Discussion brief for the Export Strategy-Maker
Export Development in the Digital Economy
Internet for SMEs: A
New Silk Road?
by Paula Swatman
Professor, E-Commerce, RMIT University, Melbourne
paula.swatman@rmit.edu.au
Are Australian SMEs ready to use the
Internet as a means to join the global economy? And what lessons can
be learned for developing countries from the Australian experience,
especially for small firms located in rural areas?
With great enthusiasm, Australian SMEs
have been adopting Internet modes of marketing and (to a lesser
degree) sales, seeing this as a way of overcoming natural
disadvantages of small size and geographic distance.Yet these same
SMEs often do not have a strong base of technological experience or
global marketplace management skills.
SMEs form a huge proportion of company
numbers in every country. In Australia, for example, they account for
nearly 95% of company numbers - although, of course, they account for
a considerably smaller percentage of turnover. SMEs provide
significant employment and clearly make a major contribution to any
economy, whether large or small, sophisticated or emerging.
This mixture of economic significance,
enthusiasm, technical and technological inexperience, and growing
global awareness is potentially very dangerous. Small companies
traditionally fail to survive in quite astonishing numbers - the
Australian figures suggest that one in two small companies fail to
survive their first year. The risks which global marketing pose to
comparatively inexperienced and unsophisticated smaller companies have
encouraged governments of all types and political leanings to look at
ways of assisting SME import/ export activities.
Internet: A new silk road?
In 1997 the Australian Federal Department of Foreign Affairs and Trade
commissioned a series of 12 case studies on small Australian companies
using the Internet for international trade. These case studies, which
were undertaken by a group of students and academics, told a story of
moderate success in using low-cost technologies (both web and e-mail
based) by some small and innovative Australian companies. The cases
were subsequently published in the form of a book entitled
"Putting Australia on the New Silk Road" (available in PDF
format from www.dfat.gov.au/nsr).
A significantly larger follow-up
project in 1998 looked at ways government could effectively support
Australian SMEs planning to use the Internet for international trade. A
group of 36 case studies, based on a questionnaire and roundtable
discussions in the major capital cities, resulted in the book,
Driving Forces on the New Silk Road. An analysis of similar
projects around the world led to Creating a Clearway on the New
Silk Road.
What role should government play?
What role should government
play, the studies asked. The companies were unanimous about what
government should not do: they requested that government
refrain from further regulating Internet-based trade activities. They
were much less certain about just what governments should do
to assist them. The most popular suggestion was to create an online
"one-stop-shop" for all offshore trading documentation —
so that companies need only go to a single site to find information,
regulations and forms to undertake export activities. Forms would be
downloadable (or even online); links to other sites, when absolutely
necessary, would streamline the form-filling, permission-granting
process to the maximum.
This project provided a rich mine of
information on a cross-section of Australian exporting companies. They
varied from large to small and were located in both capital cities and
in remote, rural and regional Australia. Some of the most innovative
companies were not, as one might have expected, those based in Sydney
or Melbourne and having excellent technical support — but were
located in remote areas where technology was effectively dependent on
the skills of the entrepreneur concerned (see, for example, the
exclusively online operation, Mick’s Whips, based over 100 km
outside Darwin and selling Australian products most successfully to
Europe, Asia and North America (www.mickswhips.com.au).
Remote communities: Will they benefit?
The tendency is for governments
to encourage remote, rural communities to build web-based
infrastructures, on the grounds that this will cut service delivery
costs, enhance the lives of the inhabitants and encourage young people
to remain in the town because of exciting employment opportunities.
We are finding, however, that this
approach does not always have the results which were anticipated. Many
service providers use the excuse of the web to remove existing
infrastructure (banks and post offices being obvious examples), while
much of the money which was formerly spent within the community is now
flowing outside to capital city and overseas providers of goods and
services.
The net result, in some cases, is a
further degradation of the quality of life in country towns — and,
in extreme cases, a further shift in population away from the very
area which was to have benefited from the new technology. A number of
issues arising from this project have been confirmed by other work
undertaken by the CollECTeR inter-university e-commerce research
network (www.collecter.org).
There are, of course, encouraging
exceptions to this depressing picture — country towns in which an
innovative entrepreneur can establish enthusiasm for new technology
and provide a foundation for further growth of Internet-based
businesses. Cowley Online, for example, (www.cowleys.com.au) is
a search engine, web site developer and focus for technology
development in Newcastle, a former steel town in New South Wales. The
company is successfully acting as a fulcrum for high-tech businesses
in the area, and has already spawned the extremely successful Petal
Network (www.petals.com.au) which links over 1000 florists
around Australia in a worldwide online flower and gift delivery
system.
Challenges for small firms
Understanding today’s global marketplace
Small companies (and particularly micro-sized companies) are very
susceptible to the unintended side effects of technology. The concept
of globalization and the potential prices available to companies able
to reach customers around the world are very attractive prizes to many
SMEs. But without a thorough understanding of the market, their
customers, the order fulfillment requirements of overseas trade, and
possible pitfalls -- many small firms that attempt to move from a
local market place to a global one will fail at the endeavour and
possibly fail completely.
Telecommunications infrastructure
One of the major problems faced by high-tech companies in rural
locations is that of adequate technical infrastructure. Even in
countries as technologically advanced as Australia or the United
States, small town, high-tech companies complain about the quality of
their telephone lines and data access. A company which must pay an STD
call to connect to the Internet has no chance of competing effectively
with capital city or regional centre-based alternatives.
Understanding the role of the Internet
The Internet is an "additive" marketing channel, rather than
a "substitutive" one. Companies, unless they are entirely
web-based, are generally unable to move away from other marketing
channels, such as television, radio or print media, simply because
they are now also marketing on the web. The additional costs of having
a web site must thus be balanced by additional income from new
customers (or, at the very least, from existing customers being
prepared to purchase substantially more than they previously did).
Opportunities
Information-based products are at an advantage.
Companies with information-based products have a real advantage in the
networked world. Not only can web sites display product information
and take orders, but they can deliver the end-product immediately and
at a low cost. These benefits obviously accrue to music, video and
software companies, but also to lawyers, accountants, stockbrokers and
consultants, among others.
These companies are in an excellent
position to form more-or-less informal global networks, so that they
can provide support around the world at very low cost — and obtain
expertise on local issues and problems. In many cases, consumers
prefer to deal with smaller firms. This means that there are benefits
in terms of image to position a small firm as part of a network of
local experts.
Niche marketers can be winners.
In Australia, examples of small firms that have successfully used the
Internet to exploit niche markets include Mick’s Whips (cited
earlier in this article), Tobwabba Art Online (http://www.tobwabba.com.au/)
which sells Aboriginal art and craft products, or Boots Online (http://www.bootsonline.com.au/)
which sells Australian bushman’s boots around the world. In a niche
market, competition is significantly less, customers are far less
likely to engage in price comparisons (and far more willing to
tolerate delays and product imperfections), and relatively high
freight charges are not so noticeable.
Risks
Companies with physical products
may be at a disadvantage.
They must deal with the complexities and expenses of international
order fulfillment — something which has so far prevented even
amazon.com from obtaining a profit from its widely utilized online
book store operations. The issues of distribution, warehousing, timely
delivery, order tracking and (above all) return of unsatisfactory
goods are such as to make most small companies pause before they
decide to go into business on a global scale.
Small companies competing in standardized product areas face serious
challenges. Products such
as CDs or DVDs -- which are effectively identical, and for which only
service and price can differentiate sellers — face enormous
competition and frequently do not last long. Customers of online
stores are notoriously fickle and disloyal. One example of poor
service can be enough to send an online shopper to a rival store,
while order fulfillment and product returns are difficult, expensive
and logistically complex. It is already becoming apparent that
successful online purveyors of CDs, books, DVDs and videos are
comparatively large companies which can absorb freight costs, and can
offer a speedy and efficient returns service for imperfect products.
The cost of keeping a web site up-to-date, alone, can be prohibitive
— and yet this is an absolute essential in a field where customers
expect to see changes every time they log onto the site.
E-trade for Small Firms: Lessons for
Success
For smaller companies hoping to trade internationally the glittering
prizes of a global marketplace may well prove a chimera. Those
companies whose ventures into cyberspace have proven successful have
tended to:
- be niche-focused or
information-product focused, so that customers do not expect too much
for too little;
- work in virtual networks with other
"local" companies with whom they can exchange expertise and
specialized local knowledge or support skills, where they need to
support customers located in many countries;
- be based in regions where they have
access to high-quality technological infrastructure at reasonable
prices; and
- not be overwhelmed by complex and
unreasonable government regulations which add to costs without adding
advantages.
Companies without these advantages are
more likely to fail under the multiple and complex pressures of
competing with large firms having deep pockets.
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Posted 11 August 2000 |
