Internet-enabled International Marketing - A Small ...



Internet-enabled International Marketing - A Small Business Network Perspective

Simpson Poon* Tel: +61 8 93606072

School of Information Technology Fax: +61 8 93602941

Murdoch University email: spoon@murdoch.edu.au

Murdoch, WA

AUSTRALIA 6150

Colin Jevons Tel: +61 3 9214 8536

School of Management Fax: +61 3 9819 2117

Swinburne University of Technology email: cjevons@swin.edu.au

John St. Hawthorn, Victoria

AUSTRALIA 3122

Please direct all correspondence to the author with a “*”

Abstract

Many small businesses in the 1990s are compelled to compete beyond their comfort zone (local markets) due to the globalization and internationalization of the marketplace. At the same time, the commercialisation of the Internet has created unprecedented opportunities for small businesses to engage in national and international marketing campaigns which could have been unaffordable due to the huge amount of resources required. This paper discusses why the Internet is particularly important for small business international marketing. It then investigates how small business network exchange can be initiated and supported using the Internet, which in turn provides a platform for international marketing. It also explores strategies for carrying out marketing activities on the Internet, considering the different kinds of inter-organisational relationships that exist within small business networks. Finally, it is argued that marketing is only one aspect of how small business networks can gain strategic advantage in using the Internet. The fundamental issue is to build useful inter-organisational systems to support not only marketing activities among small businesses on the Internet but also to transform activities on different parts of the small business value chain.

Simpson Poon is Associate Professor of Electronic Commerce and the Director of the Centre for Electronic Commerce and Internet Studies at Murdoch University, Perth, Australia. He has published papers in the area of strategic impacts on small business by the Internet. His research interests include inter-organisational systems and the use of information infrastructure to improve strategic positions. This paper is the result of a project investigating how small businesses can gain strategic advantage through using the Internet.

Colin Jevons is a lecturer in the School of Management at Swinburne University of Technology and a Fellow of the Asia-Australia Research Centre. His career background is in the publishing industry; his research interests are now in the measurement of attitudes to service quality internationally, differences between marketing in countries in transition from command to market economies and fully-fledged market economies, and how traditional theories of competitive advantage should be modified for business on the Internet.

Introduction

Until the early 1990s, the Internet was largely an academic research network. The membership of this network was mainly from teaching and research institutions together with government organizations directly or indirectly involved in research activities. The Internet then had a set of strictly enforced Acceptable User Policies (AUPs) which restricted non-teaching and non-research traffic, with particular emphasis on restricting profit-oriented commercial activities. AUPs applied throughout the Internet, mostly based on the US APRANet AUP, and were enforced internationally (eg. AARNet in Australia).

Following the gradual withdrawal of US Government funding of the NSFNet (the backbone infrastructure of the US portion of the Internet) in the early to mid 1990s, the portions of the NSFNet not directly linking the super-computer centres were ‘outsourced’ to commercial carriers for management and development (Zakon 1996). The traditional AUPs which restrict the non-commercial use of the Internet became impractical. Consequently, commercial use of the Internet has exploded. Commercialisation of other parts of the Internet (eg. AARNet in Australia) followed. In 1994, the number of commercial domains[1] exceeded the number of academic, research and government domains for the first time (December and Randell 1994).

One of the earliest and still most popular commercial activities on the Internet is advertising and promotion. Until the early 1990s, applications on the Internet were essentially non-graphical, and all Internet-based marketing activities were performed by sending plain text messages on the Internet. Examples include announcements made on Usenet newsgroups by computer firms (eg. biz.digital.announce, comp.sys.sun.announce) and the use of electronic mail (eg. flash@) to distribute product updates to customers. Much of the early commercial use of the Internet was from organisations in the Information Technology (IT) industry. For example, shareware vendors made available their products on computers on the Internet worldwide for potential customers. Many shareware vendors are themselves small businesses and the Internet as a promotion tool has been proven to be cost-effective as compared to traditional media. This ‘try-before-you-buy’ strategy ideally requires a carefully targeted customer base. Such bases are emerging on the Internet, for example specialist newsgroups and email lists. In their absence, the minimal cost of generating and broadcasting junk mail seems to outweigh the disadvantages, to the sender at any rate.

The birth of the World Wide Web (WWW) in 1993, particularly its graphical user interfaces (often referred to as web browsers), offers opportunities which were unimaginable during the text-based era of the Internet. The WWW allows hypertext navigation (so-called point-and-click) as well as graphical displays. Marketing activities on the Internet are no longer limited to plain text messages. Moreover, the WWW allows interactive marketing because the user is actively involved in responding to the vendor’s promotion campaign. This kind of interactivity is not commonly found in marketing activities conducted through traditional broadcast and print media, with the exception of interactive television. The most recent developments of the WWW allow full multi-media interactive animations to execute over the Internet almost instantaneously. The WWW also offers tremendous potential for direct marketing and early stage marketing (Berthon, Pitt and Watson 1996).

Despite all the exciting marketing potential offered by the Internet, early attempts to conduct promotion activities on the Internet have not been highly successful. In applying techniques which have proven successful in traditional media, marketing professionals find that their efforts often achieve disappointing results on the Internet. Different explanations have been put forward to explain this phenomenon, among those, the special demographic characteristics of its users (Gupta, Pitkow and Recker 1995), the traditional ‘voluntary contribution’ culture that exists on the Internet, and the suggestion that the Web is an alternative to real-world environments, not a simulation of one (Hoffman and Novak 1996). In addition, we believe the still non-ubiquitous nature of the Internet as compared to traditional media hinders the impact of Internet marketing efforts when presented as if to traditional mass markets. Hoffman and Novak (1996) point out that marketing communications on the Internet differ from traditional, one-to-many, mass media advertising principles in that communication is on a many-to-many basis. Although the Internet opens the opportunity for direct marketing (O’Connor and O’Keefe 1995; Berthon, Pitt and Watson 1996), hard-selling and advertiser-push promotion strategies do not work well on the Internet. Initiatives which try to sell the ‘How to make-money-fast on the Internet’ concept have only resulted in prime targets for deletion on electronic mailing lists and Usenet newsgroups. The philosophy of a still significant number of users on the Internet that products and services available on the Internet should be free or available at a very low cost (Gupta, Pitkow and Recker 1995) requires different strategies to Internet promotion. For example, Qualcomm Inc., makes available a low-end version with basic features of its email program Eudora to potential customers on the Internet, free. At the same time, the low-end product contains information on its high-end counterpart. Potential customers can try out the functionalities of the low-end product and decide whether it is worth purchasing. At the same time, these users are led to perceive how the additional features contained in the high-end product can improve productivity and efficiency. Netscape gives free copies of its market-leading Web browser to academic institutions for educational purposes to encourage loyalty through familiarisation by the future executive decisionmakers among the students. On the other hand, it has been suggested (Montgomery 1996) that the lack of broad business and marketing expertise within the web design community has led to competition on price to such an extent that an unsustainably low price ceiling on intellectual property has developed. Wigand and Benjamin (1995) suggest, in contrast, that it is the provision of price information that decreases seller welfare and draw parallels with undifferentiated commodity markets. There are therefore a number of possible explanations for the high level of price-sensitivity among Web users, who are relatively affluent and highly educated compared to the population as a whole (Gupta, Pitkow and Recker 1995).

Also very important is the trust and confidence which must exist between the vendor and potential customers. The need to guarantee protection for customers from being cheated in Internet sales is important, particularly for more significant sales transactions (see, for example, The First Virtual Internet Payment System[2]). Security issues about the Internet still hamper the smooth transition from communication to sales. Until now, payments for Internet sales are often still made through traditional means (eg. faxing off credit card details). Recent work by White (1996) showed that ordering an inexpensive food product over the telephone was approximately equal in preference to on-line ordering, with little difference in preference between sites with a secure order form and those without security. White also found that there was considerably greater (by a factor of two to three, depending on quality of site) likelihood of purchase at a retail level as a result of Web communications, suggesting that Internet communication is currently a more effective promotion than a sales tool - at least within a small geographic area.

Some researchers (see, for example, Poon and Swatman 1995; Hamill 1996; Quelch and Klein 1996; Berthon, Pitt and Watson 1996) have already identified the need for a paradigm shift to pursue international marketing on the Internet. We add that such a paradigm shift is necessary both in terms of attitude and practice, and is particularly important for small businesses when attempting to engage in low-cost and effective international promotion campaigns. The Internet is more important for international marketing by small business rather than large corporations is because small businesses, despite their flexibility, ability to adapt to change, venture orientation and ability to specialise in products and markets; are also disadvantaged by resource constraints (Bhide 1994), lack of appropriate strategic planning and difficulties in expanding market share (Stephenson and Duncan 1993). In this way use of the Internet can be seen as another way in which the small player can produce communications of quality as high as the largest marketers through the use of relatively inexpensive technology, such as has happened in recent years with fax machines and laser printers.

When using the Internet for international promotion campaigns, a small business can either do so as an individual organisation (eg. create a web page and make it accessible through Internet search facilities) or more effectively through small business networks of various kinds. By building different inter-organizational systems[3] on the Internet to facilitate and support inter-organizational relationships, small businesses can assist each other to access potential markets which would otherwise require expensive marketing research and communications campaigns. Given that marketing has been observed as a major weakness among small businesses (Watkins 1982; Cromie 1991), such relationship-based networks are reported (Perrow 1992) to have a significant role in furthering marketing activities for their memberships.

Small Business Networks and the Internet

A small business network, which is also referred to as a co-operative alliance (Golden and Dollinger 1993) or strategic alliance (Forrest 1990) describes a group of small businesses which have joined forces to share resources, information and support and improve competitiveness (Stephenson and Duncan 1993). Such networks as described by Furukawa et al. (1990) as an organisation having autonomous parts each pursuing their own objectives and have no definite hierarchy nor formal authority-responsibility relationship. Through the process of sharing resources, each member can obtain necessary resources externally without going through a market mechanism. Similar observations have been made by Perrow (1992) in describing small-firm networks which are involved in sharing information, equipment, personnel and orders even while they compete.

When formed over the Internet, this kind of network can have membership from both local and international business communities. The concept of resource sharing and support often takes the form of information exchange, sharing of customer orders or project collaboration. In the past, small businesses usually dealt with customers within local regions, just as many of the networks formed were made up of small businesses and associates from the same geographic region (Johannisson 1987; Curran, Jarvis, Blackburn and Black 1993; Larson and Starr 1993). Prior to forming networks, small business operators have usually met at functions often organized by third parties (such as Business Development Centres, exhibitions, or trade organisations). Such gatherings provide excellent opportunities to develop future contacts for business collaboration. Hall (1992) identified that the building of cross-border networks with other small businesses and then shifting knowledge and rights across such borders through franchises, licenses and similar techniques is often observed in the small business globalization process. As the globalization of business partnerships becomes an important issue for the survival of even micro-sized organizations (Poon and Swatman 1996), using traditional avenues to form national or international strategic networks becomes impractical due to geographic barriers.

The commercialisation of the Internet provides opportunities for many entrepreneurial small businesses to begin sharing information and experiences across this electronic medium, both in addition to and instead of their former, purely physical methods of communication. Figure 1 illustrates a scenario of how small businesses and other business network members can be connected through the Internet by accessing services provided by Internet Service Providers (ISPs). The business exchange carried out on the Internet is remarkably similar to the discussion and exchange of experiences which took place in the early stages of the formation of strategic networks through physical contacts. It is apparent that this electronic medium is an important way in which small business networks, particularly those with international membership, can exchange information and maintain network dynamics.

[pic] Figure 1. An example showing a small business network through the Internet

Sarkar, Butler and Steinfeld (1995) suggest a multi-part classification of new network-based intermediaries - cybermediaries. These are directories (general, commercial and specialised), search services, malls, publishers, virtual resellers, web site evaluators, auditors, forums, fan clubs and user groups, financial intermediaries, spot market makers and barter networks, and intelligent agents. Hoffman, Novak and Chatterjee (1995) suggest a slightly different six-category classification of online storefront, internet presence, content, mall, incentive site and search agent. Whatever the classification scheme, it is apparent that there is a multiplicity of communication management styles available to Internet users.

Emerging Patterns of Interactivity within Small Business Networks

An illustration of how strategic networks can be formed to enable inter-organizational exchange on the Internet is given by Bottoms (1994). Using the World Wide Web service, it brings together business services such as on-line promotion and order entry, collaborative engineering, product data exchange and other transaction services such as payment using EDI. The issues to be resolved are mainly management oriented, rather than technical (Swatman 1994).

As small businesses continue to experiment with the Internet for business activities, different examples of promotion efforts surface. Many of these examples are implemented using ‘off-the-shelf’ Internet application services (eg. Web browsers, File transfer, Log onto remote computers - Telnet, Electronic mail and Video/Audio-conferencing - CUSeeMe). Well-known examples such as using Usenet Newsgroups to broadcast promotion messages and collect market intelligence (see, for example, misc.entrepreneurs, alt.business.import-export, alt.business.multi-level), software companies allowing the downloading of products, services and information (eg. ) and benchmarking IT-products online (Thorell 1994). More recent examples include the formation of virtual shopping malls on the Internet (eg. ), regional small business networks (eg. .au, ) and a virtual advertising agency (eg. .au).

Since the Internet creates a ‘borderless’ virtual business platform on which suppliers, customers, competitors and network partners can freely interact without going through the pre-defined channels on the value chain, members of the same business network or of different networks can by-pass the traditional interaction patterns and form virtual value chains (Benjamin and Wingard, 1995).

[pic]Figure 2. A diagram showing Internet-enabled by-passes in the context of a small business network

For instance, there is nothing stopping a company’s competitors from directly contacting their customers through the Internet. At the same time, customers can bypass their distributors and easily approach different suppliers to negotiate deals and obtain products. Such activities will have a profound effect on the roles different actors play in the traditional value chains. From a marketing point of view, this means re-thinking the promotion campaign taking in to consideration the different groups of target audiences. Figure 2 illustrates the four main types of business entities with which a small business will have to interact - suppliers, customers, alliance partners and competitors. There are many ways in which each of these relationships can be developed and this diagram highlights the fact that such interactions can be transformed by the Internet. The white arrows indicate interactions which are typical of the traditional roles played by these businesses. The black arrows illustrate the defined methods of interaction described by the white arrows which can be by-passed or transformed over the Internet as shown. Furthermore, each small business can now be part of many business networks regardless of geographic location. Initial entry into such networks can be done by first contacting the group via the Internet. Thus, the Internet enables the formation and maintenance of business network links which would otherwise be prohibited by barriers such as distance, time and limited resources. Sarkar, Butler and Steinfeld (1995) describe the formation of new cybermediaries, as well as a direct marketing process taking advantage of the reduction in transaction costs resulting from Internet usage, existing intermediaries that are threatened by Internet marketing, and existing intermediaries that would be assisted by Internet marketing. (Their discussion is somewhat parochially based on the American NII, but the principles apply generally to the WWW). The savings in shortening the so-called value chain in a traditional, non-electronic, market from a four-stage chain involving producer, wholesaler, retailer and consumer to a simple direct sale from producer to consumer have been reported by Wigand and Benjamin (1995) as 62% for a high-quality shirt. In such a case the longer chain could more appropriately be termed a cost chain rather than a value chain.

Matching Inter-organisational Relationships with Internet Usage and Marketing Strategies

Golden and Dollinger (1993) further classify these inter-organizational relationships by exploring the interaction between the strategic posture of small firms and their propensity to form cooperative linkages. Their findings indicate the existence of four main types of inter-organizational relationship:

Confederation - Firms which compete with one another but which maintain some contractual functional activities in common, co-ordinated by a central management.

Conjugate Collectives - Firms which have contractual arrangements for symbiotic purposes.

Agglomerate Collectives - Firms which compete within the same industry but have no contractual "business" arrangements.

Organic Collectives - Firms (or the representative thereof) which engage in traditional networking, such as board memberships or other voluntary organization, in an indirect and non-contractual form.

They then conclude that small businesses which assume a variety of strategic postures tend to participate in different kinds of strategic networks. This understanding of small business inter-organizational strategies is critical to the strategic use of the Internet to support network activities. The business exchanges resulting from such strategies are important for the creation and replication of strategic networks on the Internet.

In order to rationalise the way in which the Internet can be used to help these different kinds of inter-organizational relationship, particularly in carrying out international marketing activities, a framework (Table 1) is presented which maps business network structural characteristics against Internet usage and marketing strategies. A detailed listing of the ways in which the Internet and its applications can be used be used to support inter-organisational activities with customers, suppliers, network partners and even competitors was described in Poon and Swatman (1995).

|Inter-organizational Relationship |Internet Marketing Strategy |

|Confederations (eg. small business groups sharing resources |- Central management provide resources for network members to market |

|through contractual agreements). |their products and services on the Internet (eg. A virtual agency |

| |service) |

| |- Include in the agreements to provide reciprocal homepage links |

| |between members included in the contract. |

|Conjugate Collectives (eg. Closed group agreements between |- Allow reciprocal links on members’ homepages. |

|supplier and customer). |- Make available market intelligence on the closed-group’s intranet |

| |(if available) with login control. |

| |- Share market intelligence in order to improve supplier-buyer |

| |relationship |

|Agglomerate Collectives (e.g. Trade Associations). |- Trade Association provide market intelligence data (local and |

| |international) on its homepage for members use. |

| |- Mutual agreement between [international] trade associations to |

| |market the members’ products and services. |

|Organic collectives (e.g. Community Services Groups). |- Advertise products and provide low-cost/free services for charity |

| |members of community networks on the Internet (eg. LinkNet[4]). |

| |- Link community calendar of events to one’s homepage. |

Table 1. Mapping inter-organisational relationship types to Internet marketing strategies.

Beyond Marketing Activities - Internet-based Inter-organizational Systems for Small Businesses

Although promotion and advertising has been the most discussed issue related to Internet use, we believe that this is only one kind of activity with which small business should use the Internet. The fundamental issue is to understand how the Internet can be used to set up small business inter-organizational systems to support inter-organisational activities and relationships. To do this, it is important to first identify the important issues and hence the business drivers for small businesses to use the Internet. Welsh and Cummings (1993) believe that the following issues are critical for small businesses in the 1990s:

Increased global competition at all business levels

Increased competition for capital

Increased consumer demand for quality in all products and services

Increased partnerships between large/intermediate and small businesses

Rapidly changing market environment

Growing need for immediate access to current business information from a variety of sources

Greater need to track legislation affecting small businesses

Growing need to stay flexible

|Business Drivers |How to use the Internet strategically |

|Increased global competition at all business levels. |- Use the worldwide coverage of the Internet to gather information |

| |and set up contacts. |

| |- Access information sources provided by overseas small business |

| |development centres. |

| |- Information gathering from different information sources. |

|Increased competition for capital. |- Access funding bodies (eg. Small Business Development Centres) |

| |for information and search for funding possibilities, both locally |

| |and internationally. |

| |- Informal networking with other small businesses, both local and |

| |international, to share opportunities and experiences. |

|Increased consumer demand for quality in all products and services |- Allow timely customer feedback and suggestions. |

| |- Rapid damage control by handling Internet-broadcasted complaints |

| |promptly. |

| |- Flexible and timely exchange of product design and information |

| |with members on the supplier-customer value chain. |

|Increased partnerships between large/intermediate and small |- Use the Internet to support activities of different kinds to |

|businesses |fulfil common interests and goals. |

| |- Allow the formation of virtual business communities to better |

| |compete for market share. |

| |- Electronic exchange of documents and information/intelligence. |

|Rapidly changing market environment |- Provide and access timely and reliable market information among |

| |network members. |

|Growing need for immediate access to current business information |- Each network member can contribute and retrieve useful |

|from a variety of sources |information as reciprocal favours. |

|Greater need to track legislation affecting small businesses |- Kept informed of the latest changes in government and industry |

| |regulations by accessing government information services. |

|Growing need to stay flexible |- Be able to access quality and timely information to support |

| |management decisions. |

| |- Using the Internet to access different virtual business networks.|

Table 2. Mapping business drivers facing small businesses worldwide and Internet usage strategies.

In addition to viewing business drivers from a small business strategic perspective, it is equally important to understand the environmental factors which affect the success of such a network. Porter and Millar (1985) explained the way in which "conventional" information technology permeates the value-chain and thus transforms the way value activities are performed. It is logical to suggest that in order to benefit from the competitive advantage the Internet offers, each value-activity within the value-chain needs to be made "Internet Ready". Furthermore, small businesses need to re-think how to improve their activities such that their use of the Internet can provide a competitive advantage over other firms with similar value-chain activities not using the Net. The following five steps, adapted from Porter and Millar (1985) provide an idea how such an alignment can be carried out:

Assess information intensity by concentrating on the potentially high information intensity activities on the value chain, or the potentially high information intensity products/services.

Determine the role of the Internet in the industry structure by predicting the impact of using the Internet in terms of likely changes in the industry structure and organizational boundaries.

Identify and rank the ways in which the Internet might create competitive advantage by reducing cost, improving knowledge exchange and enhancing links between value-activities and between organizations.

Investigate how the Internet spawns new businesses. Determine how the Internet provides new or emerging business opportunities (eg. Information brokerage, Information provision and Consultancy).

Develop a plan to take advantage of the Internet. An action plan which ranks the strategic investments necessary to proceed with the organizational change necessary to reflect the new linkages.

Conclusion

The transformation of the Internet from an academic and research communication tool into the world’s largest commercial network has offered small businesses significant opportunities to be more versatile and dynamic when competing in the global marketplace. By using the Internet, small businesses can conduct marketing activities on a global scale in an affordable, effective and professionally competitive manner. There is no ‘fool-proof’ approach to marketing successfully on the Internet, but we believe that one attractive approach for small businesses is to market through Internet-mediated networks. Given the potential membership of these Internet-based business networks, there are very strong possibilities for them to become an important channel for international marketing among small businesses. Furthermore, the particular characteristics of Internet communications can result in transformation of existing marketing channels as well as creating new ones.

In identifying different kinds of small business networks, it is suggested that different approaches can be used to pursue marketing activities over the Internet. Moreover, marketing activities should be considered as part of broader exchanges within small business networks. The fundamental issue is to make use of the Internet to construct inter-organisation systems to strengthen and maintain information linkages within small business networks. This can be done by considering the critical issues facing small business today and, based on these business drivers, to derive strategic approaches to using the Internet.

Finally, lessons learned from understanding how conventional information technology has transformed value activities on a value chain have been applied to understand what needs to be done to capitalise on the potential of the Internet to achieve sustainable competitive advantage.

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Acknowledgements: The authors would like to thank Associate Professor Chris Christodolou for his valuable comments and suggestions on an earlier version of this paper.

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[1]A domain is an Internet name given to a group of computers on the Internet (eg. swin.edu.au becomes part of the Internet name of all Internet-connected computers at Swinburne University, Australia)

[2]URL

3Inter-organizational systems are defined by Cash et al. (1994) as ‘networked information systems used by two or more separate organizations to perform a join business functions’.

[3]URL of LinkNet is

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