internet retailing adoption by small-to-medium sized enterprises (smes): a multiple-case study

Information Systems Frontiers 6:4, 385–397, 2004C© 2004 Kluwer Academic Publishers. Manufactured in The Netherlands.

Internet Retailing Adoption by Small-to-Medium SizedEnterprises (SMEs): A Multiple-Case Study∗

Matthew K.O. Lee† and Christy M.K. CheungDepartment of Information Systems, City University of HongKongE-mail: [email protected]: [email protected]

Abstract. Despite the proliferation of Internet retailing and therelative novelty and complexity of this phenomenon, very littletheory-guided qualitative research has been conducted to im-prove our understanding of the adoption of Internet retailingproject by SMEs. This study presents a theoretical frameworkfor analyzing the adoption of Internet retailing for SMEs. Or-ganizational readiness (IT sophistication, financial resources,and customer readiness), perceived benefits of Internet retailing,and environmental factors are proposed to be the key drivers ofadoption of Internet retailing. This research was designed using aqualitative approach through in-depth case studies selected fromfirms in Hong Kong where there is a proliferation of SMEs. Thecontextual meaning and practical manifestation of the key adop-tion factors were captured through the case studies. Our findingsprovide preliminary support for the proposed research frame-work, and contribute towards a better conceptual and practicalunderstanding of the main factors driving SMEs to adopt In-ternet retailing. Contrary to popular belief, customer readinessfor Internet shopping was not found to be a significant factorinfluencing SMEs’ decision to adopt Internet retailing.

Key Words. Internet retailing, small-to-medium sized enterprises,innovation adoption, electronic commerce, case studies, qualita-tive research

1. Introduction

Internet retailing in Hong Kong cannot be understoodwithout understanding the economic context withinwhich Internet retailing operates. Hong Kong, as a cos-mopolitan city having one of the highest GDP per capitain the world,1 is a relatively affluent society with awell-entrenched and sophisticated consumer spendingculture. Consumers are always tuned in to the latestshopping trends. According to the CIA’s world fact-book,2 Hong Kong is a regional leader in Internet us-age, with 4.35 million Internet users in 2002. A recent

study released by Nielsen/NetRatings3 also found thata total of 44% of all Internet users had visited Inter-net shopping site in 2002, though there were still manyconcerns about online product quality and transactionsecurity.

A recent report released by the Hong Kong Produc-tivity Council has estimated that business-to-consumer(B2C) revenues in the Greater China region will growfrom US$130 million in 2000 to US$3.6 billion in 2005.Internet shopping in the region therefore presents in-teresting new opportunities to the retail sector. Internetretailing cases in Hong Kong are interesting becausethey are indicative of what is to come in the GreaterChina region.

The economic transformation in Asia in the last twodecades has created a new generation of well-educated,middle-class consumers in the region, who are becom-ing impatient about certain products that they want butcannot purchase conveniently locally because local re-tail stores tend to move slower than this group of dy-namic and aspiring consumers. Although the strengthof local retailers lies in the trust that they inspire in lo-cal customers, their cost structure is high. Cities in theGreater China region (Hong Kong in particular), tendto be densely populated with relatively high land pricesand rents. Local retailers simply cannot rely on hugesales volumes and big stores operating in rural areas tolower their cost structure and compete on prices alone,as is the case in North America and some other parts ofthe world. There is therefore unique room for Internet

∗The work described in this paper was partially supported by a grantfrom City University of Hong Kong (Project No. 7001160).†To whom correspondence should be addressed.

385

386 Lee and Cheung

retailers to operate in this region to satisfy unmet andgrowing demands and yet they do not have to competehead on with the local retailers on prices.

Coupled with the spread of Internet technology tomore companies and organizations for commercial ap-plications, electronic commerce (EC) is no longer theexclusive domain of large corporations with a spe-cific IT base installed. Indeed, the advent of the In-ternet offers a tremendously wide variety of oppor-tunities specific to the small businesses. The Inter-net provides small and large businesses alike with thesame opportunity to develop a web presence. Small-and-medium sized enterprises (SMEs) who previouslywere limited by geographic boundaries with small mar-keting budgets, now find themselves able to competein an international arena. Despite the proliferation ofInternet retailing and the relative novelty and com-plexity of this phenomenon, very little theory-guidedqualitative research has been conducted to improveour understanding of the adoption of Internet retail-ing project by SMEs (Cowles, Kiecker and Little,2002).

This paper presents the preliminary findings of astudy conducted with the main purpose of address-ing the research question: “What are the factors influ-encing Internet retailing adoption by small-to-mediumsized enterprises (SMEs) in Hong Kong?” Given thecontemporary and rich contextual nature of issues in-volved in the study of SME adoption of Internet re-tailing, a case study approach has been employed inconducting this research. Three in-depth case stud-ies of online stores from different market sectors inHong Kong were conducted. All three cases belongto the SME category, with each employing fewer than50 employees. SMEs were chosen in this study as the300,000 odd SMEs in Hong Kong constitute over 98%of business organizations in Hong Kong, employingover 60% of the total workforce. Hong Kong was cho-sen as the context of study because Hong Kong isone of the foremost examples of economies in whichSMEs play a most vibrant and vital role in the industrystructure.

The paper is structured as follows. Section 2 ex-plains the theoretical background and research frame-work. Section 3 describes the qualitative researchmethod, followed by descriptive findings in Section 4.Finally, Section 5 presents results and Section 6 con-cludes by noting the limitations of this research andpointing to future research directions.

2. Theoretical Backgroundand Research Framework

The diffusion of innovations theory (Rogers, 1995) hasbeen widely used to identify attributes of the innova-tion that influence its adoption. The key contributionof Rogers’ study (1995) is the five universal attributesof innovation proposed. He argued that these five at-tributes have a central role to play in shaping attitudestowards innovation adoption. The five attributes arerelative advantage, compatibility, complexity, triala-bility, and observability. However, a major weaknessof Rogers’ model (1995) is that innovation diffusiontheory excludes the possibility of influence from orga-nizational and environmental factors. In line with theMIS model (Ives, Olson and Baroudi, 1993), researchin IS adoption should incorporate the views from users,organization, and external environment. Premkumar,Ramamurthy and Crum (1997) incorporated both or-ganizational factor (top management support) and in-terorganizational factor (customer support) to examineEDI adoption. Environmental issues are factors exter-nal to the technology and organization. Markus andSoh (2002) postulated structural conditions includingphysical, social, and economic arrangements that in-fluence individual and organizational use of the Inter-net. However, theories of IS adoption have been mostlyconcerned with IS adoption in large organizations. Fac-tors driving small organizations to adopt the innovationhave been shown different from those driving the largeones (Iacovou, Benbasat and Dexter, 1995).

Iacovou, Benbasat and Dexter (1995) postulated amodel for the study of EDI adoption by small orga-nizations. They identified three factors as the key de-terminants of EDI adoption, including (1) perceivedbenefits of EDI by the organizations (both direct andindirect benefits) (2) organizational readiness (financialresources and technological readiness), and (3) exter-nal pressures on the organization to adopt the technol-ogy (competitors and trading partners). Their modelhas been recently examined by Chwelos, Benbasat andDexter (2001) through a survey research study. With theempirical evidence obtained, Chwelos, Benbasat andDexter (2001) confirmed the three-level analysis in theadoption of an interorganizational system. At the orga-nizational level, IT sophistication, financial resourcesand trading partners’ readiness affected the company’sability to adopt an interorganizational system. Atthe level of technology, perceived benefits captured

Internet Retailing Adoption by Small-to-Medium Sized Enterprises (SMEs) 387

Fig. 1. Research framework of Internet retailing adoption.

anticipated benefits of the adoption of an interorganiza-tional system. Finally, at the interorganizational level,competitive pressure such as enacted trading partnerpower influenced the adoption.

In view of the rarity of sound theoretical frameworkunderpinning Internet retailing adoption for small busi-nesses, Iacovou, Benbasat and Dexter,’s model (1995)provides a reasonable starting point for this currentresearch. Our research framework builds on Iacovou,Benbasat and Dexter’s model with modifications to fitthe specific context of Internet retailing of SMEs inHong Kong (Fig. 1). In short, this framework explainsInternet retailing adoption by SMEs from three differ-ent perspectives: Organizational Readiness, PerceivedBenefits of Internet Retailing, and EnvironmentalFactors.

Organizational Readiness

In this study, organizational readiness is composed ofthree components: (1) IT Sophistication (2) FinancialResources, and (3) Customer Readiness.

IT sophisticationAdapting from prior research (Pare and Raymond,1991), IT sophistication refers to the level of technol-ogy expertise in the firm, as well as the level of topmanagement support for adopting the Internet retailing

project. In the context of SMEs, CEO’s perception of ITadoption is of prime importance. Thong and Yap (1995)contended that CEO is usually the owner-manager andthe main decision-maker in a small business. His/herattitude towards an innovation is crucial in determin-ing the adoption of Internet retailing project. This isconsistent with Rogers’ model (1995) of an individ-ual’s innovation-adoption process, the formation of at-titude towards an innovation takes place before a deci-sion to adopt is made. In terms of the level of IT exper-tise, Iacovou, Benbasat and Dexter (1995) suggestedthat sophisticated firms are better prepared to adoptnew IT projects. In this study, we agree with Iacovou,Benbasat and Dexter,’s (1995) arguments and postu-late IT sophistication as an important driver for SMEsto adopt Internet retailing project.

Financial resourcesFinancial resources gauge the firm’s capital availablefor developing and maintaining the Internet retailingproject. Specifically, it refers to the cost of websitedevelopment, as well as the entire maintenance, host-ing, and operational support functions. In the case ofa small business, this factor is particularly important.Small businesses tend to lack the resources for IT in-vestment (Iacovou, Benbasat and Dexter, 1995). In thisstudy, we believe financial resource is another impor-tant factor influencing SMEs to adopt Internet retailingproject.

388 Lee and Cheung

Customer readinessPrior studies on EDI adoption (Chwelos, Benbasat andDexter, 2001) argued that the adoption of interorga-nizational systems required readiness of two tradingpartners. Similar to the adoption of IOS, the adoptionof Internet retailing requires the readiness of poten-tial customers. Although the Internet offers a range ofadvantages that collectively have been shown to be im-portant enough to attract massive interest, recent sur-veys have demonstrated that the penetration rate of In-ternet shopping remains low. The low Internet shop-ping penetration is commonly explained by the lack oftrust in this new shopping mode. eMarketer4 identified“General lack of trust in vendor” as a significant fac-tor inhibiting online purchases. Recent theoretical re-search also indicates that consumers’ lack of trust con-stitutes a major psychological barrier to the adoptionof electronic commerce. Lee and Turban (2001) con-tended that Internet users do not have enough trust todo online transactions with Internet merchants. In thisstudy, we believe that customer readiness will be a keydriver affecting SMEs’ adoption of Internet retailingproject.

Perceived Benefits of Internet Retailing

Rogers (1995) proposed five important attributes to-wards IT adoption. Among the five attributes, Craggand King (1993) found that perceived relative advan-tage was the only variable that was consistently foundto be the most important factor for the adoption ofEDI in small firms in a number of studies. The Inter-net offers retailers a new channel to conduct business.The Internet has brought buyers and sellers closer thanthey have ever been before. Moreover, it helps ven-dors to access more customers, better suppliers, andmore suitable business partners worldwide easily andquickly. Most importantly, going online is not just amarket protection strategy, it is a growth strategy thathelps vendors to reach more potential customers andincrease total share of consumer purchases. Specif-ically, small companies adopting Internet commercebelieved that the Internet facilitated them in informa-tion gathering and time saving [Poon and Swatman,1999]. In this study, we believe SMEs’ perception ofthe benefits offered from Internet retailing significantlyinfluences their decision to adopt Internet retailingprojects.

Environmental Factors

Environmental factors refer to the structural influencesfrom the electronic commerce (EC) environment, in-cluding market-related issues (uncertainty, competi-tion, and concentration), inter-organizational imper-atives, national and international issues (e.g. legalstructure, trade restrictions, and culture). Accordingto Markus and Soh (2002), structural influences are“physical, social, and economic arrangements thatshape EC business models and influence individual andorganizational use of the Internet”. Internet retailingprojects are often international in their effect; someresearchers (e.g., [Benbasat and Zmud, 1999]) havealready advocated the need to include contextual andcultural factors in the study of Internet retailing. Thisstudy also postulates that environmental factors affectSMEs’ decision to adopt Internet retailing projects.

3. Research Method

Case study approach is particular useful when the re-search area is at its early and formative stage (Benbasatet al., 1987). Cowles et al. (2002) have urged that mostprior Internet retailing research has been exploratory innature, and there is a lack of sound theoretical frame-work for the study of Internet retailing adoption bySMEs. In addition, the contemporary and rich contex-tual nature of issues related to Internet retailing adop-tion makes the case study method a suitable approachfor the current study (Yin, 1994). These issues are verydifficult to capture through using more common ap-proaches such as questionnaire surveys.

Sampling

The unit of analysis is SMEs’ decision to adopt In-ternet retailing project, and the definition of an SMEfor the current research is a non-manufacturing enter-prise with fewer than 50 employees. Three SMEs fromdifferent market sectors were chosen for an in-depthinterview. According to Miles and Huberman (1994),qualitative sampling is often theory-driven. The threeselected cases were selected based on insights they arecapable for providing a foundation for future research.Moreover, the three SMEs were all experiencing rapidgrowth and operating profitably partly as a result ofadopting Internet retailing, thus rendering these cases


significant ones in which the adoption decision has pro-duced strategic impact on company performance.

Data Collection

The major method of data collection was through inter-views with the key informants of the SMEs involved.The key informants were all top managers in their re-spective firms. To ensure the consistency and reliabilityof the answers across cases, all interviews were con-ducted with specific interview guides and protocols. Aset of open-ended questions was used to guide the dis-cussion. The questions were divided into four main cat-egories: Company background, environmental issues,the implementation of Internet retailing project, andfuture directions. All interviews were recorded. To en-sure the reliability of data preparation procedure, thedata was converted into analyzable text independentlyby two researchers. The text was then compared be-fore the analysis was taken place. Finally, triangulationof evidence was achieved by examining the companywebsites.

Data Analysis

In this study, the “ladder of abstraction” approach (Car-ney, 1990) was adopted to perform a series of analysis(shown in Fig. 2). At Level 1, data was first converted

Fig. 2. Data analytical approach.

and then transcribed with the use of coding scheme pre-defined. The first round of data transcription was basedon the four major categories in the interview protocol.The descriptions of the three cases were then derived.At Level 2, following Iacovou, Benbasat and Dexter,’s(1995) framework, data was further aggregated intothe three key perspectives in the model: organizationalreadiness, perceived benefits of Internet retailing, andenvironmental factors. At Level 3, data was catego-rized into the three perspectives and integrated into theframework, with special attention to the relationshipsamong the three factors and Internet retailing adoption.The checklist matrix was developed.

4. Descriptive Findings

Following Miles and Huberman (1994), the analyticalprogression begins with the case descriptions. The casedescription helps readers grasp an overall idea abouta specific situation before they can fully understandthe rationale behind. Table 1 provides an overviewof the interviewed SMEs in this study, with the de-tails of the three interviewed cases. Data was summa-rized and categorized into product/service offerings,target customers, sales and revenues, business mod-els, and technology and backend support. The first se-lected Internet retailer sells products widely sold onthe Internet—flowers. The other two provide an in-teresting extension to other countries: DVD videos

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and baby carriages/furniture. A detailed description ofthe three companies including their business modelsand Internet retailing implementation strategies can befound in Lee (2001).

Ambassador (www.ambassador.com.hk)Jody Yan started up Ambassador in 1987 as a smallfloral shop. In 1997, an online auction site asked Jodyto sponsor gifts to the auction site, and she agreed. In-trigued by the business potential of the Internet, theCEO decided to set up an online store herself. Theonline store began as an experiment and Jody was ex-pecting it to be an additional marketing channel morethan a source of real revenue. When real orders startedto flow in, Jody was pleasantly surprised. She quicklyrealized the potential of the online store as a revenuechannel and decided to put in additional investments toupgrade the store and enhance the transaction infras-tructure, adding online payment, for example. Coupledwith direct marketing and catalogue sales, the onlineoperation has been so successful that the physical storehas been closed. The ambassador.com experience em-phasizes the importance of relevant business experi-ence in the informant, choosing the right products foran online store, and flexibility in implementation.

DVDShelf (www.dvdshelf.com)In 1998, a new company called ITOK Media Ltdwas formed to launch its first e-commerce initiative,JobEasy.com, which is an online job agency still operat-ing today. Encouraged by the initial success of JobEasy,the company quickly expanded to the e-tailing sector,establishing its first Internet shop, DVDshelf.com, inJuly 1999. The value proposition of the company is: tooffer customers anywhere in the world a convenient,easy-to-use, and secure shopping environment for themost comprehensive range of Chinese DVD, VCD, andCD titles at guaranteed lowest prices. With a strong ITand business background, the founders of the firm be-lieve that a fully integrated business and IT system iskey to the successful implementation of the shop andthe delivery of the value proposition. The shop nowhas 32,000 customers worldwide, offers over 55,000titles online, and sells over 25,000 items each month.The DVDShelf.com experience shows that even smallInternet shops can reach a global market effectively.The importance of the relevant experience of the infor-mants, a good network with suppliers, careful businessplanning, and flexibility in implementation are empha-sized.

Ebabyasia (www.ebabyasia.com)Cameron Honarvar started his own baby products spe-cialty retail store called Karin’s Korner, focusing on theconcept of safety, service and selection, with safety-certified baby products imported directly from theUnited States and Europe. The business has grownsteadily since then. While opening the third retail storein Hong Kong in 1999, Cameron decided to expand hisstore concept to other markets in the region. Inspiredby successful cases in the United States, ebabyasia.comwas launched in February 2000. Even while other In-ternet ventures were failing, ebabyasia.com proved tobe a success with the firm doubling its sales revenuesin just a few months. The success of ebabyasia soonattracted the attention of a venue capital firm, whichpaid US$2 million in June 2000 for a 25% stake. Theebabyasia.com experience shows how an Internet re-tail channel can synergistically complement a physicalstore channel in achieving a firm’s regional expansionplan.

5. Analysis and Results

With the use of a checklist matrix, the data was furtherintegrated into the research framework. As addressed inSection 2, our research framework contemplates threekey drivers for the Internet retailing adoption: Organi-zational readiness, Perceived benefits of Internet Re-tailing, and Environmental Factors. Table 2 (Checklistmatrix) presents the analysis of the three factors acrossthe three SMEs interviewed.

Organizational readinessOur three cases had witnessed the strong relationshipsbetween IT sophistication and financial resources andthe adoption of Internet retailing project.

The informants interviewed consistently demon-strated strong support to the Internet retailing projects.The informants of DVDShelf and ebabyasia had verystrong IT knowledge and background. However, thefavorable attitude may not necessarily be the resultof their IT expertise. Ambassador was an exceptionalcase.

“I am not an IT person. I don’t want to manage an ITfunction. I would rather focus on our core compe-tence, which is floral product design and marketing.”

(Jody Yan, Ambassador)

392 Lee and Cheung

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394 Lee and Cheung

Indeed, their prior successful experience withInternet-related projects had exhibited a strong impacton their confidence to adopt Internet retailing. Ambas-sador was inspired by the success of selling its prod-ucts in an online auction. The informant appreciated thebusiness potential of the Internet, and decided to startup the Internet store. With the previous successful expe-rience of launching JobEasy.com, an online job findingservice portal, the informants of DVDShelf gained theneeded confidence to expand their business into the In-ternet retailing market. The informants’ awareness ofsuccessful e-retailing cases in the United States droveebabyasia to expand its business using the Internet.

Moreover, the three companies had adequate re-sources for the adoption of Internet retailing projects.For Ambassador, the online store was simply an ad-ditional storefront for reaching customers and takingpurchasing orders, and there was little change to the op-erational model of the firm. The backend of the businessmodel was already fully operational (from packaging todelivery logistics), initial implementation of the busi-ness model required merely the setting up of a new web-site. Therefore, additional costs were marginal. ThoughAmbassador lacked IT expertise for implementing theInternet retailing project, the informant outsourced thetechnology part to the IT consulting firm. On the ba-sis of the successful model of JobEasy.com, the infor-mants of DVDShelf simply capitalized on their existingIT expertise and resources to expand into the Internetretailing market by developing DVDShelf. Similar toAmbassador, the additional costs for Internet retail-ing project were marginal. For ebabyasia, with the in-formants’ complementary skills in finance, retailing,and IT, the online store was developed in-house. Thestart-up and running costs of the online operation wereresolved when a venture capital firm invested in thecompany.

Our findings indicate that customer readiness didnot impact SMEs’ decision to adopt Internet retail-ing project. The informants of the three companies allagreed that the EC adoption in Hong Kong and in mostAsian countries were slow.

“The EC adoption in Hong Kong is pretty slow, andthe general lack of trust towards Internet transac-tions are important inhibitors.” (Jody Yan, Ambas-sador)

“Trust is the key factor inhibiting Internet shop-ping. The low Internet penetration rate amongChinese communities in some countries remains a

problem. Also, online shopping requires customersto change their shopping habits, which can only oc-cur slowly.” (Ricky Leung, DVDShelf)

“Security and privacy concerns towards onlineshopping are important inhibitors.”

(Cameron Honarvar, ebabyasia)

The low penetration rate of Internet shopping inHong Kong and in most Asian countries did not affectthe decisions of the three companies’ to adopt Internetretailing.

Perceived benefits of internet retailingAll three companies recognized the benefits offered bythe Internet retailing projects. The perceived benefitsidentified by each company are specific to their ownindustry and market.

Ambassador considered floral products to be verysuitable for sales on the Internet. As most of the cus-tomers purchased floral products as gifts, there wouldbe no need to physically feel and touch the productsbefore making a purchase decision. Even if customerswere to visit a physical floral gift shop, they would gothere merely to place the order and make payment. Inmost cases, customers visiting a physical floral shophad to resort to ordering from catalogs displayed inthe shop. Jody therefore reckoned that an online floralshop would be able to offer customers’ added conve-nience since it can be reached by anyone, anywhere,anytime with Internet access. In addition, the Internetfacilitated the company to leverage customer servicesand save operational costs. For instances, customerswould receive through email a detailed picture of theactual product to be delivered at the time of delivery.

DVDShelf realized that Chinese DVD, VCD, andmusic CD titles were very suitable for Internet salesas they are standard items that customers do not needto physically examine before they buy. In addition theproducts are small in size and easy to ship, the firmcould capitalize on the Internet to offer a wide range oftitles to a very diverse group of customers geographi-cally without the need to maintain a large physical retailnetwork.

Successful e-retailing cases in the United Stateswere the primary driving force for ebabyasia toadopt Internet retailing. Indeed, with a complementary“click-and-mortar” strategy, the firm expects to expandfurther into larger regional markets such as Japan andKorea, from where substantial further contributions torevenue are anticipated.


“I have no idea which channel is supporting the otheras both channels are seeing rapid growth in revenue;but what is clear is that together they have enabledour dramatic growth since early 2000.” (CameronHonarvar, ebabyasia)

The informants of ebabyasia highly appreciated thesynergies between online and offline channels. Thephysical outlets helped to establish brand image and in-crease customers’ trust. The online channel extendedthe reach of the physical channel and provided cus-tomers with added convenience together with extendedproduct information and advice. In addition, the onlinechannel provided parental community support for bothonline and offline customers of the firm.

Environmental factorsIndustry-specific environmental factors have played animportant role in the decision to adopt Internet retailingin all three cases studied.

In Hong Kong, the floral gift products industry isspecialized and highly fragmented. There are manysmall traditional players but no clear market leader.Although a number of traditional shops are starting toestablish an online presence, and a small number ofpure online floral gift shops are starting to appear, theuse of the Internet as a significant sales channel is stillrelatively rare. Many online floral gift shops are stillnot accepting online credit card payment, for example.Players in this market tend to be SMEs. As with mostSMEs in Hong Kong, the use of IT tends to be verylimited. Ambassador reckoned that most of her com-petitors had no clue about how to use IT effectively toleverage their business.

DVDShelf became a specialist Internet DVD, VCD,and CD retailer targeting the Chinese community, withover 25,000 disks sold per month. The DVD, VCD,and music CD retail industry is still a very traditionalone dominated by a small number of large chain storeswith fairly uniform product pricing practices. DVD-Shelf reckoned that existing mainstream players in themarket were not particularly keen or effective in theuse of IT to reduce cost and to provide better customerservices. Since the demand for Chinese film and mu-sic titles from the Chinese community worldwide hasexisted for a long time, the Internet just happens to pro-vide a much more convenient and cost-effective meansto fulfill this demand.

ebabyasia operates mainly in the Asian baby prod-ucts retail industry. With 55 million new babies born ev-

ery year in the region, this industry is booming. The ma-jor difference between this and other consumer prod-uct industries is the strong emphasis that customersput on product safety. Stringent safety standards ex-ist and are legally enforced in many developed regionssuch as North America, Europe, and Australia. How-ever, in Asia there is a shortage of safety-certified babyproducts. Exploring this market niche, ebabyasia haschosen to focus on imported top-line American andEuropean safety-certified baby products. The demandfor quality and safe baby products in Asia has beengrowing steadily for some time. The Internet happensto provide the firm with a convenient and cost-effectivemeans to tap into this growing market. In addition, mostof the traditional baby product retail shops have only aweak Internet presence in the Asia region. For ebabya-sia, there seems to be little direct competition.

6. Discussion and Conclusions

Using a theoretical framework developed fromIacovou, Benbasat and Dexter’s model (1995), thisstudy presents the results and analysis of three in-depthcase studies of SME Internet retailing adoption. Asshown in Table 3, the results provide preliminary sup-port for the proposed framework of Internet retailingadoption. Specifically, organizational readiness, per-ceived benefits of Internet retailing, and environmentalfactors are found important for SMEs to adopt Internetretailing.

The results are consistent with prior conceptual-ization of IT adoption in small organization, provid-ing support to Iacovou, Benbasat and Dexter’s model(1995) of EDI adoption in small organizations. How-ever, the newly hypothesized factor, customer readi-ness, was not found significant in affecting the adoptionof Internet retailing in SMEs. Despite the low penetra-tion rate of Internet shopping in the Asian countries, thethree interviewed companies still adopted the Internetretailing project and developed a strong web presence.This may be explained by the relatively low set-up costand the high perceived benefits of the Internet retail-ing projects in these specific cases. Both Ambassadorand DVDShelf capitalized on their existing resourcesto support the Internet retailing projects. Ambassadortreated the website as an additional channel to reach thecustomers, the backend operations (packing and deliv-ery) were already in place before the Internet retail-ing project started, while DVDShelf just expanded theirJobEasy.com project to the Internet retailing market.

396 Lee and Cheung

Summary of key findings

Factor Findings

Organizationalreadiness

[1] The impact of organizational readiness is high. In particular, the top management support:– The informants’ extensive knowledge, experience, and capability in the business area– The informants were inspired by existing Internet operations– The informants’ perception of a business opportunity through online retailing– The informant’s analysis that their products were suitable for selling through the Internet[2] Other important factors include:– Adequate IT support and financial resources– Backend operations for the online store were already in place

Perceived benefits ofInternet retailing

Different firms have different perceived benefits of Internet retailing project:– Ambassador: The Internet is an additional channel that can reach more customers and to leverage customer

services and save operational cost.– DVDShelf: The Internet offers a wide range of titles to a very diverse group of customers geographically without

the need to maintain a large physical retail network.– ebabyasia: The Internet helps the company to expand business to a larger regional market. It also helps build

close relationship with customers through online community.Environmental factors [1] Competition in its market is low.

[2] The company tends to be the pioneer of the Internet retailing project in the market:– Ambassador: Only very few competitor in the floral market– DVDShelf: The largest Internet store in the world for Chinese DVD, VCD, and CD titles.– ebabyasia: The very first Internet shop selling safety-certified baby products in Asia.

Moreover, all three companies appreciated the valueof Internet retailing projects and believed the Internetstores would bring benefits to them. Ambassador ex-pected the Internet store could reach more customersand provided more convenience and better services totheir customers. DVDShelf believed the Internet helpedoffer a wide range of titles to a very diverse group ofcustomers geographically without the need to maintaina large physical retail network. ebabyasia viewed thedevelopment of an Internet store as a defective strategyto expand business to a larger regional market. Further-more, our results indicated that support from top man-agement was one of the crucial drivers for the SMEsto adopt Internet retailing. The informants (who wereall top managers in their respective firms) shared sev-eral common characteristics. For instances, they all hadextensive knowledge about their own business and in-dustry. They appreciated the Internet retailing projects,and were inspired by the opportunities brought by theInternet. They all had their insights on the Internet re-tailing projects, and were willing to be the pioneers intheir own industry.

This research has built on and extended Iacovou,Benbasat and Dexter’s model (1995) of EDI adoptionin small organizations to the area of SMEs’ adoption ofInternet retailing. Using a qualitative approach throughin-depth case studies, this research contributes towardsa better conceptual and practical understanding of the

main factors driving SMEs to adopt Internet retailing.The contextual meaning and practical manifestation ofthese factors have been captured through the in-depthcase studies. They are very difficult to capture throughusing more common approaches such as questionnairesurveys. Finding from Hong Kong based SMEs in thisstudy provide invaluable insight into understanding In-ternet retaining adoption in the much bigger GreaterChina region and in other economies where there is apredominant presence of SMEs. However the currentstudy only includes a small number of companies andinvolves only a few sectors and industries, future stud-ies are suggested to include more SMEs from other in-dustries for a cross-case analysis. Another limitation isthat this study only focused on successful adopters, butdid not examine non-adopters. Future studies shouldinclude non-adopting companies, so that both theo-retical and literal replication can be examined. Fur-thermore, this study only involves companies in HongKong. It would be interesting to replicate the studyin one or more different countries in order to comparethe validity of the results. Finally, the three cases repre-sent two different strategic models of Internet retailing.Ambassador abandoned their physical store to becomethe “pure-play” retailing business after the successfuladoption and implementation of the Internet retailingproject. Similarly, DVDShelf presents a “pure-play” re-tailer without any physical store, whereas ebabyasia


is a “click-and-mortar” with both physical and onlinepresences. It would be interesting to extend the currentstudy by investigating the relative effectiveness of thesetwo different models of Internet retailing.

Notes

1. GDP per capita in Hong Kong amounts to HK$187,282 (2002)http://www.info.gov.hk/censtatd/eng/hkstat/hkinf/nat account/gdp1 index.html

2. CIA’s world factbook: http://www.cia.gov/cia/publications/factbook/geos/hk.html

3. http://www.upstreamasia.com/clientnews/nielsennetratings/00000636.html

4. eMarketer (2001) “The ePrivacy and security report”, January,2001. http://www.emarketer.com

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Matthew K.O. Lee is professor of information systemsand associate dean of the Business School at the CityUniversity of Hong Kong. He holds a PhD from theUniversity of Manchester, UK and is professionallyqualified as a barrister-at-law and a Chartered Informa-tion Systems Engineer. Dr. Lee is interested in the man-agement of IT adoption and diffusion, electronic com-merce, and the legal, ethical and policy aspects of IT.He is an Associate Editor of Electronic Commerce Re-search and Applications. He has published his researchin the CACM, International Journal of Electronic Com-merce, Information & Management, and InformationSystems Frontiers among others.

Christy M.K. Cheung is a PhD student in the Depart-ment of Information Systems at City University ofHong Kong. Her research interests include IT adop-tion and diffusion, and electronic commerce. She haspublished over twenty referred articles in internationaljournals and conference proceedings including ECIS,HICSS, and ICIS.

internet retailing adoption by small-to-medium sized enterprises (smes): a multiple-case study

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