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Drafting an e-Commerce Blueprint for SMEs

A recent Chamber campaign examines why Asia's sharpest entrepreneurs continue to drag their feet when it comes to using the Internet to reduce costs and do business more efficiently

Hong Kong SMEs have long been bashed for living in the information technology dark ages. Survey after survey puts them behind their South Korean and Singaporean counterparts when it comes to using electronic commerce to boost their business. 

The problem with surveys, however, is that they only give you half of the picture. We all know Hong Kong SMEs are not the fastest IT tigers in the Orient. What we don't know is why are Asia's sharpest entrepreneurs still not using e-commerce in their businesses?

To answer this and other questions, the Chamber conducted a series of focus groups, seminars, surveys and roadshows throughout the year under the E-commerce Adoption Campaign (ECAC), with funding from the government's SME Development Fund of the Trade and Industry Department. The work, which came to a close this month, represents the second year of the ECAC programme, and ranks as one of the most comprehensive studies conducted in Hong Kong to date on why local SMEs are still apprehensive about conducting more of their business operations online.

"We conducted seven focus group sessions with business owners from different sectors -- manufacturing, trading and wholesale, travel and tourism, professional services, transportation and logistics, financial services, and IT solutions providers -- to identify their real problems and concerns," explained Cindy Cheng, leader of the ECAC initiative.

"What we discovered is that many SMEs believe that implementing an online business strategy in their company will enhance work efficiency, lower costs, and enhance customer service. But the main issue holding them back is security, followed by the high initial investment cost," she said.

Major concerns

Some 90 percent of SMEs taking part in the Chamber's focus group surveys said security issues have put them off trying e-commerce, while 66 percent said the initial high investment was more than they could afford.

Interestingly, businesses in the logistics and travel sectors said security is an issue, but the initial investment cost and readiness of customers to use online services were more of a concern.

"If you think about it, travel agents have actually been doing business online for the past 20 to 30 years," Mrs Cheng said.  "They are so used to connecting to airlines and hotels' networks to make bookings for their customers that they feel comfortable doing business online. Their biggest concern is that consumers don't feel the same way and so won't use the system they invest in."

For manufacturers, their biggest concern is the risk of their system becoming infected by viruses, followed by staffs' lack of understanding on security issues. SMEs believe the solution to these worries, installing a firewall and other security software to protect their systems, can be very expensive and beyond their budgets, the study found.

The professional services sector said security was also their biggest concern, but from the risk of careless mistakes happening, rather than through hacker or virus intrusion. They also said that although the electronic transfer of data may seem to be the easiest, they still feel the traditional hand-delivery service is the safest.

"Security issues ranked top in the financial sector, also because they are concerned that customers are unwilling to transmit confidential information over the Internet, even though the security is ensured by e-Cert," Catherine Cheung, ECAC Focus Group Task Force Leader, said.

Participating firms also complained at the difficulty and cost of implementing an online payment system.

"They think it is very difficult to set up a payment gateway with a local bank, or the cost of implementation -- deposit and transaction charge -- is very high. The tourism and insurance sectors, which operate on very thin margins, are obviously very concerned about these charges," she said.

Benefits

The top-three reasons for businesses considering to implement an e-commerce solution for their business were to enhance efficiency, lower costs and enhance customer service and relations.

"Despite the general view that business-to-consumer (B2C) and business-to-business (B2B) models are still not successful in Hong Kong, companies that are actually using it see it more as a way to reduce costs by increasing efficiency while boosting customer service. This contrasts with perceptions from a few years ago that e-commerce was a means to generate revenue," Ms Cheung said.

Participants in the financial services sector said their key objective for using e-commerce is to lower operation costs. MPF providers said they are already saving hundreds of thousands of dollars by sending MPF statements and promotions to a large number of customers electronically -- either by email or by directing clients to their Web accounts.

Manufacturers in the focus groups said they mainly use e-commerce to expand their sales channel and enhance communication. This is especially the case for SMEs with operations in the Mainland, as email and Web sites are commonly used to enhance and reduce communications costs.

SMEs in the trading and wholesale sector said the biggest plus in using e-commerce for them was to enhance customer service, followed by enhancing work efficiency and lowering operational costs.

Ms Cheung said many businesses were content to use email to communicate with customers and place purchase orders. To move on to apply more sophisticated supply chain solutions, however, SMEs need support on software selection and assistance in establishing a common platform for the industry.

"SMEs in the focus groups said their major business customers would influence their decision to invest in B2B solutions, but they also feel that cooperation in other sectors, such as logistics and banking, are essential for their operation to get the most out of e-commerce," she said.

"Participants from all sectors involved with B2C were also concerned that it is difficult to win consumers' trust in Internet security, and until attitudes changes, they said it will be difficult to justify the initial investment costs."

Symposium

While security issues were foremost in business owners' minds, some companies have found simple solutions to the problem. At an ECAC Symposium held on September 23, e-company owners shared with the audience their experiences in developing their online businesses.

Steve Ng, founder of ToyEast.com, said to provide customers with security, privacy and a real-time payment gateway, he decided to use his bank's online payment solution.

"Besides security, you also have issues such as personal data privacy protection in Hong Kong. So we thought the easiest solution to handling all these issues and to build customer confidence was to let the bank take care of this side of things," he said.

His bank charged a few thousand to set the system up for ToyEast.com, which he says is quite acceptable for SMEs, and that the bank charges 4 percent on all online transactions. That may seem a little high, but Mr Ng points out that it is not much more than the 3 percent that credit card companies charge merchants.

Peter Hung, Managing Director, Tiglion Travel Services Co Ltd, also sharing his experiences at the symposium, said the biggest advantage he has gotten out of using e-commerce is that his business is now more outward looking and customer focused, which allows staff to respond more promptly to customers' enquiries.

"It has also expanded our source of revenue, reduced costs, made us more international, and also shortened transaction times," he said.

Like Mr Hung, Ramond Cheung, General Manager, Roy Mark (Asia) Ltd, which produces stamps and paper products, said he has made substantial savings by reducing transaction times and streamlining operations.

His company developed an online system to streamline the operational flow found in traditional printing. His customers can now order online and view images of their stamps before final production, which eliminates the need to produce samples. The system also allows them to track the progress of their orders.

Roadshows -- e-Commerce in Real Life

Past Chamber studies have found that, ultimately, consumers drive e-commerce traffic and adoption. "Without a critical mass of consumers, businesses will find it harder to justify expenditure on e-commerce solutions," Mrs Cheng said.

Ironically, the bulk of Hong Kong consumer purchases are conducted on overseas sites, such as Amazon.com. Despite Hong Kong having its own Amazon, equivalent, Yesasia.com -- not to mention a host of other great consumer sites -- home-grown Web sites struggle to draw in customers.

"To give the Hong Kong public a chance to try out some home-grown Web sites, we organised a series of e-commerce roadshows around Hong Kong between October and November," said Valerie So, ECAC Roadshow and Symposium Task Force Member. "Participating companies said they were delighted at the interest shown in their services."

Conita Kwok, Operations Manager for HK Ticketing Ltd, which has been selling tickets online for performances in Hong Kong since August 2000, participated in the roadshows. She said many visitors were surprised that they could see what events were taking place in Hong Kong and book tickets over the Internet.

"They got so excited to know that they could buy tickets for so many events such as Beauty and the Beast, Peter Pan and even the circus on our Web site," she said. "But then their first question was about security for payment, which they obviously would be concerned about."

To give consumers the confidence to pay online, Ms Kwok said payments online are directed to her bank's online payment system.

"People trust banks so we think we need to cooperate with the bank to give people confidence, even though it is quite expensive to set up, and in addition to a monthly fee we have to pay them $10 for every ticket sold," she said.

Agnes Cheung, Manager, CA, Hong Kong Post, who also participated in the roadshows, said visitors to the shows seemed surprised that conducting transactions online had come so far.

"A lot of them were surprised at how quickly e-commerce has actually progressed in Hong Kong, because they thought stories in the media were just hyping up e-commerce," she said. "But the roadshows really opened their eyes as they could see so many companies coming together with the Chamber to demonstrate what they can now do online very easily."

Hongkongpost has been trying to promote use of its e-Certs for online transactions for the past two years with mixed results. As a result of the roadshow, Agnes Cheung said she will put more emphasis on getting out on the streets to interactively showcase what e-Certs are all about instead of focusing on brand marketing.

"The visitors had so many questions but they also wanted to see how the e-Certs, online shopping and transactions all came together. With the roadshows, they were able to see for themselves how e-Certs make transactions secure and, just as, importantly when and when not to use them," she said.

Exhibitors were quite overwhelmed by the positive feedback from the public attending the show, with many visitors saying they had no idea online Hong Kong companies offered so many products and services. But this also raises another issue. Even if you have a great product or service, people may not be able to find you online.

Mr Ng, of ToyEast.com, said this is an issue that any business faces, either online or in the high street.

"There are several channels for trading businesses to use. Most manufacturers rely on part-icipating in tradeshows and overseas exhibitions to attract more customers. As we are a 100 percent e-business, we can't do that so we post our products on sites such as  e-Bay and the Chamber's Web site to attract potential customers. So far this has worked very well, because we have doubled our business this year."

Looking to the future

The ECAC has provided what is possibly the most comprehensive study to date on why many Hong Kong SMEs continue to resist taking their businesses online. But more importantly, it shows clearly their worries and aspirations.

"Now that we know why businesses have not gone online, we can start work on tackling the issues that they worry about," Mrs Cheng said. "In September, we released our "e-Commerce Blueprint" which zooms in on these issues, and early next year we will produce a report which will incorporate all of our findings from the workshops, symposium, and roadshows. With this report, SMEs will be able to work on developing an e-commerce strategy that is right for their business."

More information on the ECAC and its reports can be found on the Chamber's Web site, www.chamber.org.hk/ecac