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How eCommerce Helps the Growth of SMEs

How eCommerce Helps the Growth of SMEs


Small and Medium Enterprises (SMEs) in a country are the backbone of its national economy. In developing countries, in particular, the role of SMEs is quite pivotal to the development of the economy.

According to The World Bank, SMEs account for the majority of businesses worldwide and are significant contributors to global economic development. It goes on to say further that SMEs represent about 90% of businesses and more than 50% of the employees worldwide.
Also, formal SMEs contribute up to 40% of national income (GDP) in emerging economies1. In a global context, the World Bank projects that 600 million jobs will be needed by 2030 to absorb the escalating global workforce, that renders the development of SMEs a high priority for many governments around the world. In emerging markets, most formal jobs, that is, as many as 7 out of 10 jobs, are generated by SMEs. Now this amply demonstrates the importance of SMEs to the respective national economies and the global economy at large.

SMEs and the Sri Lankan Economy

According to National Human Resources and Employment Policy SMEs account for as much as 80% of all Sri Lankan businesses.
There are SMEs in the agri-business sector engaged in growing spices, fruits and vegetables and in the manufacturing sector engaged in numerous industrial activities accounting for about 20 percent of industrial establishments. In the service sector, SMEs accounts for more than 90 percent of business establishments. SMEs are an essential source of employment opportunities and are estimated to contribute about 35 percent of employment. SMEs play an important role in promoting Scale-up cohesion…”2

Surviving the Economic Volatility

Due to their financial constraints, small volume of activities, lack of diversification, and in many cases, heavy dependence on a few major companies, SMEs are highly vulnerable to the fluctuations in the economy. Without adequate cash reserves or access to finance otherwise, SMEs have no cash cushion to fall back on, most SMEs fail to weather a severe economic downturn, which, judged by the historical patterns, occurs every few years. Due to the same, their manoeuvring space is so limited that the majority of SMEs can’t adapt themselves or diversify into new product or service sectors, which could easily drive them out of the business. Also, most SMEs fail to benefit from the economies of scale due to their relatively small business volume.

SMEs in Sri Lanka and around the world

eCommerce and SMEs

The ever-evolving Internet has brought about sweeping changes in the world of business. Today,the Internet has become a medium of communication, a platform for education, trade and service delivery, a recommendation engine and more at the same time.
For SMEs, Electronic Commerce (eCommerce) offers a significant opportunity for expanding their revenue, market share and customer base and penetrating new markets in both global and local contexts.

Although SMEs in some markets & industries record fair growth in the rate of ecommerce adoption, in far too many other markets & industries, they fall behind way too much in the rate of eCommerce adoption, thereby foregoing all the benefits offered by eCommerce.

eCommerce has the potential to help SMEs scale up and expand their outreach in a number of ways including but not limited to the following:

  • Fostering an international reputation

Online transactions create a verifiable track record of a company’s performance and credibility. Consumers depend on such records to find the companies that are most likely to provide satisfactory service or quality products. Businesses bank on them to find reliable partners, and financial institutions rely on them to spot solid companies whose growth they can confidently shore up. A sound record of online transactions is one of the most valuable assets a company can accumulate.

  • Expanding market reach

Cross border eCommerce helps SMEs expand their outreach, as it reduces the investment required for a company to penetrate and become visible in the global market. Online platforms all function to bring consumers to a single virtual marketplace. These platforms have a network effect: once the number of users has hit a certain threshold, the marginal cost of attracting newcomers to a website is minimal. This is a major benefit that SMEs operating on the platforms can enjoy.

  • Decreasing market research costs

The big data generated from transaction records can help SMEs reach out to a targeted group of potential buyers. One widely used technology by many eCommerce websites involves analysing users’ browsing history to assess what type of products consumers are looking for and then automatically suggest similar products.

  • Disintermediation in international trade

A considerable proportion of international value can be harnessed by disintermediation of those responsible for import and export activities, as SMEs can ship products directly to the end user via e-commerce.

  • Leveraging eCommerce ecosystems

Online platforms are building ecosystems which help SMEs to access, often at a discounted price, the essential services needed for company growth. Among them are financing options, shipping, delivery and logistics solutions, promotion packages, legal and financial advisory services, market information and analysis, and B2B matchmaking services.

Even if the spotlight is generally turned on the eCommerce giants, there are millions of smaller and less known eCommerce SMEs that turn in significant profits judged by the scale of their business operations. Such accomplishments are possible simply because of the multiple advantages that eCommerce yields. Whether an SME wants to operate within the borders or beyond borders, eCommerce promises them growth prospects and prosperity beyond their imagination.

Challenges in eCommerce Adoption

While there are many benefits of eCommerce for SMEs, they also have to overcome a number of challenges in adopting eCommerce.

Lack of suitable eCommerce solutions for SMEs

The majority of eCommerce solutions available at the moment does not cater to the requirements of SMEs. SMEs require an adoptable, cost effective and easy to manage eCommerce solution that fits across multiple business models.

Difficulty of Adaptation

Some SMEs may find it exceedingly difficult to change the existing procedures or practices to match with eCommerce adoption.Especially in the case of moving an existing brick and mortar store to an online shop.

Inadequate transportation and delivery facilities

Delivery is an indispensable function of eCommerce operation. The quality of service matters as much as the speed of delivery. However, SMEs unlike mid level and large retails find it difficult to invest in delivery methods required from conventional eCommerce solutions.

Lack of Awareness of eCommerce models and methodologies

Many SMEs may not understand the nuts and bolts of eCommerce operations either because they don’t invest enough effort in studying eCommerce in depth or they may find it hard to access credible enough resources to understand eCommerce well enough.

Lack of Online Payment Method

Many eCommerce solutions available in the market do not facilitate low cost multiple payment methods, which calls for compulsory investment on a payment gateway, an option that is not feasible to SMEs.