The Journal of D e v e l o pi n g Areas

Volume 51 No. 4 Fall 2017

A STUDY OF THE MODERATE GROWTH OF

ONLINE RETAILING (ECOMMERCE) IN THE
UAE
A.Seetharaman
Indu Niranjan
S. P. Jain School of Global Management, Singapore
A.S. Saravanan
Taylors University, Malaysia
Dinakaran Balaji
S. P. Jain School of Global Management, Singapore

ABSTRACT

E-commerce is now one of the most significant activities carried out over the Internet .The research
question and problem centred around as to what are the determinants of moderate growth of online
retailing in UAE. The key determinants as variables addressed are transaction cost, lack of trust,
lack of awareness, culture and local regulation. The last variable – local regulation – was identified
by the respondents and experts during the pre-testing of the questionnaire. Both primary and
secondary data were collected. Primary Initially a pilot survey was conducted with 35
respondents and subsequently 10 respondents were interviewed face to face to obtain feedback
on the questionnaire and their suggestions for improvement data was collected from industrial
exerts and customers of supermarkets, and on lines stores in UAE. . Smartpls3.0 is used to analyse
the data collected by building a partial least squares structural equation model (PLS-SEM). The
SmartPLS3.0 tool was used to build and test the research framework and hypothesis. The
relationships between the variables were obtained by performing partial least squares (PLS).
To develop the trust among customers, the e commerce companies must improve the quality of
their website and ensure they have genuine ratings to back them. Transaction costs include the
policing costs and search costs which can be addressed by creating more awareness and by holding
a wide variety of products. Regulations in favor of ecommerce retailers will motivate them to enter
the market. It was also observed that the prevalence of mall culture is also one reason why there is
no rapid growth in online retailing. The observations of this study will be of benefit to all
stakeholders in e-commerce firms in UAE particularly consumers who intend to use online stores
which would increase the growth rate of online retailing in the region. Companies providing
payment solutions can leverage the finding of this research. The primary implications of this study
would boost the moderate growth to speedier growth rate of online industry in the region.

JEL classifications: M31, M37, M38

Keywords: Online retailing, Transaction costs, Lack of awareness, Lack of trust,
Culture, Local regulations
Corresponding author’s email address: seetha.raman@spjain.org
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INTRODUCTION

Online retailing is growing fast and many businesses are realizing that maintaining a strong
presence on the Web is indispensable in today’s global economy (Krishnamurthy et al., 2005;
Rafiq et al., 2013). Future business will be undertaken in online market platforms, allowing
companies to compete regardless of their size (Palmer, 1997; Wigand, 1997), stronger
competition, (Ching and Ellis, 2004; Marcelo Torres et al., 2014, Wigand, 1997). In this
research study, an attempt is made to determine the growth level in online retailing in Dubai.
The increasing growth of the online channel in the United Arab Emirates (UAE) shows
positive signs for online retailing. The flow of the paper includes literature review, research
framework, research methodology, findings, limitation and conclusion.

LITERATURE REVIEW AND RESEARCH FRAMEWORK

There is an existing body of literature that examines the growth of e-commerce in relation
to various factors: transaction costs, lack of awareness, and lack of trust, customer
satisfaction and culture.

Transaction costs
Transaction costs are incurred in making an economic transaction (Coase, 1937;
Williamson, 2007). It includes, travel time, transportation cost, shopping time, quality
inspection and other inconvenience costs (Chintagunta et al., 2012 & Wigand, 1997).
There are three types of transaction costs. (i) information and search costs; (ii) policing
and enforcement costs; (iii) bargaining costs. (Freebairn, 2001 Liang and Huang, 1998;
Teo and Yu, 2005).

Information and search costs

Advancement in information technology have helped firms communicate perfect
information regarding their products, which in turn reduce the transaction costs (Malone
et al., 1987, D’Avanzo and Kuflik, 2013 & Wigand, 1997, Wu et al. 2004, Ba et al.,
2005 & Jones and Leonard (2008 ). .

Policing and enforcement costs

Customers ensure that the product fits the seller’s claims and a cost will be incurred. If
the product does not meet the expected standard which may result in online fraud.
(Coase, 1937 Xiao and Benbasat, 2011. Mavlanova et al., 2012).

The hypothesis follows from the above discussion:

H1. High transaction costs incurred in e-commerce trading have a positive effect on the
moderate growth of online retailing.

Lack of trust
Online businesses are established on trust and this is one of the critical attributes implanted
in the e-commerce system (Beatty et al., 2011; Salam et al., 2005. Doney et al., 1998).
Building trust among Internet users helps e-commerce sites to develop a strong relationship
with them (Fang et al., 2014 & Thakur and Summey, 2007; Miremadi, 2013).
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Information from online ratings is critical. (Flanagin et al., 2014). A product review
system helps the customer to choose to trust e-commerce sites. Several authors argue
that a third-party rating system in an e-commerce site will increase trust among Internet
users (Kim and Benbasat, 2009; Kim and Tadisina, 2007; Sutanonpaiboon and
Abuhamdieh, 2008, McKnight and Chervany 2001 & Awad and Ragowsky 2008). Lack
of trust in the technical and institutional environment can hamper the adoption of e-
commerce (McKnight et al., 2002 & Kim and Benbasat, 2009,). Udell and Anderson
(1968) suggest that product warranty is one of the key elements of competitive strategy.
Customers misses the chance to investigate online products and there is a fear of
purchasing them (Mitchell, 1999 & Lwin and Williams 2006). Good website quality
encourages the repurchase..(Chiu et al., 2012 & Mutz, 2005).

Based on above, it is hypothesized that:

H2. Lack of trust in purchasing online is positively related to the moderate growth of
online retailing.

Lack of awareness
Awareness refers to the perception of an organization’s and the benefits associated with
e-commerce (Molla and Heeks, 2007), attainment of critical mass , increase in firm’s
visibility(Clemons, 2007), impact on purchase intention, (Crespo-Almendros and Del
Barrio-Garcia, 2014) coupled with customer loyalty (Lowry et al., 2008 & Cho et al.
(2015), advertising (Barroso and Llobet, 2012; Romaniuk and Wight, 2009;
Zarantonello et al., 2015) and increased reputation. (Servaes and Tamayo, 2013)

Hence, it is hypothesized that:

H3. Lack of awareness regarding e-commerce sites has a direct positive effect on the
moderate growth of online retailing.

Customer satisfaction
Customer satisfaction is derived from post-consumption evaluation of a product, (Mittal
and Frennea, 2010), repeat purchases by word of mouth, (Kim, 2005 & Chow and Shi,
2015; Fornell et al., 2010), recyclable factors (Shen et.al 2013),website quality,(Chow
and Shi, 2015; Luo et al., 2012) proactive staff response, (Chrzan and Kemery
2012),employee attitudes(Oakley, 2012), service interaction (Pham et al. (2010) web site
wide offerings (D’Avanzo and Kuflik 2013), reliable product information (Wu et al.,
2004). and collaborative ecommerce environment.(Chang et al., 2010). Customer
satisfaction leads to customer loyalty (Chrzan and Kemery, 2012; Pali, 2011). .

Therefore, it is hypothesized that:

H4. Customer satisfaction has a positive effect on the moderate growth of online retailing.
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Culture
Culture is the refinement of mind from social environments in which one grew up.
(Hofstede, 1991; Ewing, 2008. Uhrich and Tombs, Martinsons, 2008, Chau et al.,
2002.). Culture is widely believed to influence individual values and affect behaviour
(Ashraf et al. 2014), Jawecki et al. (2011) argue that companies which collaborate with
communities across cultures must aware of members’ different motives and routines.

Thus, it is hypothesized that:

H5. The diverse culture in the UAE has a positive effect on the moderate growth of
online retailing.

Local regulations
Government regulations have a significant influence on the macroeconomic
performance of market economies and thus it is necessary to devise proper regulations
for establishing a business in a country (Nicoletti and Pryor, 2006).

H6. Local regulations governing e-commerce have a positive relationship with the
moderate growth of online retailing.

Based on the literature review, the conceptual model of the research is framed in Fig. 1.

FIGURE 1. RESEARCH FRAMEWORK

RESEARCH METHODOLOGY

The research question of this study is “What are the determinants of moderate growth of
online retailing in UAE?” To answer this question, above five independent variables are
identified through literature review and one variable (local regulations) is identified
from respondents while pre-testing of the questionnaire.
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Secondary and primary data collection

Secondary data was collected by examining reputed journals to obtain five core variables of
the research to design and develop the research framework. Based on the feedback of pilot
survey from 35 respondents, several changes were made to the questionnaire and this also
helped to find the new variable, local regulation. Once the final survey was formed, a total of
1,000 people was approached online from which 329 valid responses were obtained. Table 1
gives a summary of the demographic details of the respondents.

TABLE 1. DEMOGRAPHIC BREAKDOWN OF RESPONDENTS (n=329).

Measure Items Frequency Percentage

Gender Male 233 71%

Female 96 29%
Age 16–30 172 52%

31–50 94 29%
≥ 51 63 19%
Profession Student 123 37%

Private employee 146 44%

Self-employed 42 13%
Government 8 3%
employee
Home maker 10 3%
Origin India 126 38%

UAE 66 20%
Pakistan 65 20%
South East Asia 44 14%
Europe 24 7%
Others 4 1%
Annual Income 0–25,000 158 42%

(USD)
25,001–50,000 82 26%
50,001–100,000 63 22%
100,001–200,000 26 8%
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STATISTICAL DATA ANALYSIS

The primary data were analysed using SmartPLS3.0, a structural equation modelling
(SEM) tool. The relationships between the variables were obtained by performing
partial least squares, the results of which are shown in Fig. 2.

FIGURE 2. SEM- RELATIONSHIPS BETWEEN VARIABLES BASED ON THE

PLS ALGORITHM

Measurement validation and reliability

The reliability of the model was determined using Cronbach’s alpha and the composite
reliability score (Bagozzi and Yi, 2011). The cut-off for Cronbach’s alpha is 0.6 and
composite reliability should be greater than 0.7 (Nunnally, 1978; Ramayah et al., 2011&
Hair et al., 2011). Table 2 shows reliability measures.
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TABLE 2. RELIABILITY MEASURES

AVE Composite Cronbach’s
R2
reliability alpha
Moderate growth of 0.595 0.854 0.570 0.773

online retailing
Transaction cost 0.633 0.838 0.711
Lack of trust 0.550 0.830 0.727
Lack of awareness 0.614 0.825 0.720
Customer satisfaction 0.650 0.847 0.736
Culture 0.808 0.894 0.763
Local regulation 0.855 0.922 0.831

Discriminant validity

The square root of the AVE of each construct is calculated and the correlation between
the measures is more than 0.6 (Gupta et al., 2013. Trochim, 2006). In Table 3, the
diagonal value shows that the value of the square root of the AVE for each construct is
more than the other constructs.

TABLE 3. DISCRIMINANT VALIDITY

Convergent validity
The average variance extracted (AVE) and the values of outer loadings values to measure the
validity of the model (Henseler et al., 2009). The AVE should be more than 0.5 and the outer
loadings should be greater than 0.7 (Wong, 2013). Table 4 shows that the values for the outer
loadings of the model are above the cut-off value. (Hair et al., 2011).
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TABLE 4. CROSS-FACTOR LOADINGS

Culture Customer Lack of Lack Local Moderate Transaction

satisfaction awareness of regulation growth of cost
trust online
retailing
CL1 0.913 0.275 0.192 0.148 0.122 0.311 0.264
CL2 0.884 0.142 0.265 0.149 0.170 0.270 0.140
CS1 0.054 0.777 0.121 0.306 0.249 0.241 0.261
CS2 0.325 0.865 0.120 0.230 0.303 0.307 0.260
CS3 0.155 0.773 0.154 0.135 0.209 0.186 0.112
LA1 0.248 0.114 0.882 0.216 0.160 0.247 0.059
LA2 0.195 0.002 0.674 -0.010 0.029 0.076 -0.054
LA3 0.144 0.211 0.780 0.028 0.112 0.162 0.108
LT2 0.044 0.182 0.073 0.688 0.393 0.515 0.501
LT3 0.186 0.229 0.072 0.752 0.488 0.436 0.344
LT4 0.089 0.267 0.155 0.748 0.470 0.436 0.438
LT5 0.179 0.170 0.130 0.774 0.506 0.469 0.425
LR1 0.142 0.284 0.151 0.595 0.921 0.560 0.578
LR2 0.154 0.310 0.129 0.562 0.928 0.586 0.520
OR1 0.178 0.223 0.177 0.486 0.458 0.755 0.408
OR2 0.331 0.157 0.257 0.399 0.345 0.719 0.447
OR3 0.286 0.322 0.173 0.532 0.575 0.807 0.492
OR4 0.210 0.247 0.133 0.518 0.511 0.801 0.559
TC1 0.228 0.158 0.062 0.370 0.393 0.417 0.728
TC2 0.160 0.171 -0.018 0.480 0.508 0.505 0.854
TC3 0.170 0.310 0.120 0.524 0.503 0.547 0.800

STRUCTURAL EQUATION MODELLIG

Structural Equation Modelling (SEM) given below is a holistic, statistical approach to

testing hypotheses about relations among observed and latent variables (Hoyle, 1995)

FIGURE 3. BOOTSTRAPPING RESULTS.

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TABLE 5. HYPOTHESIS TESTING

Hypothesis Relationship Coefficient t-value Supported

H1 High transaction cost → Moderate

0.269 4.744 YES

growth of online retailing
H2 Lack of trust → Moderate growth
0.278 5.339 YES
of online retailing
H3 Lack of awareness → Moderate
0.098 2.795 YES
growth of online retailing
H4 Customer satisfaction → Moderate
0.034 0.890 NO
growth of online retailing
H5 Culture → Moderate growth of
0.146 3.758 YES
online retailing
H6 Local regulation → Moderate
0.237 3.884 YES
growth of online retailing

RESEARCH FINDINGS

The outcome for each hypothesis characterized in the above Table 5 was tested using
the t-values, level of significance and path coefficients depicted in Fig.2, and the results
for the hypotheses are as follows:

Hypothesis 1 High Transaction cost → Moderate growth of online retailing

The first hypothesis, H1, examines the effect of transaction cost (t-value = 4.744, CI >
99%) on the growth of online retailing, is strongly significant as the t-value indicates
that the confidence interval is more than 99%. In previous studies, it was found that e-
commerce reduces transaction costs by providing necessary information to buyers.
(Randall et al., 2006; Smith and Manna, 2004).

Hypothesis 2 Lack of trust → Moderate growth of online retailing

The second hypothesis, H2, highlights the positive relationship of lack of trust on the
impact of moderate growth of online retailing. The effect of lack of trust is significant
(t-value = 5.339, CI > 99%). Studies have focused on online trust as an important
parameter for e-commerce success (Buzzy et al., 2009; Sun, 2010). Researchers have
found that third-party ratings are important in establishing trust among the public
(Thatcher et al., 2013).

Hypothesis 3 - Lack of awareness → Moderate growth of online retailing

The third hypothesis H3 highlights that the path from lack of awareness to the moderate
growth of online retailing (t-value =2.795 CI > 99%)) is strongly significant. This is in
line with previous findings.(Clemons, 2007)

Hypothesis 4 Customer satisfaction → Moderate growth of online retailing

The fourth Hypothesis H4 demonstrates that the impact of customer satisfaction (t-value=
0.890, CI <0.90) on moderate growth of online retailing is not significant, leading to the
rejection of H4). This confirms earlier findings of Davanzo and Kudlik (2013) that when
 406

website offers greater number of products, cognitive overload of customers reduced

their satisfaction. Another study by Oakley (2012) confirms the same.

Hypothesis 5 - Culture → Moderate growth of online retailing

The fifth hypothesis H5, highlights that the path from lack of awareness to the moderate
growth of online retailing (t-value =3.758, CI > 99%), is strongly significant. However,
in the UAE, almost 84 per cent of the population is made up of immigrants from several
nations (Mali and Yohan, 2013).

Hypothesis 6 - Local regulation → Moderate growth of online retailing

The sixth hypothesis indicates that the path from local regulation to the moderate
growth of online retailing (t-value = 3.884, CI > 99%) is strongly significant. Also,
during the pre-test, a new variable was found – local regulation – when conducting
face-to-face interviews with the experts.

IMPLICATIONS FOR THE ECOMMERCE MARKET

This study has sought to understand consumers’ intentions towards purchasing in online
stores in the UAE by focusing on the key factors which are responsible for the growth
of online retailing. The players in the e-commerce market, which include e-commerce
sites and those providing payment solutions, can leverage these research findings in
understanding those factors that are of importance in explaining the moderate growth
thus far and aid them in attempts to improve on those factors to perform better in the
online retail industry.

LIMITATIONS AND SCOPE FOR FUTURE RESEARCH

As most the population in the UAE is composed of immigrants and there is a

considerable inflow and outflow of expatriates, the population is not stable, meaning that
the research sample may not be representative over the long term. Future research may be
carried out on improving the trust and awareness of online customers and how to reduce
transaction costs in online retail stores.

CONCLUSIONS

A key point of this research is that the ratings of products in e-commerce sites are not
perceived as genuine by many customers, which results in a lack of trust. Hence, e-
commerce sites need to focus on delivering authentic rating systems, ensuring that there
are no fraudulent activities in assigning ratings or comments to the product. It is apparent
from the survey that most people prefer cash on delivery to online payments due to lack
of trust in online payment systems. Thus, the firms designing payment solutions should
try to focus more on delivering trust-based payments whereby the buyer’s money is
transferred to the seller only if the buyer acknowledges the product to be problem free.
Moreover, e-commerce sites need more than other services to deliver experience to
customers by enabling more interaction with the customers.
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The UAE is home to several large shopping malls, especially in Dubai and Abu
Dhabi. The strong retail shopping culture that prevails in the UAE is a serious threat to
the success of store-based retailers looking to establish an online presence. Research on
implementing Omni-channel retailing should be undertaken so that both retail stores in
the malls and online stores benefit. On the positive side, the climate in the UAE is very
hot throughout the year. This might have an impact on people’s purchasing behaviour as
they might prefer to order from home rather than travelling out in the heat.
The goal of this research was to understand the factors which drive online
retailing in the UAE and customers’ intentions towards online shopping. The model
supports the view that the independent variables of transaction cost, lack of trust, lack of
awareness, culture and local regulation exert an influence on the moderate growth of
online retailing. Investigating the subject has made it possible to determine the main
problems faced by e-commerce in Dubai and the aspects on which firms need to
concentrate to improve their business.

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