Modeling The Success of Small and Medium Sized Online Vendors in Business To Business Electronic Marketplaces in China

Journal of Global Information Management, 19(4), 45-75, October-December 2011 45
Modeling the Success of

Small and Medium Sized
Online Vendors in Business
to Business Electronic
Marketplaces in China:
A Motivation – Capability Framework
Shan Wang, Renmin University of China, China
Yili Hong, Temple University, USA
Norm Archer, McMaster University, Canada
Youwei Wang, Fudan University, China
ABSTRACT
This paper explores the performance of Chinese small and medium sized enterprises (SMEs) on Business-to-
Business (B2B) electronic marketplaces (EMs). Based on a content analysis of 155 cases of high performing
online Chinese vendors, this paper explains the success of SME online B2B vendors within a Motivation-
Capability framework. This first generation of SME B2B online vendors proved highly motivated to increase
sales and developed a set of Internet leveraged organizational capabilities to compete online, including
capabilities for online marketing, product innovation, eCommerce management, etc. This study differs from
traditional wisdom that online marketplaces will render Guanxi (a Chinese cultural phenomenon defined as
close and pervasive interpersonal relationships, Yang, 1994) irrelevant since online marketplaces are perceived
to be impersonal. In fact, Guanxi still matters online, but it takes new forms. This research offers important
managerial implications for B2B SME online vendors on how to leverage EMs for higher performance.
Keywords: Digital Organizational Capabilities, E-Commerce Performance, Entrepreneurial Motivation,

Guanxi, Resource Based View, SME Online B2B Vendors
INTRODUCTION than RMB300 million that take advantage of

electronic marketplaces to sell products/services
Small and medium sized online vendors are and achieve organizational growth. In China,
SME business firms with annual revenues less the number of online vendors has increased
dramatically in recent years, due to both the
DOI: 10.4018/jgim.2011100103 heightened atmosphere for entrepreneurship and
Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.
46 Journal of Global Information Management, 19(4), 45-75, October-December 2011
increased eCommerce awareness among SMEs. contacts. However, a literature review reveals
These SMEs are either existing firms that use that most related research has only focused
the Internet as a complementary sales channel, on SME adoption of eCommerce (Al-Qirim,
or Internet start-ups that try to capture business 2005, 2007; Beckinsale et al., 2006; Chen &
opportunities leveraged by the Internet. The McQueen, 2007; Dholakia & Kshetri, 2004),
typical Internet applications that these vendors and the adoption of B2B electronic marketplaces
use include third party electronic marketplaces, (Grewal et al., 2001; Son & Benbasat, 2007).
company websites, and online Software as a These researchers have studied the driving
Service (SaaS) (Lefebvre et al., 2005). However, forces and challenges for EM adoption that
the majority relies on electronic marketplaces SMEs face, such as limited resources to use
because they have limited resources to build and EMs, reluctance to change, lack of technol-
promote their own websites (Gulledge, 2002). ogy knowledge, and know how (Kartiwi &
This paper focuses on SME online vendors MacGregor, 2007; MacGregor & Vrazalic,
using B2B electronic marketplaces (EMs). B2B 2006). Few studies have analyzed the SMEs’
EMs are Internet based electronic platforms continued use of EMs, and their performance
that facilitate transactions and interactions after adopting EMs.
among companies. However, we do not focus In this research, we seek answers to the
on a specific EM, because most online vendors following question: What factors lead to the
use multiple EMs so as to achieve the greatest initial success of SME B2B online vendors?
possible market exposure. Focusing on a single, This question is addressed by building an inte-
centralized EM would not allow us to track SME grated Motivation-Capability (M-C) framework
online performance in totality. Internet trading to model the motivation and behavior of these
among businesses through any and all EMs is vendors. The framework is grounded in the
studied in this research. content analysis of SME online vendor success
Selling products through B2B EMs is dif- stories and an interpretation based on entrepre-
ferent from selling in traditional marketplaces. neurial motivation, resource based view, and
The main benefit of the Internet is that it allows Guanxi theories.
SMEs to market products at lower cost, while at In this framework, we first introduce the
the same time reaching many more customers. concept of entrepreneurial motivation to explain
This helps them to overcome the constraints the behavioral drivers of successful B2B online
imposed by lack of access to Guanxi (a term vendors. This contrasts with motivations that
similar to interpersonal relationships, Yang, have been previously studied to explain the
1994) that is embedded in local markets. adoption of B2B EMs: legitimacy motivation
At the same time, SME online vendors face grounded in institutional theory and efficiency
great challenges. First, the online business en- motivation grounded in transaction cost theory
vironment is more turbulent than the traditional (Grewal et al., 2001; Son & Benbasat, 2007). The
market, in terms of demand uncertainty, higher concept of entrepreneurial motivation is highly
price volatility, and quickly changing business relevant because, in China, B2B EMs are used
requirements. Second, the transparent nature by many entrepreneurs to launch or transform
of online marketplaces and increasingly large their own businesses. Even if new companies
number of participants make online product are not involved, the adoption of eCommerce
selling more competitive than in traditional can be considered a risky, entrepreneurial action.
markets (Zhu 2004b). Second, we argue that the Resource-Based
The productive use of EMs for selling View (RBV), can explain the performance of a
purposes is not as simple as becoming a mem- firm through the heterogeneous resources and
ber of several EMs, and waiting for customer capabilities the firm owns (Barney, 1991), and
Table 1. Number of Alibaba usersa
Domestic International Total

2004 4,840,641 1,165,911 6,006,552
2005 9,019,214 1,949,741 10,968,955
2006 16,649,073 3,115,153 19,764,226
2007 23,194,402 4,405,557 27,599,959
2008 30,160,705 7,914,630 38,075,335
2009 36,154,669 11,578,247 47,732,916
Source: Compiled from Alibaba IPO Prospectus and Alibaba annual report b
(a: one company can have several registered accounts, so number of users is not exactly the number of companies)
(b: Since it is a public company, this information can be found directly on the Alibaba website, under investor relations
(http://ir.alibaba.com/ir/home/home.htm)).
is relevant in building up the M-C framework to THE RESEARCH CONTEXT:

explain the performance of SME online vendors. CHINESE B2B ONLINE
Finally, Guanxi theory is particularly in- MARKETPLACES
teresting in the Chinese firm context. Guanxi
is a web of close and persuasive personal re- In China, the number of SMEs reached 42 mil-
lationships that a firm can leverage to achieve lion by 2006. 9% of these firms had adopted
competitive advantage (Yang, 1994). It is a eCommerce, mainly through third party B2B
firm’s strategic resource. Chinese businessmen EMs (CASS, 2008). Three EMs dominate in
have traditionally relied on Guanxi to do busi- China: Alibaba, with more than 64% market
ness (Davies et al., 1995). However, a major share, is also the biggest marketplace in the
assumption in the current B2B eCommerce world; while Globalresources and Made-in-
literature is that rule based, impersonal EMs China have approximately 7.5% and 6.5%
do not cultivate Guanxi (Hsiao, 2003). This of the market share, respectively (Analysys,
suggests that Guanxi is not a strategic resource 2009). However, the diffusion of eCommerce
for firms doing business online. However, this among SMEs in China is still relatively low.
conclusion needs to be tested. For comparison, in European Union countries,
The paper proceeds as follows. First, the approximately 2/3 of SMEs were using eCom-
Chinese context is introduced since this research merce to procure materials or sell products in
was conducted in China. Second, a literature 2006 (CASS, 2008).
review and theoretical background are provided. Nevertheless, the number of online vendors
The research methodology is then discussed, has increased dramatically in recent years. Ac-
followed by the results of an analysis of data cording to iResearch, a Chinese consulting firm,
gathered from 155 high performing Chinese 17.02 million SMEs used B2B EMs in 2009,
online vendors, and a description of the M-C accounting for 42.6% of all SMEs (IReserch,
Framework. We then discuss the study’s theo- 2010). One can also see this growing trend
retical and managerial contributions in compari- from Alibaba registered users, among which
son with previous literature, and how cultural most are SMEs (Table 1).
persistence exists online. The paper concludes The above statistics indicate that the num-
with a description of the study’s limitations and ber of SMEs using B2B EMs has increased
future research opportunities. dramatically in China since 2006. This, how-
ever, means that the competition among B2B
electronic marketplaces has intensified.
LITERATURE REVIEW AND The literature on SME eCommerce adop-

THEORETICAL BACKGROUND tion brings a complementary perspective to
seller motivation by linking a firm’s adoption
Motivation and Use of B2B motivation with its strategy. It is suggested that
Electronic Marketplaces SMEs with a strategic orientation to expand
their product market can gain a competitive
A significant body of research in psychology advantage on the Internet (Hussin et al., 2002;
has supported general motivation theory as an Raymond et al., 2005). For example, Nancy,
explanation for behavior (Vallerand, 1997). Simha, and Parag (2006) analyzed the firm mo-
Motivation is goal directed arousal, which has tivation for eCommerce adoption and found that
prolonged influence on behavior. The motivation the business strategy of the firm, including new
issue has been studied both at the individual (e.g., product development strategy and market scope
Davis et al., 1992; Venkatesh, 1999; Venkatesh (intention to expand its market), had the greatest
& Speier, 1999) for consumer technology adop- effect on its motivation for eCommerce adop-
tion research) and the organizational level (e.g., tion. Similarly, Raymond, Bergeron, and Blili
Grewal et al., 2001; Son & Benbasat, 2007). We (2005) found that the aggressiveness of SME
are interested in organizational motivation in strategic orientation, including the development
this research. The literature on organizational of new markets/products and the introduction of
startups suggests that the motives, processes new technology, affects an SME’s assimilation
and structures that firms have at the time of of Internet technology positively.
their inception have a long-lasting and perpetual However, conceptualizing seller motiva-
influence on their behaviors (Baum & Oliver, tion by strategic orientation to expand product
1992; Schulz, 1998). Accordingly, the motives markets is still not enough for a rich understand-
of a firm for entering the eCommerce field will ing of online vendor motivation. In China, the
have a sustained influence on its eCommerce use of B2B EMs often accompanies entrepre-
operations and performance. neurship because B2B EMs are increasingly
Based on transaction cost and institutional becoming a platform for entrepreneurship,
theory, two types of motivations in the adoption either for the creation of a new business or for
and use of B2B electronic marketplaces have salvaging a troubled business. Even for existing
been identified: efficiency and legitimacy mo- SMEs, if no new companies are involved, the
tivation (Grewal et al., 2001; Son & Benbasat, adoption of eCommerce can be considered a
2007). Efficiency motivation refers to a firm’s risky, entrepreneurial action. The perspective
pursuit of EM use based on recognition of EM of entrepreneurship motivation is therefore
economic benefits (e.g., reduction of transac- helpful in explaining the growth and success
tion costs), and legitimacy motivation refers of Chinese B2B online vendors.
to a firm’s use of EMs as being influenced by
suppliers, buyers, or competitors. Efficiency Entrepreneurial Motivation. Since 2001, the
motivation is more likely to drive a firm’s con- Global Entrepreneurship Monitor (GEM),
tinued use of EMs, but firms driven primarily a research initiative conducted by a consor-
by legitimacy motivation are more likely to tium of more than 100 scholars from 39 na-
remain in a passive state of EM use. However, tions (Acs, 2007), has discussed two rather
this stream of research has primarily focused different types of entrepreneurship, namely,
on the motivation of organizational buyers (Son necessity and opportunity entrepreneurship
& Benbasat, 2007), or the motivation of using (Reynolds et al., 2002, 2005). Necessity
B2B EMs in general (Grewal et al., 2001). What entrepreneurship is need-based, and arises
motivates sellers to adopt the use of B2B EMs when a firm is forced to change to meet the
is still not clear. market’s needs. Necessity entrepreneurs
are somehow “pushed” into their position,
left with no other choice but to struggle to control systems, compensation policies, and
survive and make a living. Opportunity culture (Barney, 1986), are conceptualized as
entrepreneurs are those who start a business “implementation skills” (Barney & Mackey,
in order to pursue a business opportunity 2005) that ensure resources are properly lever-
and higher profits. The idea behind neces- aged or managed. However, a more dynamic
sity and opportunity entrepreneurship is view suggests that business processes, routines
not entirely new. Storey (1994) was one of and activities through which resources are as-
the first to classify the motivating factors sembled and exploited (Eisenhardt & Martin,
of entrepreneurship as “push” and “pull” 2000; Ray et al., 2004; Teece et al., 1997) are
factors. Such a classification can also be integrative parts of organizational capabilities.
found in other studies (Foti & Vivarelli, Organizational capabilities cover many
1994; Uhlaner & Thurik, 2007). aspects of organizational functions, including
marketing capability (Morgan et al., 2009; Mor-
Recent research has analyzed the anteced- gan & Jenny, 2008; Siu et al., 2004), product
ents and impact of necessity and opportunity development (Pavlou & Sawy, 2006), produc-
entrepreneurship (Wagner, 2005). Opportunity tion capability (Zahra & Nielsen, 2002), human
entrepreneurs have been found more likely to resource capability (Chang & Chen, 2002),
be male, mature, risk-takers who are highly quality capability, cost reduction capability
educated, and experienced in the focal indus- (Chandler & Hanks, 1994; Wang & Ang, 2004),
try (Lee et al., 2005; Wong et al., 2005). The entrepreneurial learning (Deakins & Freel,
two kinds of entrepreneurship also depend on 1998), management and economic financial
national environments. Less developed coun- planning, and IS capability (Wade & Hulland,
tries have more necessity entrepreneurs than 2004). The issue of organizational capability is
opportunity entrepreneurs. On the other hand, also of particular interest in the SME research
opportunity entrepreneurs have been found to field due to SMEs’ lack of resources (Hussin
have higher earnings and a greater impact on a et al., 2002; Pflughoeft et al., 2003). Garengo
nation’s economic development (creating more and Bernardi (2007) provide a comprehensive
job opportunities) (Acs, 2007). explanation of important SME organizational
capabilities. In general, researchers agree that
Resource-Based View a firm with superior organizational capabilities
can achieve sustained competitive advantage
The Resource-Based View (RBV) argues that (Newbert, 2007).
the performance of firms is explained by the The contemporary perspective of RBV
heterogeneity of resources that firms own incorporates the role of dynamic capabilities in
(Barney, 1991; Mahoney & Pandain, 1992). the form of organizational learning in an effort
Not all resources, but those that are rare, valu- to address the criticism of the static nature of
able, inimitable and non-substitutable confer RBV. From a dynamic view, organizational
competitive advantage to a firm. However, capabilities can be renewed so as to achieve
resources are static and the process through congruence with the changing business en-
which particular resources provide competi- vironment (Teece et al., 1997). Knowledge,
tive advantage is not clear (Priem & Butler, learning and social relationships are enablers
2001). RBV researchers have suggested that of organizational capability renewal (Bhatt &
the combination of a set of resources and Grover, 2005; Kogut & Zander, 1992; Pavlou
complementary organizational components & Sawy, 2006; Teece et al., 1997). Dynamic
can form organizational capabilities which capability is defined as the ability of firms
empower a firm to gain competitive advantages “to integrate, build and reconfigure internal
(Russo & Fouts, 1997). These organizational and external competences to address rapidly
components, including organizational structure, changing environments” (Teece et al., 1997,
p. 516). This is conceptualized as a type of infrastructure complements eCommerce ca-

higher order capability that contributes to the pability in information provision, transaction,
formation of a firm’s idiosyncratic functional customization and integration, to generate
capabilities (Pavlou & Sawy 2006; Newey greater firm value. Zhuang (2006) found that
& Zahra 2009). Dynamic capability is espe- business resources such as relationships with
cially important for SMEs which face greater suppliers and customers, and complementary
uncertainty than bigger firms due to their human resources such as open communication
lower capacity to collect and process market among employees and an open organization,
information (Caldeira & Ward, 2003; DØving complement eCommerce resources in produc-
& Gooderham, 2008; Wiklund & Shepherd, ing better eCommerce performance.
2003). The current development of the dynamic Building on the complementarity view of
capability literature is primarily limited to business IT value, Kohli and Grover (2008)
making sense of the concept; its antecedents further promote the idea of IT embeddedness,
have not been fully explored. Ambrosini and in which IT is tightly intertwined and becomes
Brown (2009) suggested that, among many an integral part of organizational processes.
other factors, manager motivation, experi- Rather than trying to identify IT and comple-
ence, and skills are important antecedents of mentary organizational sources, the IT embed-
dynamic capability. dedness view contends that it is more useful
RBV has been used by IS researchers to to examine digital organizational capabilities
analyze the business value of IT. A general in which IT and business processes, activities,
thesis of RBV based IT business value research and routines interact to create synergies.
is that IT resources such as IS infrastructure, Although the issue of organizational and
IS human resources, and IS relationships can IT capability has been relatively fully explored,
create value at different organizational levels, there is a lack of systematic analysis of the
and complementary organizational resources organizational capabilities of online vendors.
can moderate the relationship between IT Some related research has been done. Eikebrokk
resources and IT business value (Bhatt & and Olsen (2007) suggest that competency in e-
Grover, 2005; Brynjolfsson & Hitt, 1998; business strategy, e-business strategic planning,
Brynjolfsson et al., 2002; Mata et al., 1995; IT-business process integration, IT manage-
Wade & Hulland, 2004; Zhang et al., 2008). ment, systems and infrastructure, sourcing (the
These complementary factors could include ability to secure access to relevant competencies
non-IT people and management, business either inside or outside the company), and align-
processes, knowledge assets, relationships, ment (the ability to combine and use available
culture, structure, and policies, which could competencies) contributes to the performance
generate greater firm performance through the of e-business in SMEs. Simmons and Durkin
firm’s IT system (Melville et al., 2004; Wade (2007) point out that Internet efficacy and the
& Hulland, 2004). Differential value can be lack of marketing ability contributed negatively
created by defining IT resources specific to a to Internet adoption by agri-food companies.
certain context and by extending knowledge However, the capabilities that an online vendor
of complementary and moderating factors should develop in its use of B2B EMs are still
in the value creation process. For example, not well defined, and more research in this
Kettinger et al. (1994) described a number regard is needed.
of such complementary resources, such as
size, organizational structure, organizational Guanxi Theory
culture, etc. that could make it difficult for
competitors to copy the overall effect of Although the Guanxi a firm possesses can be
the technology. Zhu (2004a) found that IT a subcategory of organizational strategic as-
sets and capabilities, its importance suggests a
separate research field. Guanxi generally refers RESEARCH METHODS

to a web of close and pervasive relationship
connections that a firm/person can use to secure A content analysis methodology was adopted
favors (Yang, 1994). It is a special type of re- to study the motivation and success factors for
lationship that bonds exchange parties through SME online vendors through case studies. A
reciprocal obligations to obtain resources recognized content analysis strategy (Krippen-
through continual cooperation and exchange of dorff, 1980) was adopted to code and analyze
favors (Davies et al., 1995). Although personal the evidence. Cases were selected as sources
relationships are inherent in many other cultures, of evidence, since case study is suitable for a
the absence of formal institutional support phenomenon of interest that does not enjoy an
(e.g., a solid regulatory system and a relatively established theoretical base (Benbasat et al.,
weak and unreliable credit environment) makes 1987; Yin, 1984). Since the phenomenon of
Guanxi an important alternative governance SME online vendors is new, and their perfor-
mechanism for inter-organizational exchanges mance is less well studied, case research appears
in China (Martinsons, 2008; Park & Luo, 2001; to be suitable for this work. The objective of
Xin & Pearce, 1996). Chinese businessmen are this research is to build a theoretical model
accustomed to establishing Guanxi with partners that systematically explains the performance
through meetings, chatting, or having dinner of online vendors.
together before reaching a deal.
The social capital accrued from Guanxi Sampling and Data Collection
offers a firm multi-faceted benefits (Adler &
Kwon, 2002; Tsai & Ghoshal, 1998), including We selected successful cases in an effort to
the provision of important sources of informa- build the theoretical model. Thus we adopted
tion on market trends, business opportunities a theoretical sampling strategy (Eisenhardt &
and threats, access to labor and physical Graebner, 2007) based on the logic that select-
resources, relations with local governments ing multiple successful cases allows replication
(Davies et al., 1995), preferential treatment in among cases with the objective of building a
business dealings, and protection from external theory. A case is judged to have achieved initial
threats (Lee et al., 2001). In the case of entre- success if the firm can achieve company growth
preneurs, the lack of formal channels to collect and eCommerce makes a great contribution
market information and a lack of financial to that growth. Operationally, we consider a
resources to build necessary production and company successful in eCommerce if (1) it
marketing capacity make Guanxi especially qualitatively acknowledges the significant con-
important. The success of entrepreneurs some- tribution of eCommerce to company growth; or
times depends on their ability to establish a (2) the percentage of their total revenue from
Guanxi Web, and mobilize relationships in eCommerce is higher than 40% (see Table 2 for
their own favor. However, there is a dark side company performance information).
to Guanxi (Gu et al., 2008): those who do not We mainly relied on published documents
possess Guanxi are at a special disadvantage for sources of evidence. The cases were derived
and excluded from business dealings. Smaller from two sources. However, multiple sources
firms tend as a group to be more vulnerable to of data such as first hand interview data were
this dark side than bigger firms due to the lack collected to provide triangulation (Table 2).
of resources to build Guanxi in the early stages First, Ebrun, a major Chinese portal website
of their lifecycles (Baron & Markman, 2003; for e-business information (www.ebrun.com)
Waltera et al., 2006). with which one of the authors is affiliated, has
interviewed many B2B Internet firms, and
reported many of their interviews in publicly
Table 2. Sources of data
Source of data Explanations Internet Performance

120 cases Single source from ebrun.com, 2-3 pages each 73% of average revenue is from
case B2B EMs.
35 top ten vendors Multiple sources from major online media, 83% of average revenue is from
books and vendors’ own blogs. Some cases B2B EMs.
more than 20 pages long. Authors interviewed High growth rate (more than 100%)
6 of these vendors, and triangulated data with after adopting B2B EMs.
interview notes. Yearly sales revenues from RMB
10 million to 300 million, averaging
RMB 66.15 million, and median
RMB 32 million.
available documents. This website special- honest and consistent in revealing company
izes in collecting and providing eCommerce information; (2) when we aggregated all the
information to the B2B industry and business cases, the codes covering all the cases did not
to consumer (B2C) SMEs. It presents an online cover topics beyond the interviews. Therefore,
news column called “legendary businessmen” the coding based on each reported story may be
and their correspondents have been interviewing incomplete, but it provided a good picture of
successful online small business entrepreneurs what contributes to the success of SME online
since 2004. They had performed 344 interviews vendors (please see Table 3 for basic company
when the authors accessed their database in information).
November 2008. The interviews (cases) were
screened and some discarded, either because Coding Procedure
(1) the information in the report was not com-
prehensive enough, or (2) the reports were not Code development was a key step toward theory
about B2B companies. 120 cases were retained building. According to Miles and Huberman
for analysis. (1994, p. 155), there are two approaches to
Second, Alibaba launched an annual con- analyze qualitative data: the variable oriented
test for successful online vendors, beginning in approach and the process oriented approach. In
2005. Each year ten successful online vendors the variable oriented approach, the researchers’
were selected for published interviews. From main focus is to identify key variables and their
this source we collected stories of 35 success- relationships from the data, while in the process
ful B2B online vendors from 2004 to 2009. oriented approach, researchers focus more on
We were also able to collect multiple sources event evolution over time. Our approach focuses
of evidence about these companies, including on coding factors that explain the success of
major media reports, published books (Liang & SME online vendors, and thus belongs to the
Song, 2008; Shanghai & Si, 2008), videos, and first category.
blogs. In order to validate the quality of the data, Two of the authors read the materials
the authors also conducted 1-2 hour interviews individually, and tried to identify the distinct
with six of these top ten vendors, five of which issues, practices and success factors that sub-
were conducted by telephone, and one face to jects mentioned. Special attention was paid
face. Interviews were recorded and transcribed to repeated patterns across cases, and these
later. A comparison between interview data repeated patterns resulted in codes. The initial
and second hand case stories showed that (1) set of codes was discussed and refined among
the data quality of second hand materials is three of the authors. During this process, codes
generally acceptable since these vendors were were developed entirely grounded in the data and
Table 3. Basic Information on SME Online vendors
Number of companies
Prior industry experience Yes 137
No 10
Unidentified* 8
Total 155
Prior computer and eCommerce experience Yes 101
No 63
Unidentified* 16
Total 155
Industry Trader 47
Manufacturer 108
Total 155
* These are cases in which the status of the focal company could not be identified from the report.
no theory and theoretical constructs from prior cients, a measure of inter-coder agreement, is
theories were used. Theories were used only at provided in the Appendix.
a later stage in the interpretation of the codes.
Nvivo, a qualitative analysis software
package, was used to aid the analysis of case DISCUSSION OF THE CODING
materials (Gibbs, 2002). Once the set of codes RESULTS AND RELATIONSHIPS
was decided, the authors decided on an initial BETWEEN CODES
protocol for case coding, including the definition
Twelve major codes were identified, and
of the codes, and rules for deciding the right
integrated into the Motivation-Capability
categories in case of conflict. Coding was an
framework which is used to interpret the data.
interactive process. Trained student assistants
This also helps to maintain consistency with
coded the first 15 cases independently. A case
prior literature that explains B2B EM adop-
by case analysis among student assistants and
tion and use, from the motivation and abil-
the authors was performed to check whether any
ity perspectives (Grewal et al., 2001; Son &
disagreements were due to misunderstanding
Benbasat, 2007). There are four motivating
of the codes, or deficiencies in protocols. The
factors: transaction cost saving, expanding
protocols were then further revised and misun-
sales - reactive, expanding sales - proactive,
derstandings clarified. The assistants then coded
and building brand online, and eight Internet-
20 more cases independently. The results were
leveraged organizational capabilities: online
compared, and any problems of coding protocols
marketing capability, eCommerce management
were corrected. Then the remainders of the cases
capability, eCommerce attitude, low price and
were coded. Through this interactive process,
cost reduction capability, product and service
the estimated inter-coder agreement was greatly
quality, product innovation capability, learning
improved. Table 4 shows the results, including
capability, and social networking.
codes, definition of codes, explanations, and
exception handling rules. The number of cases
classified in each code and the kappa coeffi-
Table 4. Coding dictionary and results
Concept Definition Explanation and substance Exception handling

rules
Motivation
Transaction cost The purpose of eCommerce is to ● Saving communication costs, N/A
saving save transaction costs involved such as mailing cost.
in the search and negotiation ● Saving transportation cost.
stages of transactions. ● Cost saving in comparison
with traditional channels.
Expanding sales The initial purpose of eCom- ● Solve the survival problems N/A
reactively merce is to solve the sales for troubled businesses.
problems of the company.
Expanding sales The purpose of eCommerce is to ● Leveraging online opportuni- N/A
proactively sell products in efforts to expand ties to sell products after careful
company market share. evaluation.
■ High profit margin.
■ New products that target
online businesses.
● Companies normally adopt a
growth strategy.
Promoting new The purpose of eCommerce is ● Develop a network of brokers N/A
brand to promote the company’s own online.
product brand. ● Improve profit margin
through branding strategy.
Internet-leveraged Organizational Capability
(1) Internet-leveraged Functional Capability
Online market- An organization’s ability to pro- ● Practices related to online Code by online
ing capability mote its products and company marketing and advertisement: marketing tools.
online, and to acquire and retain ■ Blog.
customers. ■ Forum.
■ Selection of B2B platform.
■ Search engine marketing.
● Efforts related to online
product display and online com-
munication.
● Other marketing skills.
ECommerce An organization’s ability to man- Identified eCommerce manage- N/A
management age eCommerce activities in the ment practices:
capability company. ● Establish eCommerce depart-
ments.
● Task divisions.
● Incentive mechanisms.
● Customer relationship man-
agement.
● Use of information systems.
● ECommerce culture
ECommerce An organization’s attitude to- ● Enthusiasm. N/A
attitude wards the use of eCommerce. ● Persistence.
● Diligence.
● Confidence
continued on following page
Table 4. continued
Product and An organization’s ability to ● Product quality. Achievement of product
service quality provide high quality products ● Service quality. quality certification is
and service online. coded in this category
Product innova- An organization’s ability to ● Product innovation to counter Developing products
tion create new products and satisfy intensified competition and tailored to the needs
the changing needs of its online price wars. of different types of
customers. ● Product innovation to extend customers is coded in
the applicability of products. this category.
Low price and An organization’s ability to gain ● The importance of offering N/A
cost reduction by price advantage. The price low prices online.
capability may be evaluated based on the ● Company practices to lower
quality of the product. product costs.
(2) Internet-leveraged Dynamic Capability
Learning An organization’s ability to ● Learning through participat- In case of conflict with
acquire, assimilate and exploit ing in different online platforms. marketing and social
eCommerce related knowledge. ● Training. networking codes,
● The substance of learning code into marketing
includes not only eCommerce capability.
knowledge, but also product and
market knowledge
Social network An online network of people ● Instant messaging. ● Code with online
linked by one or more specific ● Online vendor alliance. social network tools.
types of interdependency, such ● Blog. ● In case of conflict
as values, visions, friendship, ● Forum. with marketing tools,
and transactions. ● Others. code into marketing
capabilitya.
a) The purpose of such specification is to achieve higher reliability and consistency in the coding. In the document,
the authors refer to these categories to search for learning content. Thus the number of cases in this and code “learning”
may be underestimated. However, this did not dampen our theory building since we consistently referred to the market-
ing capability code when interpreting these two codes.
Motivation growth requirements, capturing business op-

portunities leveraged by the Internet, and
Motivation describes a firm’s incentives for building company brand online to achieve more
using the Internet. Four types of motivation sustainable growth. The two categories of B2B
for using B2B EMs were found, and they can use motivation are not mutually exclusive. A
be categorized into the two entrepreneurship company with opportunity-driven motivation
motivations introduced in the literature review: can also be driven by necessity motivation.
necessity motivation and opportunity motiva- Figure 1 shows the number of companies
tion. Necessity motivation is a more reactive classified in each code, indicating that many
reason for eCommerce use, such as using successful firms have adopted EMs proactively.
B2B EMs in order to save cost, or to save the This is not to say that firms pushed to adopt
company from crisis. Opportunity motivation EMs will not perform well later. But it appears
is more proactive in the pursuit of business that firms with opportunity-driven motivation
opportunities leveraged by the Internet, such are more likely to succeed due to their higher
as extending market share to satisfy company proportion among all the cases analyzed. This
Figure 1. Summary statistics for the motivation codes
is consistent with findings in the literature that experience and personal relationships to sup-
opportunity driven entrepreneurship is more port their sales. The different lifestyle (using
likely to succeed (Acs, 2007). computers and the Internet a lot in daily life)
also discourages them from following their
Necessity Motivation parents’ way of selling door to door.
Second, niche products are especially
Expanding sales - reactive. One motivation hard to sell in traditional ways, which forces
for SMEs to use B2B EMs is to sell prod- vendors to try the Internet. One online vendor
ucts and expand market share. However, commented: “although international trade
the reasons they provided for expanding shows can attract many buyers, they are not
their markets vary. Some reasons were feasible for our products- … too small and hard
very reactive in the initial selection of to attract buyers’ attention. So…we selected
B2B EMs, mainly to solve a crisis that eCommerce.” In this case, B2B eCommerce
a company encountered when selling in solves the problem of being unable to use
the traditional way. B2B EMs were then traditional channels.
adopted as an alternative channel of sales. Third, a poor credit environment can force
The following are reasons we encountered companies to use B2B EMs. “In 2001, we
in the data analysis that could get a busi- encountered crisis in the traditional business.
ness into trouble. The problem of chain debts in domestic trade
plagued our business. So I decided to turn to
First, lack of personal relationships or international trade…. attending China Import
Guanxi with customers and suppliers may push and Export Fair in Guanzhou was the only
them to adopt the use of EMs, especially after way to access international buyers. However, a
launching new products and/or transforming showroom costs 60,000-120,000 RMB (around
into a new industry. For example, a case subject $10,000 – $20,000)”. So they adopted B2B EMs.
commented: “the security and defense industry Fourth, economic fluctuations such as
is very special…The sellers and buyers normally industry downturns, falling product prices and
have long-term collaborative relationships, so severe market surpluses, can force companies
it is hard for a new company to be recognized to use B2B EMs. “The price of our product,
and accepted by the buyers who have already Silymarin (a type of plant), decreased from
had long-term collaboration with existing RMB 8000 to 4150 per ton at that time, our
sellers”. In a few cases we found that inexpe- profit margin was greatly squeezed. We had a
rienced young business owners who took over great pressure to increase the sales volume….
businesses from their families were pushed to Now I wish to try it (eCommerce)”.
select B2B EMs since they did not have previous
Finally social environmental changes can Entrepreneurship Motivation

sometimes cause business difficulties. For ex-
ample, the Severe Acute Respiratory Syndrome Expanding Sales: Proactive. The proactive
(SARS) epidemic pushed some companies to use of the Internet to extend market share
use eCommerce. “In 2003 SARS affected many occurs when EMs are recognized as a good
traditional businesses…We cannot go out to opportunity to expand market share and
visit potential clients and attend trade shows… achieve company growth. The pursuit of
I registered the Golden Suppliers program of online channels is a strategic decision of
Alibaba and started our new journey”. City a company that is operating well.
environmental changes, such as the increase in
high-rise buildings, also forced some businesses Such opportunities can be the discovery
to select eCommerce since it was more difficult of new online sales channels. For example,
to access buildings equipped with strict access some companies stated that online sales chan-
management. nels became feasible because customers were
more used to purchasing products online, while
Transaction Cost Saving. Leveraging the competitors were still not aware of this. This cre-
cost advantage of online selling is a less ates a great opportunity to sell products online.
frequently encountered motivation for EM The discovery of entirely new product
adoption. Few online companies use B2B markets can also create business opportunities.
EMs to fulfill transactions, so costs saved For example, one individual found that paper
are mainly in marketing. B2B EMs are more cartons for packaging products for delivery were
cost effective than selling the traditional urgently needed by Taobao sellers (Taobao is
way (attending tradeshows, mailing pro- the largest B2C marketplace in China, similar
motional pamphlets and samples, visiting to eBay). She then started a business of design-
clients). “The cost of eCommerce per year ing and producing cartons to fulfill the needs of
is only that of one trade show”. Time and Taobao sellers, and selling them through B2B
health costs are also reduced. “2003 was EMs. Her business was given one of the top
the busiest year for me. In order to sell the ten vendor awards by Alibaba.
products, I traveled a lot, both in China High profit margins and arbitrage oppor-
and worldwide, including visiting clients, tunities also encourage some people to launch
attending tradeshows, inspecting suppliers. a new business. In one case, a woman found
At the end of the year, I accumulated 114 that a type of clothes was sold at RMB8 offline
boarding passes. The doctor told me that I in a wholesale market, but RMB25 online. She
should stop flying since my ear drum was and her husband immediately launched Internet
damaged…. The tradeshows also turned sales for that product.
out to be less effective than before. I had
to figure a way out, so I started to use B2B Building Brand Online. Fifteen companies in
platforms”. our study chose not only to sell products,
but to build their own brands online. These
We found that SMEs in this category were firms are more ambitious, risk taking, and
reactively motivated to adopt EMs. This is are primarily concerned about long-term
because for SME online vendors, an inherent return. The process of building brand on-
motivation is to grow their business as long as line involves establishing and managing
cost increases did not surpass sales increase. Re- sales channels systematically, for example,
ducing marketing costs alone cannot stimulate through Internet sales networks. One com-
them to adopt EMs unless they are forced to do pany built a national wide sales network of
so, since their major focus is the effectiveness close to 600 brokers and dealers online very
of marketing. quickly, and managed the network online
Figure 2. Summary statistics for Internet leveraged organizational capability codes
through an online instant messaging tool Internet Leveraged

and a discussion forum. In another case, a Organizational Capabilities
toy manufacturer found that it was paying
10-15% of their profits to an international Internet leveraged organizational capabilities
trade intermediary. The company then built are the combination of organizational capa-
a brand called “The Wooden Toy Family”, bilities and eCommerce technologies in either
and used both B2B and B2C channels to sell a complementary or an embedded manner
its branded products. Now they sell online that enables SME online vendors to achieve
directly to businesses and consumers and competitive advantage online. Our analysis
have developed their own online broker found eight codes related to the organizational
network for local markets. capabilities that SMEs considered important in
the exploration and exploitation of the Internet
To summarize, among all the successful to sell products (see Table 4 and Figure 2 for
online vendors we have studied, some are the frequencies of these codes): online mar-
pushed to adopt EMs for reasons such as saving keting capability, eCommerce management
the company from crisis or for cost saving, and capability, eCommerce attitude, low price and
some are motivated to adopt EMs to leverage cost reduction capability, product and service
better business opportunities online. Online quality, product innovation capability, learning
vendors with strong opportunity driven or capability, and social networking capability.
necessity motivation can succeed online. But Among them, online marketing capability was
those with opportunity driven motivation are the most frequently mentioned, followed by
better prepared for the use of EMs. They also eCommerce attitude, production innovation
have clearer business goals, targeting higher and product and service quality, in that order.
profit margins or greater growth potential (Lee Although online social networking was ranked
et al., 2005; Wong et al., 2005). low, its importance was underestimated since
some online social tools such as blogs and fo-
rums were incorporated into online marketing etc., as long as they are relevant to EM use.
capability for coding consistency purposes. As This classification of organizational capability
an example, publishing articles in a forum can follows the suggestion of (Grant, 1991; Pavlou
increase a vendor’s exposure as well as making & Sawy, 2006), in that a firm’s capabilities can
friends online (Weiss et al., 2008). If we had also be identified and appraised using a standard
included online social tools in the social network functional classification of firm activities. It
code, this code would be ranked in second has also been called the “organizing approach”
place. Finally, contrary to many practitioners’ of organizational capabilities (Newbert, 2007).
intuition, low price and cost reduction capability The following provides an explanation of
was ranked lowest, since few successful online the functional and dynamic capability codes,
vendors pursued this strategy. and how eCommerce is tightly intertwined with
Although the organizational capabilities relevant aspects of organizational capabilities
identified in our case studies are similar to those to form Internet leveraged capabilities.
studied before for traditional businesses
(Garengo & Bernardi, 2007; Grant, 1991; Internet-Leveraged
Newbert, 2007), they are different in that they Functional Capabilities
are Internet-leveraged organization capabilities.
Adopting B2B EMs means that online vendors 1. Online Marketing Capability
adopt eCommerce technologies such as EMs,
Online marketing capability is a firm’s ability
search engines, blogs, and forums, which are
and skills to leverage Internet technologies to
simple technologies that may not generate
market products online. This is closely aligned
competitive advantage. The interaction of
with SME motivation for growth. The following
eCommerce assets and organizational prac-
subcategories of online marketing capabilities
tices, routines and activities is hard for other
were observed.
firms to copy and enables firms to achieve
competitive advantage. Such interactions can
be complementary or embedded. From the Online advertising skill. Advertising products
complementary view, some organizational re- online and increasing product exposure is
sources reinforce the effectiveness of eCom- the first step in selling online. Marketing
merce assets (Melville et al., 2004; Zhu, 2004a). tools, such as search engines, blogs, forums,
But eCommerce technology and mindset may and B2B portals are relatively new, so the
be embedded and hard to separate from orga- best way to use them is learned through
nizational practices, routines and activities trial and error, or from peers online. Our
(Barney, 1991; Kohli & Grover, 2008). data suggests that the following techniques
Internet-leveraged organizational capabili- mentioned by successful online vendors
ties can be further classified into dynamic and are effective.
functional capabilities (Table 4). The logic ● Blogs and forums are cheap but effec-
for including social networking and learning tive, and are preferred by small start-up
capability as elements of dynamic capabil- companies with financial constraints.
ity can be found in Teece et al. (1997) which Articles and postings are called “Soft-
argues that learning enables restructuring and text” by Chinese online vendors.
adaptation of organizational capabilities to fit Many companies assigned specific
with new technologies, and social networking is persons to write such articles, and have
the mechanism through which learning occurs. thereby accumulated rich experience.
Functional capabilities can cover most organiza- This helps to push company infor-
tional functions, such as marketing, production, mation towards top place in search
product development, EM management systems engine result lists, without paying
advertising fees.
● Companies in good financial health one case, a company installed an advanced

tend to be more aggressive. They factory monitoring system, so buyers could
normally purchase keywords from inspect the production process remotely
B2B portals and major search engines and in real time.
to increase their exposure and attract Online Communication Skills. After custom-
attention from buyers. ers initiate a conversation (through online
● Selection of a suitable B2B portal is chatting, online quote, or email), intensive
difficult since different EMs have dif- interactions and negotiations start, and
ferent customer and product focuses, they are the key to winning businesses.
functionalities, and strategies to de- Following are examples of heuristics for
scribe products. SMEs therefore need communicating online we encountered in
experience in finding the best EMs. the case analysis: (a) Focusing on profes-
For example, two subjects commented sional interactions. Replies to clients must
that ““We only use B2B platforms that exhibit the seller’s knowledge of products
have a “plant extract” industry sub- and the industry; (b) Being honest. Tell
category; “I select GreyCloth.com the truth if the products can not satisfy
since it has some specific categories the quality and capacity requirements of
for grey fabrics. It also sends us the clients; (c) Responding in a timely manner
most updated information about fabric to customer e-mails. This enhances the cli-
every day to my cell phone”. ent’s perceptions of his or her importance
● Successful SMEs use an integrated to the firm; (d) Respecting customer culture
combination of EMs, websites, during interactions. Other more detailed
forums, and blogs to market their heuristics are idiosyncratic and known
products. Most use more than one B2B only to specific firms.
portal, (as high as 30 in one case, cho-
sen from more than 200 possibilities). The explanation of Internet leveraged
marketing capability illustrates that successful
Online product presentation skills. A rich online vendors (1) fully integrated various EM
description of the company and its products, marketing tools into daily marketing activities
using both pictures and text descriptions, and routines; and (2) accumulated idiosyncratic
is what potential customers see up front, business heuristics about how to market and
so this must be done effectively to attract interact with customers. The closely related
customers. However, not many SMEs work processes (sales and customer relation-
understand the importance of product pre- ship management processes), to be introduced
sentation. For example, “when some bosses shortly, also need to change in support of online
introduce the products to their customers, marketing activities. The foregoing EM mar-
they can talk a lot of stuff to secure or pursue keting technologies and embedded marketing
customers. But online, they provide little activities, the heuristics and skills accrued dur-
information or nothing”. Online product ing adoption, and compatible work processes,
presentation requires an understanding are invaluable in helping online vendors to
of exactly what information customers achieve competitive advantage.
want, and how they find information about
sellers. Highly innovative techniques are 2. E-Commerce
used by some SMEs. B2B buyers care not Management Capability
only about product fit and quality, but also
production capacity to ensure that prod- ECommerce management capability is the
ucts can be delivered as contracted. Some firm’s ability and skills to manage eCommerce
online vendors upload factory videos. In related processes and activities. Good com-
patible management practices are important on buyers and products, and determines whether
complementary resources that can reinforce it is a fraudulent inquiry. Then the inquiry is
the effectiveness of front end online market sent to the international and/or domestic trade
activities, enabling firms to benefit most units for processing. This company strived to
from the use of EMs (Bhatt & Grover, 2005; improve the efficiency of high volume inquiry
Brynjolfsson & Hitt, 1998; Brynjolfsson et handling through restructuring or innovating
al., 2002; Mata et al., 1995; Wade & Hulland, the organizational process.
2004; Zhang et al., 2008). Establishing such One subject articulated her rationale of
management practices is a great challenge for “advancing transaction cost” in the design of
SMEs because: (1) SME leaders tend to have the online customer inquiry handing process:
less management capacity (Barringer & Jones, “…this means taking a proactive approach in
2004) due to lack of knowledge and educa- acquiring and retaining customers... you can get
tion; (2) due to the emerging nature of Internet a large number of business opportunities and
marketing, good practices in this discipline are inquiries in a short period of time. Many com-
not even well developed in larger companies, panies failed to sell on the Internet because their
and not well understood by academics. So the early phase preparation is not good enough, so
establishment of such practices relies mainly that the communication cost is shifted to the later
on the innovative management ability of SMEs phase of the interaction with buyers…. but the
and entrepreneurs. Several good management cost of later phase of communication is very
practices were identified in the data analysis high”. This is in accordance with transaction
and explained in the following. cost theory (Williamson, 1975), suggesting that
market ex-post transaction costs such as after-
Sales and customer relationship management sales haggling are high. So this subject focuses
process. Online vendors tend to design on improving the quality of communication at
their own business processes for transac- an earlier stage, and embeds this philosophy
tion and inquiry handling. These processes into work procedures. This case illustrates that
are important in converting and retaining the establishment of eCommerce management
potential customer leads. practices relies mainly on a deep understanding
of online business tricks, and the innovative
Online processes differ from those in tradi- management ability of SMEs and entrepreneurs.
tional business. For example, one firm described
its online selling process as an “iron triangle”, Incentive systems for eCommerce sales
formed by three people in the eCommerce de- forces. Incentive and monitoring systems
partment. When there is an important customer can be put in place to motivate eCommerce
inquiry, team members first think about the case employees and evaluate their performance.
individually, and then gather to discuss the case. Performance metrics can be operational,
Tasks such as replying and monitoring are then such as the number of employee postings
assigned among the three, with each respon- in forums and B2B portals per day, the
sible for one or more tasks. This company’s number of emails they send to custom-
management commented that, in order to take ers per day, and the number of customers
advantage of eCommerce opportunities, a firm acquired online over several months. “The
needs to change its business process in order benefit of the Internet is that everything is
to fit into the eCommerce rhythm. In another recorded and can be retrieved. Machines
company, 22 employees were assigned to one of do not lie. It is easy for us to find the in-
three eCommerce units: an eCommerce analysis formation posted by specific employees”.
unit, an international trade unit and a domestic Some companies use sales levels to evaluate
trade unit. For each inquiry, the eCommerce salespersons. The design of incentive and
analysis department checks basic information monitoring systems complements online
selling technologies to enhance employee tools such as search, instant messaging, etc. are
effectiveness (Zhuang & Lederer, 2006), integrated into most systems provided by EMs,
while at the same time embedding Internet such as Alibaba.
technology, such as monitoring employee
sales activities. Establishment of eCommerce culture. ECom-
IT support. IT is an important complementary merce is infused into many aspects of com-
asset to a firm’s eCommerce capability pany activities in many successful online
(Zhu, 2004a). Our findings agree but there companies. Replying to customer inquiries
is no standard IT system in use by all on- daily, using the company website, and creat-
line vendors. Their information systems ing blogs are normal employee activities.
configurations depend on business needs. In many companies, instant messaging is
Some used the SaaS (Software as a Ser- used not only to facilitate communication
vice) provided by B2B EMs, but a few between company and customers, but also
successful vendors have customized their for internal communication among em-
own in-house systems. “On the Internet, ployees and management. Encouragement
we need to capture business opportunity of an eCommerce culture can enhance the
quickly since market can be very dynamic effectiveness of eCommerce technology by
online. Information systems can help us in increasing employee awareness, enhancing
this respect. For my industry… we need to the value they place on eCommerce, and
provide quotes to customers almost every building an employee eCommerce mindset
day. However, the systems that we deployed (Zhuang & Lederer, 2006).
two years ago help us to provide instant,
correct quote, so customers are satisfied 3. E-Commerce Attitudes
with our service. …Our information system
was co-developed with a software company, Attitudes toward eCommerce that were val-
and was adapted to our work procedure…. ued by the case subjects include enthusiasm,
Once the prices change, all our salesperson confidence, diligence and persistence. Persis-
can see the prices and make large number tence is especially emphasized. It is important
of replies to inquires within short period because (1) it takes time for a company to learn
of time”. Another subject commented, how to effectively market its products online
“we divide our systems into four types: and restructure its work procedures; (2) B2B
one is for internal communication within customers are more cautious due to the size of
the company, such as email, IM, and video orders and possible bad chain consequences in
systems. The purpose is to facilitate fac- later production. It also takes time for buyers
tory management in remote locations. to investigate and accept new suppliers. “The
The second part is purchasing, sales and buyer’s purchasing process is very formal. They
warehouse management. The third part is first asked for more information to know more
online marketing management, and the last about our company, and then sent request for
part is for training within the company…. quote and negotiated with us. Finally they sent
it is very effective”. people to visit our company. The entire process
lasted 5 months. Then they started to order
These cases suggest that IT systems cover from us.…. One has to be persistent during
most business functions, including supply chain the process”. One subject called the sudden
management (SCM) and customer relationship explosion of online sales after many months
management (CRM) (Eikebrokk & Olsen, with no inquiries the “Nuclear Fusion Effect”.
2007), and systems that help to handle high price A persistent attitude to eCommerce is neces-
volatility in the online market. Different from sary to deal with the time lag for eCommerce
non-eCommerce enabled IT systems, Internet effort to be effective. This time lag phenomenon
has also been observed in explaining the IT capability of a firm. This includes selecting
productivity paradox, where IT adoption was high quality suppliers and products online
found not to be related to immediate productiv- (for traders), learning how to improve prod-
ity growth (Brynjolfsson & Hitt, 1998). Firms uct and service quality online, and providing
with a positive attitude towards eCommerce good online customer service. Internet selling
are also more likely to become engaged with also changes the nature and scope of customer
eCommerce (Chen & McQueen, 2007). service, so that firms have to reengineer their
ECommerce attitude serves as an important service processes. For example, a company’s
organizational resource that enables the suc- customer service may change due to the larger
cess of online vendors. Many online vendors geographic customer scope. Providing labor
attributed their success to their positive attitude intensive customer service to local customers
toward eCommerce, and commented that, must give way to a greater reliance on machine
without enthusiasm, confidence, diligence and based customer service without sacrificing
persistence, they could not have gotten where service levels.
they were today.
5. Product Innovation Capability
4. Product and Service
Quality Capability Product innovation capability refers to a firm’s
ability to either create new products or improve
Product and service quality capability refers to previous products of its kind in an effort to better
a firm’s ability and skills to offer high quality satisfy the changing needs of online customers.
products and services online. Because success- Product innovation offers several advantages
ful online marketing needs to be supported by to online companies: extending product ap-
product and service quality to build credibility plicability, differentiating products from those
in the virtual business environment, product of others, avoiding online price wars, reducing
and service quality capability is an important production costs, increasing selling prices, and
complementary organizational resource for improving profit margins since customers are
firms to achieve online marketing effective- willing to pay more for products that fit their
ness. Some researchers consider this to be an needs, so it is an complementary resource that
integral aspect of marketing capability (Morgan enhances firm’s online competitive advantage.
& Jenny, 2008). To improve product quality, As a case subject commented, “when selling on
online vendors can either invest in new prod- the Internet, the products have to be unique and
uct R&D, or focus on manufacturing quality targeted…. customers can find a large number
control. As one case subject commented, “(the of companies that provide similar products
boss) decided to set the task of internal quality through search engines. Without its unique
management as the top priority of the company. characteristics, a company has to rely on price
He established policies about the accountability to attract customers. Only companies with
of quality management throughout the entire special products and proprietary intellectual
process and among all employees; each step of property rights can have sustained growth on
the procedure must have clear quality control this platform”.
point and accountability. The quality control Internet-leveraged product innovation ca-
points are constantly monitored.” Some vendors pability is different from traditional production
obtain accreditation from recognized standards innovation capability in the sense that eCom-
organizations, and communicate this informa- merce tools and mindset are embedded in the
tion to buyers on their web sites. needs identification and intelligence gathering
In Internet leveraged product and service for detailed product design. First, for many com-
capability, eCommerce technology is also panies, one possible innovation is the adaptation
embedded in the product quality and service of products for online selling. For example,
products that are limited to the local environment • Being knowledgeable about the price
can restrain companies from taking advantage dynamics in online markets, to find low
of the Internet. Therefore, some companies cost supplies.
develop new and more relevant products to • Purchasing with cash from suppliers will-
increase their applicability in different locations. ing to provide better quality products at
“Our product is plants. Plants can only grow lower prices.
with proper soil and weather. In order to solve
this problem, we invested in the cultivation of Low price and cost reduction capability
new plants, so that our plants can grow in cold complements a firm’s Internet use and enhances
weather in North China, or can grow in the cold its effectiveness. ECommerce technologies are
and dry weather in North-West China”. Second, not as closely intertwined in the pricing and
ideas for new product development are received production systems as they are in marketing
from online channels, including online search capability, but they are reflected in the follow-
and customer inquiries. “Once I got an order ing aspects of a firm’s business processes: (1)
from a US customer who needed color eggs checking competitor prices online; (2) chang-
made from plaster. I never thought that plaster ing prices dynamically online; (3) purchasing
could be used to make arts and crafts, since I supplies from low cost online suppliers; (4)
only make chalks…. From then on, I developed improving case flow by selling online for
many new products, including the trap chalks cash; (5) learning about cost saving production
that were used in 2008 Beijing Olympic Games. technologies online.
The product variety also increased from 10 to
300”. Advanced new product development Internet-Leveraged
tools and practices are suggested in the prior Dynamic Capabilities
literature to greatly improve the development
process (Pavlou & Sawy, 2006), but our case 1. Learning Capability
studies indicate that SME online vendors can
also benefit from free online search and com- Learning capability is the firm’s ability to
munication tools. learn eCommerce related knowledge. Grewal
et al. (2001) conceptualized two types of EM
6. Low Price and Cost learning, effort based and time based learning.
Reduction Capability Concordant with this result, our findings sug-
gest that successful online vendors deliberately
Low price and cost reduction capability refers pursue learning by immersing themselves in
to the firms’ ability to compete online based eCommerce (through effort based learning).
on lower prices. In B2B marketplaces, offering Many SMEs lack basic knowledge of
lower prices is a source of competitive advantage eCommerce and online marketing, so the transi-
due to information transparency and intensified tion to the online environment is an intensive and
competition (Bakos, 1991; Zhu, 2004b). Due to difficult learning process. ECommerce employ-
the large quantities that are usually involved in ees learn through sources such as books, edu-
B2B transactions, very small price reductions cation and training, from colleagues, and from
can be translated into substantial cost savings online sources such as Internet forums, blogs,
online. However, a lower price strategy must be and online business alliances. The substance of
accompanied by the capability to reduce costs. learning covers many aspects of eCommerce,
Our findings included several ways to support including basic computer knowledge, online
such a strategy: marketing and communication knowledge,
market and product information, and knowledge
• Reducing cost through careful cost about international trade. Internet leveraged
management, production scheduling, or learning greatly shortens the time needed to
technology innovation. train international trade employees. “Previously
Figure 3. Performance of SME online vendors: The motivation-capability framework
it took five years to cultivate an international For example, several subjects commented that
trade employee, but now it took 3 months for an they found that the time they updated their prod-
international trade employee to catch up with uct lists daily affected rankings on the website.
the performance of his colleagues”. They suspected this was related to changes in
Some companies institutionalize orga- the time that EM staff checked and approved
nizational learning by establishing rules and listings. In response, they had to constantly
business processes for learning. They write check the time to adjust their product listing
guidelines, documents, and training materials, publication strategy.
and share these materials company-wide. One
firm provided training for newly recruited un- 2. Social Networks
dergraduate students on how to use the Internet
to find customers, and organized meetings each Many researchers assume that online mar-
week among salespersons to share their online ketplaces are impersonal and rule based, so
experience: how to attract new customers, Guanxi or social networks are no longer im-
how to reply to emails, how to identify online portant (Hsiao, 2003). Reliance on Guanxi has
fraudulent behavior, etc. “This will not only also been seen as a “powerful obstacle” to the
increase their ability to acquire and interact transformation to rule-based systems in China
with customers online, but also put pressure (Hsiao, 2003; Martinsons, 2008). However, we
on those who do not want to learn new things, observed that many successful online vendors
since they know that their colleagues find cus- actively engaged in social networking activities
tomers online”. through either Internet social technologies or by
Learning capability is especially important interacting offline. Social networking capability
in dynamic, volatile online environments. It is still a complementary asset for firms to achieve
is an important complementary asset for an better online performance. The difference is
eCommerce online vendor (Caldeira & Ward, more reflected in the form of social network. On
2003; DØving & Gooderham, 2008; Wiklund the Internet, firms take advantage of the wide
& Shepherd, 2003). Uncertainties encountered availability of Internet social technologies to
by firms are multi-faceted, including changing build online social networks. An online social
customer demand, the emergence of new busi- network is an organization-maintained online
ness opportunities, and even changes of EM network of people that are linked through one
search engine rankings or product listing rules. or more specific types of interdependency, such
as values, visions, friendships, and trade.
Some online business relationships are learning and social networking has been applied
formal in nature. For example, business as- to the organizational practices which forms
sociations related to eCommerce, such as the internet-leveraged function capabilities, can
Huanan Business Association and the Shanghai dynamic capabilities have an impact on online
Business Association, are regional associations success. It is through learning and social net-
formed by online vendors. Members meet regu- working that a firm learns how to build Internet-
larly, both online and offline, to discuss how leveraged functional capabilities. For example,
to market and sell their products and to make through online social networking and learning,
friends in order to explore opportunities made firms master the skill of online marketing, and
available by EMs. can get updated information about online mar-
Other online business relationships are keting practices. Online social networks also
more private and informal. One example is the enhance online marketing ability through re-
use of instant messaging and group chat tools source mobilization. Some firms form market-
to build more private networks. One online ing alliances online to share their marketing
vendor used MSN (Microsoft Network) to resources, such as co-marketing and collab-
connect 500 friends worldwide, and developed orative order fulfillment. This also helps a firm
partnerships with many of them. Many subjects to build and improve online marketing capabil-
used blogs to communicate with friends and ity. The enabling role of dynamic capabilities
potential customers. One interesting quote is in building certain organizational capabilities
that “marketplace is where people meet to do has also been shown elsewhere (Bhatt & Gro-
business, and forum and blogs are the coffee ver, 2005; Pavlou & Sawy, 2006; Newey &
shop besides the marketplaces. People social- Zahra, 2009). We propose:
ize with each other in these coffee shops.” Ou
et al. (2008) also found that instant messaging P1: Firms with greater Internet leveraged
tools can help build Guanxi between virtual organizational functional capabilities are
trading partners by enhancing interactivity and more likely to succeed online.
social presence. P2: Firms with higher Internet- leveraged dy-
namic capabilities will have an enhanced
potential to build greater Internet leveraged
THEORIZING MOTIVATION organizational functional capabilities.
CAPABILITY RELATIONSHIPS
In the M-C framework (Figure 3), Internet- The motivations for adopting EMs were
leveraged organizational capabilities are coded as factors that have relationships with
further divided into dynamic and functional online performance. This arose from the ob-
capabilities. Functional capabilities involve servation that most successful firms exhibit a
only one or two organizational functions, and strong desire to use the Internet, either to solve
are a firms’ eCommerce related processes and company crisis, or to expand their market share.
practices. As addressed in the code analysis, Prior research on business value of IT suggests
eCommerce knowledge and skills are embedded that IT will lead to high organizational perfor-
in these aspects of organizational capabilities, mance when it is deployed in alignment with
and are hard for competitors to copy. Thus firm strategy (Hussin et al., 2002). Kohli and
Internet-leveraged organizational capabilities Grover (2008) further argued that the firm’s
lead directly to online success. strategy serves guidance in the adoption of
Dynamic capabilities are more general and IT and the deployment of complementary or-
are not directly related to firm online success. ganizational resources. In many SMEs, firms
It is an enabling capability in the sense that only do not necessarily have a formal documented
when the knowledge accumulated through strategy, but a strategic orientation (Raymond
et al., 2005). This strategic orientation is similar relationships were developed into a Motivation-
to the concept of motivation in the sense that Capability theory.
both are goal directed arousal and offer guid- Our findings contribute to a richer under-
ance for firm behavior. standing of SME online vendor motivation
However, motivation itself does not nec- to adopt B2B EMs. The existing literature on
essarily result in higher online performance B2B EM motivation emphasizes efficiency and
directly. We argue that firms with higher mo- legitimate motivation. But legitimate motivation
tivation are more committed, and more likely is not a success factor, as suggested by Grewal,
to engage in developing dynamic capabilities Corner, and Mehta (2001)Son and Benbasat
such as learning and social networking, which (2007) and our research. As for efficiency
in turn have an impact on Internet leveraged motivation, prior literature suggested that firms
organizational capabilities and firm online adopt EMs to reduce transaction costs (Son &
performance. Existing research also suggests Benbasat 2007) and to achieve efficiency, but
that manager/entrepreneur motivation is an our findings suggest that cost saving is only
important antecedent of dynamic capabilities one of the reasons for EM adoption. We found
(Ambrosini & Bowman, 2009). So we have that marketing effectiveness, increasing sales,
the proposition: and extending market share, are the major
driving forces for online vendors to adopt
P3: The stronger a firm’s motivation to adopt EMs, whether proactively or reactively. This
EMs either proactively or reactively, the more discrepancy with previous research has two
likely the firm will commit itself to build implications. First, since our research focuses
Internet-leveraged dynamic capabilities. on online sellers, and prior research focuses on
organizational buyers, a potential conjecture
is that sellers may be marketing-effectiveness
DISCUSSION AND driven, and buyers may be transaction cost ef-
CONCLUSION ficiency driven. Second, our findings add to the
criticism of transaction cost economics theory,
Discussion and that the target of many online firms is not
to save transaction costs, but to achieve growth
Through a content analysis of high performing (Ghoshal & Moran 1996).
SME Chinese online vendor cases, this paper Our research supports the idea that firms
builds an integrated Motivation-Capability with a strategy of market extension tend to
framework to explain the success of SME online succeed online (Hussin et al., 2002; Raymond
vendors in China. Twelve major codes were et al., 2005). By introducing entrepreneurial
developed, entirely based on data from SME motivation theory (Acs, 2007; Wagner, 2005)
cases. These included four motivation factors: to analyze firm EM adoption motivation, we
transaction cost saving, expanding sales- reac- provide a richer understanding of its substance.
tive, expanding sales - proactive and building Among firms with a market expansion strategy,
brand online. Eight Internet-leveraged orga- some stumbled into using EMs reactively (ne-
nizational capabilities were identified: online cessity motivation) in the sense that extending
marketing capability, eCommerce management sales channel has become a necessity. Others
capability, attitude towards eCommerce, low were more prepared with a clear strategy (en-
price and cost reduction capability, product and trepreneurial motivation) and business oppor-
service quality, product innovation capability, tunities of higher profit margin. Both types of
learning capability, and social networks. These motivation can lead an online vendor to succeed,
codes were organized and interpreted, based on but firms driven by opportunity motivation are
entrepreneurial motivation theory, the resource more likely to succeed.
based view (RBV), and Guanxi theory. Their
This research adds to the theory of RBV (Davies et al., 1995; Park & Luo, 2001) also
and business IT value research by opening the helps explain the relative importance of “online
black box of digital organizational capabilities social networking” among all the factors affect-
in the context of B2B EMs and SME online ing online company success.
vendors. Eight Internet-leveraged digital orga-
nizational capabilities were detected from the
coding analysis. Among them online marketing MANAGERIAL IMPLICATIONS
capability was the most stressed, and price and
This research provides managerial implica-
low cost capability was the least mentioned by
tions for both SME online vendors and B2B
successful SME online vendors.
EM operators. SME online vendors need to
We argue that Internet leveraged digital
understand that orders are not a natural result
capabilities are combinations of organizational
of paying membership fees to EMs and build-
assets and eCommerce technologies, and such
ing simple websites. Winning business through
relationships can be both complementary (Bhatt
online channels involves Internet-leveraged
& Grover, 2005; Brynjolfsson & Hitt, 1998;
organizational capability building. This requires
Brynjolfsson et al., 2002; Mata et al., 1995;
restructuring work procedures, processes, and
Wade & Hulland, 2004) and embedded (Kohli
activities in incumbent firms, or building from
& Grover, 2008). For online marketing capabili-
scratch the capabilities that are compatible with
ties, eCommerce management capability, learn-
online selling if they are new startup companies.
ing capabilities and online social networking,
Dynamic capabilities such as learning and social
the embeddedness of eCommerce technology
networking capabilities can help firms to renew/
is more visible, while other capabilities, such
build Internet selling capabilities.
as product and service quality capability, low
B2B EMs should focus on helping SME
price and cost capability, are more likely to
online vendors to develop Internet leveraged
serve as complementary assets that enhance the
organizational capabilities by facilitating their
effectiveness of EM use. Our research contrib-
training. Major B2B EMs in China, such as
utes to the theory of eCommerce competitive
Alibaba and Dunhuang, offer education and
advantage as previous research has focused on
training programs to users, which have proven
complementary effects, while ignoring embed-
to be effective channels to help assimilate
dedness (Zhu, 2004a; Zhuang & Lederer, 2006).
EM technology.
This study reveals that cultural contexts
Due to the persistence of Chinese Guanxi
can influence organizational capabilities in
culture online, B2B EMs should integrate so-
eCommerce. Literature from western countries
cial networking functions such as forums and
suggests that EMs are rule based impersonal
blogs into their marketplaces. Several B2B EMs
trading platforms, eliminating the importance
currently offer forums and blogs, but vendor
of personal relationships and accrued social
activities and identities are not tightly integrated
capital (Hsiao, 2003). On the contrary, we found
into their marketplaces. This research indicates
that successful Chinese online vendors continue
that SME online vendors have already invested
to engage in network building activities. This
significant time and resources in building their
means that Guanxi is still important online, but
personalities and reputations using forums and
it takes a different form by leveraging online
blogs. Integrating social network functions into
social technologies such as instant message
online marketplaces would help to preserve
tools, forums, and chat groups (Ou et al., 2008),
that investment.
accompanied by occasional offline meetings.
The persistence of the Chinese Guanxi culture
RESEARCH LIMITATIONS ACKNOWLEDGMENT

AND FUTURE RESEARCH
OPPORTUNITIES This research is sponsored by National Natural
Science Foundation of China under the Grant
Although the content analysis that we performed 70902078 and 71072006, Chinese MOE
on the 155 cases is very illustrative, this paper Young Faculty Foundation (Project Number:
has certain limitations. First, the cases were 20090004120001), and Alibaba Young Scholar
taken from published news reports which were Foundation.
not specifically designed for the purpose of
this study. The reports could be biased and,
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APPENDIX
Table A1. Coding information
Inter-coder agreement
Number of companies coded
Cohen’s Kappa
Transaction cost saving 17 0.866
Expanding sales- reactive 35 0.726
Expanding sales- proactive 64 0.751
Promoting new brand 15 0.757
Low price and cost reduction capability 21 0.678
Product and service quality 49 0.764
Product innovation 50 0.667
ECommerce attitude 62 0.598
ECommerce culture 16 0.697
ECommerce management capability 32 0.712
Learning 45 0.798
Marketing Blog 37 0.921
capability
Forum 34 0.844
Selection of B2B platform 69 0.617
Search engine marketing 47 0.751
Online product presentation and
68 0.737
communications
Others 34 N/A
Social MSN 5 0.885
network
Online vendor alliances 9 0.885
Others 9 N/A

Modeling The Success of Small and Medium Sized Online Vendors in Business To Business Electronic Marketplaces in China

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Journal of Global Information Management, 19(4), 45-75, October-December 2011 45

Modeling the Success of

Keywords: Digital Organizational Capabilities, E-Commerce Performance, Entrepreneurial Motivation,

INTRODUCTION than RMB300 million that take advantage of

Table 1. Number of Alibaba usersa

Domestic International Total

is relevant in building up the M-C framework to THE RESEARCH CONTEXT:

LITERATURE REVIEW AND The literature on SME eCommerce adop-

p. 516). This is conceptualized as a type of infrastructure complements eCommerce ca-

separate research field. Guanxi generally refers RESEARCH METHODS

Table 2. Sources of data

Source of data Explanations Internet Performance

Table 3. Basic Information on SME Online vendors

Table 4. Coding dictionary and results

Concept Definition Explanation and substance Exception handling

Motivation growth requirements, capturing business op-

Figure 1. Summary statistics for the motivation codes

Finally social environmental changes can Entrepreneurship Motivation

Figure 2. Summary statistics for Internet leveraged organizational capability codes

through an online instant messaging tool Internet Leveraged

● Companies in good financial health one case, a company installed an advanced

Figure 3. Performance of SME online vendors: The motivation-capability framework

RESEARCH LIMITATIONS ACKNOWLEDGMENT

Zhu, K. (2004a). The complementarity of information Zhu, K. (2004b). Information transparency of

Table A1. Coding information

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