determinants of the adoption of e-business technologies

Telematics and Informatics 22 (2005) 181–199

www.elsevier.com/locate/tele

Determinants of the adoptionof e-business technologies

K. Lal *

United Nations University-Institute for New Technologies (UNU-INTECH), Keizer Karelplein 19,

6211 TC Maastricht, The Netherlands

Received 16 April 2004; revised 8 July 2004; accepted 21 July 2004

Abstract

The paper identifies and analyses factors that discriminate firms using different types of

e-business technologies in the manufacturing sector in India. The study is based on primary

data collected from 51 firms located in the National Capital Region. Entrepreneurial charac-

teristics, historical data of firms, and other firms-specific factors such as size of operation,

export intensity, international orientation, wage rates, and profit margins were included in

the analysis. The findings of the study suggest that the firms managed by informed and qual-

ified entrepreneurs have adopted more advanced e-business tools. The study captures the role

of bandwidth in diffusion of e-business. The results show that variables such as size of oper-

ation and wage rates differ significantly between portal using firms and others. International

orientation of firms represented by variables such as exports intensity and technological col-

laboration with foreign firms have also emerged as significant factors that distinguished

advanced e-business technology using firms from the rest.

� 2004 Elsevier Ltd. All rights reserved.

Keywords: E-business; Small firms india; Discriminant analysis

0736-5853/$ - see front matter � 2004 Elsevier Ltd. All rights reserved.

doi:10.1016/j.tele.2004.07.001

* Tel.: +31 433 506 350/506 300; fax: +31 433 506 399/11 3506 399.

E-mail address: [email protected]

mailto:[email protected]

182 K. Lal / Telematics and Informatics 22 (2005) 181–199

1. Introduction

It has been argued in the literature that the adoption of information and commu-

nication technologies (ICTs) leads to significant reduction in co-ordination costs and

marked gains in efficient electronic markets (Malone et al., 1987; Lee and Clark,1997). Almost no nation has been left out of the search for alternatives to paper-

based methods of communication and storage of information in the last quarter

of the 20th century. The Internet has arguably been at this forefront of recent devel-

opment in the application of ICTs. It is possibly the most pervasive of the ICTs. The

use of Internet cut across not only application fields such as business, education, and

governance but also geographical boundaries. Such a wide application of the Inter-

net has attracted the attention of several social scientists who have examined the

causes and consequences of the adoption of the Internet. A study by Kiiski and Pohj-ola (2002) analysed the diffusion of the Internet in OECD countries. Using data for

1995–2000, the authors find that GDP per capita and the access cost were the main

factors that influenced the diffusion of the Internet in this region. Another study by

Baliamoune (2002) finds that income and trade policies were main determinants of

the diffusion of ICTs in a sample of 47 developing countries. Several indicators such

as Internet hosts, Internet users, personal computers, and mobile phones were used

as indicators of ICTs diffusion.

A comparative study of diffusion of the Internet use in China and India by Presset al. (2003) identified dimensions that led in the differential growth of the Internet in

these countries. The six dimensions are: pervasiveness, geographical dispersion,

organisational infrastructure, connectivity infrastructure, sectoral absorption, and

sophistication of use. Using data of various years for the indicators, broadly catego-

rised in above six dimensions, such as Internet users and hosts, its applications in

education, government, and health, availability of national and international band-

width, telecommunication competition, international gateway competition, and co-

ordinating organisations, the authors identified the comparative advantages in1999 and 2002. They conclude that although India acquired advantages in the use

of the Internet in governance, telecommunication competition, and international

gateway competition during 1999–2000, China continues to have a substantial lead

in the diffusion of the Internet.

While the above-cited studies investigated the diffusion of the Internet using

macro data, we intend to examine the adoption of the Internet in the manufacturing

sector firms. Since sample firms of this study are small and medium-sized enterprises

(SMEs), it is considered important to review the literature related to adoption of theInternet by SMEs. We prefer to use to term ‘‘electronic-business’’ (e-business) rather

than ‘‘use of the Internet’’ because the study aims to examine applications of the

Internet in business organisations. Before proceeding further, we distinguish between

e-business and electronic commerce (e-commerce). An OECD study (OECD, 2002),

focusing on e-commerce, defines it as ‘‘. . . the sale or purchase of goods or services,whether between business, households, individuals, governments, and other public

or private organisations, conducted over computer mediated networks. The goods

and services are ordered over those networks, but the payment and the ultimate

K. Lal / Telematics and Informatics 22 (2005) 181–199 183

delivery of the good or service may be conducted on or off-line’’ (p. 89). Another

OECD study (OECD, 2002) examines the application of ICTs in financial transac-

tions called e-commerce, which is a subset of e-business. Whereas e-business encom-

passes applications of ICTs in all business processes such as office automation,

financial transactions, production processes, co-ordination with other plants, cus-tomer relation management, supply chain management, and management of distri-

bution networks (Lal, 2004). This study identifies and analyses factors that

distinguish firms based on the type of e-business rather than e-commerce technolo-

gies adopted by them.

Although the adoption of e-business is a recent phenomenon, several studies

have investigated its impact on business performance. It is argued in the literature

that the adoption of ICTs in general and e-business in particular leads to reduc-

tion in co-ordination costs and engenders efficient electronic markets (Damaskopo-ulos and Evgeniou, 2003; Lee and Clark, 1997). Damaskopoulos and Evgeniou

(2003) in their study of East European and Cyprus SMEs found that most

firms (over 900) established their web sites to take advantage of cost reduction,

easy search of new markets, and to augment competitiveness. The study reported

that the percentage of firms that created their web sites due to the above reasons

vary from 67% in Poland to 86% in Cyprus. The study concluded that ‘‘. . .e-business affects first the boundaries of the firm with the market in which it

operates’’.Hodgkinson and McPhee (2002) have examined the impact of the adoption of

web enabled technologies on the export market development by SMEs in Australia.

A study by Teltscher (2002) deals with the fiscal implications of e-business, while

Drew (2003) investigates the causes and consequences of the adoption of e-business

by SMEs in East of England. Following an analysis of the total value of transac-

tions conducted through electronic means and its implication on fiscal policies of

developing and developed countries, Teltscher (2002) observed that ‘‘. . . an increas-

ing number of e-commerce businesses are small entrepreneurs. . .’’ and ‘‘. . . the fiscalimpact of international e-commerce is likely to be felt more strongly in the devel-

oping countries . . .’’. The findings of Drew (2003) suggest that SMEs are placing

e-business at the centre of their technology strategy. The majority of the sample

firms reported that the driving force behind the adoption of e-business has been

opportunities for growth and the need to keep up with competition. Hodgkinson

and McPhee (2002) conclude that international networking by SMEs brought

knowledge to the region that facilitates intra-firm learning. The study further sug-

gests that adoption of the Internet by SMEs is higher (68.8%) than large firms(66.7%).

In the context of developing countries, several studies (Moodley, 2002a,b; Gold-

stein and O�Connor, 2002; Goldstein, 2002) have examined the adoption of e-busi-

ness by manufacturing firms. Moodley�s (2002a) did not find sufficient evidence to

support the argument that export-oriented apparel firms in South Africa gain more

in adopting e-business due to its promise of improved market penetration and its di-

rect link to international competitiveness. Moodley�s (2002b) findings on the auto-

mobile industry are similar in South Africa.


Broadly speaking, there are three modes of e-business transactions. These are off-

line, online, and e-business using shared or individual portals. Offline e-business is

enabled by electronic messaging systems, which is comparatively less effective than

other forms of e-business tools. Offline e-business is normally done through e-mail

systems while online e-business transactions take place with web site of companies.Having a web site does not necessarily mean that an enterprise is able to process on-

line e-business transactions. Web site must be dynamic and should have online trans-

action facilities such as Active Server Pages (ASPs) that allow online transactions.

The most effective way of doing e-business is through portals. Portals are the essen-

tial additions in network technologies. They fulfil an important role of aggregating

contents, services, and information on the net. Broadly speaking, their function on

the net is to mediate between users (buyers) and web contents. This unique position

enables portals to leverage marketing and referrals, as they are intermediariesbetween web users and companies.

Several important steps are associated with the adoption of e-business. First, the

identification of potential areas in which e-business technologies can be adopted.

Second, the availability of telecommunication networks. Third, the potential gains

expected from e-business. And fourth, the impediments associated with e-business

in a developing context. It may not be possible to cover all these aspects in one study.

The main objectives of this study however are:

• The identification and analysis of factors that discriminate advanced users of

e-business technologies from others.

• An examination of the contributions of existing ICT industry in changeover to

e-business.

• The role of the institutional environment in the growth of e-business.

• An assessment of the impact of e-business on transaction and co-ordination costs.

• An evaluation of the prospects of e-business in India.

The remainder of the paper is organised as follows: The analytical framework is

discussed in Section 2. The hypotheses and methodology used for identifying the fac-

tors that discriminate advanced users of e-business technologies from other firms are

discussed in Section 3 while Section 4 presents the statistical results. The findings of

the study are summarised in Section 5.

2. Analytical framework

The diffusion of any new technology depends on several factors such as the poten-

tial benefits of technology, absorptive capacity of firms, and the institutional envi-

ronment prevalent in the country. Potential benefits need not necessarily be

related only to manufacturers of products and services that use new technologies

but may affect consumers of products and services as well. E-business technologies,

the latest development in ICTs have potentials to benefit not only producers but also

users of services and products. The explosive growth of Internet is a case in point.


The world wide number of Internet users have increased from 16 million in 1995 to

580.78 million in 2002 (Oyelaran-Oyeyinka and Lal, 2004).

Adoption of e-business technologies is a function of several factors such as inter-

national orientation, competitiveness, efficiency in business processes, optimisation

of resource used, availability of telecommunication infrastructure, size of operationof firms, etc. Many times these factors mutually reinforce each other. International

orientation, which is represented by imports, exports, technological and financial

collaboration and the adoption of e-business mutually reinforce each other. This

is because the use of ICTs in general results in the death of distance (Soete,

1997; Cairncross, 2001). The concept of death of distance is more elaborated in

Cairncross (2001). The author argued that ‘‘Barriers and borders will break down’’

due to the adoption of ICTs. Moreover, e-business is expected to result in

fundamental changes in the market landscape. Similarly, sales turnover and theadoption of e-business are expected to influence each other. This holds true not

only for adoption of e-business but for any innovative activity carried out on the

shop floor.

One of the major pre-requisites for the success of e-business is the existence of a

very strong and reliable communication network. Access to a higher bandwidth is

not with in the control of individual firms. It forms part of the institutional infra-

structure provided by governments. Realising the important role that availability

of higher bandwidth plays in the success of web-enabled services, greater emphasishas been laid on the privatising and de-regulating of telecommunication services in

developing and developed countries. Conduct variables such as skill intensity of

firms, investment on R&D, wage rates are important factors that are expected to

have bearings on the adoption of e-business. Higher remuneration is always a major

incentive for the workforce to create and adopt innovations effectively and

efficiently.

Numerous benefits that flow from the adoption of e-business have been cited in

the literature (Hodgkinson and McPhee, 2002; Doms et al., 1997). Due to the inex-pensive access to global markets and information that Internet enables, it is fast

becoming the world�s largest and most versatile marketplace for services, products,

and information. E-business has the potential to redefine the existing business infra-

structure organisations and to re-evaluate the way in which they do business. It has

capabilities in re-engineering business processes across the boundaries that have tra-

ditionally separated suppliers from their customers. Previously separated activities

such as order processing, payments, and after sales services may be merged into a

single process. This results in reducing the costs of creating, moving, processing,and managing documents.

E-business is also expected to reduce operational costs since electronic informa-

tion tends to be more accurate, timely and easily available. Another benefit of

e-business could be the higher efficiency obtained in business transactions due to

a fast and accurate processing of information. Web-enabled services are likely

to strengthen the competitiveness of firms as these technologies may change the

relationship with customers by creating a stronger link between firms and its

clients.


3. Methodology and hypotheses

The study is based on primary data collected from firms located in the New Okhla

Industrial Development Area (NOIDA). This is a newly developed industrial town

near the national capital, New Delhi. There are four main Internet Service Providers(ISPs), namely; Videsh Sanchar Nigam Limited (VSNL), Software Technology Park

of India (STPI), Satyam, and Mantraonline operating in NOIDA. Mantraonline and

Satyam are private sector ISPs whereas VSNL and STPI are state-owned public sec-

tor companies that are involved in providing Internet services. In addition, M/s India

Markets is another private sector e-business solution providing company located in

NOIDA. We approached all ISPs and India Markets to get information about the

firms that have adopted e-business technologies in NOIDA. We obtained a list of

68 firms, which included the name of the MDs and addresses of the firm. The prod-uct profile of firms is presented in Appendix A.

It may be safely assumed that all the firms that are using some form of e-business

model and are located in NOIDA have been covered in this study. We approached

all 68 firms during the survey. However, we could get data from only 51 firms, a re-

sponse rate of 75%. The survey was conducted during December 2000 and February

2001. Historical, financial, technological, and data on international orientation of

firms were collected through a semi-structured questionnaire. Historical data include

the background of MDs and age of firm whereas financial data (1999–2000) consistof sales turnover, investment on ICTs, wage bill, exports, imports, profit after tax,

and value added, etc. Technological data include the type of e-business tool adopted

and bandwidth being used by firms. Data on technological and financial collabora-

tions with multinational companies, and perception of MDs on potential benefits of

e-business were also collected. All the opinion variables were measured on a five-

point scale.

This paper uses the forward stepwise multivariate discriminant technique to iden-

tify the discriminants of three types of firm, that is, offline, online, and portal usingfirms. The discriminant technique is used in cases where a random sample of obser-

vations, belonging to two or more different groups, is drawn and where one has to set

up a procedure (in terms of measured characteristics, firms specific variables in this

study) to differentiate them as much as possible. The regression models such as,

LOGIT and PROBIT, are not suitable as they presuppose causality and require

clear-cut identification of dependent and independent variables. For instance, if sales

turnover is used as an independent variable in explaining the degree of the adoption

of e-business tools, it is assumed in single equation regression techniques that use ofadvanced e-business tools does not contribute to higher sales turnover. The concept

of the discriminant analysis, on the other hand, does not presuppose causality. Its

objective is to find a linear function of variables that provides best discrimination be-

tween the groups. Discriminant analysis identifies the variables discriminating the

two groups without attributing unidirectional causality. Therefore, we consider the

discriminant analysis more suitable than regression models (LOGIT and PROBIT)

to be applied in the present situation. As discussed in Section 2, several variables in-

cluded in the analysis reinforce each other. Hence the causality is bi-directional. Use


of regression models would violate the basic assumption of unidirectional relation-

ship between dependent and independent variables.

Drawing upon the theoretical and empirical evidence on the adoption of ICTs and

the consequences thereof, we now proceed to formulate the hypotheses concerning

the nature of firms that have adopted e-business technologies in different degrees.All the variables included in this study can be grouped in two categories: The first

set of variables is represented here by MD�s education, wage rate, sales turnover, ex-ports, bandwidth, collaboration, and profit margins while the second set of variables

consist of opinion variables.

All the sample firms have been grouped into three categories depending on the

type of e-business technologies adopted by them. The first category of firms were

doing e-business through offline technologies. Firms that were using electronic mail

systems for business activities have been categorised as firms using offline e-businesstechnology. During the survey, it was found that a substantial number of firms have

their presence on the net. This consists of web sites with some degree of online e-busi-

ness facilities such as ASPs. All the firms with dynamic web sites have been catego-

rised as online e-business doing firms. The third category of firms were those that

were doing e-business using the latest technology, that is, portal based e-business.

The hypotheses concerning all the variables included in the analysis are discussed

below in detail.

3.1. Attitude towards using indicator: Managing Director�s Education (MDEDU)

The actual data on entrepreneurs� qualification were collected and this educa-

tional variable was converted on a quantitative scale. Graduate entrepreneurs are

thus assigned the lowest rank, that is, 1 whereas the postgraduate (PG) MDs were

given a rank higher than the graduates, that is, 2. It was found during the survey that

a large number of entrepreneurs were engineering graduates. These were separated

from the ordinary graduates and treated as more qualified with regard to under-standing the potential benefits of e-business technologies than ordinary postgradu-

ates. Entrepreneurs with bachelor of engineering (BE) degree have thus been given

rank 3. There are many entrepreneurs who have either a master�s degree in engineer-

ing or a professional degree such as master of business administration (MBA). All

such entrepreneurs have been assigned highest rank, that is, 4. The distribution of

firms according to entrepreneurs� qualification and type of e-business technology

adopted by firms is presented in Table 1.

Table 1 shows that 16% of offline technology using firms were being managed bygraduate MDs while only 9% of portal using firms were being managed by graduate

MDs. Whereas the percentage of MDs, with highest technical qualifications in-

creases from 12% in offline e-business using firms to 63.64% in firms that were doing

business through their own or shared portals. This indicates that the firms that are

managed by technically qualified persons have adopted a higher degree of e-business

technologies. Again the percentage of MDs with BE degree decreases as the intensity

of e-business increases. This is due to fact that the sample consists of a large numbers

of firms (33.33%) engaged in the manufacture of consumer electronic products with

Table 1

Entrepreneur�s qualification and adoption of e-business

EB-type Qualification of entrepreneurs Total

Graduate % PG % BE % BE and MBA %

Offline 4 16.00 9 36.00 9 36.00 3 12.00 25

Online 1 6.67 3 20.00 7 46.67 4 26.67 15

Portal 1 9.09 3 27.27 7 63.64 11

Total 6 11.76 12 23.53 19 37.25 14 27.45 51

Note: % is row percentage.


most of them owned by engineering graduates (Appendix A). Many such firms oper-

ate in the local market, hence such MDs might not see the benefit of adopting

advanced e-business technologies.

The importance of entrepreneurship has been given a pivotal place in Schumpe-

terian and neo-Schumpeterian literature of technological change. Empirically, the

role of entrepreneurs� qualification has been analysed by many scholars. The find-

ings of several studies (Earl, 1989; Cohen, 1995; Lal, 1996) suggest that entrepre-

neurs� knowledge and qualification play a very important role in influencing thedegree of adoption of ICTs. Drawing upon the theoretical literature and findings

of the several empirical studies, we hypothesise that entrepreneurs� qualificationis likely to emerge as a significant factor in discriminating among three types of

firm.

3.2. Technological collaboration (COL_TECH)

The distribution of firms according to technological collaboration with foreignfirms and the type of e-business technology adopted by firms is presented in Table 2.

Table 2 shows that the majority of portal using firms (72.73%) have technological

collaboration with foreign firms while 66.67% of online technology using firms have

foreign collaboration. Whereas merely 32% of e-mail using firms have tie up with

foreign firms. This implies that the percentage of firms engaged in technological col-

Table 2

Technological collaboration and adoption of e-business

EB-type Technological collaboration Total

Yes % No %

Offline 8 32.00 17 68.00 25

Online 10 66.67 5 33.33 15

Portal 8 72.73 3 27.27 11

Total 26 50.98 25 49.02 51



laboration with foreign firms increases with the intensity of e-business technology

adopted by them. This indicates that the type of e-business tool used by the firms

is associated with the technological collaboration of foreign firms.

Several scholars (Stiglitz, 1989; Kiiski and Pohjola, 2002) have emphasised that

ICTs play an important role in exchanging information, knowledge, and product de-signs between manufacturers and suppliers of technology. One of the major contri-

butions of ICTs in the business environment is to facilitate better co-ordination of

manufacturing activities. Online e-business tools may be the best-suited technology

to co-ordinate with foreign companies particularly. Hence it is hypothesised that

technological collaboration with foreign firms might emerge as an important dis-

criminant of advanced users of e-business technologies and others.

3.3. Bandwidth (BANDW)

Data on actual bandwidth that was being used by firms were collected. However,

the values of the variable have been converted on a new scale for the purpose of anal-

ysis. The telephone using firms are given value 1 while 64 kbps (kilo bits per second)

ISDN (Integrated Service Digital Network) line using firms are assigned value 2. The

firms with access to 128 kbps bandwidth are assigned value 3. Various types of com-

munication modes such as, telephone line, ISDN line, Radio link, and VSAT (Very

Small Aperture Terminal) are available in India. However, during the survey it wasfound that firms were either using Public Switched Telephone Network (PSTN) or

ISDN lines. Within the digital category, firms were using dialup ISDN line of 64

or 128 kbps. There was only one firm that was connected with its foreign partner

in Japan with an ISDN leased line. Table 3 shows the distribution of firms according

to use of bandwidth.

It can be seen from Table 3 that a large number of firms (92%) adopting offline

technologies use a simple telephone line for Internet connectivity while all firms using

128 kbps lines are those doing e-business through portals. Although few firmsengaged in either offline or online e-business utilise 64 kbps digital line, majority

of portal using firms (90.91%) have adopted the digital mode of communication.

Empirically, several studies have found that communication networks are pre-req-

uisites for the success of the ICT revolution. The findings of the World Bank (1998)

and Bayes and Braun (1999) are related to rural communication in Costa Rica and

Table 3

Bandwidth and adoption of e-business

EB-type Bandwidth Total

Telephone % 64 kbps % 128 kbps %

Offline 23 92.00 2 8.00 25

Online 11 73.33 4 26.67 15

Portal 1 9.09 6 54.55 4 36.36 11

Total 35 68.63 12 23.53 4 7.84 51



Bangladesh, respectively, whereas a study by NASSCOM (2000) covers the various

industrial sectors in India. NASSCOM (2000) suggests that not only reliable and

high speed communication systems but also the existence of a cheap communication

network is essential for the success of e-business. In view of these empirical evi-

dences, it is hypothesised that users of advanced e-business technologies have accessto higher bandwidth than others.

3.4. Wage rate (WRATE)

The wage rate has been computed as the ratio of total wages paid per month to

the total employees of a firm. Although firms do not require very highly paid work-

ers for use of e-business tools, the average wage paid to an employee by portal using

firms is expected to be high. This is because the MDs of portal using firms are tech-nically competent and are aware of the fact that e-business is a useful tool for busi-

ness innovation. E-business alone cannot improve the performance of firms, but can

play the role of a catalyst in achieving better performance along with other factors

such as quality of products, after sales support, and innovative capabilities of firms.

In order to manufacture products of flexible design and an improved quality of prod-

ucts, the firm need to employ skilled and experienced workers. The findings of a

study by Lal (1996) suggest that the average wage paid to an employee by advanced

users of IT tools were higher than firms that were non-IT using firms. We also expectthat average wage paid to an employee by portal using firm is higher than the wage

paid by other firms.

3.5. Firm size (STO)

Sales turnover in Rs. million is used as a proxy of size of firms. A positive rela-

tionship is generally postulated between size and technological progress of firms in

the Schumpeterian and neo-Schumpeterian literature. The size of a firm providesthe financial resources to acquire a new technology and enables spending on inno-

vative activities. This is particularly true in the case of SMEs where firms do not

have an easy access to financial institutions. To this end SMEs tend to finance

investment from their own resources to carry out innovative activities. Several

studies (Siddharthan, 1992; Lall, 1983) found a positive relationship between

innovative activities and size of operation of firms. We also postulate that size

of operation differs significantly in various type of e-business technology using

firms.

3.6. Exports intensity (EXPOINT)

Exports intensity has been computed as the ratio of total exports to sales turn-

over. Conflicting findings with respect to exports and adoption on advanced tech-

nologies have been reported in the literature. Several reasons have been cited for

conflicting results. It is argued in the literature that firms do not always adopt ad-

vanced technologies to meet challenges in the international markets. If the domestic


market is not protected, it becomes imperative for firms to upgrade technology for

their survival in the domestic market. In that case technological advancement may

not be related to the export intensity of firms. Although the Indian market is no

more a protected market, the entry of foreign firms in the SMEs sector is not very

high. Firms that are operating in the domestic market may not be facing qualitycompetition as severe as firms that are operating in international markets. Moreo-

ver, online and portal-based e-business technology may be more beneficial to

export-oriented firms. Hence, we hypothesise that export-performance might

emerge as a significant discriminant of varying degree of e-business technology

using firms.

3.7. Profit margins (PRM)

The variable has been computed as the ratio of profit-after-tax to sales turnover.

It is expected that the use of e-business technologies is likely to reduce costs in sev-

eral business activities. This in turn should be reflected in higher profit margins. It

is more likely to be true for SMEs that do not invest in new technology unless guar-

anteed immediate returns on investments. Unlike large companies, SMEs prefer to

adopt technologies that have low gestation periods. In view of the fact that the

sample firms in this study are SMEs, we postulate that profit margin might emerge

as a significant discriminant of advanced users of e-business technologies and otherfirms.

3.8. Perception of usefulness variables

E-business technologies promise numerous benefits such as better customer rela-

tion management (CRM), improved supply chain management (SCM), reduction is

errors and costs, searching new markets, efficiency in business transaction, and aug-

mentation in the competitiveness. We have tried to capture the role of the perceptionof MDs about e-business technologies through their opinion on the following two

variables that are considered to be more relevant for sample firms. These variables

have been measured on a five-point scale. MDs responses are discussed in the follow-

ing sub-section.

3.8.1. Efficiency in business transactions (EFFITRANS)

The first opinion variable is ‘‘efficiency in business transaction’’. The perception of

MDs on this variable is presented in Table 4.It can be seen from Table 4 that 25.5% of sample firms did not consider any sig-

nificant impact of e-business tools on the efficiency in transactions. A large number

of firms that did not perceive any significant impact of e-business tools were using

offline technologies. Whereas all the sample firms that adopted portal based e-busi-

ness tools reported that the impact on efficiency in transactions is very evident. Sixty-

four percent of them found that the impact is highly significant. MDs of more than

50% of the firms reported that the impact of e-business technologies is significant.

Considering the perception of MDs on this aspect of e-business technologies, we

Table 4

Efficiency in business transactions

EB-type Effect on efficiency Total

Not significant Significant Moderately

significant

Very

significant

Highly

significant

Offline 9 (36.00) 13 (52.00) 2 (8.00) 1 (4.00) 25

Online 4 (26.67) 9 (60.00) 2 (13.33) 15

Portal 4 (36.36) 7 (63.64) 11

Total 13 (25.49) 22 (43.14) 4 (7.84) 4 (7.84) 8 (15.69) 51

Note: Figures in parentheses are row percentages.

Table 5

Competitiveness of firms

EB-type Effect on competitiveness Total

Not significant Significant Moderately

significant

Very

significant

Highly

significant

Offline 11 (44.00) 7 (28.00) 7 (28.00) 25

Online 3 (20.00) 5 (33.33) 6 (40.00) 1 (6.67) 15

Portal 1 (9.09) 6 (54.55) 4 (36.36) 11

Total 15 (29.41) 12 (23.53) 13 (25.49) 6 (11.76) 5 (9.80) 51

Note: Figures in parentheses are row percentages.


hypothesise that the perception of MDs about e-business technologies differs signif-

icantly between portal using firms and others.

3.8.2. Competitiveness (COMP)

Table 5 presents the perception of MDs on the impact of e-business technologies

on the competitiveness of firms.

Table 5 shows that the pattern of MDs response on the competitiveness of firm

vis-a-vis the adoption of e-business technologies is similar to that of efficiency inbusiness transactions. A majority (44%) of the offline technology using firms did

not consider a significant impact on the competitiveness of firms while 91% of portal

using firms perceived that e-business technologies significantly strengthen the com-

petitiveness of firm. Hence we expect that MDs perception about ability of e-busi-

ness technologies in strengthening competitiveness is likely to discriminate advance

e-business technology using firms from others.

4. Statistical results

All the variables discussed in Section 3 were analysed in a univariate framework.

The mean value and standard deviation of these variables are presented in Table 6

along with the F value and the level of significance.

Table 6

Univariate analysis of variables

Variable Mean and SD of variables

Type of e-business F Value Probability Remarks

Offline Online Portal

WRATE 3.596 (2.043) 5.601 (3.269) 11.199 (5.166) 20.564 0.0000 Wage rate in Rs.�000 per month

STO 56.740 (92.933) 125.626 (136.77) 949.682 (1074.34) 13.050 0.0000 Sales turnover in Rs. millions

EXPOINT 0.003 (0.016) 0.139 (0.331) 0.294 (0.419) 4.869 0.0119 Exports/sales turnover

COL_TECH 0.320 (0.476) 0.667 (0.488) 0.727 (0.467) 3.921 0.0265 Technological collaboration

EFFITRANS 1.840 (0.898) 1.867 (0.640) 4.636 (0.505) 58.169 0.0000 Induces efficiency in business transactions

COMP 1.841 (0.851) 2.400 (1.056) 4.091 (1.136) 20.341 0.0000 Strengthen competitiveness

PRM 5.666 (3.348) 4.289 (2.690) 6.095 (4.333) 1.096 0.3424 Profit After tax/sales turnover

BANDW 1.080 (0.277) 1.267 (0.458) 2.273 (0.647) 30.021 0.0000 Bandwidth

MDEDU 2.440 (0.917) 2.933 (0.884) 3.455 (0.934) 4.953 0.0111 Education of Managing Director

Note: Figures in parentheses are standard deviations.

K.Lal/Telem

atics

andInform

atics

22(2005)181–199

193


It can be seen from Table 6 that the mean value of the variables such as WAGE,

STO, EFFITRANS, COMP, and BANDW differ very significantly among the three

types of firms. Table 6 also shows that the profit margin does not differ significantly

among the sample firms. The other variables such as EXPOINT, COL_TECH, and

MDEDU also differ significantly.Subsequently, a forward stepwise discriminant analysis technique was used to

identify the significant discriminants. The procedure begins by selecting the individ-

ual variable that provides the greatest univariate discrimination (in terms of groups

mean difference F ). It then pairs the first variable with each of the remaining varia-

bles to find out the combination that produces the greatest discrimination. The var-

iable that contributes to the best pair is selected. In the third step, the procedure goes

on to combine the first two with each of remaining variables to form triplets. The

best triplet determines the third variable to be entered, and so on. It stops the pro-cedure when groups mean difference F is less or equal to 1. Table 7 presents the sum-

mary of the stepwise procedure and the discriminants selected with their relative

contribution to the discrimination.

From Table 7 three groups of firms (offline, online, portal using firms) differ sig-

nificantly with regard to six variables. Among them the perception of the MDs that

the e-business technologies induce efficiency in business transactions has emerged as

the most important discriminant followed by the availability of bandwidth and wage

rates. The results show that the discriminating power of scale of operation is lessthan the perception of the MDs on strengthening the competitiveness of firms by

the adoption of e-business technologies. Table 7 also shows that technological col-

laboration of firms with foreign firms also plays a significant role in discriminating

three groups of firms. Firms were classified by using the score of the estimated dis-

criminant function. The classification results are presented in Table 8.

It can be seen from Table 8 that the estimated discriminant function could classify

68% of e-mail using firms correctly. Whereas 80% of firms having dynamic web sites

are correctly classified by the function. While the advanced users of e-business tech-nologies have been classified 100% correctly. The total classification power of the dis-

criminant function is 78.43%.

A partial survey of the literature by Bedi (1999) on the role of ICTs in economic

development suggests numerous benefits of its adoption. These benefits range from

Table 7

Summary table of discriminant analysis

S. no. Variable entered Wilks� Lambda F Statistics Sig. Label

1. EFFITRANS 0.29208 58.169 0.000 Efficiency in business transactions

2. BANDW 0.20985 30.021 0.000 Bandwidth

3. WRATE 0.18655 20.564 0.000 Wage rate

4. COMP 0.14179 20.564 0.000 Strengthen competitiveness

5. STO 0.15291 13.050 0.000 Sales turnover

6. COL_TECH 0.16847 3.921 0.000 Technological collaboration

Table 8

Classification results

Actual group No. of firms Predicted group membership

Offline Online Portal using firms

Offline 25 17 (68.0%) 7 (28.0%) 1 (4.0%)

Online 15 3 (20.0%) 12 (80.0%)

Portal using firms 11 11 (100.0%)


employment, to productivity gains, consumer surplus, and improvement in product

quality, and so on. However, in this study we have tried to capture the role of per-

ception of MDs on the adoption of e-business technologies. The perception on effi-

ciency in business transaction and augmentation of the competitiveness of firms have

emerged significant factors that discriminated three groups of firms. These benefitsbecome more obvious with the adoption of Enterprise Resource Planning (ERP)

technologies. A few sample firms have adopted ERP technologies. These findings

validate one of the hypotheses of the NASSCOM (2000) study. The study finds evi-

dence of the crucial role of telecommunication network in the diffusion of e-business

technologies. The emergence of bandwidth as an important factor illustrates the

point. This finding confirms what we found in our review of similar studies (Lal,

2001; NASSCOM, 2000).

It is found that wage rates significantly differ among the three groups of firms.This may be because most of portal using firms are electronic goods manufacturing

firms. They are engaged in the manufacturing of electronics components and fin-

ished consumer electronics products, and could be treated as high-technology firms

compared to firms in the other sectors such as garments, plastics, and auto compo-

nents. Because of the skill-intensive nature of the electronics sector, the wages

paid by high-tech firms are higher than those paid by the other type of firms. More-

over, most of the portal using firms are doing business in international markets. In

general, export-oriented firms pay higher wages that the firms that are operating inthe domestic market. The emergence of wage rate as a significant discriminant con-

firms the findings of other studies (Doms et al., 1997; Lal, 1996) on the adoption of

ICTs.

The results of the study show that the perception of the MDs that the adoption of

e-business technologies strengthens the competitiveness of firms is a significant factor

that discriminated offline, online, and portal using firms. Competitiveness of firms

has taken a pivotal position in the survival of firms in the domestic as well as in inter-

national markets since the liberalisation of Indian economy in 1991. Consequently,firms have adopted new technologies to a great extent during 1990s. A firm level

study of Lal (1996) also suggests that adoption of information technology strength-

ened the competitiveness of electrical and electronic goods manufacturing firms in

India.

The emergence of STO as a significant variable in discriminating three groups

of firms is in line with the existing literature. Several studies (Pavitt et al., 1987;


Siddharthan, 1992) also found a positive relationship between the adoption of new

technologies and the size of operation. Firms that have a large size of operation

are comparatively better off than other firms where investment in new technologies

is concerned. Moreover, large firms are in a better position to appropriate the ben-

efits of new innovations. Sound financial position and appropriability conditionshave strong bearings on the adoption of the latest technologies and in the investment

on innovative activities. Larger firms have the other advantage of employing more

skilled workforce, which may be necessary for using new technologies more effec-

tively and efficiently.

The results of the study also suggest that firms engaged in technological collabo-

ration with foreign firms have adopted advanced e-business technologies. The find-

ing is not contrary to our expectations. Technologically collaborating firms need a

greater degree of interaction with the suppliers of technology than other firms. Inter-action consists not only in knowing the specification of the imported equipment but

also in sharing intangible and embodied technological knowledge. Codified knowl-

edge such as engineering drawing, detailed design, and so on could be exchanged

with the use of e-business tools more effectively. The technology supplier can also

interact online with the users of technology by audio-visual means. This could be

one of the possible benefits of using advanced e-business tools by firms that have

technological collaboration with foreign firms.

Managing Director�s education and export-intensity did not emerge as significantfactors in discriminating three groups of firms. This is because the discriminating

power of other factors is higher than MDEDU and EXPOINT. Similarly, the study

finds no evidence of profit margin playing any role in influencing the adoption of

e-business tools; evidently profit on e-business are not very high. Advanced e-busi-

ness tools using firms might have adopted such tools for their survival and to remain

competitive in international markets.

5. Summary and conclusion

The paper identifies and analyses the factors that discriminate three groups of

firms, namely: offline, online, and portal using firms. The data are drawn from 51

firms located in NOIDA. The survey was conducted during December 2000 and Feb-

ruary 2001. Sample firms are dominated by SMEs as 73% of these firms employ less

than 150 persons. Entrepreneurial characteristics such as Managing Director�s edu-cation and age, historical data of firms, and other firm-specific factors such as size ofoperation, export intensity, international orientation, wage rates, profit margins were

included in the analysis. We also included a variable, i.e., type of bandwidth used,

which is external factor to the firms. The perceptions of MDs on potential benefits

of the adoption of e-business technologies were also considered.

Sample firms were grouped into three categories, namely: (1) offline, (2) online,

and (3) portal using firms. Firms employing e-business using offline technologies

such as electronic messaging systems were grouped in the first category, whereas


firms using electronic messaging systems as well as online e-business tools such as

ASPs in their web site were classified as online e-business doing firms. Portal and

ERP using firms were considered advanced users of e-business technologies and were

treated in the third category. Firms were assigned ranks depending on the type of

e-business technology used by them. As far as the model of e-business is concerned,92% of firms adopted B2B e-business model.

The forward stepwise discriminant analysis technique was used to identify factors

that discriminate three groups of firms from each other. Wage rates and scale of

operations emerged significant discriminants of advanced users of e-business tech-

nologies. The study captures the role of bandwidth in the diffusion of e-business tech-

nologies, and reveals that firms that are more internationally oriented adopted more

advanced e-business tools. The findings of the study are in several respects similar to

that of other studies (Doms et al., 1997; Bedi, 1999; Siddharthan, 1992; Cohen, 1995;Pavitt et al., 1987; Soete, 1997; Cairncross, 2001).

The study shows evidence of a positive association of types of e-business tech-

nology used by firms and bandwidth. A study by NASSCOM (2000) suggests that

availability of higher bandwidth is a pre-requisite for the penetration of the Inter-

net and web-enabled services in India. This study concludes that a very reliable and

affordable telecommunication network is required to harness the potentials of

ICTs. One of the measures that can boost the diffusion of the Internet in India

is to allow the communication of audio/video/data signals on the same medium.It may be mentioned that accessibility of the Internet is not legal in India through

video cable network which supports very high bandwidth. The Government of

India can boost the diffusion of Internet by legalising audio/video/data communi-

cation on existing high frequency medium such as video cables. This in turn is ex-

pected to result in faster growth of e-business. The findings of the study suggest a

need to create proper local, national, and global information infrastructure to

derive the maximum benefit from the ICT revolution. Local and national infra-

structure can be improved by the privatisation and deregulation of communica-tions sector while global information infrastructure could be significantly

improved by allowing more international gateways owned by private and public

sector organisations.

Acknowledgments

I am grateful to Profs. N.S. Siddharthan and Banji Oyelaran-Oyeyinka for theiruseful comments on an earlier version. My thanks are due to two anonymous ref-

erees for their valuable comments. I express my sincere thanks to the Managing

Directors of all the sample firms for sharing with me their views on e-business

and for providing useful data pertaining to their firms. I acknowledge the

contributions of Ms. Eveline in de Braek, Mr. Ad Notten, and Ms. Marijke

Roolvink-Batty.


Appendix A. Product profile of firms

S. no. Industrial

classification

Products No. of

firms

Percent

1 Auto-components Auto locks, door handles,

speakers, electronic

systems for cars

5 9.80

2 Electrical

equipments

Electrical stamping,

special transformers

2 3.92

3 Electronics Telecommunication

equipments, cable TV

hardware, cTVs, cTVcomponents, printed

circuited boards (PCB),

PCB design of electronic

components,

software products

17 33.33

4 Garments Ladies, children, socks 5 9.80

5 Machinery Construction equipments,

electrical panels,industrial equipments

8 15.69

6 Plastic products Plastic injection

and blow mould,

components for TV,

plastic bottles

7 13.73

7 Others Adhesive, polypack,

rexene, vibration-shock

absorbers, footwear

7 13.73

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