Business
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Introduction
Electronic commerce or e-commerce is the new way of doing business and is already impacting different sectors across the world such as communications, finance, retail and a lot many more. The electronic commerce has transformed the way business is done and affects large sectors such as communications, finance and retail. It carries potentially pervasive effects on routine business activities.What is e-commerce? The World Wide Web-based buying and selling of goods and services is fundamentally known as E-commerce. The barriers to electronic commerce have fallen for both buyers and sellers. Today, just about anyone can become a merchant with just a few thousand dollars and can reach millions of consumers world-wide. The iInternet has turned the luxury of doing business simple and affordable for everyone (Ferraro, 2011). According to the Organization for Economic Co–operation and Development (2005, p 38), “it is the method by which the order is placed or received, not the payment or channel of delivery, which determines whether the transaction is an e–commerce transaction”. The term e-commerce should not be confused with e-business as the e-business is an autoamted busienss proecess and a lot more than e- commerce as it nlcuedes internal processe within the conpany and othe companies (Ramu 2007, p. 10).
E-commerce is the process of buying, selling, exchanging products and services via computers on the internet. There are a large number of potential benefits of e-commerce, and some of them include higher customer satisfaction, increased sales, better customer services, and support. It allows exposure to international markets. Electronic commerce is known to benefit businesses owners and ease the way business is done. It connects geographically dispersed markets and lowers transaction costs, benefiting both large and small businesses. Privacy and security are a concern for those doing business on the internet. When individuals conduct business or carry out financial transactions, it is assumed that personal and financial information is not being trespassed by others and are assault-proof. When using different modes of payment, there is a need to strike a balanced between the various methods of payment (Ferraro, 2011).
The UAE is a culturally diverse country and in respect to Network Readiness Index, it ranks rated 23rd in the world. The region boasts of highest penetration rate for internet access. Dubai had especially become the financial center in the Gulf region as the banks readily adopt internet to provide different services (Rusu and Shen 2011, p. 1). Currently all UAE banks offer internet banking to their customers and business owners. E-commerce is well in progress in developed nations. However, it is still at an early stage in Saudi Arabia and the United Arab Emirates. Despite the fact that the Arab region has the fastest growth of marketplaces, a very small percentage of commercial organizations and medium companies from the manufacturing sector are involved in e-commerce implementation. The African and Middle East regions still have a little share of the global e-commerce revenue (AlGhamdi et al. 2012, p. 2).
E-commerce is a business model in and of its own right that uses the Internet to establish a new sales channel. The e-commerce stores are always open, welcome their customers any time of the day and night and generates more revenue than any brick and mortar stores (Williams et al. 2009, p.2). Different rules or strategies develop and evolve as e-commerce grows. The online businesses need to be well prepared to meet these changes and challenges. U.A.E. leads the world in the purchasing of luxury brands as those are related with a higher social status. The growing consumption of luxury brands encourages the -Retail platform for luxury consumption (Vel & Rodrigues 2013, p.2).
What are SMEs (small medium enterprises) Every country has its own standards for measuring revenues or some employees and defines small and medium-sized enterprise accordingly. There is no definite way to identify SME or small, medium enterprises as it depends on the country, industry and the company it competes. The term SME covers a broad range of definitions and measures that may vary from country to country. Some of the most commonly used criteria are total net assets, the number of employees and investment level (Ayyagari and Demirgüç-Kunt 2005, p. 5). As SME firms spend many funds on IT, these medium-sized enterprises are strongest in the area of innovation. The World Bank Group focuses on the development of the small and medium enterprise (SME) in one of its core strategies to foster economic growth. Billions of funds get approved for supporting micro, small and medium enterprises that are increasingly getting recognized for their sustainable role in global and regional economies (Ayyagari and Demirgüç-Kunt 2005, p. 2).
Rather than giving only one definition of SME, it is more useful to translate the functionally relevant attributes into a more conventional data such as the turnover rates and the number of employees. Generally speaking, SMEs are registered with government and registration bodies and are obliged to pay taxes and social security charges. They offer their employees compensation, vacations, and sick leave. These firms can invest in funds with a payback of longer than 12 months and finance accounts receivables (Gibson 2008, p. 10). These firms are less likely to have contacts with higher levels in government and the financial segments and thus are not in a position to negotiate fiscal incentives. These are more centralized in their management and are less likely to be involved with corruption in government. Their focus is on long-term profitability rather than short-term needs and medium-term survival. They are flexible and adapt fast to the economic and regulatory environment.
SMEs often get defined by the numbers of employees. In many developing countries, there are penalties for hiring full-time employees as well as higher Employee-related taxes. This boosts the common practice of hitting part-time labor who do the work of full-time employees. As stated by Gibson (2008, p. 13), SMEs rarely carry a detailed approximation of the assets value. Comparisons get complicated as there are inconsistent policies to define business size. The local currency values for fixed assets in SMEs often understate the true value. Thus, both asset-based and employment-based definitions are not enough to recognize the capital efficiency of the small sized firm.
The use of “SME250” is a consistent measure for gauging at an absolute level, where the number of 250 employees is taken as the cut-off for the definition of an SME across different countries. However, the GNI/PPP measures the wealth and poverty levels within a country and the SME250 measure does not adjust for the relative labor costs and productivity (Gibson 2008, p. 17). For example, a firm with 250 employees in Kyrgyzstan or Vietnam may have a higher market power and ability as compared to Japan, Finland, or the United States. Thus, this is a major complaint that persists regarding SME definitions.
Schilir`o Dipartimento( 2015, p.2) states how the United Arab Emirates offers a most lucrative business market in the Gulf region and is based on an innovation-driven economy. A knowledge-based economy offers to sustain long-term economic growth and ample job opportunities for the young and growing population of the country. The innovation-driven economy is rooted not just from the large corporations but from the dynamic small and medium enterprises. In USE, it is the small and medium enterprises that are enjoying a higher share of new product innovations and account for 92 percent of the total number of companies while contributing to the 50 percent of the GDP.
Advantages and Disadvantages of E-commerce about SMEs E-commerce strengthens business, their extensions, and relationships with other partners. The enterprise and service providers can reach their customers wherever they are in the world. E-commerce has been a great success across both small and big organizations, and they have gained a lot from adopting E-commerce. However, there are certain downsides of E-commerce that need to be brought to forefront especially about SMEs. For example, the major advantages are the on-going maintenance costs, lack of technical support and the security concerns.
E-commerce is an advantage for the SMEs as it provides to new customers and expands their global reach. Research has shown that electronic commerce adoption provides long-term benefits to SMEs and help them raise their business efficacy. The perceived usefulness, external pressure and the readiness of the organization can help speed up the adoption. A lot will depend on the location, the size, and nature of the SME. E-commerce helps the SMEs boost their sales while lowering costs thus adding to their profitability. They expand their business to new markets on a global level. E-commerce helps them reduce paperwork, speed up communication and customer care (Ramu 2007, p. 23). The major benefits include superior customer care and higher profits as well as an improved information sharing.
SMEs have to face several challenges when adopting e-commerce and this include lack of financial resources and technically trained staff. There could be resistance from the current employees, Other hurdles include costs of implementation and issues of security and privacy in e-commerce. Not all organizations have adopted e-commerce in the same way. A lot can be attributed to the different nature and size of the organizations, different location, and culture as well as differences between organizations. The business needs of on organization influence the level of e-commerce adoption and how flexible and adaptive are the organization. It is seen that the adoption of e-commerce is lower in SMEs as compared to the larger organizations. The low priority for e-commerce is because of the lack of financial resources, from resistance employees, low priority for investments and lack of time. The degree of e-commerce and its adoption will differ from one SME to another and their location. It is seen that those organizations in the rural areas are slower to adopt e-commerce as the regional SMEs do not have the same resources and infrastructure as the metropolitan locations as asserted by Ramu (2007, p. 2).
It is understood that the rate of e-commerce adoption differs among the SMEs. It is widely embraced by SMEs in the sectors of manufacturing, industries, and transport that are more likely to engage in online sales. The more successful SMEs that have adopted e-commerce are the tourism, finance, and the banking sector. Thre lesser successful sectors are those that require a more perosnl; contact with their clients and face to face meetings such as healthcare, management consulting, law and more (Ramu 2007, p. 2). Thus, both level and reasons to adopt e-commerce will differ among the SMEs. The adoption of ICT or information and communication technology is considered a preliminary step to the adoption of e-commerce by SMEs.
Competition leads to most SMEs adopting e-commerce. Still, there are barriers to adoption of the new technologies that these organizations need to overcome, and those barriers can be industry, location and sector specific. Some of the typical barriers are the lack of technically trained staff, lack of resources and limited market scope (Ramu 2007, p. 28). Several studies were done on the e-commerce legislations in the UAE point to the enforcement measures legislations for consumer protection. Strengthening consumer protection is a growing trend among developing countries embracing e-commerce. With a rising number of online buyers in the UAE, both small and large businesses are getting encouraged to consider e-commerce (AlGhafri 2013, p. 32).
E-commerce carries certain disadvantages too for the SMEs, and the major downsides are the ongoing costs and dissatisfactions among the employees and workers. It is hard to overcome the inherent difficulties of e-commerce because of the higher maintenance costs as stated by Ramu (2007, p. 30). The size of the organization impacts the adoption of e-commerce directly. Studies show that the bigger organizations are faster to adopt e-commerce and harness its several advantages. It is observed that these SMEs in UAE carry a lower share of entrepreneurial activity among modernization-driven economies. Their business model is characterized by a central organizational structure, high administrative intensity, and a short-term focus as well as a top-down formal means of communication (Schilir`o Dipartimento 2015, p.9).
The key findings on the culture of SME’s in UAE indicate that they maintain an annual budget for product development and R&D. The major frequency of innovation among these SME’s lie at their product/service level as compared to their internal processes and distribution formats. Their main objective behind implementing innovation in business and embracing E-commerce is to differentiate their products and services. A higher percentage of manufacturing SMEs have implemented innovation within their business, as compared to trading and other services (Schilir`o Dipartimento 2015, p.11). As compared to the non-innovative SMEs, the innovative SMEs are oriented internationally. In USE, a higher prevalence of innovation is seen among exporting businesses. Innovation and technology are playing a key role in increasing exports in a small market knowledge economy, like the UAE. Recent studies show that small and medium firms in UAE businesses need innovation to compete at global levels. To innovate, they need to reconsider their business model and will need Government support. The UAE Government has demonstrated a will and has the funds to invest in infrastructure, human capital and job creation and to foster innovation and growth. Currently, there is a focus on several sectors such as health, technology, renewable energy, water and space, etc. (Schilir`o Dipartimento 2015, p.15).All sectors need to work together and discover new ways to conduct business. And, one of the strategy lies in strengthening the innovation capability of the UAE economy via its SMEs.
Bibliography
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