An Empirical Analysis of Indices and Factors of ICT Use by Small- and Medium-Sized Enterprises in Japan

An Empirical Analysis of Indices and Factors of ICT Use by Small- and Medium-Sized Enterprises in Japan

Masatsugu Tsuji (University of Hyogo, Japan), Teruyuki Bunno (Kinki University, Japan), Hiroki Idota (Otemon Gakuin University, Japan), Hiroaki Miyoshi (Doshisha University, Japan), Masaru Ogawa (Kobe Gakuin University, Japan) and Yasushi Ueki (Bangkok Research Center, Institute of Developing Economies/Japan External Trade Organization, Thailand)
DOI: 10.4018/978-1-61520-709-1.ch011
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Abstract

This chapter attempts to extract factors which promote the introduction and usage of ICT by SMEs (small- and medium-sized enterprises) through the method of mail surveys and in-depth interviews conducted in two of the largest SME clusters in Japan, Higashi-Osaka and Ohta Ward, Tokyo. The questionnaire was sent to more than 6,000 SMEs there, and received nearly 1,200 replies. Questions are related to company characteristics and purposes for ICT use. Moreover, the followings indexes are selected which present the degree of ICT use by SMEs: (i) software that contributes to efficient utilization of managerial resources; and (ii) Internet usage. Based on these data, factors are extracted by utilizing the regression methods such as OLS, logit and probit estimation. Among them, the most important elements in promoting ICT use are found to be a future-oriented vision for SMEs such as expectations for restructuring business process through ICT, and managerial orientations.
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Introduction

Background and Objectives of Analysis

Information and Communications Technology (ICT) was introduced in the early 1990s, and since then, it has been transforming the frameworks of not only economies but also business firms. ICT has been creating new businesses such as e-commerce and contributing for economies to become more globalized and more competitive due to easier access to all kinds of information through ICT. The development of business management has also increased greatly due to ICT. Business organizations have also been undergoing rapid transformation; ICT has created new forms of organization by destroying the traditional ones.

SMEs (Small- and medium-sized enterprises) undergird Japan’s entire manufacturing sector by supplying it with high-quality parts; it is well known that the unsurpassed quality of Japanese products is largely based on SMEs. In accordance with the above transformation, however, SMEs have been attempting to adapt ICT in their business, but they are not necessarily successful. This chapter examines current ICT use by SMEs, namely, examines empirically what are the factors that promote ICT use by SMEs. The analysis is based on field surveys, a mail survey and in-depth interviews conducted by the authors in two of Japan’s most prominent SME clusters, located in Higashi-Osaka city, Osaka Prefecture, and Ohta ward, in the metropolitan area of Tokyo. The questionnaire was sent to more than 6,000 SMEs in two clusters, and received nearly 1,200 replies.

Questions sent to SMEs were related to (i) company characteristics (amount of capital, number of employees, etc); (ii) managerial orientation, which classifies SMEs as the expansion, incentive-providing, adapting, or data-using category; (iii) business environment such as the degree of competition; (iv) purposes of ICT use, such as raising profit and productivity; (v) expectations for ICT use; and (vi) other factors such as ICT investment in the most recent fiscal year and the company's understanding of importance of the ICT in business management. Regarding managerial orientation, a detailed explanation is called for. The questionnaire contains ten questions regarding managers’ daily activities. Since there is some overlap between the ten questions, an attempt was made to isolate the variables through component analysis.

In this manner, four variables, which account for 70.1% of the total responses, were isolated. The first of these includes questions to determine to what extent an SME is geared toward expansion. The second category, orientation to incentives, contains questions on management’s performance vis-à-vis stakeholders, and on any incentives it gives employees by relinquishing rights and responsibilities to them. The third variable includes questions on the extent to which firms learn from their mistakes, and on whether top management considers employee suggestions. Since such courses of action are indicative of management’s responsiveness, this factor is referred to as “orientation to expansion”. The last variable, called “orientation to data use,” contains questions on how firms make use of data for decision-making.

The followings indexes were selected to represent the degree of ICT use by SMEs: (i) the amount of software that contributes to efficient utilization of managerial resources; and (ii) Internet usage. Based on these data, the factors extracted were extracted by making use of regression methods such as OLS (Ordinal Least Squires), logit and probit estimations. Thus, the result of estimations can be compared.

One of the most important factors found in our research is “expectation from ICT use,” such as “restructuring of the whole business process,” which is identified as a significant factor in all of our estimations. SMEs with intensive use of ICT believe in its effect and actually invest lots. It follows from this that the most important way to promote ICT use among SMEs is to encourage them to be forward-looking. Once they adapt such an outlook, SMEs can determine the exact ways in which they will introduce and use ICT, according to their specific goals. By the probit analysis, the behaviour of CEO or the top management was also found to be especially important.

Since ICT use is a function of a business’s management and strategy, the decisions made by senior managers are crucial. Even if SMEs operated under optimal conditions, they would not be able to use new technologies to their advantage without correct decisions by their managers. Similar conclusions were reached by Tsuji and Choe (2004), who also tried to identify factors that encourage regional information policies by using the same framework. They concluded that the leadership of top local government is the most significant.

Once those factors are grasped correctly, then they are used for establishing suitable policy measures to enhance SMEs. Based on rigorous researches, proper policy measures should be established.

The chapter consists of eight sections. In section 2, the indices of ICT use by SMEs are constructed by focusing the usage of software and the Internet. In section 3, the variables for estimations and the method of estimations are provided, and estimations by OLS, as well as 5 logit and probit estimations are conducted. In section 5, problems and policies for ICT use by SMEs are identified based our survey. Concluding remarks and the future direction of research are given in section 5.

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