundamental part.

2.4 ELECTRONIC COMMERCE (E-COMMERCE)

The idea of conducting business transactions via electronic media, rather than face-to-face,
has been discussed for decades (Slyke and Belanger, 2003). However, the term 'electronic
commerce' (e-commerce) has only emerged as a significant topic in the literature, especially
for business and academic research, more recently, basically since the Internet started to be
used commercially in the early 1990s. E-commerce is said to replace the traditional way that
people do business. Many authors insist that e-commerce has a significant and positive
impact on businesses everywhere (Daniel, 2003; Brown and Lockett, 2004; Pool et a/., 2006).
Policymakers and managers seem certain that e-commerce conveys benefits, insisting that
firms which eschew e-commerce will be left behind in the global marketplace (Daniel and
Grimshaw, 2002; Quayle, 2002; Scupola, 2003; Ordanini, 2006). Many have predicted that e-
commerce will give a tremendous boost to trade. Indeed, it is predicted that e-commerce will
link firms with the global market so that geographical boundaries and locations no longer
hinder business transactions (Lewis and Cockrill, 2002).

E-commerce and electronic business (e-business) are sometimes used interchangeably

(Bartels, 2000). However, they are actually different phenomena (Bartels, 2000; Laudon and
Traver, 2002). E-business refers to the broader term of the information systems under the
control of the firm. This includes the internal processes, such as production, inventory
management, product development, risk management, finance, knowledge management, and
human resources (Bartels, 2000). E commerce, on the other hand, is a subset of ebusiness, a
narrower term of the information systems under the control of the firm (Bartels, 2000). It
focuses on the commercial transactions between and among organisations and individuals in
electronic networks (Laudon and Traver, 2002). This includes all business activities that lead
to any transactions that involve the exchange of value across organisational or individual
boundaries in return for products and services that are mediated by digital technology,
especially the Internet.

No matter what the defmition, there are two common elements in e-commerce. First, e-
commerce concerns activities that occur by electronic means, such as sharing business
information, and buying and selling. The second element is the technological means that
enable these activities. The difference lies in how some researchers defme these two
elements. Some define the e-commerce term as generally as possible, including all business
activities carried out over any electronic media (e.g., Wigand, 1997; Colecchia, 1999;
Timmers, 1999). Others are comfortable with more specific definitions and focus on certain
activities or technological means (e.g., Zwass, 1996; Kalakota and Whinston, 1997; Beveren
and Thomson, 2002; Turban et al., 2003). For the purpose of this study, Zwass's definition
(1996) of e-commerce is adapted, focusing on Internet-based technology.

"E-commerce is sharing of business information, maintaining business relationships, and

conducting business transaction by means of Internet-based technology". This definition is
used because it allows the researcher to investigate all other potential business activities that
occur via the Internet. This definition has been used by many other researchers such as Poon
and Swatman (1999) and Pool et al. (2006), and MacGregor and Vrazalic (2007).

2.5 E-COMMERCE ADOPTION BY SMES

SMEs have traditionally restricted their activities to local economies and face-to face
interaction. However, over the last decade, there has been an increasing participation of
SMEs in e-commerce; particularly with the commercial use of the Internet. A number of
businesses have taken advantage of the potential benefits that the Internet and e-commerce
offers. There are suggestions that SMEs can gain considerably from using the Internet (Poon
and Jevons, 1997; Daniel and Wilson, 2002; Daniel, 2003; Martin and Maday, 2003). There
are also suggestions that SMEs can compete with large organisations by adopting
ecommerce, because the Internet can provide equal access to both. The Internet enables
SMEs to make as great an impact on their customers as it does on large organisations
(Riquelme, 2002). Some SMEs have started to market their products and services online and
some have started to move into the international market using the Internet's capabilities.
Despite these enthusiasms, a significant number of SMEs have yet to adopt e-commerce;
particularly involving websites with online transactions. Indeed, some studies show that the
number of SMEs that trade online is decreasing (Brown and Lockett, 2004; Pool et al., 2006).

2.6 E-COMMERCE ADOPTION BY MALAYSIAN SMES

Several studies of e-commerce adoption by SMEs in Malaysia have been found in literature.
Of these, most focus on examining the awareness and readiness of Malaysian firms in
general. For example, Sulaiman (2000) investigated the status of e-commerce applications in
Malaysian firms. Though many Malaysian firms have Internet access, most limited its usage
to e-mail (Sulaiman, 2000). Other studies investigated the e-commerce of successful firms
(e.g., Albert et al., 2002), drivers of, and barriers to, e-commerce in Malaysia (Paynter and
Lim, 2001), e-commerce in specific industries, such as shipping (Aug et al., 2003), and e-
commerce in manufacturing firms (Bolongkikit et al., 2006). These studies concluded that e-
commerce usage by SMEs is still in its infancy. Indeed, many firms, especially SMEs, are
reluctant to go online (Karkoviata, 2001).

A study by Le and Koh (2002) found that out of 240 small and large firms with websites,
only 171 could be contacted from their website via e-mail. Of these171 firms, only 42
responded and only 12 considered e-commerce significant for their businesses. In contrast, a
study by a Malaysian ICT consultancy firm (IDC6, 2005), reported that 86% of firms in
Malaysia have websites and 17% of SMEs are active in an e-marketplace (IDC, 2005). The
Star, a prominent newspaper in Malaysia, recently reported that only 30% of SMEs in
Malaysia have websites and most of these are never updated (Star Online, 2005). In addition,
Adham and Ahmad (2005) investigated the adoption rates of website and e-commerce
technologies by all 562 Malaysian public firms (reputable SMEs and large firms, as listed on
the Bursa Malaysia). Their study only examined the firm's website for operability and
whether they incorporated ecommerce systems for online transactions. They looked at how
firms used websites to sell online to their customers. Only 62% of the websites were
operable, with 96% only providing firm and product information, and only 4% were equipped
for e-commerce transactions (Adham and Ahmad, 2005). Their findings revealed that even
well-known firms in Malaysia, with excellent track records, had yet to use online transactions
to sell their goods and services to their customers. Even so, the authors concluded that these
firms must adopt ecommerce and trade online, in order to be competitive in the market.

The above discussion shows that there are very limited studies on e-commerce adoption
among SMEs in Malaysia. As such, related studies of e-commerce adoption among SMEs in
developed nations, such as the United Kingdom and the United States of America, will be
used as a basis for this study. The following section discusses issues regarding e-commerce
and SMEs, such as ecommerce activities adopted by SMEs, facilitators and inhibitors,
reasons for ecommerce adoption and its benefits, and government e-commerce policies.

Adham and Ahmad (2005) have recently investigated the adoption rates of website and
ecommerce technology by all 562 Malaysian public companies (reputable SMEs and large
companies, listed on the main board of Kuala Lumpur Stock Exchange (KLSE)). Their study
examines company websites for operability and whether these websites incorporate e-
commerce systems for online transactions. Only 62% of websites are operable with 96%
providing only company and product information and only 4% equipped for e-commerce
transactions (Adham and Ahmad, 2005). Surprisingly, even well-known companies in
Malaysia with excellent profit track records are yet to use online transactions.

2.7 DIGITALIZATION

Digitalization is broadly referred to as the “adoption or increase in the use of digital or

computer technology by an organization, industry, country” (Brennen & Kreiss, 2016, p. 1).
This concept appeared in a 1971 essay in the North American Review, written by Robert
Wachal, and, since then, has been massively explored (Brennen & Kreiss, 2016).
Some scholars use the terms “digitalization” and “digitization” interchangeably. However,
while digitalization consists of how many spheres of social life are restructured based on the
fact that people’s interactions are moving away from analog to digital technologies,
digitization consists of the material process of converting analog information into digital bids
(Brennen & Kreiss, 2016).

Digitalization is often used to describe any changes in the organizations’ BM, in order to
create new offerings and sources of revenue, improve business and replace or transform
business processes (McAffee, Ferraris, Bonnet, Calméjane, & Westerman, 2011; Wautelet,
2017). This business-oriented definition of digitalization, as mentioned before, has been
adopted by Gartner (2019) - a leading information technology research and advisory
Company - defending that digitalization consists of the process of moving to a digital
business, using technological tools to change the BM, and provide new revenue and value-
producing opportunities. It is going to be this more business-orientated definition the one
used in this dissertation. Digitalization is facilitated by the improvement of information and
communication technologies (ICTs) (UNCTAD, 2019) like the internet, that standardize
information and enable enterprises to code, store, formalize and allocate increasingly
amounts of knowledge promptly, improving information and knowledge management inside
the enterprise (Cenamor et al., 2019; North, Aramburu, & Lorenzo, 2019; OECD, 2004).

Although digitalization is not a new phenomenon, it keeps evolving and producing new
effects on the organization’s environment.

The current digital transformation, often referred to as the Fourth Industrial Revolution, is
evolving exponentially and distinguishes itself from the previous one – the third revolution,
based on ICTs and automation - due to its velocity, scope, and systems impact (Schwab,
2016). The Fourth Industrial Revolution is a learning process characterized by the fusion of
digital technologies and the interaction across physical, digital and biological spheres and is
revolutionizing enterprises’ value chains (North, Aramburu, & Lorenzo, 2019; Schwab,
2017). This phenomenon is also known as Industry 4.0 when addressing the impact of this
digital transformation on the manufacturing industry (Müller et al., 2018). Even though
European scholars refer to the digital transformation as “Industry 4.0”, the same concept is
called “Smart Manufacturing” (SM) by most US scholars and by “Smart Factory”
predominantly in Korea/Asia (North, Aramburu, & Lorenzo, 2019). In light of this, we will
be going to refer to the industrial digital transformation as Industry 4.0.
Industry 4.0 consists of a global transformation of the manufacturing industry by the
introduction of digitalization and the Internet, as well as the emergence and diffusion of
existing digital technologies, increasing the connectivity along the value chains and the
integration of physical assets on digital ecosystems (Parida et al., 2019; Rüßmann et al.,
2015; Schwab, 2017; Tjahjono, Esplugues, Ares, & Pelaez, 2017).

As refer to Xerox market survey indicate that huge number of SMEs have been searching to
move into paperless office environment. During 2017, 81% of the SMEs considering to be
paperless on next 12 months (Lobel, 2017). However, there were no further result to show
about the digital transformation from the earlier study on implementation of digitalization.
With digitalization, it will offer new hopes for SMEs such as open new market, product
development and growth. Despite small payment to be invested by SMEs but it able to
provide new dimension of knowledge and crafting new competitive edge for their products
and services. The investment in digitalization will beyond product, it will able to provide
SMEs with big data which can be an essential asset for the business at any time regardless
during or post pandemic.

The digitalization era come in line with the Industry Revolution 4.0, if the SMEs failed to
ride on this wave, many of them unlikely to sustain in the long run. (Brynjolfsson & McAfee,
2011) (Valenduc & Vendramin, 2017). According to Autio (2017), the worldwide
digitalization is lead to digital disruption, where the traditional business will be push aside by
digitalization business. If the traditional businesses fail to ride on the wave of digitalization, it
will be difficult to maintain their position example like Grab and Uber have change the taxi
industry. Chen, (2016), in his publication mention that the consequences of digitalisation can
be seen in short run-in term of productivity & efficiency but bigger issue is the uncertainty in
the long run. The lack of human capital employability by SMEs also contribute to the slow
adoption of digitalization as current employee won’t be easily accept the change as they
worry about, they being replace in the digitalization. The employees, especially those of
operation, commonly will reject resistant towards change and are feeling more comfortable
with the existing system, probably fear of losing their jobs.

According to Hynes (2016), there is huge gap between SMEs and Multinational companies in
term of adoption of ICT and digital technologies in Europe. But it is important to identify and
overcome the shortcoming in the SMEs so that both sectors could narrow the gap and
contribute effectively to the economic. The less develop nations are more reluctant to
embrace the changes due to financial limitation and lack of confident about the ability of
digitalization able to give a return. The doubt in adopting digital technologies in SMEs can be
relate it to an in-depth issue because the entrepreneur and workforce are in comfort zone of
current situation, nonetheless no thanks to the fear they have on digital knowledge and
security. Majority of SMEs owners and decision makers don’t ‘see the benefit of
digitalization will generate handsome return compare to their outlay on investment on it.

2.8 DIGITALIZATION OF SMEs

Digitization is the adoption of digital devices and technology into the business model,
administration and logistical processes of a firm. It aims to underpin the day to day operation
so that it is more efficient and competitive (Farquhar, 2019). Westerman et al. (2011) further
add that digital transformation is the use of technology to radically improve organizational
performance. Digital transformation is supposed to coordinate and implement across with
other strategies in a firm. IT strategies have to be aligned with business strategies to allow IT-
enabled business transformation (Chanias and Hess, 2016).

Digitization at the advance level emerges the concept of digital business strategies, which
goes beyond the technology-centric view. Digital technology is now incorporate with other
concepts for the exploitation of business opportunities that arise from the use of digital
transformation (Chanias and Hess, 2016). Reis et al. (2018) add that with the maturation of
digital technology and their penetration into all markets, society is facing fast and rapid
changes.

Regardless of the urgency to change, many SMEs are still operating in the traditional way,
their involvement in the global market is poor (Fariza, 2015). The statement of Fariza (2015)
is aligned with the study of Reis, et al. (2018), that despite all these changes, digitization in
organizations is taking longer time than expected. If SMEs do not change the way they do
businesses and digitize their businesses, not only they lose the advantage of expanding their
market, they may face the risks of being obsolete. Past researches had examined the level of
e-business among SMEs, the benefits of e-business; yet e-business continues to be less
relevant to SMEs. Unlike larger organizations, many SMEs do not take advantage of ICT and
e-business solutions in their businesses. As such, his research attempts to study the barriers
which prevent SMEs from the utilization of ICT and e-businesses. He concludes that overall
barriers can be divided into four, namely: lack of elementary digital experiences; shortage of
material access; insufficient skills and lack of usage opportunities.

Zekos (2003) stresses that ICT which starts as an alternative communication and marketing
channel, now it is part of the comprehensive economic system. The advantages using digital
economy, these include low costs communication network; human capital needed to conduct
network via this infrastructure; interconnected market network; wide range of digital
products; policy and legal framework which encourage businesses in the digital world.

Comparing to traditional SMEs (non-knowledge intensive), knowledge-intensive SMEs have

higher research and development (R &D) allocations, they have better adaptability and more
proactive in the internationalization, flexible in responding to international customers. Based
on these findings, it is highly possible and easier for knowledge-intensive SMEs in Malaysia
to embark on the digital economy, compared to non-knowledge intensive firms, as they have
an adequate skilled labour workforce.

The study of Kitsos et al. (2005) focuses on the factors which influence technical innovation
in Greece. In brief, they found that technical applicability, profitability, size structure of firms
and managerial attitudes are the key factors towards innovation. This research is supported by
Zhu et al. (2006), who emphasize that technology infrastructure is the foundation in which
online business can be built. Firms equipped with IT infrastructure are in a better position to
make use of online business technologies. Conversely, firms are less likely to be successful if
they are lack of technological infrastructure. This is aligned with the resource-based theory
that the competitive advantage of a firm is derived from its resources.

Bharadwaj (2000) adds on to the statements of Zhu et al. (2006), that IT-based resources
consist of physical IT infrastructure, IT expertise (technical and managerial IT skills) and IT-
enabled resources (function of IT, information operational system and consumer orientation
system). Mere physical IT infrastructure alone cannot generate a competitive advantage. As
such, the synergy of IT infrastructure with IT experts and IT-enabled resources are essential
in order to produce desirable organizational performance. Firms will be able to leverage
benefits from IT-related technology if there are IT capability, IT infrastructure, management
practice and competitive environment.

Chen et al. (2016) aim to find out how the synergy of IT infrastructure, experts and IT-
enabled resources bring out organizational performance, which will be assessed through
financial benefits, strategic value, market value, and organizational efficiency. The study
targets on the usefulness of internal IT portal, its effectiveness in connecting people and
portal function. The result reveals that the service-oriented portal function is significant in
contributing to organizational performance. The negative effect between portal training and
organizational performance, show that many firms still hesitate in using new technology.

Not all researches prove that digital transformation will bring about profitability to firms.
Studies of Strassman (1997), Chen et al., (2012) fail to find any direct relationship between
IT-related technology investment and organizational performance. Instead, it is proposed that
efficient utilization of information, people and IT practices lead to better business
performance. Under the framework of Technology Organization Environment Theory
proposed by Tornatzky and Fleischer (1990), an organization’s decision to introduce new
technology is affected by technological, organizational and environmental factors. Under
these factors, IT infrastructure, internet skills, firm size, firm scope, CEO’s knowledge,
adoption cost, competitive pressure, government support, and consumer readiness are key
determinants (Chatzoglou and Chatzoudes, 2016). This model explains various aspects and
factors which organizations need to attend to, in order to go through technological transition.
Anyhow, as most SMEs have various limitations in resources, they may not able to have all
these factors simultaneously.

SMEs play a major role in most economies, accounting for most businesses worldwide, and
being essential contributors to job creation and global economic development. In 2018,
European SMEs accounted for 99.8% of all enterprises, generating, on average, 56.4% of the
value-added and 66.6% of the employment (EC, 2019).

Although they are a heterogeneous group, operating in different industries, with different
target markets, products and resources, SMEs have in common the necessity to improve and
develop their internal and external resources and capabilities in order to adapt to today’s
rapidly changing environments and stay competitive. Internal efficiencies, cost reductions,
better collaboration, new product and service offerings and audience extension are the
primary motivations for SMEs to embrace digital economy’s potential. (North, Aramburu, &
Lorenzo, 2019).

On the other hand, the utilization of digital platforms also has benefits for SMEs. The fact
that these platforms aggregate an infinite number of enterprises and customers worldwide
enables firms to understand their competitors’ and customers’ preferences more clearly and,
consequently, developing new products effectively. Additionally, communication and
showcasing services help firms to promote and communicate their value propositions to
customers worldwide effectively. Another advantage of digital platforms is the low
maintenance costs and the fact that online traffic is regular. However, by using these tools,
SMEs face higher competition and have lower control (Kim, 2020).

E-commerce transactions can be distinguished according to their application and use -

business to consumer (B2C) and business to business (B2B) are two of the existing categories
(Villa et al., 2018). B2B e-commerce -”business activities fulfilled electronically in order to
enhance competitive advantage, related to selling, buying, exchanging, or transferring goods,
services, and information among organizations.” (Hamad, Elbeltagi, Jones, & El‐Gohary,
2015, p. 405). - is usually the first technological tool adopted by SMEs, being a key element
to operate effectively and to compete with their rivals (including larger firms) worldwide
(Hamad et al., 2018; Scupola, 2003).

However, and besides the fact that digitalization constitutes an opportunity for SMEs to
participate in the global economy, these firms are not ripping the full potential of digital
evolution (North, Aramburu, & Lorenzo, 2019; OECD, 2017).

Apart from that, Malaysia is ranked as one of the most avid countries in online shopping
(Nielsen, August 2014), its online sales are just behind Indonesia, the largest e-commerce
market in ASEAN (The Business Time, Nov 2018). Basically, it is essential for SMEs to
embrace technology in order to advance in their business, one clear and direct way to achieve
this is the integration of relevant talent with technology.

In addition, the digital economy breaks the dominance of monopoly power, static model of
monopoly cannot be applied in digital businesses (Zekos, 2003). Results show that the digital
economy is more ready to take place now than any other time in the past. Consumer
purchasing pattern has changed, retail giants in the country, such as Tesco starts to provide
delivery services based on online purchase or phone order. Having said that, are SMEs aware
of the potential opportunities from digital economy? How do they prepare their workforce for
these changes?

2.9 OPPORTUNITIES AND CHALLENGES FOR E-COMMERCE IN MALAYSIA

There are many opportunities for E-Commerce to grow in Malaysia. The political willingness
is boosting policies towards the selected goals. Development of information and
communication technologies is also pushing E-Commerce towards the attractive pace. New
technologies are providing easy and fast online transactions which are enhancing consumers
to go online and take the advantages of E-Commerce. Geographical position also helps to
promote businesses around the globe. It can boost E-Commerce in Malaysia. Foreign
investment is the key opportunity for E-Commerce in Malaysia. It helps in promoting
business and introduces new technologies which are effecting on the growth of E-Commerce.
Malaysia is enjoying fruitful foreign investment in the region. Stability of policies and
regulatory reforms are also affecting on E-Commerce growth.

Government is willing to develop and introduce E-Commerce with new technologies. This is
the main determinants in the strength. Malaysia is enjoying political stability since
independence. One party is still ruling over Malaysia from the independence. Due to one
party government there is continuity in policies, strategies implementation and strategies
formulation which are enhancing the effectiveness of online trading. Government stability
and efforts are the key elements to create institutions. Malaysian government has created
some institutions that help industries and people to adopt E-Commerce. These institutions
have built up legal regulations, technological infrastructure and economic support to develop
E-Commerce in the country. These organizations have also announced some plan and
strategies to improve E-Commerce in Malaysia. Government bodies have announced and
built ministry of multimedia and communication for the improvement of information and
communication technologies, information technology infrastructure create knowledge based
economy.

Government has built an organization for small businesses which called Small and Medium
Industries Development Corporation (SMIDEC). SMIDEC is sole organization to enhance
the capabilities of small and medium enterprises (SME) and assist them to join the global
competition in trading. Government announced 8th and 9th Malaysia plan to develop
knowledge based economy. Government also announced multimedia super corridor and some
other schemes to develop businesses in Malaysia and get global attraction. Government is
encouraging both public and private sector to contribute their efforts towards the growth of E-
Commerce. Government also announced digital signature act to secure business transactions
and create trust of consumers. Technological infrastructure is the key strength of E-
Commerce industry. Information and communication technologies are playing a vital role in
improving E-Commerce practices in Malaysia. The strong ICTs and IT infrastructure are
enhancing E-Commerce capabilities in Malaysia. Strategic position of the country is also the
strength for online and conventional businesses. Malaysia is strategically strong in Asia.
Strategic position of the country is effecting foreign investment and technology attraction.

There are some challenges for E-Commerce in Malaysia. Due to the lack of policies
implementation its effect on long term objective and competitive advantages which also
affect the businesses. The investors and consumers are also hindering due to uncertainty.
Security and privacy issues are also the key obstacles for online businesses. Consumers are
still hindering to go online and majority of buyers preferring conventional shopping in
Malaysia. E-readiness is also a major weakness of Malaysian E-Commerce practices. The
lacks of understanding about new technologies are affecting E-Commerce. The awareness
and knowledge about information and communication technologies are still in the formative
phases. Some new technologies are still new for buyers. As a result, buyers are still reluctant
to implement these technologies. Cybercrimes emerge as a threat to E-Commerce in current
scenario. The advancement of technological capabilities and its usage for crimes like hacking
information of credit cards and other important information became a major threat for online
businesses. The hacker could hack the credit card details and users hindered to give this kind
of information.

The consumers still hinder to use these services and new technologies. Legal issues are the
threat for E-Commerce in Malaysia. Many legal issues are still need to address like copyright
infringement, protection of patent rights, domain name disputes and safeguarding of trade
secrets. Overall, E-Commerce in Malaysia has been rapidly developed. There is a correlation
between opportunities and challenges for E-Commerce in Malaysia. Security and privacy
issues are the key issues for global trading. And users still hesitate to go for online purchase.
High costs also the threat to E-Commerce in Malaysia. High cost internet services like
bandwidth, broad band services and the usage of new technologies are costly compare in the
region.
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