< DOCTOR OF BUSINESS ADMINISTRATION >

< JANUARY / 2020 >

< BPBR7103 >

< BUSINESS RESEARCH >

MATRICULATION NO : <CGS02041829>
IDENTITY CARD NO. : <820217105123>
TELEPHONE NO. : <+6017 237 2000>
E-MAIL : <jwphuah@oum.edu.my>
LEARNING CENTRE : <OUM GRADUATE CENTRE>
INSTRUCTIONS
 Do not copy the assignment question and instructions to your answer.
 Prepare your assignment answer following the layout of the ASSESSMENT
CRITERIA shown in the RUBRICS provided for the course. Where RUBRICS are
not provided, follow the instructions/guidelines specified by the Open University
Malaysia (OUM) for the assignment concerned.
 Your assignment should be written according to the number of words outlined
in the assignment instruction EXCLUDING references.
 Type your answer using 12 point Times New Roman font and 1.5 line spacing.
 Show the number of words at the end of your assignment.
 Tables and figures where provided, should be appropriately titled.
 List your references separately in the APPENDIX page.

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FACTORS INFLUENCE ADOPTION OF INTERNET IN SMEs MALAYSIA

CHAPTER 1: INTRODUCTION

1.1 RESEARCH BACKGROUND

The use of the Internet has become an essential channel for consumer and business in
many countries, including Malaysia. It brings some beneficial characteristics such as
wide accessibility, user-friendliness, low cost, speedy, informative and interconnection.
The Internet has become increasingly diffused globally, bringing countries together into a
global networked economy (Gibbs and Kraemer, 2004). According to The Internet Users
Survey (IUS) conducted by the Malaysian Communications and Multimedia Commission
(MCMC, 2018), the survey determined that percentage of Internet users in 2018 stood at
87.4%, a 10.5% percentage point increased from 76.9% in 2016. Approximately, there
were 28.7 million Internet users, an increase from 24.5 million in 2016. Furthermore, the
percentage of internet shoppers among Internet users increased, from 48.8 % in 2016 to
53.3 % in 2018. The e-commerce market in Malaysia is actually showing a good trend,
with e-commerce gross value added contributed 6.3 % to nation's gross domestic product
(GDP) in 2017, a gradual growth from 4.6 % in 2010. Furthermore, value-added for e-
commerce increased to RM85.8 billion in 2017, from RM75.0 billion in 2016 (MCMC,
2018).

Small and medium-sized enterprises (SMEs) (Small and Medium Industries Development
Corporation (SMIDEC)) are playing a significant role in the country's economic
development, particularly in the manufacturing sectors (Ramayah and Koay, 2002).
According to SME Corp Malaysia, sales turnover not exceeding RM50 million OR full-
time employees not exceeding 200 workers for manufacturing sector and sales turnover
not exceeding RM20 million OR full-time employees not exceeding 75 workers for
services and other industries deemed as SME (Corp et al., 2016). Table 1 shows the
summary of SMEs definition based on Malaysian standard by SME Corp Malaysia.

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 Manufacturing
Sales turnover:
RM15 mil ≤ RM50 mil
OR
Employee: From 75 to ≤
200
Sales turnover:
RM300,000 < RM15 mil
OR
Employee: From 5 to < 75
Sales turnover:
< RM300,000
OR
Employee: < 5
Table 1: SMEs Definition
Category Definition Services and Other Sectors
Sales turnover:
RM3 mil ≤ RM20 mil
MEDIUM OR
Employee: From 30 to ≤ 75
Sales turnover:
RM300,000 < RM3 mil
SMALL
OR
Employee: From 5 to < 30
Sales turnover:
< RM300,000
MICRO
OR
Employee: < 5

Seeing the many benefits potentially available from the Internet, more and more SME
companies are flocking towards to the adoption of ICTs and Internet (OECD, 2004).
Adoption of the Internet is considered to be a means to enable these businesses to
compete on a global scale, with improved efficiency, and closer customer and supplier
relationships (Chong et al., 2001). In the business marketing perspective, the Internet has
an impact on the creation of sustainable marketing advantages (Arnott & Bridgewater,
2002) and the reputation of Internet Marketing is developing very quickly in all variety of
business (Taherdoost, H. & Jalaliyoon, 2014). The Internet also allows the marketers to
interact with the customers on one-to-one basis and to build the loyal brand relationship
(Furash, 1999; Dutta and Segev, 1999). Thus the interaction via the Internet within
customers able to improve the marketing performance (Furash, 1999; Dutta and Segev,
1999). As its name suggests, Internet marketing is the advertising of products or services
over the Internet, and it also implies marketing through wireless media and e-mail (Kaur
& Singh, 2017). According to Porter, the Internet can be a critical factor in enhancing a
firm’s market reach and operational efficiency (Porter, 2001). Many authors have agreed

3
that investment in, and proper utilization of the Internet is a significant way of improving
productivity among the vital SME sector (Abouzeedan and Busler, 2002; Beale, 1999).

1.2 PROBLEM STATEMENT

In Malaysia, despite the growing number of SMEs adopted the Internet to improve in
their businesses, there are still many SMEs not maximize the usefulness of the Internet in
the market. According to recent research findings conducted by SME Corp and Huawei,
the SMEs are computerised but not digitalised is that they are mostly running standalone
activities on segregated computers and are not transforming their operations with digital
tools (SME Corporation & Huawei Technologies, 2018). As per current statistic recorded
32 per cent of Internet adoption by SMEs in Malaysia (The Star Online, 2019). While
they are connected to the internet, most of Malaysia's small and medium enterprises
(SMEs) have yet to utilise the internet optimally to unlock the opportunities available due
to the lack of digital skills, access to talents, high costs, low speed and unreliable
connectivity (Wong, 2018). SMALL and medium enterprises (SMEs) must respond
speedily to changes in the market to maintain their competitive edge (Chong, 2017). The
problem needs to be addressed to help SMEs to keep track in the new digital world and
well keep their competitiveness, efficiency and effectiveness in business. This research is
to identify factors that influence Internet adoption in SMEs.

1.3 RESEARCH QUESTIONS, RESEARCH OBJECTIVES AND THE SCOPE OF

THE RESEARCH
To response above mentioned statement, this research aims to determine the factors that
influence Internet adoption in SMEs. Therefore five proposed objectives of this research
work as follow:
1. To determine if the characteristic of managers influence internet adoption.
2. To determine if perceived benefits influence internet adoption.
3. To determine if the organisation culture of managers influences internet adoption.
4. To determine if the language literacy of managers influence internet adoption.
5. To determine if adoption cost influence internet adoption decision.

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And five proposed research questions to achieve proposed objectives in this research
study as follow:
1. Does the characteristic of managers influence internet adoption?
2. Does perceived benefits influence internet adoption?
3. Does the organisation culture influence internet adoption?
4. Does language literacy of managers influence internet adoption?
5. Does adoption cost influence internet adoption decision?

This research will take place from January 2022 to December 2024. SME member list
from Klang Chinese Chamber of Commerce & Industry (KCCCI) will use as the
sampling frame for this research study. This research will select Klang valley as the data
collection location area.

CHAPTER 2: LITERATURE REVIEW

According to Molla and Licker (2005) and Tan et al. (2007), The Diffusion of Innovation
theory (DOI) (Rogers, 1995; Zhu and Kraemer, 2005) is one of the conventional
approaches and remain a popular model in the investigation of the behaviour of users on
technology adoption in businesses for most researches. DOI theory sees innovations as
being communicated through certain channels over time and within a particular social
system (Rogers 1995). Individuals are seen as possessing different degrees of willingness
to adopt innovations, and thus it is generally observed that the portion of the population
adopting an innovation is approximately normally distributed over time (Rogers 1995).
Breaking this normal distribution into segments leads to the segregation of individuals
into the following five categories of individual innovativeness (from earliest to latest
adopters): innovators, early adopters, early majority, late majority, laggards (Rogers
1995). In other words, the DOI is concerned with the way where new technological
concepts migrate from development to make use of and that technological development is
communicated in time and through a specific channel with the members of a social
system. Figure 1 illustrates the DOI process channel.

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 Prior Conditions

Previous Practice
Felt needs/Problems
Innovativeness
Norms of the social system

Communication channels

I II III IV V

Knowledge Persuasion Decision Implementation Confirmation

Characteristics of the Perceived

Decision making characteristics of
Unit: Innovations:
Adoption Continued Adoption
Socioeconomic Relative
Characteristics Advantage Later Adoption
Personality Variables Compatibility Rejection
Communication Complexity Discontinuance
Behaviour Trialability
Observability

Figure 1: Diffusion of Technology Innovation Model

Source: Diffusion of Technology Innovation Model by Rogers (1983)

According to Roger, there are five crucial perceived characteristics of innovation have
been proposed based on the DOI model:
1. Relative advantage – the degree to which the innovation is perceived to be better
than what it supersedes.
2. Compatibility – the degree to which the innovation is consistent with existing
values, past experiences and needs.
3. Complexity - the degree to which the innovation is difficult to understand and use.

6
 4. Trialability – the degree to which the innovation can experiment on a limited
basis.
5. Observability – the degree of visibility of the innovation results.

DOI (Rogers, 1995) and TAM (Davis, 1989) have been widely used in previous
studies (Rogers, 1995; Tornatzky and Klein, 1982; Bajaj and Nidumolu, 1998; Igbaria et
al., 1997; Davis et al., 1989; Riemenshneider et al., 2003). However, the DOI model
tends to ignore other crucial factors that influencing technology adoption. By assessing
the characteristics of manager, we provide empirical evidence on how does manager
characteristics have a significant effect on internet adoption in businesses. Based on
previous studies in technology adoption in SMEs, researchers have emphasized the
managers of SMEs especially their characteristics, behaviours and attitudes (Damanpour,
1991; Fichman and Kemerer, 1997; Grover and Goslar, 1993). This is because such
individuals usually directly and/or indirectly involved in all decision making in their
organisation. According to Lakhanpal (1994), study reveals that individual characteristics
i.e. innovators, leaders and other individuals in key positions have been found to have
significant impacts on explaining differences in the degree of innovation adoption. As
internet adoption is the preliminary process of ICT adoption for business purposes, the
ICT and technology adoption literature would be a good place to start identifying factors
that might affect the individual adopting the internet in SMEs. Van Akkeren and Cavaye
(1999) summarise some factors that are identified as affecting IT adoption in SMEs. They
can be classified into owner/manager characteristics such as perceived benefits, firm
characteristics such organisational readiness and other factors. These factors are used to
explain the adoption patterns of the internet by SMEs in Malaysia.

Most SMEs do not adopt ICT if the benefits do not outweigh the costs of developing
and maintaining the system (Vatanasakdakul et al., 2004). According to them SMEs are
generally concerned about the costs of establishing and maintaining ICT since they
generally suffer from budget constraints and are less sure of the expected returns on the
investment. Indeed, SMEs, especially those that outsource web page design and updating,
have found it difficult to contain site development costs that are more or less beyond the

7
firm’s control (Ernst & Young, 2001) Indeed, this study is focused on the adoption and
utilisation of the internet in developing countries. Therefore, it is replete with references
to the adoption of IT in small business (Hazbo et al., 2006; Ratnasingham, 1997;
Premkumar and Roberts, 1999; Thong and Yap, 1996).

In this study, the adoption and utilisation of the web is defined as using the computer
hardware and software to access the internet and use the internet to support operations,
management and decision making in business (Davis and Olson, 1985). The dependent
variable is the adoption and utilisation of the internet among SMEs in Klang Valley area
in Malaysia. The main purpose is to identify the factors that lead to the adoption and
utilisation of the internet. However, it is not possible to study or research on all the
factors that cause the adoption and utilisation of the internet. As a result, selected factors
that are more suitable to the adoption and utilisation of the Internet are chosen in the
SMIs business context. These selected factors are characteristic of managers, perceived
benefits, organization culture, language literacy and adoption cost considered as the
independent variables for this study, refer Figure 2:

Manager
Characteristic
H1(+)

Perceived
Benefits H2(+)

Organization H3(+) Internet Adoption

Culture

H4(+)
Language
Literacy

Adoption Cost
H5(+)

Figure 2: Conceptual Framework and Hypotheses

8
Manager Characteristics
It can be summarised from the previous research that managers’ characteristics are
important factors affecting the adoption and utilisation of the web. The manager is an
entrepreneur figure who is crucial in determining the innovative attitude of a small
business (Rizzoni, 1991). This is because managers determine the management style of
the company. Managers’ characteristics, which include prior experiences, resistance to
change, education level and training, are important factors that affect the adoption and
utilisation of the web (Trocchia and Janda, 2000; Larsen and Wetherbe, 1999; Woodcock
and Chen, 2000; Nutt, 1995; Folger and Sharlicki, 1999; Mick and Fournier, 1998;
Kennickel and Kwast, 1997; Thong and Yap, 1996)

Perceived Benefits
Companies may gained many perceived benefits in adoption and utilisation of the web
provides lots of information on the web. A company will adopt a new innovation such as
the web if there are more benefits than existing methods. Perceived benefits, which
include reduced transaction costs, improved cash flow, increased productivity, better
customer service, competitiveness, reaching new customers, better relationships with
existing customers and improved operational efficiency, are the benefits that effect the
adoption and utilisation of the web (Beatty et al., 2001).

Organisational Culture
Organisational cultures describes the fundamental assumptions people share about an
organisation’s beliefs, values, norms, symbols, language, rituals, and myth that give
meaning to organisational membership and are collectively accepted by a group as guides
to expected behaviours (Cook and Hunsaker, 2001). Organisational culture is an
important factor that affects the adoption and utilisation of the web (Cook and Hunsaker,
2001)

Language Literacy
Language is an important negative factor affecting the adoption and utilisation of the web
in non-English-speaking countries (Bazar and Boalch, 1997). This is because English is a

9
gateway of information and knowledge transfer in the digital age (Gloor, 2000).
According to a survey by the online marketing research firm Global Reach, the
dominance of the English language on the internet continues. The IDC eWorld 2001
survey revealed that about 43 per cent of all web sites are multilingual, despite the fact
that the English is still included for multilingual sites (38 per cent). English is a primary
language used in many Western countries where new technologies originate
(Vatanasakdakul et al., 2004). According to them, it is the predominant language for the
development of ICT, and it is also the primary language used on the web (Chieochan et
al., 2002). A Nua Internet survey found that English still dominates as the language of the
internet with 56 per cent. However, the most often used language in Malaysia is actually
multi-languages subject to various ethnic groups especially Bahasa Melayu (Malay)
rather than English. If it is feasible to overcome the language barriers, the Internet
adoption as well as utilisation of the world wide web will increase and hence benefit
businesses in Malaysia because the world wide web has much more information in
contrast along with other media of communication such as television and radio.

Cost of Internet Adoption

The cost of adoption is an essential factor in the adoption and utilisation of the web (Ernst
& Young, 2001). The cost factor can be divided into two types, which are the access fees
of internet and the income of the company (Guadagni and Little, 1983; Gupta, 1988;
Gattiker et al., 1996). The lower the cost of adoption, the higher the innovation such as
the web will be adopted by the company and vice versa. Besides that, company with high
profit and income will be more likely to adopt new innovation compared with a low
earning company

10
CHAPTER 3: RESEARCH METHODOLOGY

3.1 RESEARCH DESIGN

Qualitative analysis is a scientific technique of observation to collect non-numerical data
(Babbie, 2014) while concentrating on meaning-making (Krauss, 2005). This typically
happens by case study, personal experience, introspection, life story, interview, artefacts,
and cultural texts and productions, together with observational, interactional, historical,
as well as visual texts (Denzin and Lincoln, 2005). This particular type of research
answers questions related to how or why a particular phenomenon might happen, instead
of how frequently it occurs (Berg and Lune, 2012).

Quantitative analysis is the systematic empirical investigation of observable phenomena

through statistical, mathematical, or computational techniques (Given, 2008). The goal of
quantitative research is to develop as well as make use of mathematical models, theories,
and hypotheses pertaining to phenomena. The technique of measurement is central to
quantitative research as it provides the essential relationship between empirical
observation as well as mathematical expression and empirical observation of quantitative
relationships. Quantitative data is any data which is in numerical form like statistics,
percentages, etc (Given, 2008). The researcher analyses the data with the assistance of
statistics and hopes the statistics will deliver an unbiased result which may be generalized
to some larger population. Qualitative research, on the other hand, inquires deeply into
particular experiences, with the aim of describing as well as discovering significance via
text, narrative, or perhaps visual-based data, by developing themes exclusive to that set of
participants (Corrine, 2011). Qualitative analysis generates information only on the
specific cases studied, and any more general conclusions are only hypotheses.
Quantitative approaches can be used to validate which of such hypotheses are actually
true (Hunter et al., 2008).

This research will select quantitative method as the research method. Five hypotheses are
developed based on the review of the literature on various studies done in other countries

11
in the world. The model identifies five factors as independent variables influencing
internet adoption.

H1. There is a positive relationship between manager characteristics and the adoption of
the internet.

H2. There is significant relationship between the perceived benefits of the internet and
adoption of the internet.

H3. There is significant relationship between organisation culture and adoption of the
internet.

H4. There is a positive relationship between proficiency of English language and the
adoption of the internet.

H5. There is significant relationship between costs of adoption and the adoption of the
internet.

3.2 DATA COLLECTION TECHNIQUES

A questionnaire survey approach method is selected for this research. The sampling
frame used will be drawn from listed members from Klang Chinese Chamber of
Commerce and Industry (KCCCI) that in Klang Valley region in Malaysia. The target
groups are SMEs, considered based on the number of employees in the industry is most
commonly used in management research (Ghobandian and Gallear, 1996; Haksever,
1996; Terziovski and Samson, 1999). SMEs are the center of the study for two good
reasons. First, there is very little research conducted in the area making use of these types
of organisations. Next, on of the aims of the study sought to evaluate the adoption rate of
the Internet in this particular sector. By the nature of the industrial structure of the
Malaysia, the vast majority of the companies are SMEs (SMIDEC, 2002). An
investigation concentrating primarily on bigger organisations might be well recognized
and familiar with the term of the Internet. On the contrary, focusing on SMIs will not

12
necessarily identify areas of "IT usage". The database comprised private sector and
manufacturing and service organisations. This was regarded as an advantage as much of
the work on IT usage has focused on Electrical and Electronics manufacturing sectors
(Alam et al., 2004). Questionnaire will target at the individual having responsibility for
making decisions in the company. The reasons choosing managers to the subjects for the
study: managers are involved in decision leading to the adoption of technology in their
business settings (Rogers, 1995), managers are responsible for most of the decision
making in the firm such as finance, budget and plant maintenance. Managers also have
the ability to recognise complex and dynamic issues and to resolve problems for the
benefits of the organisation (Bateman and Snell, 1999).

For this study, Klang valley area in Malaysia is selected for data collection. Because
Klang Valley is the main business centre in the country and it is on the advantageous
edge in this study as it is equipped with modern facilities, such as fast internet
connections and advanced telecommunications systems, compared to other states in
Malaysia (Siwar and Kasim, 1997). Besides that, the study will face difficulties if it is
made throughout Malaysia because there are shortages of local databases on business
information, and we are required to have a large sample to reflect the study. Klang Valley
area has great facilities for businesses, for example, advanced
telecommunications system, modern business facilities, excellent roads systems and fast
internet connections (Siwar and Kasim, 1997). As a result, Klang Valley is a real model
business in Malaysia. Therefore, many large corporations try to maintain business
presence in that area.

3.3 DATA ANALYSIS

SPSS will be used for data analysis. Pearson correlation will be used to measure the
magnitude or strength of the relationship through the numerical value of 21to þ1. The
conversion of measurement is as shown below:

r is 1.0 – magnitude is perfect;

r is 0.7-0.9 – magnitude is high;

13
r is 0.5-0.69 – magnitude is substantial;
r is 0.3-0.49 – magnitude is moderate;
r is 0.1-0.29 – magnitude is low; and
r is 0.01-0.09 – magnitude is negligible.

Descriptive statistics will be used for describing the population of the respondents.
Frequency distribution and measurements will be utilised to show whether other selected
statistical method fulfilled the basic assumptions in terms of the distribution and linearity
between dependent and independent variables.

Dependent variable
The purpose of this study is to investigate the factors that would likely to influence the
level of world wide web adoption. The adoption and utilisation of the web is defined as
using the computer hardware and software to access the internet and use the web to
support operations, management and decision making in business (Davis and Olson,
1985). Dependent variable for this study is measured and modified the scale developed
based on the study by Kinyanjui and McCormick (2002). The respondents will be asked
to rate the statements on a five-point scale. One question therefore contains seven
possible responses that address how frequently the respondents were used WWW to their
business (1 = never, 2 = very rarely, 3 = rarely, 4 = occasionally, 5 = frequently, 6 = very
frequently, 7 = always). The study depends on an overall weight rating that is based on
the responses received from the following statements:

. Internet is used to get information about input market.

. Internet is used to obtain information for product market.
. Internet is used to obtain information about specific customers.
. Internet is used to obtain information about specific suppliers.
. Internet is accept to orders from international business customers
. Internet is used to place orders with international suppliers.

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Independent Variables
The questionnaire will comprise two sections. The first section presents respondents with
a list of 20 statements on the Internet adoption tendency, language literacy, manager
characteristics and perceived benefits. Respondents is required to rate the agreement and
disagreement on a Likert scale (1 = disagree very strongly, 2 = disagree strongly, 3 =
disagree, 4 = neutral, 5 = agree slightly, 6 = agree strongly, 7 = agree very strongly).

The cost of web adoption is an important factor was developed on the basis of previous
studies (Vatanasakdakul et al., 2004; Ernst & Young, 2001), measuring on a seven-point
Likert scale was used in the empirical testing (1 = disagree very strongly, 2 = disagree
strongly, 3 = disagree, 4 = neutral, 5 = agree slightly, 6 = agree strongly, 7 = agree very
strongly). Managers will be asked to assess each statement in terms of their agreement.

Validity
The questionnaire will be validated by two practitioners and two academicians in the
industry to test the validity of the questions in term of phrasing, sentencing and
conception. After receiving the comments from the validators, the amendments shall
make if there is any. Then a pilot study shall be conducted with 10 SMEs to check for the
relevancy and clarity of the questions before sending out on a large scale to the targeted
respondents.

No. of words: 3824 words only.

15
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