Final Draft (Research report-IFS352)

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Contemporary Issues in Business, Management and

Education 2014

ICT Impact on SMEs Growth

Julia Malebanye, Tebogo Motumi, Uviwe Mbeki, Zingisa Majikija, Thando Manona,

and Pamela Malotana.

University of the Western Cape, Faculty of Economics and Management Science

Abstract

Information and communication technology (further-ICT) selection in Smes and the

fascination of benefits from utilization of these innovations remains a key point in

their advancement. For a venture to join in the innovative economy must have a

characterized foundation for creative receiving, meaning an important reason for the

improvement of ICT framework. This has proved to have vitality in the improvement

of Smes and particularly in expanding its competitiveness. This report is based on

systematic, logic and comparative analysis of scientific literature (Consoli, 2012). We

propose to research the impact of ICT on Smes growth. Further this research report

aims to examine the relationship between ICT and growth of Smes, through the ICTs

Impact on organisations. Therefore make necessary recommendation for the usage

of ICT on Smes in order to gain competitive advantage.

Defining the concepts:

SMEs: SME stands for Small to Medium Enterprise. These definitions vary from

country to country and from business to business. An SME is a small business with

less than 250 employees.

ICT: Stands for information communication technology. It’s an umbrella term that

includes any communication device or application, encompassing: radio, television,

cellular phones, computer and network hardware and software, satellite systems and

so on, as well as the various services and applications associated with them, such

as videoconferencing and distance learning.

Key words: Information and communication technology, new technologies, SMEs,

organizational impacts, adoption, growth, competitive advantage, Competitiveness,

Innovative, IT strategy, Business strategy

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1. Introduction

The Small and Medium Enterprise (SME) sector carries great hopes and great

burdens in the evolution of all of the transitional economies. Sustained and healthy

growth of this sector is obviously necessary, since it is difficult to imagine rising

overall living standards and social peace without such a development. Furthermore

an SME’S main purpose is to in fact contribute to the economy and try alleviating

poverty and increasing job creation since, these are critical issues within a country.

Looking at this in the perspective of IT, incorporating IT within a small business is

wiser because as they start off small and they can embark on expanding their

business one day because IT brings in IT trends that will increase what the business

is already offering and upsurge the businesses competitive advantage. According to

(Mário M. Caldeira, 2001) a better understanding of the ways in which SMEs adopt

and implement new technologies, like information technology (IT), is necessary

because previous research in the area is limited and mostly out-of-date due to the

rapidly changing costs of using IT, and the resulting increased adoption by smaller

enterprises.

Due to the slow growth of small medium-sized enterprises, what better way to use

information and communication technologies (ICT) and align it with the SMEs and

explore state-of-the-art methods to increase competitive advantage and the growth

of SMEs? Moreover information and communication technology (ICT) is a new

phenomenon in the small business sector. Small businesses adaptation to ICTs is

slower than large businesses. Computers and the Internet allow people to spread

easily codified knowledge in digital form around anywhere in the world to promote

the development of knowledge economy. Broadly defined as technology that can be

used to send and / or information processing - part of it can access this new wave of

information and communication technologies to connect people to continue to create

and disseminate new virtual network information society because daily technology is

taking over.

Smes personnel capacity and information in regards to the utilization of ICT, is a

paramount issue both in substantial organizations and Smes, this altogether

impacting the adoption of innovative technologies in the Smes. Reception of ICT

regarding Smes is paramount pawn in manageable monetary improvement. These

days the utilization of ICT in enterprises is exceptionally imperative, particularly in

Smes in this world. The appropriation and utilization of ICT can accumulate benefits

in terms of productivity, viability, competitive advantage, efficiency, effectiveness and

growth (Consoli, 2012). For great business exhibitions it is imperative to adjust

hierarchical and profitable courses of action with ICT instruments; satisfactory

conditions support the best ICT execution. There is a low dispersion of ICT in Small-

Medium Enterprises (Smes). Smes are not completely exploiting the potential of ICT

like large organizations. This is halfway because of the way that Smes have

restricted (limited) resources, technology and capacities despite the fact that the less

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convoluted structure permits more modest firms more adaptability to changes. In the

first sections we look at the problem statement, then followed by the in-depth

analyse of a literature review on the ICTs Impact on organisations, sections three we

will look at usage of ICT in different regions, section four deals with the finding or

results obtained through a comparative analysis that was done and finally the

conclusion.

1.1. Problem statement

In order to deliver an excellent customer service and still experience growth, Smes

needs to adapt to new efficient and effective way of doing business. So the

implementation of ICT in the organisation will minimize cost and maximize business

value. However any lack of investment into innovative technology will give the Smes

a struggle to adapt to changes in the economic world, as most companies are using

IT strategies to enhance business strategies. If Smes continue their operations in an

old fashioned way of doing business, it will waist time, money and jeopardizes their

overall efficiency and earning potential. Therefore they will lose customers due to

lack of advanced ICT and clients will choose a better service. The integration of IT

strategies with business strategy will enhance the performance or growth and

maximize returns. We propose to research the impact of ICT on Smes growth.

Further this research report aims to examine the relationship between ICT and

growth of Smes through the ICTs Impact on organisations. Therefore make

necessary recommendation for the usage of ICT on Smes in order to gain

competitive advantage.

The methods of research used to gather the information is qualitative.

2. ICTs Impact on organisations

2.1. The importance of SMEs

The solitary method to reduce poverty in a maintainable way is to encourage

economic growth, over wealth and employment creation. In developing countries,

SMEs are the major source of income, a breeding ground for entrepreneurs and a

provider of employment. Looking at the South African National Development Plan

they majorly advise that people see a gap and seize the opportunity to create a job

and uplift the country’s economy through entrepreneurial options, reason being that

entrepreneurs are the drivers of economic growth and innovation due to their skills

and characteristics such as being risk takers who seize an opportunity or to improve

where things are lacking. According to (Dr.Sevrani, 2008), “As people become

wealthier, they will increase their consumption, which in turn will open up new market

opportunities that will entice the creation of more SMEs.” On the contrary to

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multinational corporations, the growth of SMEs directly benefits the country because

most SMEs are domestic firms. This strengthening dynamic generates economic

growth. The strengthening hoop of innovation also leads to economic growth.

The connection of ICTs is widespread from various businesses, firms and sectors.

They connect the businesses by the usage of basic computers and internet use. On

the contrary there are many advancements of ICTs but you find that the SMEs are

not so exposed to such they are rather slow on the adaptation of ICTs. According to

(Dr.Sevrani, 2008), “SMEs also face generic barriers to adoption including trust and

transaction security and IPR concerns, and challenges in areas of management

skills, technological capabilities, productivity and competitiveness.” Moreover they

are lacking training skills that can be utilised to adopt the ICT methods, which is why

SMEs are still on a slow growth when it comes to information technology (IT).

2.2. How has the Knowledge-Based Economy impacted SMEs while making

use of ICTs

For the balance of the vanguard of the world economy, the between knowledge and

resources has shifted so far that knowledge has become perhaps the most important

factor in determining the standard of living, implying more than land, than tools, than

labour. Most of today's technology developed economies are truly knowledge-based.

ICT has speed up the pace of globalization and increased complexity of businesses,

to be more aware of the countries modern trends and how they operate their SMEs

to gain competitive advantage and to see their economic processes.

All this can be done through a touch of a button and making use of the internet.

According to (Dr.Sevrani, 2008), to compete in the knowledge economy, countries

need a strong ICT-literate skills base that can innovate and adapt quickly to change.

Moreover since the knowledge of economy is heavily dependent on ICTs it is

befitting to say that the adaptation of ICTs in small business is vital.

2.3. How do SME’s make use of ICTs

As mentioned before SMEs have a slow pace adaptation of ICTs but is gradually

picking up, because the growth of a business may also depend on the amount of

innovative trends they can incorporate to regain competitive advantage and excel

with the industry they work in. Furthermore SME usage of ICT ranges from basic

technology such as radio and fixed lines to more advanced technology such as

email, e-commerce, and information processing systems.

The progression process of ICT adaptation can be viewed by focusing on the growth

and advancements of technology from when the SME started to where it might be or

where it is heading. Many SMEs start off with basic communication tools such as

fixed land lines or mobile phones and faxes, which are viewed to be convenient at

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the time. They enable the businesses to communicate with their suppliers and

sponsors instead of having to physically go to their offices, the small issues can be

discussed over the phone, and things like proof of payments and stock orders may

be transferred via fax. Furthermore when a business starts to lift of from the ground

and slowly grows managers and owners slowly adapt to innovative ways to upgrade

and SME. They can incorporate new ways of communication and information

technology by advancing to basic information technology which involves the

upgrading of personal computers (PCs), of which there are equipped with basic

software and hardware. Furthermore a company may not have internet connections

but the SME can utilise the PCs for basic word processing such as drafting reports

and minutes of meetings as well as accounting and other business practices.

Moreover when advancing communications SMEs are able to make use of other

communication capabilities such as email (used to communicate with suppliers and

sponsors as well as other business practices), file sharing (used to share files of the

business with in the different areas or sectors in the business), creating websites

(websites for the company so that it can be available on the internet) and also

incorporating e-commerce. Such communication capabilities are adequate for most

SMEs particularly those in the service industries such as tourism. SMEs in

manufacturing industries may adopt more complex IT tools such as enterprise

resource planning (ERP) software or inventory management software.

2.4. Progression ICT products for SME firms

Just like firms, if an SME chooses to integrate new ICT products to the firm they

base their decision on concrete benefits which can be brought forth to the

fundamental business needs, the capability of employees in ICT, and the financial

resources. Furthermore, most users in a firm are familiar with basic ICTs such as

land lines, mobile phones, computers, faxes and simple document processing

software like Microsoft office.

A moderately additionally multifarious IT integration is the advanced communication

technology. Its primary source is the internet and intranet, which allows the users

(employees) within the firm to share files with each other over the same network.

When a firm has the source of internet within the business they are able to utilise the

innovations of IT to create eye grabbing websites, conduct e-commerce and set up

video conferences with abroad potential investors etc. One of the most transfiguring

improvements in advanced communication technology is Voice over Internet

Protocol (VoIP). VoIP embraces all types of voice communication transmitted

through the Internet, whether it is between computer and computer or in hybrid form

between computer and regular phone. It competes directly with traditional fixed line

and mobile phone operators. Users only pay for their dial-up, broadband, or wireless

Internet connection.

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The most complex of all the advanced IT. It is usually very expensive, complex and

requires more time to achieve a firm. SMEs can register for one or all available

services. To reduce costs, some companies choose to outsource this component or

make use of an application service provider (ASP), which provides software features

functions on the Internet.

The major types of products are the:

Enterprise Resource Planning (ERP)

Enterprise resource planning system is the business functions from a single or

integrated suite of applications to manage the business, including finance, human

resources, and institutional order fulfilment.

Customer Relationship Management (CRM)

It necessitates all features of interaction that a company has with its customer,

whether it is sales or service-related. CRM systems are used in the same way to

manage business contacts, clients, contract wins and sales leads.

Supply Chain Management (SCM)

Supply Chain Management (SCM) is an integrated approach to planning,

implementation and manufacturing of finished products through distribution to end

customers for final control information, materials and services from suppliers of raw

materials and components flow.

Enterprise Application Integration (EAI)

Software and computer systems architectural principles used to integrate a set of

enterprise computer applications.

Rapid Prototyping and Manufacturing (RPM)

RPM is another way of allowing companies to turn innovative ideas into successful

end products rapidly and efficiently.

Knowledge Management (KM)

KM is resourceful management of information and resources, within a commercial

organization.

2.5. Why should SMEs implement ICTs

The information and communication technology can play a very important role;

because it can help SMEs create two things; business opportunities and competitive

combat stress. Appropriate Information and communication technology can help

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SMEs to reduce costs, improve its internal processes, by providing their customers

with faster communication to improve their products, and better promotion, and

distribution of its products through the Internet existence. In fact, the information and

communication technology have increased the potential of the core business of

SMEs at every step of the business process. According to (Dr.Sevrani, 2008), “In

countries where SMEs are only starting to adopt basic ICT, obtaining a fixed or

mobile phone line can help their business. It can replace the time and costs

necessary for face-to-face communication. In countries where SMEs already have

basic ICT, adopting more advanced ICT still brings enormous benefits. Advanced

communication technologies such as email can help firms communicate faster and

cheaper with both its suppliers and clients.” Furthermost with the technology

advancement they also assist with the success of business, according to

(Dr.Sevrani, 2008), “Advanced ITs such as ERP software can capture cost savings.

Beyond cost savings, SCM software can also help increase productivity, efficiency of

inventory controls, and increase sales through closer relationships and faster

delivery times.”

Thus it is extremely vital that SMEs start to make use of the available ICT

capabilities because they are major key drivers to the growth and success of any

business and they do increase the value of a business’ competitive advantage. The

more a business has competitive advantage the other competitors will always be on

their toes trying to catch up therefore utilising innovative measures is fundamental.

2.6. Driving forces for ICTs adoption

In order to understand exactly how ICT adoption relates to growth, then, it is

necessary to consider how it can contribute, what factors enable or prevent this

contribution from being realised, and how growth can be sustained and supported by

increasing ICT sophistication. In this literature review there are a lot of contributions

on the adoption of ICT in small-medium enterprises The procedure of adoption of

ICT (Consoli, 2012) is perplexing and it is invigorated by the event of the

accompanying conditions: business conditions (affectability and responsibility of the

top management), authoritative conditions (the vicinity of an ICT Pivot: business

visionary, manager, IT division worker or outer advisor/seller), administration

conditions (a fitting presidium of ICT devices by gifted human assets). The dissection

of components of ICT adoption and the effects on organisations are extremely

essential to see how to fortify in Smes. In this conditions there driving forces which

shape the future of the organisation. The following figure.1 gives us a clear vision of

the forces that drives the adoption of ICTs by SMEs.

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Figure 1. (Conceptual framework of Driving Forces for ICTs adoption:

Ongori and Migiro, 2009)

The adoption of the ICT „is acknowledged to be the means to empower

organizations to contend on a worldwide scale, with enhanced productivity, and

closer client and supplier relationships. Accordingly the adoption of ICT is

distinguished as essential condition empowering Smes to consider information and

communication technology as a vital actualize in their business to take competitive

advantage from worldwide market. According to Bayo-Moriones, Billon and Lera-

Lopez (2013) Many Smes have a desire to see their businesses growing and

competing with large organisations, however the case may be there are barriers that

prevent them to do this efficiently and effectively. Due to lack of the experienced

labours and set of skills this makes the goals of Smes to be unachievable, lack of

security, finance, infrastructure and government support are also pulling them

backward. In spite of these conditions there are strategies that can be implemented

to enable them to reach their goals. So Smes should start by investing in their

human capital, by training their employees in skills that are needed in the

organisation. This can be achieved by the assistance of the government by providing

infrastructure and come up with detail strategies in pushing ICTs adoption in Smes.

Therefore the government and other stakeholders can also raise funds to help get all

the necessary tools that will gain them flexibility and reliability for Smes. ICTs

adoption in Smes will enhance their client administration, stream of data, stock

administration, control and responsibility, open doors for universal markets,

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overseeing assets successfully and productive organization (Ongori and Migiro,

2009). In any case in the event of failure to adopt ICT instruments in their business

process, Smes stand to lose in getting to global markets, lacking powerful data,

assets won't be overseen legitimately and this will prompt wasteful organization.

2.7. Benefits of ICTs adoption

Adoption of ICTs gives numerous benefits over an extensive variety of intra- and

between firm business processes and transactions. ICTs adoption enhances

information and knowledge management inside the firm and can lessen transaction

costs and increment the rate and dependability of transactions for both business-to-

business (B2b) and business-to-customer (B2c) transactions. Moreover, they are

powerful devices for enhancing outside communications and quality of services for

established and new clients (Ongori and Migiro, 2009). ICTs enhance the

competitiveness of business Enterprises. ICTs have tremendously enhanced

learning administration, access to powerful business data, productive organization,

control and responsibility, access to businesses and development of Smes in both

developed and developing economies. Icts additionally help the administration of big

business assets financially and effectively. The appropriation of ICTs is key for the

productive organization of Smes, and in the conveyance of speedy administrations.

ICT instruments empower data to be electronically put away, got to, conveyed and

recovered for utilization in the association for choice making, but as a discriminating

asset to improve the intensity of Smes in any business environment, ICTs assume

an extraordinary part in fortifying responsibility frameworks of business endeavors.

For example, the execution of workers in Smes might be followed and plan courses

of action could be transparently implemented, and ICT apparatuses help in imparting

information inside and outside the organisation. Figure.2 gives detailed information

on the benefits of ICTs adoption.

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Figure.2 (Benefits of ICTs adoption: Ongori and Migiro, 2009)

2.8. Theoretical framework

Internal and

external

operational

performance

ICTs

performance

Smes growth

ICTs adoption

(Driving forces,

usage and benefits)

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Figure 3. (Feedback Loop)

Studies have shown that the type of ICT adopted by SMes vary according to the kind

of technologies used and their degree of adoption which has the effects on the SMEs

growth (Bayo-Moriones, Billon and Lera-Lopez, 2013). The type of ICTs adopted has

an influence on the internal and external operations of the SMEs. The performance

level of ICT has an impact on the Smes growth dimensions. So for the Smes to

experience the best level of performance in their internal and external operations

they need to adopt the best ICTs tools. However this higher level of ICT depends on

the ICT tools that are used and adapted by organisations and if they realise the

benefits of it and utilize them to gain competitive advantage. The analysis show that

ICTs impact on Smes growth dimensions (profitability, satisfaction, and market

value, social and environmental performance) could be considered as a significant

predictor of business success(Tarutė and Gatautis, 2014). Therefore the Smes

growth in interrelated with the performance level of ICTs, which depends on the type

of ICT adopted, that which is determines the internal and external operational

performance of the Smes as according to the above feedback loop or either way the

internal and external performance of Smes is determined by the adoption of ICTs

tools by the organisation, by which the ICT performance depends on this tools and

the Smes growth is therefore determined by the performance level (high quality or

low quality) of this ICTs tools, which is links back to the operational performance of

the organisation.

The research follows a qualitative method, which makes it easier to understand the

target market or phenomena by the type of questions that are asked. The method

involves the study of subjects in their natural settings whereby the researcher

conducts a systematic enquiry into meanings, attempting to interpret and make

sense of phenomena and the meanings that people attribute to them through

interpretive approach. In order to understand how ICT function in Smes, we had to

interview different Smes and make survey in an attempt to give a detailed description

of the study taken. Whereas qualitative research methods can be argued to be less

reliable due to its subjective nature. However, the use of reflexivity on the part of the

researcher will definitely lead to a reliable and valid research. Qualitative research

provides a more realistic feel of the world that cannot be experienced in the

numerical data and statistical analysis used in quantitative research. It provides

flexible ways of collecting, analysing, and interpreting data and information. The use

of primary and unstructured data gives qualitative research a descriptive capability.

Some SMEs don’t provide researchers with accurate information because they fear

of higher taxation, competition and the absence of record keeping. We were unable

to interview an SME that utilises all available forms of ICTs, in other words, a

significantly large SME due to time and resource constraints

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3. ICT usage in different Regions

Despite government support for a number of initiatives to encourage more small firms

to adopt information and communication technologies, implementation of ICTs has

been a slow and very diverse development. This section is based on examining the

relationship between small firms and information and communication technologies

(ICTs) from the perspective of the small firm. Only recently has interest in the

relationship between small firms and ICT begun to be explored in any detail.

Simultaneously, technology suppliers view small firm use of ICT as an emerging

market opportunity. In the academic community a number of analysts have dedicated

time and effort to consider the potential ICTs have for small firms should they adopt

the new technology Despite a rise in interest in small firms and ICTs, there are a

number of difficulties with this area. In this section we attempt to find out if the use of

ICTs is beneficial to an SME as well as finding out how and why SME’s use ICTs

within their organizations. In the context of work and economic life ICTs are

supposedly changing organizational structures, methods of production, means of

communication and working patterns, while the recent ‘dot com’ wave has

compounded the hype that regularly surrounds technology.

In this study a small firm was defined as a business with less than 150 employees

and that was not a subsidiary of a public limited company. Access was granted to a

limited corporate technology supplier dataset (this included names and addresses of

business customers), Yellow Pages business dataset was utilized, personal contacts

and a local authority business directory. Firms were selected by location, size and

sector and letters were sent out requesting an interview, while follow-up telephone

calls by the researcher negotiated access to each business. Firms were contacted

from a range of industrial sectors that were simply classified as manufacturing or

services, and from five geographical locations in England including the North East,

Yorkshire, the North West, the West Midlands and the South East. The size of the

firms (determined by numbers employed) ranged from self-employed (0 employees)

to 135 employees. The sample used was 33 small firms including eight micro firms

employing between 0 and 9 people, twenty meso-size firms employing between 10

and 50 people and five who employed more than 50 and exploratory research was

conducted. The sampling was opportunistic and intentionally concerned with evading

claims to universal characterization that appears to simplify much work on small

firms. In each firm a semi-structured interview was carried out with the owner-

manager or an equivalent with responsibility for IT. It was found that there are 3 types

of small firm users of ICTs which capture the soft data differently namely, low small

firm users of ICTs which those SMEs who have no IT to those firms with stand-alone

PCs, medium small firm users of ICTs which are those firms with more visible use of

ICTs as well as greater levels of IT expertise are available within the firm and high

small firm users of ICTs which are firms that exhibit a much more sophisticated

understanding of ICT and how the technology can be applied and serves as an

attempt to ‘informant’ business processes. It was also found that there are various

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hard and soft characteristics that influence SMEs to use ICT and there are internal

and external business factors affecting small firm use of ICTs. Further work is

required to investigate in greater depth and to thoroughly test the issues raised by

this typology and to work towards a more in-depth conceptual base for understanding

small firms and ICTs. Pressures to adopt come from many different directions

including customers and suppliers in the supply networks, competitors, technology

suppliers and government.

Where economic growth and poverty alleviation are concerned, Small and Medium

Enterprises (SMEs) have an increasingly vital part to play. Therefore, it is clear that

the success of SMEs should be a priority. This is where the use of information

communication technologies (ICTs) can be, and in fact, is meaningful. This article is

based on finding out what impact information communication technology (ICT) has on

SMEs, as well as the usage thereof. A survey of thirteen developing African countries

was conducted in order to gather the information compiled in this article, the countries

are Botswana, Cameroon, Ethiopia, Ghana, Kenya, Mozambique, Namibia, Nigeria,

Rwanda, South Africa, Tanzania, Uganda and Zimbabwe. There are six main

obstacles faced by the above mentioned countries, and listed in order of importance,

they are: high costs, network problems/unreliable infrastructure, lack of financial

resources, lack of awareness and knowledge of ICTs, not having a need for their use

and finally, the lack of skills and ICT literacy. The findings of this article are that “ICT

increases labour productivity, contributes positively to revenue generation and that

mobile phones have overtaken computers as tools in supporting the running of SMEs,

given their prevalence and accessibility.” More importantly, it is mentioned that there

have to be ways in which there can be access to lower ICT costs.

Small and Medium Enterprises (SMEs) play a significant role in the Malaysian

economy and are the main drive behind service industry development of the country.

The improvement of ICT in the country has resulted in the maintenance of a big share

in the GDP share in this industry. Wolf (2001), argue that in South Africa the

installation of ICTs creates new economy, information economy which is beneficial for

all businesses especially in the service industry. In spite of the obvious need of ICT

installation, the move for many Malaysian SMEs has been very slow. If ICT could be

adopted and implemented successfully, the potential commercials that could be

performed include marketing without geographic boundaries, easier access to

information, providing customer support and doing transaction. However, the

maintenance and implementation of ICT systems is restricted due to most SMEs

inability to handle, owing to high stuff turnover and the lack of project management

expertise. The study sees ICT adoption as a dependent variable whereas the

independent variables are the five contributes to a company adopting ICT. These

independent variables include perceived benefits for adopting ICT. This means that,

higher benefits perceived by SMEs increases the possibility of ICT adoption. The cost

of adopting ICT in an SME is also an independent variable that could determine

adoption. In general, the higher the cost of a certain innovation, the more reluctant

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would most SMEs into adopting new innovative devices and the slower the pace of

innovation expansion would likely be. ICT knowledge and skill is another independent

variable that is included in the framework. Tybout (2000), adds in by stating that lack

of skills in SMEs limit the goods that could be produced and negatively affect the

ability to absorb new technologies. SMEs tend to shy away from putting in place any

new systems that is seen as complex to use. This could be based on the fact that

there is a lack of skills in the workforce that SMEs have available. External pressure

from business partners can persuade a business to take on ICT application. Lastly,

government support is one of the independent factors that contribute to the

framework. Both the industry and government bodies have the responsibility of

supporting SMEs networking and ICT.

This paper investigated thoroughly through the use of survey conducting, factors that

could influence SMEs to adopt ICT usage in their businesses. The effect that this

study has on the topic of impact that ICT has on SMEs growth is that certain factors,

as the ones mentioned above are going to be forces behind ICT adoption in SMEs to

better how their businesses are conducted in order to improve their profitability.

4. Findings and Comparative analysis

The main goal of most SMEs is to make a contribution to the economy and try

reducing poverty through job creation. Furthermore there is no better way to try this

then incorporating IT within the businesses operations as it enhances the businesses

competitive advantage. Technology grows every second; everyday there is always a

new application or a gadget which might add relevant use to the business and its

growth. Moreover there are many ICTs that are useful to the business but not many

SMEs have adopted their products and solutions to their businesses. For this report

we drew up a questionnaire, which we used to conduct interviews for SMEs that

utilise ICT products in their businesses. However we had limited interviews and of

those interviews they only utilised the basic ICT products such as mobiles phones,

landlines and faxes of which they are just the simple communicative means that

businesses start up with. Furthermore for our findings we conducted a comparative

analysis which will compare the usage and adaptation of ICTs both in South Africa

and abroad.

To get more insight on the adaptation of SMEs within businesses, interviews were

conducted to a construction business, marketing business and a branding business.

Pursuing this further these were the findings that were discovered from each

business:

Interview with Julia Maranyane from JuliaM Construction

JuliaM Construction is a construction company specialising in civil construction. The

small company is based in Cape Town, South Africa and owned by Mrs Julia

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Hlalosang Maranyane. The company has 5 permanent staff members, and has

temporary workers amounting to no more than 35 depending on the type of project

the business has at a time (JuliaM, 2014). This then qualifies JuliaM Construction as

a Small and Medium Enterprise. For our research project, we approached this

company’s CEO and owner, Mrs Julia Hlalosang Maranyane.

When asked whether she knew and understood what ICT was, she stated that yes

she does and according to her, it simply meant that communication is enhanced by

technology.

The interviewee asked Mrs Maranyane whether she utilised ICT in her business. She

stated that because her business is fairly small, she works from home, with her own

fixed land line, printer, personal laptop and her cell phone. Her personal assistant

works from her own laptop, which belongs to JuliaM Construction. The rest of her

staff members work mostly from site and use their personal cell phones. However,

they claim their airtime costs from the company.

Mrs Maranyane was asked whether she thought that ICT would help her business

grow. She emphasised her belief in her business growth and that with more business

opportunities and future expansion of her business, she would need more forms of

ICTs which would help with productivity and with her, leading to business growth.

JuliaM Construction only uses a fixed land line, a printer, personal cell phones and

laptops. The benefits from these forms of ICT are sufficient for the company. The

company’s business needs are currently not much from the technology side. They

only need a way to communicate with their suppliers, clients, staff members and

network with other companies and for all that, they use their mobile phones, landline

and laptops. For payments, Mrs Maranyane and her personal assistant have the

password to the business account for internet banking. Mrs Maranyane emphasized

the importance of the internet to her business. She needs it for almost all her

business needs.

When asked whether she thought ICTs could be attributed to the success of her

company, she agreed that it is attributed to the success of her business. Her

business files and contacts are all stored on the varied forms of ICTs her business

utilises. Without them, the management of her company would be in question. Her

main concern however was security. Since her company is quite small, she does not

have an IT department to aid the company into remaining within the current

technological trends as well as ensuring that all the company IT needs are met. She

stated that to continually ensure that her devices are free of viruses and out of risk,

her antivirus software is always up to date and that she regularly changes her

internet banking account password.

The only costs the company endures where ICTs are concerned are internet,

antivirus software and airtime costs. Mrs Maranyane believes that her company is

receiving value for the money it is spending.

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She believes in the future growth of her business and believes and stated that when

that happens, she will invest more onto Information Communication Technologies.

Interview with Celinah Mabunda from Crystal Fix Marketing

Crystal Fix Marketing is a small company that specialises in event management and

marketing. The company is owned by a young UCT graduate, Miss Mabunda. It has

2 permanent staff members and is registered with SARS to pay taxes. This then

qualifies Crystal Fix as a Small and Medium Enterprise in South Africa. It does not

have official offices but is rather more mobile. Miss Mabunda and her partner work

from their personal laptops, smartphones and utilise internet café printers and so

forth. They claim all airtime, internet, printing and other communicational costs from

the company monthly (Marketing, 2014). We approached this business for our

research project to determine how Information Communication Technologies affect

their business’ growth.

When Miss Mabunda was asked whether she knew what ICT was she displayed

unblemished knowledge of the concept. We then further asked her whether it was

utilised in her business and she said yes, her business does use a few forms of

ICTs. Crystal Fix Marketing is a rather mobile company; the employees use their

personal laptops, personal cell phones and internet cafes for printing purposes. They

need internet access at all times and that is one of their highest operational costs.

When asked whether ICT can be attributed to the success of her company, she

agreed that it has hugely influenced their success. The company constantly needs to

keep in touch with current social trends, current events and popular artists and so

forth. That requires their laptops and smartphones. Crystal Fix Marketing also has a

rather strong social network presence because a marketing company needs to be

known in order to attract new clients and be trusted by the community in general.

Although their exceptional work and customer service speaks volume, social media

is also quite big and they need to dominate that too to gain competitive advantage.

Interview with Thapelo Setsomi of D Branding

D Branding, with a total of 8 employees, which has been in existence since the year

2009 is based in Bloemfontein, Free State, South Africa. D Branding is a

professional market for graphic designing and advertising with a high standard of

skill, quality, delivery and affordability of products and services. They are a new

generation of business creating spectacular designs to assist their clients to improve

their professional/business’ images. D Branding’s aim is to provide complete

marketing solutions to their clients, providing excellent services and timely delivery

as well as going the extra mile to perfect and satisfy their client needs. Their vision is

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to become a leading graphic designing company in the industry of designing and

advertising in South Africa and across the globe (Branding, 2014).

D Branding is empowered through its ownership and client base and has the

capacity to provide Corporate Identity packages, creative and production

requirements from concepts to execution under one house. D Branding offers the

following products and services;

Brand development – logo development, brand positioning, Ci Manual

development

Publications – newsletters, annual reports and magazines

Events Management

Textile, Embroidery and Printing – T shirts, jackets, caps, stationery, carpets

and umbrellas

Web designs – Intranet, animation, websites, programming, software and

hardware

Collateral, branding and packaging – outdoor and indoor banners, billboards,

signage, corporate stationery

In an interview with D Branding’s Managing Director (Branding, 2014) it was

emphasized that for their Web designing business processes, the company utilises

Adobe Dreamweaver Studio. Adobe Dreamweaver Studio version 8.0 is compliant

with W3C standards. In the case of logo development and publications the business

utilises Adobe Creative Suite 3.

D Branding spends R23000 on the purchase and licencing of both applications. The

company further endures additional costs for IT infrastructure support and when they

upgrade; the company has to purchase the new version from scratch.

For storage purposes, the company uses a cloud based storage system called BOX

which is accessible to authorised staff members. The problem they have

experienced with the application is that it only functions with internet access and

sharing of documents becomes problematic when without internet access.

The IT infrastructure utilised by D Branding are Apple laptops but D Branding’s

problem with that is that they do not have “same-business-day” IT Support.

The managing director of D Branding, Thapelo Setsomi demonstrated flawless

knowledge of ICT. The company uses many forms of ICTs and the success of the

company can be attributed to the usage of ICTs. D Branding uses laptop computers,

fixed land lines and smartphones (Branding, 2014).

Since the information from the interviews that were conducted was limited and we

could not find a business that utilised more advanced ICTs, we looked further into

the literature and explored some of the ins and outs as to why there are a few SMEs

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that integrate ICTs and make comparisons with other countries and their ICT

adaptations and products that they make use of. In view that the information and

communication technology can bring to small and medium enterprises, SMEs in

most developing countries' interests still have been slow to adopt it in European

countries. In Albania, the better part of SMEs still use basic communication

technologies, such as fixed telephone lines and fax, use only a small part of the

CRM software. Meanwhile, their counterparts in developed countries make use of

advanced enlightenment of IT. One reason for the limited uses is beyond the

information and communication technologies, lack of energy information and

communications technology companies and SMEs sectors.

Information and communication technology services companies are not providing

goods and services for SMEs in the past because the demand has been low.

However, their needs are low, partly because the market is too complex and ICT

products are expensive. The result is a limited supply and demand limited the vicious

cycle eventually excluded from the benefits of SME information and communication

technologies. Other aspects that also contribute to the restricted supply and demand

of ICTs for SMEs according to (Dr.Sevrani, 2008) are the poor communications

infrastructure results in limited access and higher costs, most advanced ICT

products are designed for larger firms and not SMEs and that is just factors on the

supply. Factors on the demand include ICT literacy of SME owners hinders their

ability to choose the appropriate technology and understand the concrete benefits it

can bring to their business, limited ICT literacy of employees in SMEs hinders ICT

adoption and the adopting of ICT is an adaptive challenge, not a technical challenge.

Following this further into detail the poor communication infrastructure is an issue

because it limits the business to advancing and making use of other ICT products

and solutions. Moreover some of the reasons of such happening are that there is

limited access and high costs involved as well as a lack of communication within the

business. According to (Dr.Sevrani, 2008) Albania has a poor communication

infrastructure. Obsolete equipment, state monopolies often cause expensive fees

and restrictions coverage, especially in rural areas. This hampers to discouraging

SMEs even to make use of the landline or mobile phone basic information and

communication technologies. Besides that most advanced ICT products are

designed for larger firms and not SMEs and this is because large enterprises have a

bigger budget for ICT companies and are willing to pay more sophisticated ICT

services. Their products are often too expensive and sometimes too complex for

small and medium users. However, the competition in this market is companies -

large and small as well as their attention to untapped SME market.

Following this further by looking on the affects that come from the demand is that

many SME owners are not familiar with computer operation, unconvinced specific

interests, its core business, and there is a stereotype of information and

communication technologies apply only to larger companies even if they have the

will and financial resources information and communication technologies into their

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core business, SME owners are often at a loss when need to choose the most

suitable and cost-effective products. Even if SME owners have a strategic

understanding of why they should adopt ICT, their staff is often untrained. Training

costs both time and money and resources that SMEs usually lack. The use of

information and communication technologies is a daunting task for companies of all

sizes, whether they are in developed or developing countries. In fact, a lot of

management literature attention is fixed on the organizational variations that a firm

must go through for the effective use of information and communication technology,

because they change the way companies do business. And the change may be

beneficial in the long run; they tend to hurt a department and strengthen another

department. Therefore, small business owners are often reluctant to put their

business through a learning curve that can be difficult and expensive.

Lack of funds and appropriate technology is clearly a major obstacle for developing

producers and exporters in developing countries; it inhibits the development of

countries trying to grow and derive full benefit from their business. SMEs often have

limited ability to make more investment in their business, due to a lack of financing

options. Due to financial difficulties, IT budgets are generally small or non-existent. In

addition, the use of information and communication technology is not a one-time cost

because there is a permanent maintenance and labour costs, update capacity

building. SMEs may still be reluctant to participate in e-commerce due to the

underdeveloped legal policies, electronic payment, and security issues. Many

Albanian banks; key link in the chain of e-commerce, they have not even taken

online banking in their own systems. In the end, the final costs of the identification of

goods and / or appropriate services, find staff for management to take the company

to the learning curve, and obtaining financial resources are not perceived to justify

the benefits.

South Africa compared to other African Countries

According to (Esselaar, Gillwald, Moyo, & Naidoo, 2009/2010), South Africa has the

largest economy on the African continent. However, with the current high poverty

and crime levels, resulting from high unemployment rates, the communications

sector is also influenced by them. The above mentioned contribute negatively on the

implementation and adoption of Information Communication Technologies (ICTs) in

South Africa, especially in Small and Medium Sized Enterprises (SMEs). According

to (Grant, Hackney, & Edgar, 2010), SMEs contribute largely to a country’s

economy. When starting a business, the entrepreneur has to identify a gap in the

market, usually from assessing the needs of a particular market, and assessing the

available solutions or products and services available to clients for that specific need

or want. Customer needs and wants are constantly changing due to the changing

technological, social, economic and political world. The unemployment and poverty

levels in South Africa therefore affects the country’s purchasing behaviour and

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power, which also affects the kinds of products and services offered by SMEs and

most importantly, the complexity of the forms of ICTs adopted by SMEs according to

their varied business processes.

For the purpose of this research paper, in researching “The Impact of ICT Usage in

SME Growth”, three South African SMEs were interviewed, one from the Western

Cape Province (JuliaM Construction), the other from the Free State Province (D

Branding) and Crystal Fix Marketing is a mobile company, but registered in both

Cape Town (Western Cape Province) and Bloemfontein (Free State Province). The

questions posed to these companies were as follows and their responses are

recorded above:

Do you know what ICT is?

Does your company utilise ICTs?

Which forms of ICTs do you use in your business?

Can the usage of ICTs be attributed to the success of your business?

Do you believe you are getting value for your money (the costs of ICT

operational costs compared to the benefits from the usage of ICTs)?

The companies interviewed for the purpose of this study, JuliaM Construction,

Crystal Fix Marketing as well as D Branding, all use the following forms of ICTs;

laptops, cell phones, postal boxes, fixed land lines and printers (with added fax

features).Their main reasons for using these particular forms of ICT’s are mainly

financial and business process needs.

According to (Gillwald, Moyo, & Stork, 2012), “Fixed-line access continued to

decline, to 18% of households, in 2012, with only 24% of households in urban areas,

and 5.8% of households in rural areas, having a working fixed line”. The reasons for

the decrease in the use of fixed land lines is that people living in rural areas do not

have access to them and that they are expensive to maintain. On the hand,

ownership of mobile phones continues to grow. “Individual mobile phone ownership

stands at 86% of the adult population (15 years or older)” (Gillwald, Moyo, & Stork,

2012). This then contributes to some of the reasons most SMEs in South Africa use

Short Message Services (SMS) to communicate with their clients. It is both

affordable to both parties and reaches a wider community or current and prospective

clients.

As previously mentioned, the companies interviewed use mobile 3G cards for

internet access as well as mobile data from their varied service providers.

Technology grows each and every day and businesses need to keep up with it in

order to have competitive advantage. There are numerous technological benefits for

a business that is technologically advanced. Technology provides real time news

and this is beneficial to all industries and businesses. SMEs compete in global

markets and they need to be knowledgeable about everything that concerns them

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and their clients as well as any new business opportunities. However, internet costs

in South Arica are quite high. The high price of broadband in South Africa remains a

serious challenge. High broadband pricing is a barrier to the exponential growth in

broadband required for South Africa to catch up to the rest of the world and, for

enterprises which must make use of it regardless of its price (because of the need

for stable connectivity), broadband represents a high input cost with negative

consequences for growth, development and global competitiveness of these

enterprises. According to (Gillwald, Moyo, & Stork, 2012), “When compared to other

African countries, South African prices for prepaid and post-paid mobile 5GB

baskets, and post-paid 1GB baskets, rated well for affordability in April 2013, while

prepaid 1GB baskets rated less favourably, coming fourth in affordability behind

Ghana, Kenya and Tanzania – as per the RIA Africa Broadband Pricing Index”.

It has also been argued that the negative return on investment (ROI) reported by the

analysis of the survey conducted by Research-ICT-Africa (RIA) in 14 countries, can

be attributed to the failure to distinguish between formal and informal SMEs

(Esselaar S. , Stork, Ndiwalana, & Deen-Swarray). This article (Esselaar S. , Stork,

Ndiwalana, & Deen-Swarray) is based on finding out what impact information

communication technology (ICT) has on SMEs, as well as the usage thereof. A

survey of thirteen developing African countries was conducted in order to gather the

information compiled in this article, the countries are Botswana, Cameroon, Ethiopia,

Ghana, Kenya, Mozambique, Namibia, Nigeria, Rwanda, South Africa, Tanzania,

Uganda and Zimbabwe. There are six main obstacles faced by the above mentioned

countries, and listed in order of importance, they are: high costs, network

problems/unreliable infrastructure, lack of financial resources, lack of awareness and

knowledge of ICTs, not having a need for their use and finally, the lack of skills and

ICT literacy. In the process of data collection for this research project, it was found

that the SMEs interviewed also faced the same obstacles as some of the

aforementioned.

The SMEs surveyed in this article (Esselaar S. , Stork, Ndiwalana, & Deen-Swarray),

were first classified into formal, semi-formal and informal businesses using

information regarding the number of employees it has, physical presence, must

operate to generate profit and the business should be independent.

It is generally difficult to distinguish whether an SME is a manufacturing or retail one

due to the fact that SMEs usually provide all services and products within their

capacity and according to demand (Esselaar S. , Stork, Ndiwalana, & Deen-

Swarray). With that said, ICT could be significant inputs in some SMEs and a

different case in other SMEs. ICTs do however increase productivity levels and

contribute positively to revenue generation. The biggest obstacles to ICT adoptions

in Africa are network problems and unreliable infrastructure, lack of awareness and

knowledge of ICTs as well as lack of financial resources.

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ICT, when used effectively could change the way in which SMEs do business. As it

has been heavily emphasised in the above literature reviews, ICT changes in a

positive manner the way in which SMEs conduct their businesses. The Article titled,

ICT Adoption in Small and Medium Enterprises, focused on factors that would

persuade SMEs to using ICTs in their businesses, especially in the service sector in

the Malaysian context. This evaluation will then look to incorporate these factors into

the South African context with the use of the interviews that were conducted to try

and come up with substantiate recommendation.

Many small to medium businesses in South Africa view ICT as communication

options that are enhanced by technology. These types of communication means

include telephone, mobile phones, networks, laptops, printers and are mostly all

connected using the internet. SMEs adopt these ICTs because they see the benefit

that these technologies would bring into the business. In the Malaysian sector, as it

is in the SA, small businesses would first evaluate the benefits that the ICT

innovation in question will bring to the business. In the example of the small

construction business that was interviewed, the owner admits that the use of ICT in

her business makes day to day transactions easier and also better for interacting

with their clients and suppliers. However these innovations can be very costly to

maintain or to keep using. The option that this business in question can do is

compare the prices and package deals offered by service providers like Telkom,

mweb etc., to come up with the package better for their business and fairly priced

instead of using airtime which costly.

The skills factor plays a vital role in both Malaysia and in South Africa. Often, small

and medium businesses lack the skills required to maintain and use certain ICT

devices. These businesses would then avoid any complex technologies that could be

used in their businesses. The businesses that were interviewed all use the basic,

non-sophisticated methods of communication within their businesses, the most

common one being the internet. This is because the limited number of employees in

all the small businesses that were interviewed lacks the knowledge and experience

of introducing new technologies. They depend mainly on cell phones, personal

laptops, newspapers, public printers, and business magazines as their main source

of information. The businesses often feel that their sales and procurement

information is lacking. Therefore a small business can utilise other options that are

designed especially for the fulfilment of SMEs needs. A good example of this

solution would be KACE 300 by DELL. This innovation is a plug and play IT asset

management solution created to decrease repetitive time consuming tasks. This

system is not costly and does not require intensified special skills.

The constant change in technology forces SMEs to adopt the use of ICT in their

businesses. SMEs all over the world including the two in question, South Africa and

Malaysia are faced with the challenge that, now more than ever people are living in a

digital world. While ICT access is a growing factor in South Africa, many businesses

recognises the need for ICT and their decision towards adopting them is heavily

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influenced by external parties for instance customers, suppliers, business partners

and potential investors. There are options available, which are less costly to get their

businesses known by the people. Social networks can be one solution that small

businesses can use to generate customer awareness of their businesses. This way

they are able to advertise their business to the public and can receive an instant

feedback from all stakeholders on what to improve on their product or what to keep

doing. Lastly, government in any country plays a significant role more especially in

the SMEs. They play the role of supporting and promoting ICTs in small and medium

businesses. In South Africa, the government emphases the role of SMEs in

developing the economy and social development. As the result they are providing

financial support to promising SMEs to encourage them to use ICTs. Through the

use the internet, SMEs are able to capture the global market, be exposed to

international markets and can eventually trade with other businesses from abroad.

Many programs provided by the government like Umsobomvu Youth Fund and

NYDA that provide assistance to small businesses to equip growing businesses. It is

therefore evident for both countries Malaysia and South Africa that there are many

similarities between the factors that persuade SMEs to adopt ICTs.

5. Conclusion

The paper provides theoretical evidence that ICT can improve overall, financial and

operational performance of SMEs if it is used appropriately. It is well known that

marketing, communication, networking and resource planning are the areas that ICT

impacts the most.

The use of information and communication technologies is a daunting task for

companies of all sizes, whether they are in developed or developing countries. In fact,

a lot of management literature points out firms must change to the effective use of

information and communication technology, because they change the way companies

do business. The changes may be beneficial in the long run, as ICTs are the driver of

business innovation and economic growth. ICT are changing the way in which

business is conducted and how organizations interact with their customers. It is

important that all companies adopt into this radical change. Small and Medium

Enterprises are also increasingly using and adopting the use of ICT. Some related

studies by Bartelsma and Doms (2000), Brynjolfsoon and Yang (1996), Dedrick et al

(2003), all agree that the application of ICT on a firm will improve the firm’s

performance in terms of productivity, profitability, market value and the market share.

However some SMEs are reluctant to change and are reluctant to incorporating ICT

capabilities and strategies due to the training and finances involved with it. But it is

important for the business to find means to incorporate such measures within the

business, reason being that since SMEs are majorly important for economic growth, it

is vital to utilise the internet capability within the firm to ensure that they keep abreast

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of trends and new ideas that can be integrated to the business to ensure great

competitive advantage.

In today’s world of business, ICT application has become an important factor. These

studies also reveal that ICT also has some effect in terms of performance measures,

such as process efficiency, service quality, cost saving, organization and process

flexibility and customer satisfaction Thus, in conclusion the usage of ICTs with SMEs

is of importance because of what they have to deliver and the changes to be

implemented to ensure that poverty is reduced and job creation is advanced.

Some SMEs don’t provide researchers with accurate information because they fear

of higher taxation, competition and the absence of record keeping. We were unable

to interview an SME that utilises all available forms of ICTs, in other words, a

significantly large SME due to time and resource constraints

Further research can be done on ways in which to lower ICT costs and ways in

which SME owners can be educated about ICTs, it is believed that ICT impact on

clusters growth could be very interesting trend for future researches. and its benefits

to business. Although interesting results have been obtained from literature analysis,

it would be interesting to analyse only how ICT can best be used effectively and

efficiently benefit SMEs in more comprehensive way: there are no unanimous

opinions which dimensions of SMEs strategic growth are having the major impact on

business success. ICT use does not predict business success by itself but this does

not mean that ICT is not important.

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