E Commerce In Small And Medium Tourism Enterprises Economics Essay

E Commerce In Small And Medium Tourism Enterprises Economics Essay In the emerging global economy, integration of information and communication technology in business is now becoming inevitable. E-commerce and e-business is becoming a necessary component of business strategy. Use of IT in business has enhanced productivity, enable mass customization, contribute a lot in cost reduction and encourage greater customer participation and boost business. E-commerce poses an advantage of reducing time to search for information and reduce transaction costs i.e. time for payment is drastically reduced as one can do transaction across continent in a very short time. Search of customers and markets is now can be easily facilitated by internet. Internet allows automatic packaging and distributes information to specified target group. Internet development and web-based technologies gradually narrow down distinctions between traditional markets and global electronic market place. The ability of companies to find out the emerging business opportunities and utilize or share the resources available is possible through internet. Companies can make most of opportunities through e-business strategy; it is workable, practicable and simple within the context of global information. With its effect of levelling the playing ground, e-commerce is tied with the appropriate strategy and policy approach that enables Small and Medium scale Enterprises (SMEs) to compete with large and capital-rich businesses. On another hand, developing countries are given increased access to the global marketplace, where they compete with and complement the more developed economies. Most, if not all, developing countries are already participating in e-commerce, either as sellers or buyers. However, to facilitate e-commerce growth in these countries, the relatively underdeveloped information infrastructure must be improved. The aim of this research is to asses whether the use of e-commerce in the tourism sector can be a tool to improve the economic prospects of developing countries .Its potentials and challenges is an issue to be scrutinized. SMEs that is able to adopt ecommerce on their touristic activities they can engage directly with the global tourism markets and bypass the intermediary information handlers to attract visitors and retain a larger proportion of tourism receipts. CONCEPTS AND DEFINITIONS What is e-commerce: meaning and scope of e-commerce It is important to define this term in first place. Different authors have defined e-commerce in different ways making it difficult to have the globally recognised definition. Many authors defined e-commerce simply as buying and selling over the internet which raised different arguments. Kalakota and Whinston (1997) agued that e-commerce involves more than electronically mediated financial transactions between organisations and customers. They refer e-commerce to the following perspectives: A communication perspective The delivery of information, products/services or payment by electronic means A business perspective The application of technology towards the automation of business transaction and workflows A service perspective Enabling cost cutting at the same time increasing spend and quality of service delivery. An online perspective Buying and selling of products and information online. A pan African E-commerce initiative, sponsored by Economic Commission for Africa (EAC) and the International Development Research Centre (IDCR), in 2001 adopted the European Commission definition; Electronic commerce is about doing business electronically, it is based on the processing and transmission of data, including text, sound and video. It encompasses many diverse activities including electronic trading of goods and service activities online delivery of digital content, electronic fund transfer, electronic share trading, electronic bills of lading, commercial auctions, online sourcing, public procurement, direct consumer marketing and after-sales service. (United Nations Economic Commission for Africa, 2006) this definition is broad and it covers the scope of e-commerce to the nation as well as industry. For the purpose of this essay we will adopt this definition. It is seen that almost each definition has similar components for example e-commerce is digitally enabled that means is taken through digital technologies such as internet. Also it is a commercial transaction which means there is an exchange of value. Laudon and Traver, 2007 commented that without an exchange of value no commerce occurs . E-COMMERCE CATEGORIES E-commerce transactions can be categorized in different classes regarding on the nature of the market relationship, that is who is selling to whom Business-to Consumer (B2C) This sale takes place when the business/organization sells its products/services directly to the consumer. Most consumers are likely to use this type of e-commerce. In 2005, consumers spent about $142-$172 billion. (Laudon and Traver, 2007 pp50) Business-to- Business (B2B) This is an online transaction between businesses, which means businesses focus on selling to other businesses. This is the largest form of e-commerce in terms of turnover about 80% of ecommerce is of this type. (Roberto R. Romulo Shahid Akhtar, Barlett, 200; Laudon and Traver,2002; UNCARD, 2002) (See appendix for more details) Consumer-to-Consumer (C2C) This is happen when consumers transact directly with other consumers. This form has great potential but it is less widely used (Chaffey, D. 2004 pp7) Hoffman and Novak suggested that is crucial for companies to take into consideration the C2C interactions. Consumer-to-Business (C2B) This is defined as the transaction appeared when consumers initiate trading with companies. (Chaffey, D. 2004 pp7) Mobile Commerce (M-Commerce) This is defined as the use of wireless digital devices to enable transactions on the web. These networks are used to connect cell phones, handled devices such as Blackberries, and personal computers to the web. (Laudon and Traver, 2007 pp18) SMALL AND MEDIUM SCALE ENTERPRISES IN DCs DEVELOPING COUNTRIES Developing countries differ widely among themselves these days, and no single list of typical features would accurately describe all developing countries (Krugman and Obstfeld, 2006 pp 606). See the recently list of DCs as per IMF in the appendix SMALL AND MEDIUM ENTERPRISES It is better to ask why focus on SMEs? It is obviously because of its role in economic development in most of developing countries. It acts as the backbone of their economy because most of its people are engaging in informal sector. Before we continue we better define the meaning of SMEs. According to Scarborough et all in their book effective small business management there is no universal definition of a small business. Some analysts and countries define it basing on number of employees or on sales volumes. They define a small business is the one which employs fewer than 100 people (Scarborough et all 2008; OECD 2004) While the South African Act gave their estimate to be between 100 and 200 persons or a turnover rate of 5 million Rand, while micro enterprises have up to 5 employees (Gorden, 2003);( Fred Tetteh Alarti-Amoako , 25/09/2008 )http://www.allbusiness.com/economy-economic-indicators/economic-conditions-growth/14555918-1.htmlDate 2/12/2010 SMEs play a key role in the countrys economical growth in most of the developing countries. For instance in Ghana the analyst says that SMEs accounts for about 90% in the economy which contributes about 60% to the countrys GDP. According to Mr. Baffour Awuah the Regional Minister (Ghana), the informal sector is the mechanism for the economic growth of the country because it is identified as a major source of income and employment. ( Fred Tetteh Alarti-Amoako , 25/09/2008 ) http://www.allbusiness.com/economy-economic-indicators/economic-conditions-growth/14555918-1.html Date 2/12/2010 SMEs have their significant effect on the income distribution, tax revenue, and employment, efficient utilization of resources and stability of family income. SMEs and informal enterprises, account for over 60% of GDP and over 70% of total employment in low income countries, the role of SMEs is well acknowledged in other countries such as Japan, Korea, and all other industrialized economies in terms of creating employment, reducing poverty and increasing the welfare of the society. According to the Small and Medium Enterprises Development Authority (SMEDA), SMEs constitute nearly 90% of all the enterprises in Pakistan; employ 80% of the non-agricultural labor force; and their share in the annual GDP is 40%. There are a number of factors responsible for the importance of SMEs in Pakistan. First, SMEs bolster an entrepreneurial spirit and put forward suppleness in the economy. Second, SMEs emanate the fastest growing export sub-sectors, such as cotton weaving and surgical instruments. Third, they can support the poverty alleviation endeavors through employment generation process. Above all, SMEs are more efficient in resource allocation as compare to that of large scale industry from a social point of view. They provide and facilitate the more number of people as compare to that of large scale industry. By: Bashir Ahmad Fida http://www.thefreelibrary.com/The+Importance+of+Small+and+Medium+Enterprises+(SMEs)+in+Economic-a01073924138 According to NASSCOM (National Assocition of Sftware and Services Companies) suvey there are about 3.4 million SMEs which acconts for 42% of manufacturing sectors turnover and 35% countrys exports.These SMEs employ over 17 million people. http://www.unescap.org/tid/publication/part_three2261_ind.pdfHYPERLINK http://www.unescap.org/tid/publication/part_three2261_ind.pdf Date 6/12/2010 Date 6/12/2010 The above analysis shows the reason why it is important to focus on SMEs in DCs. Adaptation of ecommerce would help the tourism sector to build competitive advantage in the world tourism market and tackle the globalisation pressures in DCs. TOURISM: AN ATTRACTIVE ECONOMIC DEVELOPMENT TOOL This section will provide an overview of the tourism industry in developing countries based on secondary data with purpose of illustrating some of the principal challenges faced by the tourist industry in selected developing countries due to the rising importance of ICT and the potential benefits the tourism sector would gain if engaged in ecommerce. The World Tourism Organization defines tourists as people who travel to and stay in places outside their usual environment for more than twenty-four (24) hours and not more than one consecutive year for leisure, business and other purposes not related to the exercise of an activity remunerated from within the place visited. ( UNWTO, 2009) Retrieved from http://en.wikipedia.org/wiki/Tourism DATE 7/12/2010 Tourism is a significant sector for small- and medium-scale enterprises (SMEs) in the world and DCs in particular. Tourism is a key export for DCs and is one of the worlds largest industries generating an estimated 11% of global GDP and generating nearly 250 million jobs worldwide (Roe and Urquhart, 2001; WTO, 1996; Mill Morrison, 1999; Edgell, 1999; Lundberg et al, 1995).). DCs are receiving an increasing number of tourists, and this represent a significant part of their GDP. The trend of tourism demand is increasing rapidly and is a significant source of foreign exchange (WTO, 2002) tourism has assisted many developing countries to move away from a dependency on agriculture and manufacturing (Tooman, 1997). DCs are reach on natural endownment they can benefit from great wealth in wildlife and unique resorts, foreinstance Tanzania has a lot of attractions such as Mount Kilimanjaro, the highest mountain in Africa, Serengeti National Park one of the most beautiful parks in the world, and Ngorongoro Crater which is among the 8th wonder of the world. Lets have a look on how Zimbabwe is benefts from tourim. Tourism is one of the most promising aspects of Zimbabwes economy, attracting thousands of visitors and earning millions of dollars. Over the past 10years Zimbabwes tourist sector has scored impressive annual growth rates ofnearly 20%. According to the Zimbabwe Tourism Authority (ZTA) total tourism receipts account for 4.6% of the countrys GDP. It is estimated that tourism employs close to 100,000 Zimbabweans, up from 40,500 in 1990. This growth in employment is impressive considering Zimbabwes unemployment rate is more than 50% of the potential workforce and that employment figures have remained static since 1990. African Business, 1999. This analysis is convincing that tourism is benefiting the society in developing countries economically and deploying ecommerce in its fully capacity in this sector is an appropriate way to maximize economic benefits in DCs because it improves efficiency and productivity. FORMS OF TOURISM Tourism can be divided into three forms according to the United Nations Domestic tourism is the one which involves residents of certain country travelling only within this country. Inbound tourism, is where by a non-residents travelling in the given country. Outbound tourism, involving residents who travel in another country. This analysis is focusing on all forms seeking to analyse how this sector in general is affected by ecommerce. Retrieved from http://en.wikipedia.org/wiki/Tourism date 7/12/2010 E-COMMERCE IN TOURISM Most managers would agree that we have recently entered a new era The information Age; which differs markedly from the industrial age. (Hollensen, 2001, pp21, Wyckoff, 1997:5) It is true that e-commerce has impacted on the way organizations do business by altering basic business dynamics of industrial economy to be replaced by digital economy. It has significantly effects on industry value chain it changes the tourism industry structure (e.g. traditional distribution model), for example in tourism organization where by company use the internet to bypass traditional tourism distributors. The table below shows these differences. Industry economy (Marketplace=physical products) Manufacturing dominates Barrier: physical distribution Barrier: lack of capital First-mover advantage was years Innovative ideas contained internally Relationships constrained by human capital Digital economy (Market space=e-commerce) Knowledge and relationships dominate E-distribution is the new barrier Capital is a commodity First-mover advantage is months Innovation is in the public domain Relationships can be established electronically. (Hollensen, 2001, pp335) E-Tourism E-Tourism is a collection of tourist services that combine with E-Commerce via Internet considering that E-Tourism constitutes the big portion of E-Commerce because it has included all common elements of tourist activities such as hotels, airlines, travel agents, car rentals, tourist sites, bazaars, and tourist guides. This includes governments which starts utilizing E-Tourism as an effective means to promote the tourism product through the Internet. Lately, banks have also taken their roles as service providers of E-Payment, which is an important element for E-Tourism. Â  http://www.ioeti.org/ioeti/pages/e-tourism date 8/12/2010 Trends and growth It is better to understand the trends of tourism world wide so that to understand where we are and the opportunities to glow. The UNCTAD 2001 report indicates that the demand for tourism products and services on the internet is growing. It revels that UK, German and France the Europes largest economies are expecting to experience further growth in online bookings in 2007.Advancement in information technology assures the increase of tourism market because it reduces barriers such as transportation and communication costs which provide opportunity of people to travel cheaply and comfortable. The World Tourism Organization reports the top ten tourism earners for the year 2009. (See appendix 1) Retrieved from http://en.wikipedia.org/wiki/Tourism date 7/12/2010 Damian Cook, the chief executive officer of E-Tourism Frontiers said: Online sales have experienced major growth in the past year. Travel is now the number one selling commodity online and is generating over US $110 billion annually in sales. We must get more African tourism products available to the online travel shopper, especially following the massive interest in Africa after the World Cup.( by Paz Casal. 2010) Source: Euromonitor International. http://blog.euromonitor.com/2010/09/east-africa-turns-to-e-commerce-for-travel.html date 10/11/2010 The sector was badly affected by the late-2000s recession; international travel demand suffered a strong slowdown beginning in June 2008, with growth in international tourism arrivals worldwide falling to 2% during the boreal summer months. THE OVERVIEW OF ICT USAGE AMONG SMES IN DEVELOPING COUNTRIES SMEs go through different stages in adopting e-commerce. They start with creating a Web site primarily to advertise and promote the company and its products and services. When these firms begin generating traffic, inquiries and, eventually, sales through their Web sites, they are likely to engage in e-commerce For countries or sectors to adopt ecommerce on its activities it depends on the availability of ICT and internet in particular and its usage. Lets evaluate extent of ICT usage and the purpose of usage in DCs. Currently the Internet is most commonly used by SME firms in DCs for communication and research; the Internet is least used for e-commerce. ICT usage patterns among SMEs in developing countries show a progression from the use of the Internet for communication (primarily e-mail) to use of the Internet for research and information search, to the development of Web sites with static information about a firms goods or services, and finally to use of the Internet for e-commerce. Studies commissioned by The Asia Foundation on the extent of ICT use among SMEs in the Philippines, Thailand and Indonesia, show common use patterns, such as: 1. wide use of the Internet for e-mail because of the recognized cost and efficiency benefits; 2. use of Web sites more for promotion than for online sales or e-commerce, indicating that SMEs in these countries are still in the early stages of e-commerce; 3. common use of the Internet for basic research; and 4. inclination to engage more in offline transactions than in e-commerce because of security concerns. The worlds highest internet usage survey shows that India is in the fourth position while South Africa is out (see appendix 1). And if we consider regions Africa has the lowest internet usage. This indicates that available and new technologies are not adapted by African nations as well as SMEs to the full utilisation to enable Firms to survive in a rapidly changing environment. Zhu et all finds that the absence of awareness models to encourage SMEs to adopt ecommerce and internet as an available technology shows that the superlative enthusiasms of global on-line growth of business and consumer trade is still under utilized (Zhu et al, 2003) .The current situation of ecommerce application in India and South Africa would show in details. IN INDIA NASSCOM (National Association of Software and Service Companies) survey shows that the penetration of ecommerce transactions in India will increase. B2B transactions will reach on line penetration of 5% by 2003. The NASSCOM and Boston Consulting Group (BCG) report of 2000-2001 they estimate that the total volume of e-commerce in India will be Rs 1,950 billion (US $ 41.5 billion), out of which Rs 3 billion (US $ 64 million) accounts for B2C and Rs 1,920 ( US $ 41 billion) will be on B2B.(NASSCOM and BCG, 2001). http://www.unescap.org/tid/publication/part_three2261_ind.pdf IN SOUTH AFRICA The trend of ecommerce adoption in South Africa shows a slow impact (Cloete, Coyurtney, and Fintz, 2002:9) the study from the University of pretoria, summarised by Nua internet surveys, almost half of Internet users have made a purchase online. The University estimates that the B2C market in South Africa is worth R3.9 billion ($500 m), while the B2B market is worth about R20 bn ($2.4 bn). http://www.ebusinessforum.com/index.asp?layout=rich_storyHYPERLINK http://www.ebusinessforum.com/index.asp?layout=rich_storydoc_id=4378countryHYPERLINK http://www.ebusinessforum.com/index.asp?layout=rich_storydoc_id=4378countrydoc_id=4378HYPERLINK http://www.ebusinessforum.com/index.asp?layout=rich_storydoc_id=4378countryHYPERLINK http://www.ebusinessforum.com/index.asp?layout=rich_storydoc_id=4378countrycountry Date 6/12/2010 In SA, 8 online retailers are currently dominating the online consumer and apparel market accounts for approximately 80% of all online retail sales. Motjolopane (2006,20) reports tha Retail sales at the end of 2003 inreased by 35% grew by 25% in 2004. Ecommerce adopition has expanded rapidly in the airline industry in SA. According to Hartley and Worthington-Simith (2003:151-152), the volume of online travel sales compared to Erope. The no frills airline , Kulula.com is considered to be SAs largest revenue generating B2B business. 1time Airline another no frills airline is claiming 75% of online travell trasactions (Wardens and Remenyi, 2005). Andrew Smith, co-founder of Live Alchemy, concurs saying that while the rest of the worlds traditional retailers are often supplement their brick and mortar business quite successfully online, South African businesses are trading online. He says Telkom and the lack of Internet access have taken the blame for slow e-commerce uptake for far too long. http://www.bizcommunity.com/Article/196/394/42916.html IMPORTANCE OF E-COMMERCE FOR TOURISM Scarborough analysed that although ecommerce will not replace the traditional retailing, no retailer from the smallest corner store to the industry giant Wal-Malt, can afford to ignore the impact of the web on its business. (Scarborough et all, 2009, pp 446) .Taking their analysis it is better to identify the impact of e-commerce on tourism sector, mentioning the opportunities which the tourist companies is going to capture by having the web site and the obstacles which impede the adoption of ecommerce in the developing countries and tourism in particular. Tourism is one of the most sectors affected by ecommerce. It affected the structure of the global tourism industry (UNCTAD 2001). For those who capture is an opportunity, but it also has negative effects. THE BENEFITS OF E-COMMERCE FOR SMTEs Companies of all sizes are busy establishing a presence on the web, why this happen? because thats where their customers are (Scarborough, 2008). Also ecommerce offers different opportunities and benefits. There is a clear evidence that E-Commerce have positive impact economically (UNDP, (2003), Pohjola (2000), Kraemer and Dedrick (2000) Dewan and Kramer (2000),}. If ecommerce is effectively utilised in the tourism organisation, and the country as a whole ecommerce can provide the following opportunities to the suppliers of tourist services as well as the tourists. Opportunity to increase revenues since the customers are on the web, by launching a web site a SME is increasing its market as well as sales. Improving Customer Services Electronic tourism is a useful tool for information between stakeholders. Suppliers can receive feedback from customers and make changes to comply with the customer needs. Interactions with customers help to create good relationship and retain the niche customers. The chance to attract new customers. The INCARD report 2001, identifies that demand is intending to increase from $5575 for 1999 to $1325 as total international tourism receipts and a global tourism demand of $8,972 billion as a prediction for 2010. (UNCTAD, 2001) this assures the opportunity of getting new users of the tourism products and services. bricks- and- mortar Global reach The ability of local tourism companies in DCs to expand their reach into the global markets. Internet increase accessibility and convenience it removes country boundaries. This paves the way for SMTEs from countries including those from Developing countries to transact with millions of potential customers in different parts of the world. Different researchers approved this There are opportunities for businesses in DCs to gain access to lager external markets from linkages with businesses operating in these markets (Singh, 1999; Wood, 2003). The ability to remain open 24 hours a day, seven days a week. Internet is not bound to time as it is in brick -and- motor companies Reduction of costs. Studies indicates that e-commerce can help to reduce search cost, administration cost, distribution cost and labor costs. Laudon states that companies can use the internet technology to radically reduce their transaction costs (Laudon, 2002) Coase and Williamson identified that using markets is expensive (Coase, 1937; Williamson,1985) The cost of doing business in the web is low compared to other traditional means such as advertising on the news papers, TVs, posters and Bill boards. An Internet can reach many users at once, more efficiently and effectively. In addition it reduces the managing cost by having less number of employees because a tourist can contact directly via e-mail for booking and receive the E-ticket. Capability to improve efficiency of purchasing and inventory control. MNEs can easily control its inventory levels because the internet make it easier to track these levels electronically so that to shorten the sales cycle. Create new markets E tourism increases the ability to sport new business opportunities and to capitalise on them. Ecommerce enable tourism organisations to customise their products and services by producing what exactly the customer wants at the right time. Increase the tourist barging power. Electronic tourism helps the customers to access information on their tourist destinations. This helps them get information on prices and make booking at a relatively low cost. (Scarborough, 2009 pp 448-450; Chan, 2001: Schneider 2002, UNCTAD, 2001) IMPEDIMENTS TO THE ADOPTION OF ECOMMERCE FOR SMTEs IN DCs There are a number of barriers which impede SMTEs in adopting e-commerce in DCs. SMTEs face the following obstacles while engaging in e-commerce. Lack of awareness and understanding of the value of e-commerce. Most SMEs in tourism sector and other sectors in DCs have failed to realize the value of e-commerce to their businesses thinking that is suitable for large businesses. Lack of ICT knowledge and skills. Knowledge on the ICT is of necessity for Ecommerce to be diffused. This in an obstacle in DCs since most workers in SMEs lack ICT skills to develop and manage ecommerce (Chuang et al, 2009; Shiau et al, 2009) Financial costs. SMEs hesitate to deploy ecommerce for the fear of costs because the initial investment costs of computer and internet access is higher in DCs if compared to developed countries. Most SMTEs in DCs are suffering from insufficient financial resources (Chuang et al, 2009; Shiau et al, 2009) One of the major impediments to adoption of ecommerce for SMTEs, particularly those operating in the DCs in the prevalence of high entry barriers brought about, in part, by lack of effective reliance mechanics aimed at enhancing system trust (Patton and Josang, 2004) Infrastructure. This is a major barrier to e-commerce adoption in most of DCs since the communication infrastructure and network of many DCs is not conducive for ecommerce adoption and diffusion for SMEs. This also implies within SMEs their internal infrastructure is poor. (Esteves, 2009). Security. Customers may not opt to buy on line because of the fear of not being secured with the payment system they dont trust the website. This makes security and privacy issues to be critical in the acceptance and adoption of e-commerce in any business sector whether large or small especially in DCs where they have the culture of face to face interactions and credit card usage is still relatively low or there is no credit card facilities for example in Samoa( Purcell 2003) The difficulty in addressing issues of trust and confidence also makes SMTEs more vulnerable than large firms to problems linked to authentication/certification, data security and confidentiality and the settling of commercial disputes (Buhalis, D. Schertler, W. 1999, OECD, 1999). CTRITICAL SUCCESS FACTORS AND RISKS FOR SMEs Jeffcoate et all (2002) suggested the following 11 critical success factors to be considered for Electronic business strategy implementation for any SME. This should not be ignored by the tourism SMEs from developing countries in order to implement their etourism strategy more effectively. For the purpose of this report we will not go deeply. Content Convenience Control Interaction Community Price sensitive Brand image Commitment Partnerships Process improvement Integration Chaffey, D. (2004) eBusiness and e-commerce 2nd Ed. Prentice Hall RIKS Though tourism has many benefits it has also negative impacts on social, culture and environment which need more attention so that to reduce its threats in developing countries and the world as whole development (WTO, 1996; Mathieson Wall, 1982, Wahab, 1997). by Chulwon Kim Professor, College of Hotel Tourism Management, Kyunghee University, Korea (smes in Korea) Appendix 1: the top ten tourism earners for the year 2009. The World Tourism Organization reports the following countries as the top ten tourism earners for the year 2009. It is noticeable that most of them are on the European continent, but the United States continues to be the top earner. Rank Country UNWTO Regional Market International Tourism Receipts (2009)[13] International Tourism Receipts (2008)[12] International Tourism Receipts (2007)[12] International Tourism Receipts (2006)[12] 1 Â  United States North America $93.9 billion $110.0 billion $97.1 billion $85.8 billion 2 Â  Spain Europe $53.2 billion $61.6 billion $57.6 billion $51.1 billion 3 Â  France Europe $49.4 billion $55.6 billion $54.3 billion $46.3 billion 4 Â  Italy Europe $40.2 billion $45.7 billion $42.7 billion $38.1 billion 5 Â  China