Drivers and Inhibitors for Diffusion of Electronic Commerce with Reference to Germany

CONTENTS

Chapter 1. Introduction
Importance of the Study
Research Objectives
Limitations of the Study
Organisation of the Study

Chapter 2. Literature Review
2.1 A Framework for Review
2.2 Justification of Framework
2.2.1 Research Rationales
2.2.2 National Environments
2.2.2.1 Driving factors for Diffusion of Electronic Commerce
2.2.2.2 Inhibitors for Diffusion of Electronic Commerce
2.2.3 National Policies
2.3 Key Lessons from the Literature Review

Chapter 3. Research Methodology
3.1 Research Philosophy
3.2 Research Approach
3.3 Research Strategy
3.4 Research Methods
3.5 Research Conduct
3.6 Data Analysis
3.7 Validity and Reliability of the Study

Chapter 4. Presentation of Results
4.1 Practical Implications of Electronic Commerce in Germany
4.1.1 National Environment
Demographics and Human Resource
Information Infrastructure and Technologies
Economy
4.2 National Policies
4.3 Questionnaires
Purpose of the Research and Firms Classification
Selection of Variables
Design of the Questionnaires
SPSS Commandos
General Formulas
Data Analysis
Research Analysis

Chapter 5. Discussion

Chapter 6. Findings

Chapter 7. Personal Reflections

Reference

LIST OF TABLES

Table 1.1 E-commerce infrastructure and B2B products comparison in 2002

Table 4.1 Internet usage and online shopping 1998-2003

Table 4.2 Proportion of selected age groups in Germany

Table 4.3 Internet user by age in % of total population in Germany

Table 4.4 Number of households with forecast in 2004 and 2010

Table 4.5 Percent of single households with forecast in 2004 and 2010

Table 4.6 Average income and expenditure per household and month 2003

Table 4.7 Population density 2003

Table 4.8 Telecommunication infrastructure in 2002

Table 4.9 Penetration of PCs

Table 4.10 E-commerce revenue in 2002

Table 4.11 M-commerce sales in selected European countries in 2002 ($ millions)

Table 4.12 Firms Classification

Table 4.13 Number of Firms after Classification

LIST OF FIGURES

Figure4.1 Internet sales and intensity in Germany 2002 (%)

Figure 4.2 Order through Internet and intensity 2002 (%)

Figure 4.3 Age structure: 2001

Figure 4.4 Development of prices for long distance and international calls, 1996-2002

Figure 4.5 Dial-up Internet connection per minute 1999-2002

Figure 4.6 Sector distribution of GDP, 2002

Figure 4.7 Significance of the Web for marketing activities in selected German firms

CHAPTER ONE INTRODUCTION

Information services and products today constitute one of the world’s largest economic sectors. Computers and the networks that connect them have become a dominant force in virtually all aspects of society throughout the industrialized world. Institutions and individuals alike are flocking to the Internet - particularly to the World Wide Web - in record numbers, making it the fastest-growing medium in human history (Baptista, 2000). First made available to the public in 1992, the Web is used today by 205 countries and regions and its user number is expanding at approximately 30 percent per year (OECD, 2002).

Technological improvement as well as the declining prices for the access of this technology has led to the explosive growth of Internet during the last few years. The electronic commerce (e-commerce), as one of the most important applications of the Internet technology, is undoubtedly bringing countries together to create a global network economy with expectation of reducing transition costs, increasing market transparency and making business more efficient.

However, e-commerce is unevenly diffused in different countries. New growth theory (Ohmae (1996); Solomon & Bamossy (2002) insists that national characteristics such as industry structure, information infrastructure, financial systems and national policies, influence technology diffusion and innovation outcomes unevenly. E-commerce via Internet is said to have no national borders, however, individuals and companies in different countries response differently to it. Hence, understanding adoption drivers and inhibitors of e-commerce diffusion is becoming increasingly important.

Despite the substantial social and economic implications of e-commerce, there is a lack of empirical assessment on diffusion and impacts of e-commerce. Especially at the level of individual country, there is still no systematic research done on the exact success factors for diffusion of e-commerce or the social and economic impacts of e-commerce affected by different national contexts. In order to overcome this lack of research, this dissertation, based on many interrelated case studies, chooses Germany, to identify typical key influential drivers and inhibitors for diffusion of e-commerce.

The dissertation tends to connect theories with empirical data achieved in this area. It is designed to supplement, not duplicate, existing initiatives addressing domestic electronic commerce issues in Germany. By focusing on analysing these key factors within international and national frameworks, the dissertation is calculated to deliver maximum practical impacts. It provides practical aspects to analyse the virtual markets in different countries and helps business leaders to do e-commerce more efficiently. Furthermore, this dissertation pertains to the digital divide of e-commerce users and thus also provides factual foundation for key policy initiatives to enable e-commerce for certain firms or individuals and establish security policies. In this scenario, the research directed towards identifying key drivers and inhibitors of e-commerce diffusion could guide for both business leaders and policy makers to better assess the opportunities of e-commerce activities within concrete national frameworks.

IMPORTANCE OF THE STUDY

Electronic commerce over the Internet is a new way of conducting business. The promise of significant economic growth places e-commerce high on many public and private sectors. The key reason of this growth is its significant impact on business costs and efficiency (Martin, 2000). With the rapid improvements of communication technologies, the application of e-commerce is becoming simpler, which implies a wide and fast adoption of e-commerce in the near future. With the expansion of e-commerce, subtle impacts are observed in almost all the countries.

Because of its geographical hub position and diversified service sector in Europe, e-commerce development is of strategic importance for Germany. Based on my business management studying at the Johannes Gutenberg University Mainz and life in Germany for more than four years, I have noticed the rapid changing from the traditional trading channels to e-commerce by German companies and enormous impacts of the newest trading way in the B2B and B2C area. The success story of Germany in e-commerce also demonstrates a good way for other countries to survive and succeed in the electronic century. Therefore, there is interest in understanding the factors that drive e-commerce diffusion in Germany. This research will try to advance study outcomes and identify exactly the influential factors that impact the diffusion of e-commerce, one of the newest trading tools in Germany. The audience will gain a good understanding, what factors are essential, how these factors function, and what should be taken into consideration by developing e-commerce services in this country.

RESEARCH OBJECTIVES

To date, the growth of e-commerce is impressive. As Lovelock, Petrazzini and Clark (1997) noted, starting form basically zero in 1995, the total revenue of e-commerce is estimated to reach 1 trillion by the end of 2004. As a specific institution of distributive trades, e-commerce is seen to be an effective way to sell certain goods and services at prices potentially lower than those of traditional distribution channels. Looking at the uneven growth level in different countries and sectors, questions are emerging. As the Internet technology forces convergence across what were once considered separate areas (communication, business, policies, etc), it is necessary to identify clearly how national environments influence diffusion of e-commerce and what are the exact drivers and inhibitors of e-commerce in the concrete national contexts. This study takes Germany as example and is conducted from the following three dimensions:

- Identify the key theoretical frameworks with respect to neoclassical and New-Growth theory used across different e-commerce environments
- Identify the influence of environmental driving factors and policies, such as demographic characteristics, human resource, communication infrastructure, economical development and national policies on the diffusion of e-commerce in concrete national contexts
- Identify the key barriers for e-commerce diffusion

LIMITATIONS OF THE STUDY

It is important to remember that Internet-based electronic commerce is an extremely dynamic and fast moving process. This, of course, places restrictions on the current relevance of the data presented in this dissertation.

By the questionnaires examining important factors for firms to apply e-commerce, a truly random nationally representative sample from the total firms in Germany is necessary. However, the 150 German firms examined in the subject group in this process are selected from the “German Branch Yellow Pages” 2003. New comers after 2003 are thus not taken into consideration, which might affect the results. Other influential factors and specific development might arise due to cultural and social peculiarities of the subject group. Therefore, future research is necessary in order to confirm the findings for all groups of firms and in international settings.

Moreover, some types of data are very difficult to collect, for example data on Internet user intentions, etc. The impact of the Internet on average citizens’ psychological lives is also beyond the scope of this dissertation.

ORGANIZATION OF THE STUDY

With the commercialisation of the Internet, the Web has become a marketplace. Yet not every country benefits from the new competitive advantages. Some may probably not have the customers, who are ready for e-commerce, others fail to offer the necessary infrastructure, etc. this dissertation analyses the country first in the given global framework, tries to find out how the country is actually positioned. From the national perspective, the dissertation target first to the demographic patterns of the country. The key findings include determinants of Internet usage measured by various parameters, such as ages, educational level, number of households, disposable incomes and population density. Other success factors, such as availability of information infrastructure; cost of access and usage; economy of the country; secure payment system; effort of the local government are also identified in the concrete national context.

The dissertation is organized as follows. Chapter one gives a brief introduction for the whole dissertation including importance of the study, research objectives, limitation of the study and organisation of the study. Chapter two discusses the relevant literature and key lessons from the review. Research methodology applied to the data source is described in chapter three. Chapter four presents the results of this analysis. Chapter five is based upon the findings from chapter four and discusses the results in the context of the analysis, literature and study objectives. Chapter six provides the foundation for a deeper discussion of implications of the results for Internet marketing strategy and public policy, followed by personal reflections in the seventh chapter.

CHAPTER TWO LITERATURE REVIEW

2.1 A FRAMEWORK FOR REVIEW

Electronic commerce is not new, either in concept or in implementation. Malone (1987), Wozniak (1987), Bakos (1990) have taken the first step forward in this area. Over the past two decades, businesses in virtually every sector of the world economy have benefited from the technologies of electronic commerce. Creation and diffusion of new technologies like Internet and e-commerce is generally accepted by all authors as a source of growth and productivity gains for the national economies. In this paper we reviewed a variety of literature from both printed and Internet-based sources. Work in the area of electronic commerce began when Malone (1987) predicted that with the presence of electronic communication technologies, electronic markets would become the favoured mechanism for coordinating material and information flows among organization. This phenomenon is known as the electronic markets hypothesis. And this may be seen as the beginning of the information era. Wozniak (1987) listed detailed the advantages of accepting e-commerce in the business process and the importance of human resource by applying this new technology. Later, Bakos (1990) developed Malone’s theory and further explained the functions of electronic markets as matching buyers and sellers, facilitating transactions, providing institutional infrastructure, aggregating product information, price discovery, and providing procurement and industry specific expertise.

Although these initial studies, widespread interest in electronic commerce is relatively recent. A very important phenomenon is that though Internet including e-commerce is said to have no national borders, people and companies within different national environments response differently. As a matter of fact, the rate at which countries adopt e-commerce as a new technology is uneven. New growth theories (Romer, 1990; Freeman and Soete, 1997; Mowery and Rosenberg, 1989) insist that national characteristics such as industry structure, information infrastructure, financial systems and national policies, which help create different economic and legal environments and infrastructure investments, all influence innovation outcomes and diffusion of new technologies in different national contexts. And impacts of e-commerce also vary among countries.

Based on this point of view, the literature review for this paper was conducted with the following mind map to examine how this exactly occurs at the national level:

Research Rationales

- Neoclassical theory
- New growth theory
- Recent research in this area

Drivers for E-commerce Diffusion

- Regional environments
- National policies

Regional Environments

- Demographics and Human resources
- Economic development
- Economy
- Information infrastructure

National Policies

- Legal environment
- Infrastructure investment
- E-commerce promotion

Inhibitors for E-commerce Diffusion

- Organisational factors
- Securities
- Infrastructure and technology
- Legal issues

2.2 JUSTIFICATION OF FRAMEWORK

2.2.1 RESEARCH RATIONALES

The dissertation analyses Germany mainly within national frameworks. The main rationale of this dissertation is based on the neoclassical economic theory and the new growth theory to explain why countries/companies adopt e-commerce as an effective trading tool and what the adoption level of e-commerce depends on.

- NEOCLASSICAL THEORY

Technical innovation is an external, independent force that acts with more or less the same impact on all economies, thus producing common social and economic outcomes.

- NEW GROWTH THEORY

Technical innovation has positive effect to all economies through cost reduction and service improvement. However, environmental and policy variations influence innovation outcomes in different national contexts. National characteristics such as national policies, which create different economic and legal environments and infrastructure investments, industry structure, information infrastructure and financial systems, influence the rate of adoption.

Solow (1986), and Ohmae (1991) presented the general neoclassical theory on impacts of technological innovations on economies, while other new growth theory experts, for example Romer (1990), Freeman and Soete (1997); Mowery and Rosenberg, (1989) pointed out more clearly that each economy adopted technologies differently due to special national environments, thus the impacts of technologies varied from country to country.

Recent research is divers. The key figures presenting new growth theory are Atkinson and Gottlieb and Joseph Cortright. Robert D. Atkinson and Paul D. Gottlieb (2001) developed Romer’s new growth theory and stated in their work that the New Economy is a “global knowledge and idea-based economy where the keys to wealth and job creation are the extent to which ideas, innovation, and technology are embedded in all sectors of the economy”. “In the New Economy, dispersed development is the dominant spatial form in virtually all areas”. On the impacts of the diffusion of technology, they examined fifty largest metro areas and pointed out that “the New Economy gives both companies and workers more location freedom”, because it helps to create:

- “Knowledge jobs;
- Globalization (the export nature of manufacturing);
- Economic dynamism and competition;
- Transformation to a digital economy;
- Technological innovation capacity.”

In the last part of the work, they noted that historical factors are still important, such as public policy. Furthermore, there is a decreasing importance of old patterns of location based on minimizing distance and maximizing communication. Regional clusters drive innovation. The authors further offered three major driving forces for innovation diffusion: skilled workforce, infrastructure for innovation, and quality of life.

Another key figure, Joseph Cortright (2001), pointed out in his book “New Growth Theory: Some Thoughts and Implications for Economic Development” that new technological advances are evidencing the advantages innovative technology and plays in practically all this is produced in our modern society. He further emphasized that a higher standard of living is achieved not from the production of more goods and services, but from more efficient production and more effective management of scarce resources.

- E-COMMERCE IN THE BUSINESS ENVIRONMENT

The more recent work at the concrete business level reflects the current business environment and reports on the implementation and use of e-commerce exchanges. Several authors have investigated the motives that buyers and suppliers decide to use electronic markets. Malone et al. (1987) investigated the motives of buyers and suppliers for getting involved in electronic markets. Malone et al. found that buyers and suppliers have different motives for getting involved in electronic market. Suppliers join electronic markets because they want buyers to purchase their product rather than competitors. Buyers join electronic markets to increase their number of alternative suppliers and improve their ability to compare alternatives.

Choudhury (1998) investigated when buyers use electronic markets, and found out that buyers will use electronic markets for the purchase of products that are low in asset specificity and complexity of description. Dai and Kauffman (2000) investigated the motivators for buyers to move from their traditional market to an electronic market. Dai and Kauffman found the buyer‘s decision regarding whether to use an extranet or an electronic marketplace for the procurement of goods is a function of: desired gains from lower search costs and operation costs enabled by an electronic market; importance of information sharing between suppliers; level of competition in the supplier market; and desired levels of desired supplier relationship specific investments. Moreover, Senn (1996) posited that organizations would participate in electronic markets because of opportunities to create a product, deliver a service, or get in touch with potential customers.

The Boston Consulting Group Report (2001) provided organizations advices on types of electronic marketplaces to participate in as well as strategies for participation. Klueber (2000) used action research to propose some motivations, a concept, and a procedure for analysing the potential of partnering with an electronic market. His analysis criteria include state of control, value chain coverage, market form, strategic fit, revenue generation, and customer incentives.

Other authors, such as Le Bras (1991), McLaren (2000) and Okada (2002) have discussed electronic market implementation challenges. These include revenue schemes, attaining critical mass, guaranteeing promises, and integration with existing company systems. The Boston Consulting Group Report (2001) explained that marketplaces depending on transaction fees or commerce services for revenue would not survive. Most of the revenue will come from services that support collaboration activities. The report went on to offer advice for creating viable e-marketplaces.

Critical mass involves getting enough buyers and sellers to use the exchange. Lee and Clark (1996) explain that firms adversely affected by electronic markets are expected to resists implementing the system and thus prevent achievement of critical mass. Tumolo (2001) cited critical mass as a hurdle for organizations trying to implement B2B e-commerce exchanges.

The need to guarantee that products purchased over the exchange will be the right product delivered at the right time is also an implementation challenge for e-commerce exchanges. For example, Lee and Clark (1996) posited the need for product rating standards and a trusted third party for product evaluation. In a description of problems with exchanges, Memishi (2001) cited a lack of uniform data description standards explaining that most organization will want to participate in multiple exchanges and the different ways of describing products must be standardized, etc.

All these relevant theories of this paper may give audience a rough understanding of the research topic and objectives. With the neoclassical theory - contrasting with the Keynes theory - technological development is seen as an effective way to increase outputs. As an important application of technology, the Internet based e-commerce is undoubtedly seen as a source of growth and productivity for all economies. The new growth theory explains that countries response differently to new technologies due to different national policies and regional environments. Others researches and findings achieved in the more recent years by various authors in the detailed business environments helped to clarify the reason why firms apply e-commerce in their business conducting process and challenges they are facing. This is of the most importance to understand why e-commerce diffuses in different environments with different rates and why this paper purposed to conduct this research.

2.2.2 NATIONAL ENVIRONMENTS

In this section, the exact driving and inhibiting forces of e-commerce diffusion at the national and firm level will be identified through literature review. Basic characteristics of potential interest include first income, education and population levels, as well as population density. Additional characteristics of interest include potential indicators of user demand for Internet access, such as penetration rates for home PCs and the way of Internet access. Such data could be used to test a "market pull" hypothesis: namely, that e-commerce will be most likely to succeed in areas with higher socio-economic status and more Internet users. Further, the influence of industry structure on diffusion of e-commerce was examined. Beck (2002) investigated e-commerce diffusion in about 80 countries and pointed out the clear positive correlation between the internationalised economy and diffusion of e-commerce in the last century. Also, the inhibitors of e-commerce diffusion are very important indicators for this dissertation. They helped to explain why e-commerce diffuses unevenly among different countries and what should be paid attention to if doing e-commerce within those areas. For example, EITO Observatory (2001) investigated the 15 OECD countries and identified the three main obstacles for e-commerce diffusion from the products and process as well as the legal dimensions. OECD (1998), Turban (2000), Clarke (1998), Bell and Gemell (1996), Cook and Farquharson (1998) are the key figures in identifying barriers for e-commerce diffusion in different countries. In order to precise the results, this research was only conducted in Germany. Based on this point of view, the literature review will be further conducted as followed:

2.2.2.1 DRIVING FACTORS FOR ELECTRONIC

COMMERCE DIFFUSION

DEMOGRAPHICS AND HUMAN RESOURCE

Although technology plays a very important role in e-commerce implementation, the most important element in the electronic market is still people. As Turban (2003) stated, demographical structure in the country and immigration trends may be a challenge or a chance to develop e-commerce, as they are the potential consumers, employees and experts in this area. Therefore, most attention has focused on the Internet user profiles. According to OECD (1999), the household transaction demanded approximately accounts for over half of all domestic final demand. This segment is thus of strategic importance for e-commerce development.

For demographic data in Germany, two types of sources were strongly applied: county-level data from the German census, and town-level data from the federal states. The Census in 2002, found by the Federal Statistic Office, provided a rich menu of demographic information. However, this information is reported at the county level. Internet, in contrast, is deployed at the level of the individuals. Consequently, the research objectives had to be divided into many much smaller geographic units than a county. As a result, the demographic of a county provide a broader brush than the demographic of the individuals. But in the smaller geographic units, the wanted variables could be more easily identified, such as population density, number of households, educational level, disposable income and age groups, as well as their relations to e-commerce diffusion.

A lot of authors have contributed to the demographic research in Germany. Among them is for example Ulrich (1998). In his study on German demographic characteristics, he applied different fertility assumptions for natives and foreigners and different immigration levels, and estimated the population size of Germany. He further predicted the demographic trends and its structure in 2030. His projections showed that, even with a relatively high level of immigration, the population of the country would start falling in the near future. This demographic pattern is very important for firms’ marketing strategies. As observed, many firms providing online products or services are now restructuring their organizations and taking more and more elder people as their target costumers.

Similarly, Le Bras (1991) explored the demographic consequences in Germany since the end of the Second World War. He confirmed that concerns about an ageing society often arise not only from the growing number and proportion of elderly, but also from the rapidly changing ratio of the working-age population to the retired population. In particular, the sharp drop of the ratio may directly affect the viability of pension systems. Le Bras (1991) further insisted that the declining population implied logically less human capital resources in the future.

The human capital is another issue concerning demographic patterns of a country. Human capital theory was first developed by Wozniak (1987). This theory explains both individuals’ decisions to invest in human capital, such as education and training, and the pattern of individuals' lifetime earnings. Wozniak demonstrated individuals’ different levels of investment in education and training, and explained terms of their expected returns from the investment. He further identified government investment as a key driving force for educational development.

Fritz (1999) confirmed Wozniak’s theory. He examined the educational level in Germany and confirmed that the literacy level of 99% in 1999 was the results of government efforts in the educational sector. For example, the basic education is totally free; the Basic Law guarantees everyone the right to self-fulfilment and the right to freely choose his or her school or place of training as well as his or her occupation or profession. It is also guaranteed by law that every region in Germany enjoys an equivalent level of education.

Furthermore, various studies were done to clarify online consumer behaviours. Solomon (2002) felt that, in the primary phase, the reducing costs of PCs and their accessories present the key factor determining B2C e-commerce, because PCs are currently the main access device to Internet. In addition, it is the cost of getting online and finding the site with products of interest, that determine success of online purchase (O’Connor and Galvin, 1998). Another determinative might be the length of surf time. Active Media (1998) found out that the longer shoppers use the Internet, the more likely they are to buy online and less likely that they are to shop in traditional stores. Active Media further pointed out further the different purchasing behaviour in different age groups in Germany. This report provides us important evident for our research in the digital divide of Internet users in Germany.

INFRASTRUCTURE

Like traditional commerce, e-commerce requires a substantial infrastructure composed of intermediaries that allow sellers to conduct business with customers. Information infrastructure is seen as the most important indicator for a country’s e-commerce development. OECD (1999) classified e-commerce infrastructure into 4 parts:

- hardware (PCs, routers, servers, etc);
- network service providers (e.g. providers for Internet access);
- software to run hardware
- enabling services (e.g. e-payment, authentication/certification services, advertising, delivery, etc)

Of the four categories, hardware is still estimated to have the largest sales at present worldwide, at roughly $ 43 billion in 2002 (table 1.1). The software for running PCs, servers, routers and support networks is also a significant part of the e-commerce market, ranging $ 5.1 billion in 2002. Providers of Internet service currently generate about 100,798 million in revenues (Active Media, 2002). The new intermediaries that help buyers and sellers conduct business are emerging. They provide services such as directories, advertising, e-payment, insurance, network diagnostics, etc.

TABLE 1.1

E-commerce infrastructure and B2B products comparison in 2002 ($ million)

Abbildung in dieser Leseprobe nicht enthalten

Source: Fortune “The Birth of Digital Commerce” (2002), Wall Street Journal (2002),

* Active Media (2002), www.cyberatlast.com (12.Nov.2002)

In this dissertation, information infrastructure in Germany was mainly addressed. The initial research of Koenig (2002) compared Germany with other EU countries and confirmed the overall excellence of its information infrastructure: For example, besides telephone lines or ISDN connections, the most popular high-speed Internet connections to date such as DSL are available in Germany. Germany was one of the first countries where DSL was installed. According to the International Telecommunication Union, (Geneva, 2002), in Germany, 11 of 1,000 households had DSL access, more than in any other country in Europe in 2002. As a matter of fact, the high speed and declining price of Internet access also lead to a steadily growing penetration of multimedia PCs with Internet connection in Germany.

In the infrastructure sector, the private or public investment and support are key. EITO (2001) reports that these developments are highly desirable as prerequisites for e-commerce applications and practices. The survey by EITO also indicates the affordable pricing of PCs as essential for e-commerce development and take-off. Especially after the adoption of the third generation (3G) of “Universal Telecommunications System” in 2000, the general telecommunication capabilities and overall installation with end-devices have been improved significantly. This will be detailed explained in the chapter four.

ECONOMY

The recent issues suggest that e-commerce diffusion depends highly on industry sectors (Bandyo-Padhyay, 2002). For example, e-commerce dominates mainly in the manufacturing, retailing and financial service sectors. Especially in B2B e-commerce, likely drivers that lead to quick diffusion of e-commerce are identified by Bandyo-Padhyay:

- reduction in transaction costs and improvement of product quality and customer service
- necessity of conducting business with business partners engaging e-commerce
- defensive reaction of firms to their competitors engaging e-commerce. The first factor of reducing costs drives the second and third one.

He emphasized the importance of e-commerce application in small and medium-sized enterprises and pointed out that as many large businesses already have EDI systems, the accessibility of Internet makes e-commerce a realistic possibility for SMEs and is likely to lead to widespread e-commerce in the whole country.

Some authors, such as Davies (1997), Baptista (2000), Bertschek (1995), Rosenbloom (1995), Cortright (2001) and Fritz (1999), believed that the adoption of e-commerce was likely to depend on firm size and status. As stated by Davies (1997) and Baptista (2000), “the costs and risks of early adoption are more easily borne by large firms”. The firm’s corporate status as a measure of flexibility but also as an indicator of its financial power is likely to affect the adoption of a new technology Baptista (2000). The (international) competitive situation a firm is faced with is likely to affect the firm’s decision whether or not to use a process innovation (Bertschek, 1995). According to Christensen and Rosenbloom (1995), new firms are more flexible and thus more likely to adopt a new technology than old firms.

Furthermore, Cortright (2001) identified that the traded sectors, including manufacturing, have the most intra-metropolitan clustering. There is a “lock-in effect”: An economically well-developed country will attract more skilled labour force, which is a decisive local factor. He further pointed out that, although improved communication in the information era, the location of firms is still key for success. For example, transportation costs have a fixed infrastructure and can not be reduced easily. As solution, high-value goods are better candidates for e-commerce, because they are less sensitive to transportation costs (Fritz, 1999).

2.2.2.2 INHIBITORS FOR DIFFUSION OF ELECTRONIC

COMMERCE

Beside the electronic commerce application, this dissertation also examined the barriers that affect the usage of e-commerce. As the EITO Observatory (2001) identified, the most significant obstacles for OECD countries include:

- a lack of suitable products and integrated systems for using the Internet
- the early stage of development of doing business over the Internet, and set-up costs
- the lack of a sound legal framework.

The research of EITO stated that countries’ adoption of electronic commerce depends on their perception of the opportunities afforded by electronic commerce and the relevance of these opportunities to their business. There is a need for more hands-on, customised delivery of information, assistance and demonstration tailored to specific sectoral needs or specific business functions, such as international market development, supply chain communications, and financial management. In many OECD countries, trade associations and chambers of commerce promote the use of e-commerce through awareness campaigns. In the following part, some of the factors that may hinder e-commerce diffusion are mainly addressed.

ORGANIZATIONAL FACTORS

One of the main organizational factor that may hinder adoption of e-commerce applications is the complexity and cost of electronic commerce with regard to the banking system; uncertainty about its benefits for their business ranked highly by Austria, Canada and Finland (OECD report 1998.)

Another organizational factor that may delay e-commerce usage is the resistance to change. According to Turban (2000), electronic commerce can result in a fundamental and radical change in the manner in which business is done. Therefore, resistance to change from employers and employees as well as vendors and customer may develop.

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