Small and Medium Enterprises and ICT/General Policy Framework for ICT Adoption by SMEs

What are Basic Questions to Consider Before Designing Policies and Programmes
In order to better design programmes to increase ICT adoption, it is useful to review the current related policies, which industries to target, what barriers to target, and how to best reach the SMEs.The following questions provide a basic guideline.

Existing policies and programmes 1. What are existing ICT policies? 2. What policies/programmes does the country currently have for SMEs? 3. What are existing policies/programmes that encourage SMEs to adopt ICT?

Who to target 4. In which industries do revenues from SMEs comprise over 50 percent of total revenues? 5. How do the top five export industries in the non-ICT sector use ICT?

What barriers to target 6. What percentage of the population is connected via fixed lines, mobile phone lines and/ or the Internet? 7. How expensive are ICT connection charges compared to neighbouring countries? 8. What is the level of ICT literacy? 9. What options do SMEs have for accessing financing? How difficult is it? 10. How do SMEs currently use ICT? 11. Are firms in the ICT sector starting to target SMEs? If so, how? 12. What percentage of firms have started to use e-commerce, both B2B and business-to-customer (B2C)? 13. How developed is the legal infrastructure for online transactions?

How to target 14. What government support agencies are there for SMEs? 15. What other support agencies/programmes exist for SMEs? How strong is their institutional capacity? 16. How and from whom do SMEs receive industry information?

What is an Effective Strategy for Designing Policies and Programmes?
1.Target entire industries that are most likely to benefit immediately from ICT. Targeting entire supply chains will allow the efforts to be more focused, specific and concrete. In terms of ICT adoption by SMEs, most countries are still at the beginning stages of the S-shaped technology diffusion curve. In order to induce mass adoption of ICT and be on the steeper slope of the S-curve,government efforts should target SMEs characterized as innovators and early adopters (see Figure 12). Beyond being risk takers, these SMEs should be firms that have the most contact with foreign suppliers and clients, which usually are the tourism/ hospitality and export industries. Effective usage of ICT requires both parties to have compatible technology, and since their suppliers/clients most likely have already adopted ICT, SMEs can reap the benefits of ICT very quickly. Targeting supply chains and specific industries quickly increases the rate of adoption, which increases the total number of SMEs that use ICT. This will increase overall awareness of the benefits of ICT and encourage adoption by other industries.

Figure 12:Models of Technology Adoption

ICT adoption in tourism industries usually involves using advanced communication technologies such as email and the Internet. Having an online presence creates an important new marketing channel for the SMEs. In 2004, over 30 percent of US adults used the Internet for travel research or bookings.30 The tourism board can play the role of creating a portal that leads to individual websites in order to help increase site traffic. It can also establish an e-commerce platform that SMEs can sign up for without having to adopt it themselves.

ICT adoption in export industries often involves encouraging ICT adoption over an entire supply chain. Firms are more likely to adopt ICT if their peers, suppliers, and clients are adopting ICT as well.This can help increase the competitiveness of the industry as a whole.Datuk Kalsom Abdul Rahman, Chairman of Small and Medium Industries Development Corporation,Malaysia commented, “if one of the largest global suppliers has seen the value of adopting technology into their operation, our plastics manufacturing sector should consider moving in the same direction.”31

ICT adoption can also involve building an industry or export portal. For example, Taiwan's Council of Agriculture32 launched several websites to provide another marketing channel for Taiwan’s agriculture producers. The government portal itself received over 1,343,236 visits between January 2005 and mid-August 2005. AgExporter Web is a B2B website that connects importers to Taiwanese producers. Similarly, the Korean government created the Korean Marketplace Website33 to showcase products of Korean SMEs to global buyers. Local SMEs can easily connect to the global network by posting offers to buy or sell products. The site currently hosts over 20,000 homepages of SMEs and e-catalogues of over 120,000 products.

2. Efforts to increase awareness should focus on concrete benefits, be industry specific, and target the right audience. Governments need to understand where SMEs are in their decision-making process in order to conduct more focused workshops. Since adopting ICT requires investment in both time and financial resources,SMEs generally go through distinct stages of careful analysis (see Figure 13). Initially, the SMEs become aware of the benefits that ICT can bring to their core business through channels such as word of mouth, media, and workshops. If they believe that ICT indeed has the potential to improve their business, they proceed to the next stage, where they consider whether or not to adopt ICT. In this stage, SMEs try to find out the exact costs and benefits of implementing ICT by obtaining price quotes and seeking advice from supporting agencies or other SMEs. The best way to describe the benefits of ICT is to use terms that the owners are familiar with, such as rate of sales growth, market share, return on investments, cost reduction, and development of new products or markets. This way, SME owners can connect abstract ICT benefits with how ICT can concretely affect their core business. They need to internalize the benefits before they are willing to make an investment. When SMEs become convinced that the benefits do in fact outweigh the costs, they will begin to adopt ICT into their business practice. If the experience proves to be positive, SMEs may either increase their investment or move towards the final stage of using ICT to innovate in their business practices. SMEs generally prefer products and services that are easy to use, easy to implement, and low cost.34

Figure 13: Stages of ICT Adoption

The Hong Kong Productivity Council,35 for example, sponsors various sector-specific programmes that help businesses increase productivity through better utilization of ICT resources. Their ERP Centre36 provides training, consulting, and a software platform for its subscribers. In addition, the Institute of Professional Education and Knowledge of Hong Kong provides e-learning courses by sector.37

3.Decrease the barriers to ICT adoption. Even if SMEs are aware of the benefits of ICT, they will only adopt ICT if they can overcome the barriers to its adoption. The lack of affordable and accessible ICT infrastructure is the first obstacle that SMEs need to overcome, whether they are adopting basic ICT such as phones or more advanced ICT such as e-commerce (see Figure 14). The next obstacle is human capacity. Users must understand how to use ICT and how it will change the way they do business. This obstacle is more prominent for advanced ICT such as e-commerce and ERP software than for basic ICT such as phone lines and fax. The third obstacle to overcome is financing. This is a problem for both basic and advanced ICT. Having the appropriate legal framework is the last obstacle to overcome because it mainly applies to online transactions. SMEs can still adopt phone lines, email, and many e-applications without a well-defined legal structure.

Figure 14: Barriers to ICT Adoption

Governments can and have addressed these barriers to adoption in several ways.

Infrastructure Governments can help SMEs reduce ICT connection costs and increase coverage by further expanding its infrastructure, offering subsidies, encouraging ICT providers to have special discounts for SMEs, equipping incubators with ICT at a reduced cost, or allowing alternative methods of communication such as VoIP.The Philippines National Economic and Development Authority (NEDA) has taken a drastic step to push for the full deregulation of VoIP. In most parts of the world,governments are more inclined to ban VoIP because it is in direct competition with state-owned telecommunication companies and will decrease government revenues from incoming international call tariffs. NEDA however, firmly believes that VoIP can help spur ‘growth, investment, and jobs’because it can reduce charges for international calls by 75 percent. 39

Human capacity Ways that governments can help increase ICT adoption among SMEs include hosting training workshops that are flexible and tailored to specific industries, employees’ position and role, or software/hardware applications; providing subsidies for ICT training; and creating opportunities for firms to try the technologies hands on. Singapore, for example, launched an Infocomm Competency Programme from November 2003 to March 2005 to increase the computer literacy of its workforce. The programme subsidized SGD 5.00 per trainee per hour for SMEs on broad-based ICT courses such as Microsoft Office applications, desktop publishing, workgroup applications and webpage design.40

Financing options Governments can increase the affordability of ICT through grants, credits, leasing options, and tax incentives. To encourage SMEs to use ICT equipment to increase productivity, the Japanese government allows corporations to deduct up to 6 percent of total lease payment on brand-new machines from annual income tax payments.The government also subsidizes up to 25 percent (with a cap at JPY 2.5 million) lease payments for corporations in agribusiness management, lumber supply, and aquaculture.41 The government can also rent software. For example, the ICT Ministry of Thailand created the Eua Athon Software Project that allows registered SMEs with around THB 300,000 to rent software for a monthly rental fee of THB 500. SMEs interested in renting software can download a freeware version at http://www.smese.net. The Ministry is also expanding the available software from 160 programmes to 1,000.42

Additionally, governments can also encourage the private sector to lend to SMEs and/or innovate on-payment options. For example, pay-as-you-go models are better suited for SMEs than a high one-time payment.

Legal framework The government needs to take the initiative to establish the legal framework. Singapore, for example, passed the Electronic Transaction Act44 and Electronic Transactions Regulations45 between 1998 and 1999 to legitimize electronic signatures in the legal framework. This provided a foundation for key public and private sector leaders, including the Monetary Authority of Singapore, Cisco Systems, and Visa International, to develop more secure e-payment services over a public key infrastructure.

4. Create locally relevant resources online. In a study commissioned by the Asia Foundation on ICT use among SMEs in Indonesia, Philippines and Thailand, results showed that SMEs use the Internet primarily for email and research, but only browse websites for promotions rather than for e-commerce due to security concerns.46 One problem with web browsing in developing countries, however, is the lack of locally relevant content. In addition, most web content is in English, which could cause a language barrier.Governments can help overcome this barrier by creating resource centres.

5. Partner with other organizations. Governments should partner with international organizations, industry associations, chambers of commerce, and local NGO/SME support agencies in order to obtain technical expertise, financial support, and local knowledge.

International organizations International organizations can offer regional knowledge-sharing and training workshops, provide funding support, help build local capacity, and organize technical cooperation arrangements between countries within the region. For example, UNESCAP created the Asian and Pacific Centre for the Transfer of Technology (APCTT) to promote the transfer of technology to and from SMEs in the Asia-Pacific region. The Association of Southeast Asian Nations (ASEAN) has hosted the e-ASEAN Public Key Infrastructure Forum, the Cyberlaws seminar, and e-commerce programmes to create business environments that support e-commerce development in the region and SMEs in international trade. It has also published a framework to assist countries with the development of e-commerce legislation. The International Network for SMEs (INSME)51 is an international association with a mission to stimulate trans-national cooperation, and public and private partnership in the field of innovation and technology transfer to SMEs.

Local industry associations Local industry associations can leverage their existing membership base to diffuse information and create programmes. Their specific know-how of the industry can help create workshops that are more relevant to the needs of SMEs and can highlight industry-specific benefits. They are a key local partner in encouraging ICT adoption by industry.

Chambers of commerce Similar to industry associations, governments can use their network and membership base to diffuse information and implement programmes.For example, the National Productivity Council (NPO) of Pakistan and the Karachi Chamber of Commerce and Industry (KCCI) are working together to provide SME consulting, financing, and training free of charge (and at times, training abroad) in order to boost the productivity of its industries. The role of KCCI is to mobilize its members to participate in the NPO workshops and provide in-depth industry information.52

Local NGO/SME support agencies Local NGOs and other SME support agencies can also help implement various programmes. For example, they can create portals, provide training programmes, help organize entrepreneurs at the grass-roots level, and provide low-cost or free ICT consulting services for SMEs.

In conclusion, the overall strategy targets entire industries that are most likely to benefit immediately from ICT, increases awareness on industry-specific and concrete benefits, decreases barriers to ICT adoption, creates locally relevant resources online, and partners with other organizations.