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DOCUMENT DE TRAVAIL 2005-006

THE EFFECTS OF E-BUSINESS ON GROWTH AND INTERNATIONALIZATION Louis Raymond François Bergeron Sam Blili

Réseau de gestion des technologies de l’information (RGTI) Version originale : Original manuscript: Version original :

ISBN – 2-89524-228-3

Série électronique mise à jour : One-line publication updated: Seria electrónica, puesta al dia:

04-2005

The Effects of E-business on Growth and Internationalization

Louis Raymond1

François Bergeron2

Sam Blili3

Abstract This study aims at understanding the environmental, organizational and technological factors that ease the assimilation of e-business by manufacturing firms, and that support their growth and internationalization. A survey of 108 Canadian companies gathers some evidence about the most important factors. Résumé : Cette recherche porte sur l’usage du Web et d’Internet par les PME manufacturières. Une étude empirique auprès de 108 compagnies canadiennes nous a permis d’explorer les questions suivantes : Quelles sont les principales motivations des entreprises manufacturières à utiliser le Web et Internet? Dans quelle mesure ces entreprises ont-elles assimilé les fonctions d’affaires électroniques? Dans quel contexte utilisent-elles ces fonctions? Et comment ces éléments sont-ils reliés aux performances d’affaires, en termes de croissance et d’internationalisation?

Keywords: e-business assimilation, e-commerce assimilation, Internet use, Web use, SME, small business, manufacturing, growth, export, performance.

1 Louis Raymond, Ph.D., is a Professor of information systems and holds the Canada Research Chair on Enterprise Performance at Université du Québec à Trois-Rivières. His work has been published in various journals such as the Journal of Management Information Systems, MIS Quarterly, Entrepreneurship Theory and Practice, Journal of Information Technology, and International Journal of Electronic Commerce. 2 François Bergeron, Ph.D., is a Professor of information systems in the Faculty of Administrative Sciences at Université Laval. His work has been published in various journals such as the MIS Quarterly, Journal of Strategic Information Systems, Journal of Small Business Management, Journal of Organizational Computing and Electronic Commerce, and Decision Support Systems. 3 Sam Blili, Ph.D., is a Professor of information systems and heads the Institut de l'Entreprise at Université de Neuchâtel. His work has been published in various journals such as Information & Management, European Journal of Purchasing and Supply Management, International Journal of Information Management, Journal of End User Computing, and International Journal of Electronic Commerce.

The Effects of E-business on Growth and Internationalization

INTRODUCTION

Many small and medium-sized enterprises (SMEs) presently evolve in a complex business

environment, characterized by globalization, the internationalization of markets, and the need for

greater efficiency, effectiveness, and competitiveness based on innovation and knowledge. This

has put increasing pressure upon the management of these firms, especially manufacturing SMEs

that must now compete globally (Cagliano and Spina, 2002). In order to lower their operating

costs, increase productivity and quality, and respond to the increased requirements of their

customers and other business partners, a number of these firms scan the technological

environment and make sizable investments in adopting Internet-based or World Wide Web-

based technologies as the infrastructure for e-business applications (Kleindl, 2000). To the extent

that e-business is assimilated by the SME, it can significantly affect the firm's key business

processes and relationships such as servicing customers and collaborating with business partners

(Norris et al., 2001).

The adoption and assimilation of information technology, and of the Internet in particular, are

deemed to be influenced by a number of environmental, organizational, technological, and

individual factors (Agarwal et al., 1997; Armstrong and Sambamurthy, 1999; Dholakia and

Kshetri, 2004). While a significant amount of research has been done on the determinants of e-

business in large firms, much less is known in regard to SMEs, especially manufacturing SMEs,

given that their use of the Internet is usually more recent and potentially subjected to different

constraints and contingencies related to their specificity as organizations. The specific

characteristics that fundamentally distinguish SMEs from large enterprises relate to their

environment, structure, strategy and decision process , and psycho-sociological context such as

the dominant role of the owner-manager, but also relate to their flexibility, proximity to markets,

and quickness to react and reorient themselves (Julien et al., 1996). For instance, the fact that

smaller manufacturers often act in a subcontracting capacity or in partnership with other firms

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within network enterprises can influence their assimilation of e-business (Raymond and Blili,

1997). Operating most often in "make-to-order" or "job-shop" production environments, rather

than selling products as such to their customer, these firms "sell" their manufacturing knowledge

and know-how within a particular industry (say, plastics) or industrial activity (say, machining).

This makes for a more complex commercial cycle linking customers, suppliers, and other

business partners (Cagliano, Blackmon and Voss, 2001).

Using the Internet and the Web is deemed to provide operational, managerial, and strategic

advantages such as greater internal and external process integration, closer links with customers

and other business partners, greater market penetration and expansion capabilities, richer

information for decision-making, better competitive intelligence, and greater access to external

resources and expertise that contribute to the development of small businesses (Jeffcoate et al.,

2002). E-business is also deemed to provide added opportunities for manufacturing SMEs to

internationalize their activities (Kula and Tatoglu, 2003). As high-growth SMEs are largely

responsible for increases in the economic development of industrialized countries, both in terms

of employment and commercial balance, governments have promoted e-business as a mean to

sustain and increase this development (Peet et al., 2002). However, there is presently not enough

empirical evidence as to the actual effects of e-business upon the development of manufacturing

SMEs, be it in terms of growth or global expansion.

In order to further our knowledge on the use of the Internet and the Web in manufacturing SMEs,

the present research seeks through an empirical study of 108 Canadian firms to explore the

following questions: For what purposes are the Internet and the Web presently used, i.e., to what

extent are e-business functions assimilated in manufacturing SMEs? What characteristics of the

SMEs’ environmental, strategic, managerial, operational, and technological context are

associated with e-business assimilation? And ultimately, to what extent e-business assimilation

contributes to the growth and internationalization of manufacturing SMEs?

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THEORETICAL BACKGROUND

The adoption of information technology has been analyzed most often in terms of the diffusion

and assimilation of innovation, including studies on the adoption of e-business. While Rogers'

(1995) classical diffusion of innovation model has served as a theoretical basis for many of these

studies, it needs to be enriched when innovations relate to complex technologies with an inter-

organizational locus of impact, for which adoption decisions are linked (e.g., when imposed by

business partners), and when innovations are adopted by organizations (as opposed to being

adopted autonomously by individuals) (Eveland and Tornatzky, 1990; Gallivan, 2001). In the

absence of a more general theory of innovation, Fichman (2000) notes that researchers should

develop mid-range theories "tailored to specific classes of technologies [e-business technologies

in this case] and/or particular adoption contexts [in this case, manufacturing SMEs]".

With this in mind, a number of studies have successfully used Tornatsky and Fleisher's (1990)

technology-organization-environment (TOE) framework to explain the adoption and assimilation

of e-business, emphasizing three groups of determinants or predictors: 1) characteristics of the

environmental context such as external pressures from the firm's business partners (Raymond

and Bergeron, 1996), 2) characteristics of the organizational context such as the firm's structure

and resources (Gibbs and Kraemer, 2004), including the perceptions of the organization's

leaders or decision-makers (Kuan and Chau, 2001), and 3) characteristics of the technological

context, including both intra and inter-organizational technologies already assimilated by the

firm (Xu et al., 2004; Zhu et al., 2003).

An organization's propensity to grow is conditioned by the opportunities provided and the

constraints imposed by its environment. In this regard, the communication environment in the

form of information sources and communication channels can be determinant (Rai, 1995),

particularly in the small business context where the firm's external information network has been

found to influence its performance (Barth, 2003). With the advent of globalisation and new

organisational forms such as the “extended” enterprise, some small and medium-sized firms, and

high-growth firms in particular, have been found to develop through networks that link them

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with customers, suppliers, competitors, and other business partners in collaborative relationships

(Hanna and Walsh, 2002), using new Internet and Web-based technologies in particular to

increase the intensity of their communication activities (Vescovi, 2000).

Among the organizational characteristics thought to influence the adoption of information

technology, the small firm's strategy plays a primary role (Lefebvre et al., 1992; Premkumar,

2003). The adoption of an IT innovation such as e-business is intertwined with the firm's

business strategy, be it to reduce costs and reengineer business processes, to increase

product/service differentiation, to achieve growth by developing new products/services and

entering into new markets, or to develop strategic alliances (Kettinger and Teng, 1998). For

SMEs, strategic goals are embodied in the owner-manager's desire to grow by developing the

firm's networks through partnerships, products through innovation, and markets through

internationalization (Raymond and Blili, 1997).

Diffusion of innovation theory has identified many characteristics that can determine an

individual's propensity to adopt an innovation and implementation it for his or her own purposes

(Rogers, 1995). When aggregated at the enterprise-level or associated to leaders or key decision-

makers (e.g., SME owner-managers), individual attributes would obviously also affect the

organizational adoption of information technology (Thong, 1999). Hence, empirical studies have

found that characteristics such as managerial tenure, education level, and professionalism are

predictors of innovation diffusion and assimilation (Damanpour, 1991; Fichman and Kemerer,

1997).

The manufacturing context or production environment represents another fundamental aspect of

the organizational context of SMEs. The basic type of the manufacturing process chosen by a

firm is governed by its resources, by its competitive position and by the nature of the goods to be

produced. The production environment then determines various characteristics required in terms

of production and information processing capabilities (Grover and Malhotra, 1999). Hence, mass

production ("make-to-stock) requires more standardization, whereas discrete production ("make-

to-order"), the type of production most often found in SMEs, requires greater manufacturing and

information technology flexibility (Subash Babu, 1999).

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The technological context of small manufacturing firms is characterized above all by the nature,

flexibility, and integration of the manufacturing technology used to produce goods and render

services to customers. In this regard, increased requirements for competitiveness, innovation, and

quality, has led many SMEs to make sizable investments in computer-based manufacturing

technologies such as computer-aided design and manufacturing (Mechling et al., 1995). They

have also invested, be it voluntarily or under pressure from business partners, in advanced

computer-integrated manufacturing applications such as MRP II and now ERP to plan, command,

and control manufacturing resources and operations and link them with other intra and inter-

organizational systems (Kathuria and Igbaria, 1997). Taken together, these technologies and

applications constitute advanced manufacturing technologies (AMT) that are compatible, in

terms of enterprise integration, to a varying degree with the SMEs' use of Internet and Web-

based information technologies (Olhager and Rudberg, 2003).

RESEARCH MODEL AND HYPOTHESES

Founded on the TOE framework, the research model is presented in Figure 1. Five constructs

that represent the firm's environmental, strategic, managerial, operational and technological

context are deemed to influence a manufacturing SME's assimilation of electronic business

activities. In this study, the organizational assimilation of e-business is conceptualized as the use

of the Internet (including intranet and extranets) and the Web. As presented in Table 1, the first

business aim of this use is communicational and informational (e-communication), the second is

more strategic in nature (e-business intelligence) while the third is transactional and collaborative

(e-commerce and e-collaboration). From this point of view, e-business assimilation is deemed to

be more extensive when the firm uses the Internet and the Web in support of more aims. Two

other constructs, deemed to be affected by e-business assimilation, represent the SME's

development in terms of growth and internationalization.

------ Figure 1 -----

------ Table 1 -----

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Environmental context of e-business in manufacturing SMEs

Many small manufacturers must now operate within a business environment characterized by the

emergence of new organizational forms such as the network or extended enterprise, whose

information infrastructure is based upon inter-organizational systems and technology (Johnston

and Wright, 2004). In a networked business environment, manufacturing SMEs would require

Internet and Web-based capabilities to better support supply chain management and customer

relationship management in particular. The emphasis placed upon communication and

cooperation in such an environment is conducive to the assimilation of the B2B form of e-

business. Greater use of the Internet and the Web would thus result from increased networking

intensity on the part of the SME, that is, from the establishment of more partnerships with its

customers, distributors, suppliers, competitors and other business partners such as research

centers and consultants.

H1 -The greater the firm's networking intensity, the greater its assimilation of e-business.

Strategic context of e-business in manufacturing SMEs

A firm’s strategic orientation or posture is its response to its environment. As this environment

becomes more hostile or complex, SMEs with a more aggressive or more entrepreneurial

orientation increase their competitiveness by seeking new markets and putting emphasis on

technological leadership and new product/market combinations (Özsomer et al., 1997). Increased

complexity in the environment is also seen as causing the acquisition of competitive, market and

technological information to be more continuous, variant, and wide-ranging (Julien et al., 1996).

The strategic orientation of the SME must also be in alignment with its strategic management of

information technology (Bergeron et al., 2001), including the Internet (Porter, 2001). Given the

goals of a more aggressive strategy in terms of market, product and technological developments,

one expects e-business to be called upon more in support of such developments.

H2 - The more aggressive the firm's strategic orientation, the greater its assimilation of e-business.

Managerial context of e-business in manufacturing SMEs

Small firms are deemed to be “organic” to the extent that their strategy, structure, and culture are

embodied by their owner-managers. The primary goals and characteristics of entrepreneurs are

thus crucial in determining the firm’s innovativeness and orientation toward product/market

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development and technological sophistication (Miller, 1993). In this regard, small business

studies have shown that the previously acquired knowledge and experience of business owner-

managers condition their behavior as adopters of information technology (Riemenschneider and

Mykytyn, 2000). In addition, a key component in the small firm’s e-business learning experience

is the owner-manager’s individual learning (Raymond and Blili, 2000). Domain-specific

knowledge that comes with experience in a specific industry or sector as well as more general

knowledge obtained from a higher education would thus influence the entrepreneur’s awareness

of the various e-business functions and applications to be assimilated by the organization, hence

the third research hypothesis:

H3 - The greater the firm's owner-manager experience and education, the greater its assimilation of e-business.

Operational context of e-business in manufacturing SMEs

The appropriate choice of advanced manufacturing technologies is influenced by the

manufacturing process structures used by an organization, i.e., by its production environment

(Kathuria and Igbaria, 1997). The flexibility required within a "make-to-order" production

environment has led SMEs to adopt computer-integrated manufacturing (Ari Samadhi and

Hoang, 1995). In parallel fashion, make-to-order companies are seen to increase their level of

vertical integration and improve their manufacturing planning and control decisions through e-

business applications that allow them to better communicate and exchange information with their

customers and suppliers (Olhager and Rudberg, 2003). Given the greater complexity of buyer-

seller relationships in a make-to-order production environment, the fourth hypothesis follows:

H4 - The more the firm's production environment is of the "make-to-order" type, the greater its assimilation of e-business.

Technological context of e-business in manufacturing SMEs

Advanced manufacturing technologies are deemed to “significantly impact the design and

outcomes of core organizational processes” (Brandyberry et al., 1999, p. 995). In looking at the

links between strategy, AMT and performance, some studies have stressed the information

processing capability inherent in AMT in addition to the flexibility dimension (Kotha and

Swamidass, 2000). By linking with the information outputs and inputs of internal systems and

applications such as CAD/CAM, MRP II and ERP, e-business applications can increase the

8

manufacturing SME's level of external integration through their enabling of design and

production information exchanges with business partners, coordination of trans-organizational

business processes (e.g., just-in-time or synchronous production with "extended" ERP), and

inter-organizational collaboration within a networked environment (Norris et al., 2000). Given

the compatible and complementary nature of e-business and advanced manufacturing

applications, the fifth hypothesis follows:

H5 - The greater the firm's assimilation of advanced manufacturing technologies, the greater its assimilation of e-business.

Growth and internationalization outcomes of e-business in manufacturing SMEs

The assimilation of e-business is obviously not an end in itself for the manufacturing

SME but a mean to enhance its business performance, subject to its strategic goals. Growth-

seeking SMEs would achieve their goal through the advantages provided by e-business. Greater

penetration of existing markets and development of new markets can be enhanced through the

better competitive intelligence, greater customer satisfaction, improved marketing and sales

practices ("one-to-one" marketing), and tighter relationships with distributors brought about by

implementing e-business applications (De Toni and Nassimbeni, 2001). Manufacturing SMEs

who seek to export to increase their sales when local markets are stagnant may also view e-

business a vector of internationalization. Whereas participating in networks may render the SME

more competitive at the international level, achieving "world-class" status by enhancing its

supply chain management (Hendry, 1998) and its customer relationship management (Hanna and

Walsh, 2002). Given that e-business assimilation, notably EDI assimilation, provides a number

of operational and strategic advantages to manufacturing SMEs such as reducing operation cycle

time and increasing service quality (Bergeron and Raymond, 1997), two hypotheses follow:

H6 - The greater the firm's assimilation of e-business, the greater its growth.

H7 - The greater the firm's assimilation of e-business, the greater its internationalization.

METHODOLOGY

The data used in the study were obtained from the PDG® database (St-Pierre and Delisle, 2004),

containing information on more than 350 manufacturing SMEs located in the province of

Quebec, Canada. With the collaboration of a 800-member industry association to which most of

9

these firms belong, the database was created by having the SMEs' chief executive and functional

executives such as the controller, human resources manager, and production manager fill out a

questionnaire to provide data on the practices and results of their firm. In exchange for these data,

the firms are provided with a complete comparative diagnostic of their overall situation in terms

of performance and vulnerability. Out of these firms, 108 came back for a second diagnostic a

year later and were then questioned about their use of the Internet and the Web. The number of

employees of the sampled organizations ranges from 19 to 336, with a median of 60. Over fifteen

industrial sectors are present, including metal products, wood, plastics and rubber, electrical

products, food and beverages, and machinery.

In assessing the environmental context, the firm's networking intensity is measured by the

number of distribution, marketing, design and R&D partnerships established with customers,

suppliers and other third-parties such as research centres (Gulati, 1998). As the key informant on

the firm’s strategic orientation, the CEO is asked to rate the aggressiveness with which new

markets were developed and new products are launched, and the proactiveness with which new

technologies are introduced, on scales adapted from Covin and Slevin (1989) and Julien and

Raymond (1994). The production environment is assessed by the proportion of total production

that is done in “make-to-order” mode as opposed to mass or continuous production modes

(Mechling et al., 1995). Brandyberry et al.'s (1997) classification is used to assess the firm's level

of AMT assimilation: level 1) stand-alone AMT (technologies such as CAD, CNC, automated

handling of materials, and industrial robots), level 2) functionally oriented AMT (CAM and

FMS), and level 3) computer-integrated manufacturing (CIM, i.e., applications such as

CAD/CAM, MRP II and ERP that involve enterprise-wide integration). Growth is assessed by

the average sales increase over the last three years whereas internationalization is measured by

the mean percentage of sales turnover that has been generated via exports over the last two years

(Kalantaridis, 2004).

As presented in Table 1, the measure of e-business assimilation is based on a list of business

activities for which the Internet and the Web is used by the firm. The grouping of these various

functions corresponds to various stages of e-business assimilation, as adapted to the

manufacturing SME context from previous studies (Raymond and Bergeron, 1996; Kula and

10

Tatoglu, 2003; Levy and Powell, 2003; Xu et al., 2004). The extensiveness of each type of use is

measured by counting the number of activities checked by the respondents. The descriptive

statistics of the research variables are presented in Table 2.

------ Table 2 -----

RESULTS

In testing the relationships hypothesized by the research model, structural equation modeling

(SEM) was used. The partial-least-squares (PLS) method was chosen in preference to other SEM

methods such as LISREL, since it is more appropriate in the initial phase of developing and

verifying theories (Fornell and Bookstein, 1982). PLS is also robust in that it does not require a

large sample or normally distributed multivariate data (Fornell and Larcker, 1981).

Test of the measurement model

The PLS method simultaneously assesses the theoretical propositions and the properties of the

underlying measurement model. Internal consistency of measures, i.e., their unidimensionality

and their reliability must be verified first. The observable variables measuring a non-observable

construct (or latent variable) must be unidimensional to be considered unique values.

Unidimensionality was satisfied by retaining variables whose loadings were above 0.5,

indicating that they share sufficient variance with their related construct. Thus, two variables,

distribution partnerships and owner-manager education, had to be initially removed from the

measurement model to insure construct unidimensionality. Reliability can be verified by

considering the value of the rho coefficient, defined as the ratio between the square of the sum of

the loadings plus the sum of the errors due to construct variance (Fornell and Larcker, 1981). A

rho greater than 0.8 indicates that the variance of a given construct explains at least 80 % of the

variance of the corresponding measure. As shown in Table 3, this is the case for all the

constructs in the research model. The third property to be verified is discriminant validity. It

shows the extent to which each construct in the research model is unique and different from the

others using the correlations between each pair of constructs as criteria. The correlation between

11

constructs must be less than the square root of average variance extracted (AVE) from each by

its measures (Fornell and Larcker, 1981); this is shown to be the case in Table 3.

---------- Table 3 ----------

Test of the theoretical model

The research hypotheses are tested by examining the direction, strength and level of significance

of the path coefficients calculated by the PLS method, as shown in Figure 2.

---------- Figure 2 ----------

H1: The path coefficients first confirm that the environmental context influences the extent to

which the sampled manufacturing SMEs have assimilated electronic business. The firm's

networking intensity, both upstream and downstream in the value-chain in the form of design,

R&D, and marketing partnerships, is found to determine their use of the Internet and the Web for

transaction or collaboration and business intelligence purposes, but not for communication or

information purposes. Co-design of products and joint R&D between the SME and its business

partners would be enhanced by the greater collaborative capabilities provided by the e-

collaboration dimension of e-business (say, through electronic meetings). Sales and marketing

partnerships would be supported by the greater commercial capabilities provided by the e-

commerce dimension (say, through an e-marketplace shared by SMEs in the same manufacturing

sector) and the greater commercial and competitive knowledge acquisition and diffusion

capabilities provided by e-business intelligence.

H2: Manufacturing SMEs whose strategic orientation is more aggressive in regards to new

markets, products and technologies are found to assimilate e-business more extensively for

purposes of communication or information, and transaction or collaboration with business

partners, but not for business intelligence purposes. Firms in which the competitive strategy is

based on developing new markets or on maintaining market share by improving their products

and services through new technologies would first look to e-communication in order to better

promote the firm, its products and services, and better communicate with existing customers.

More entrepreneurial SMEs would also look to e-commerce and e-collaboration technologies in

their capacity to support the firm's market development (growth and internationalization) and

product development (quality and innovation).

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H3: The hypothesis that the managerial context influences the assimilation of e-business is partly

confirmed. SMEs are found to use e-communication, e-commerce and e-collaboration more

when led by a chief executive with more experience in the sector of activity. Here, a tentative

explanation would be that more experienced owners possess greater managerial competencies in

regards to achieving manufacturing flexibility and integration, and are thus in a better position to

ascertain the enabling role of e-business in this regard. They may also have developed over the

years a combination of manufacturing resources that uniquely “fits” their firm’s operating and

external environments, and thus renders them less uncertain as to the eventual effects of e-

communication, e-commerce, and e-collaboration upon their firm's manufacturing strategy and

performance.

H4: A significant but negative path coefficient associates the production environment with the e-

commerce and collaboration dimension of e-business. This result would indicate that the greater

complexity of the inter-organizational business processes associated with "make-to-order"

production make them more difficult to reengineer with Internet and Web-based technology, as

opposed to the simpler catalog-based buying and selling processes associated with "make-to-

stock" production. Also, make-to-order is a manufacturing process structure with greater

exigencies in terms of product variety and flexibility that would lead SMEs to increase their

assimilation of e-business intelligence, as these firms require richer and wider-ranging

information in order to evaluate their competitors, identify potential customers, and find new

technologies.

H5: The technological context was partly confirmed as a determinant of e-business assimilation

in small manufacturing firms. More precisely, the path coefficients indicate that the more

integrated are SMEs in terms of their assimilation of advanced manufacturing technologies, the

more they use the Internet and the Web for business intelligence purposes. As the other

dimensions of e-business, namely e-communication, e-commerce and e-collaboration were

positively but not significantly influenced by AMT assimilation, this could tentatively mean that

in most manufacturing SMEs, technologies and systems such as CAD/CAM or ERP have yet to

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be integrated with Internet technologies through inter-organizational systems such as shared-

CIM or extended-ERP.

H6: Path coefficients indicate that the growth of manufacturing SMEs is positively and

significantly influenced by its use of the Internet and the Web to sell its products and services,

and to collaborate with its business partners in developing new products. As expected, the

enhanced sales, marketing, and product development capabilities brought about by e-commerce

and e-collaboration translate into increased sales. It would also seem plausible that the other

stages of e-business assimilation, that is, e-communication and e-business intelligence, would

have a more indirect effect on sales growth, that is, through an intermediate effect on other

determinants of growth such as customer satisfaction.

H7: The last hypothesis could not be confirmed in that e-business assimilation was not found to

positively influence the internationalization of manufacturing SMEs. A significant but negative

path coefficient does however associate greater use of e-business intelligence with less export

performance. Here, one could argue for the presence of a reverse causality between

internationalization and e-business assimilation. It could be that the less-internationalized SMEs

are the ones that require more Internet and Web-enhanced capabilities in terms of prospecting for

clients abroad and garnering intelligence on the global competition. The cross-sectional as

opposed to longitudinal nature of the study renders this argument speculative however.

Globally, these results indicate that the hypothesized antecedents of e-business assimilation in

manufacturing SMEs explain a significant percentage of variance in e-communication (20 %), e-

business intelligence (12 %), and e-commerce and collaboration (23 %). In terms of growth, the

assimilation of e-business by manufacturing SMEs explains 4 % of these firms' sales growth and

5 % of their export performance as there are obviously many other factors that contribute to these

firms' performance.

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IMPLICATIONS AND LIMITATIONS

The results of this study have implications for researchers as well as for managers of small and

medium-sized manufacturing firms. Given the previous empirical evidence on e-business in

SMEs, our results confirm that one must not only look at the adoption rate or diffusion of

Internet and Web-based manufacturing technologies. One must also look at their assimilation or

infusion level to obtain richer insights as to why and how small manufacturers use e-business. In

this regard, the concept of e-business assimilation as operationalized in this study seems

promising as small manufacturers were found to vary significantly in their use of the Internet and

the Web. For instance, it is one thing to implement a Web site that serves as "brochureware"

(Levy and Powell, 2003), as most manufacturing SMEs have done already, but it is quite another

to interact electronically with their business partners' R&D or marketing department, as have

done 30 % of the firms studied here. Researchers who seek to further understand the actual

benefits that accrue to small firms from their assimilation of e-business could utilize this concept

in future studies in lieu of adoption.

Given the antecedents of e-business assimilation found in this study, the basic link between

strategy and technology assimilation stands confirmed, notwithstanding the individual or

entrepreneurial nature of the small manufacturer’s strategic orientation. How the owner-manager

perceives technology and the extent to which he or she pursues product and process innovation

can thus be a predictor of the firm’s assimilation of e-business. In this regard, identifying a

mismatch between the firm’s strategy, manufacturing environment, manufacturing technology,

and its use of e-business should trigger corrective action. One must also take into account the

new realities of global competition in which large and small firms work together within networks.

Managers of small firms who enter into long term agreements with prime contractors or who act

as subcontractors for a few large customers must be prepared to increase their firm’s assimilation

of e-business in partnership with rather than under pressure from their customers and other

business partners. In this regard, acquiring new Internet and Web-based technologies also

implies investments in the training and organizational development required to successfully

assimilate and integrate these technologies. While these investments may be quite large and

15

induce major changes in business processes, they should contribute to the development of the

SMEs that make them.

To the extent that small business managers want their firm to grow, the empirical evidence

provided by this study leads one to conclude that they should look at the present level of e-

business assimilation in conjunction with their strategic intent or growth-orientation. Identifying

which applications such as e-commerce and e-collaboration are assimilated and which are not,

and which are integrated and which are stand-alone, would be essential in determining to what

extent the firm’s e-business use is aligned with its network environment, its strategy, its

manufacturing environment, and its manufacturing technology. For instance, this would help in

answering a question for many SMEs, that is, if and when they must integrate their computer-

integrated manufacturing or enterprise systems with their business partners' systems or with the

e-marketplaces developed by intermediaries or by large enterprises within certain industries such

as the automotive and aeronautic industries (Brown and Lockett, 2001; Kaplan and Sawhney,

2000).

The results and implications of this study must be considered in light of the intrinsic limitations

of survey research. The nature and relatively small size of the sample limit the capacity to

generalize research findings. The cross-sectional nature of the research design implies that true

causal relationships between the research constructs cannot be inferred. Also, the breadth of e-

business assimilation in manufacturing SMEs was measured but not its depth. Additional

measures of growth and internationalization would have also given increased validity to the

results.

CONCLUDING REMARKS

With the advent of global competition and new organizational forms based on networks of

cooperating firms, the successful assimilation of e-business is bound to take added importance

for many SMEs in terms of survival, growth, and competitiveness. Given the dearth of empirical

knowledge in this regard, the present study has contributed to a further understanding of the

nature and state of e-business assimilation in small manufacturing firms, and of the antecedents

16

and market development outcomes of this assimilation. It is recognized that these organizations

are highly flexible and adaptable to change, be it environmental, organizational, or technological.

Some of these already possess advanced manufacturing systems and, in the now global business

environment, must follow suit with Internet and Web-based information systems such as e-

business intelligence, e-commerce, and e-collaboration systems to improve their competitive

position.

E-business investments cannot insure greater performance unless they are coherent with the

competitive environment, strategic goals, and business processes of manufacturing SMEs.

Results of this study imply that future research on the assimilation of e-business in these

organizations must further explore the competitive dimensions of this phenomenon. In this

regard, better explanations depend on furthering our knowledge of the level of alignment or “fit”

between the external (environmental uncertainties and pressures, networks) and internal

(entrepreneur, strategy, structure, technology, culture) contexts in which e-business applications

are introduced.

ACKNOWLEDGEMENTS

The author would like to thank the Canada Research Chairs Program and the Canada Foundation for Innovation for their financial assistance.

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Communicational/ Informational use

of the Internet

Networkingintensity

Manufacturingcontext

Manufacturingtechnology

ASSIMILATION OF E- BUSINESS

H1

H4

Figure 1: Determinants and outcomes of e-business assimilation in manufacturing SMEs

Strategicorientation H2

Managerialcontext

H3

H5

Growth

Transactional/ Collaborative

use of theInternet

Business Intelligence use of theInternet International-

ization

H6

H7

ENVIRONMENTAL CONTEXT

TECHNOLOGICAL CONTEXT

ORGANIZATIONAL CONTEXT

21

Table 1: E-business activities for which a manufacturing SME uses the Internet (including intranet and extranets) and the World Wide Web

E-business function % of SMEs

(n = 108) Communicational/Informational use (e-communication)

- promote the firm - promote products and services - develop in-house communications - interact with customers in order to improve products and services

82 % 70 % 67 % 56 %

Business Intelligence use (e-business intelligence) - prospect for new clients nationally - prospect for new clients abroad - develop competitive intelligence

58 % 50 % 40 %

Transactional/Collaborative use - sell products/services (e-commerce) - interact with business partners' R&D and marketing departments in

order to develop products and services (e-collaboration)

32 % 30 %

22

Table 2: Descriptive statistics of the variables in the research model (n=108) variable mean med. s.d. min. max. Networking intensitya design and R&D partnerships marketing partnerships distribution partnerships

1.0 0.7 0.4

0.0 0.0 0.0

1.4 1.0 0.7

0 0 0

5 5 3

Strategic orientation development of new markets/productsb introduction of new technologiesc

2.1 2.8

2.0 3.0

0.9 1.1

1 1

3 4

Managerial context owner-manager’s experienced owner-manager's education levele

18 3.3

16 4.0

10 0.9

0 1

46 4

Manufacturing context type of productionf

37

10

42

0

100

Manufacturing technology assimilation of AMTg

1.8

1.0

0.9

1

3

Assimilation of e-businessh communicational/informational use of the Internet business intelligence use of the Internet

transactional/collaborative use of the Internet

2.8 1.5 0.6

3.0 2.0 0.0

1.1 1.3 0.7

0 0 0

4 3 2

Growth % sales growthi

20

12

49

-33

460

Internationalization % sales exportedj

2.3

0.0

13.0

0

100

a number of partnerships with prime contractors, customers, suppliers, competitors, research centres, colleges and universities, and other SMEs

b 1: reactive (33 %), 2: defensive (20 %), 3: innovative (47 %), 4: very innovative (0 %) c 1: very prudent (12 %), 2: prudent (25 %), 3: competitive (28 %), 4: innovative (35 %) d number of years in the industry e 1: grade-school (4 %), 2: high-school (13 %), 2: college (30 %), 3: university (53 %) f percentage of production done on a "make-to-order" basis g 1: stand-alone AMT (33 %), 2: functionally-oriented AMT (12 %), 3: CIM (55 %) h number of different e-business functions for which the Internet is used (see Table 1) i averaged for the last two years j export sales / total sales

23

Table 3: Reliability and discriminant validity assessment of the measurement model

Latent variable ρa 1.b 2. 3. 4. 5. 6. 7. 8. 9. 10. 1. Networking intensity .80 .82 2. Strategic orientation .82 .01 .84 3. Managerial context 1.0 .05 .04 1.0 4. Manufacturing context 1.0 -.14 .13 -.02 1.0 5. Manufacturing technology 1.0 .14 .04 .05 -.06 1.0 6. Comm./Inform. use of the Internet 1.0 .22 .20 .28 .04 .13 1.0 7. Bus. Intelligence use of the Internet 1.0 .23 .08 .09 .15 .21 .38 1.0 8. Transac./Collab. use of the Internet 1.0 .21 .18 .21 -.19 .18 .32 .31 1.0 9. Growth 1.0 -.03 .07 -.20 -.16 -.03 .02 .03 .22 1.0 10. Internationalization 1.0 -.10 .02 -.16 -.14 .09 -.11 -.20 -.09 .01 1.0

a construct reliability coefficient = (Σλi)2/((Σλi)2+Σ(1-λi2))

bdiagonal: (average variance extracted)1/2 = (Σλi2/n)1/2

sub-diagonals: correlation = (shared variance)1/2

24

assimilation of AMT Manufacturingtechnology

Manufacturingcontext

Strategicorientation

Networkingintensity

Communicational/ Informational use

of the Internet

Business Intelligence use of the Internet

Transactional/ Collaborative use

of the Internet

marketing partnerships

development of new markets/products

introduction ofnew technologies

type of production

.17

.19*

.19*

.23**

.07

.22**

.10

.18*

.11

-.06.20*

-.22**

(R2 = .20)

(R2 = .12)

(R2 = .23)

.71

.85

.82

1.0

1.0

*: p < 0.05 **:p<0.01

ASSIMILATION OF E-BUSINESS

Figure 2: Results of the structural model analysis (PLS, n = 108)

no. of uses

no. of uses

no. of uses

1.0

1.0

1.0

distribution partnerships

Managerialcontext

owner-manager’sexperience

.28**

.05

.24**

1.0

owner-manager’seducation level

Growth

(R2 = .04)

International-ization

(R2 = .05)

design and R&D partnerships .91

-.06.07.19*

.01-.19*-.07 % sales exported

1.0

% sales growth1.0