Impact of the Internet on Small Businesses - Term Paper Example

Impact of the Internet on Small Businesses One might wonder what the impacts of the Internet on small businesses in this age of globalization and competition are. This cannot be described in few words since there are so many different variables to this question. Virtually, there are no segments of human life at present which are unaffected by the developments in internet related technology. Communication, business, marketing, management, healthcare, and advertising, are some areas in which the internet has already proved its great worth. Today a business without the use of the computing power of a computer, or the use of the internet, is sure to be left behind and age very quickly. Competition in the business world is fierce and business is all about marketing and who can reach the consumer first. Today’s computers and internet play a vital role in accomplishing this task. It is impossible for modern business groups to think about a world without internet at present. This was not the case a mere twenty years ago when the internet was in its infancy. Irrespective of large scale, medium scale or small scale, all types of businesses are highly dependent on internet related technologies in today’s perspectives. Through the internet, a business of any size can compete in the global marketplace. In fact, on the internet, the size of an organization's operation makes little difference because the internet is an open environment. Similar companies compete against one another while being only a click of the mouse away. In other words, a buyer can locate numerous sellers offering similar merchandise, similar prices and similar offers in a very short time period. As more people and businesses become comfortable with the internet, the marketing landscape will continue to evolve quickly in the coming years (The Influence of Internet on Modern Business, 2009). The arrival of internet related technologies helped small scale industries immensely. The internet lent a hand in small companies competing on a global level. This also factored in a small business growing into great proportions at incredible speeds never experienced in history ever before. Many of the traditional business concepts were given way for internet related business strategies because of the arrival of computers and internet. For example, internet helped the business world to convert many of the offline market spaces into online market spaces. Moreover, outsourcing, off shoring like modern business principles were evolved out because of the developments in internet related technologies. Since a company could outsource, so easy is it to have its down fall, on many Americans who loose there job to overseas areas that had cheaper labour and less taxes. We can see this with a majority of companies at a minimum outsourcing their phone tech support. Many of these companies have tech support online twenty four hours a day and three hundred sixty five days a year. Advertising is another in which internet helps small scale industries immensely. Social networks are used extensively by the businesses for marketing and advertising purposes. This can be seen by looking at any internet search engine today from Google, Yahoo, or any other of the one hundred and seventy search engines available. If you go to any search engine like Google or MSN you will see advertisements on the right hand side, or on top of the page. These are seen by millions of people today. These ads are cheap and easy to acquire to the point where any person or business can advertise for pennies on the click. At the same time, internet has the potential to affect small businesses in a negative way too. For example, internet helped globalization in many ways, but it also lent way to sites like Angie’s list to see if the business is reputable or garbage. It should be noted that globalization helped corporate companies to expand their business all over the world. The intrusion of corporate companies in small scale industry segments is causing big threats to the small business groups. Generally, internet provides both opportunities and threats to small businesses. One must remember that as a small business can reach out to advertise and attract business a customer may also report to the world the ethics, be it good or bad business practices a particular company practices. For this particular reason one might infer a company may want to consider social media and its effect when building a business plan. This paper analyses the impacts of internet on small businesses. There is a great deal to cover and will not cover everything but I have focused most on matters that have the greatest impact on small businesses. Positive impacts of internet on small businesses The Internet potentially can be used by small businesses to support external (inter-organizational and enterprise-to-consumer) business functions as well as internal business functions. Although using IT to support inter-organizational business functions is not new, never before have small businesses been able to afford a global computer network as powerful and far-reaching, yet as accessible and cheap to use (Poon, 1997, p.466). Internet has the ability to impact both inter organizational as well as intra organizational activities positively. In other words, it has the capacity to raise the efficiency of internal works as well as external works. For example, “Some companies are using the Internet to make direct connections with their customers for the first time” (The Net Imperative, 1999). Relationship building is the core of modern business philosophies. Earlier, business groups were keen only in selling their products or services. This is where the internet can make a very strong impact on how your small business is perceived. A great deal of small businesses will hire IT personnel to solely manage their internet advertising and social media. Society can be reached by a small business at the click of a finger these days, where in the past the consumer would have to wait for a magazine or mail order cat log. At present they realized the importance of establishing relations with its customers before and after the selling of a particular product or service. This is because of the awareness that maintenance of existing customers is easier than locating new customers. Hence the reason every store you enter and purchase an item they would request for your email address to stay in touch with you. To some people it is nothing more than harassment or placed in the same manner as the old phone solicitation call. There currently no available email lists provided by the government or laws that state companies can’t send you spam mail. Internet can help small business groups immensely in establishing direct connection with the customers. With the help of customized email messages, small businesses can establish deep relations with its customers. “Some business people are using secure Internet connections to intensify relations with some of their trading partners, and using the Internet’s reach and ubiquity to request quotes or sell off perishable stocks of goods or services by auction”(The Net Imperative, 1999). Instant communication is the major strength of internet. Instant communication with the help of internet helps small business to interact with its stakeholders like suppliers, purchasers, customers etc. Thus the pace of doing business can be increased immensely with the help of internet. 100 years ago it might have taken over a month to get a letter to a friend in another country. Today, communication is as easy as a mouse click and much cheaper too. Anyone in the world can communicate with another person through text messages, emails, and even live video. For business, this means higher efficiency and quicker processing of sales. If you have a friend or relative that can remember the old dial up phone or a time there was no internet they will tell you that paper mail could take a week or up to two weeks before you received it and would cost around twenty cents each call or letter you put in the mail box. Many economists today believe the internet to be the demise of the postal company. Why wait to get a letter or a bill when you can just jump on the internet and take care of both these things in seconds and free. Generally most people today have several email accounts where they may have one physical mail box. Yes technology seems to be built around our life conveniences (Bryant, 2013). Cost saving is another major benefit of using internet for boosting the prospects of small business. For example, book keeping was an expensive function for companies before the arrival of computers and internet. Computers and internet have made lot of revolutionary changes in the book keeping or document storing departments. Instead of papers documents, the usage of electronic document helped companies to store data quickly but also it helped the companies to preserve the documents or data safely for much longer periods without much harm on it. The transition of company documents from paper documents to electronic data helped small business to reduce the expenditure they made for clerical jobs earlier. Instead of searching a particular document in a bunch of paper documents or files, it is easy for a modern employee to locate or retrieve data easily from computers or internet. Moreover, internet helps small business to locate and purchase resources from distant market. If a raw material is expensive in domestic market, small businesses can import it from distant international markets at a lower rate. Same way, it is possible for small businesses to sell its products and services in international market with the help of internet. Entirely new companies and business models are emerging in industries ranging from chemicals to road haulage to bring together buyers and sellers in super-efficient new electronic market places. The Internet is helping companies to lower costs dramatically across their supply and demand chains, take their customer service into a different league, enter new markets, create additional revenue streams and redefine their business relationships (The Net Imperative, 1999). Outsourcing and off shoring are new business concepts evolved out as a result of the development of internet related technologies. According to Thompson (2009), “Outsourcing refers to a business process in which a company contracts with another company to provide services that might otherwise be performed by in-house employees” (Thompson, 2009).Since current business world is extremely globalized, it is difficult for companies in expensive labour oriented countries to compete effectively in international market. For example, India and China are most heavily populated countries in this world whereas American and European continents are struggling to find enough manpower resources to execute functions even in critical sectors. In other words manpower cost in India or China is extremely low compared to that in American or Europe. Therefore, products manufactured in America or Europe could be highly expensive compared to the products manufactured in India or China. Thus, American made or European made products may struggle to compete effectively with the products from India or China, in terms of price. So, companies in America and Europe are currently outsourcing their business to India and China like cheap labour oriented countries. Thus, small scale IT industries in these countries are getting plenty of businesses from America and Europe. Dr. Singh has argued that the WWW has changed the traditional landscape of the business environment from that of being a Market place to one that is more of a Market space (Dr. Singh, N.d., p.2) E-commerce is one of the rapidly growing business segments in the world. As per the statistics released by US Department of Commerce in May 2005, the figures reporting that e-commerce sales in the first quarter of the year had been $19.8 billion for the quarter (up by 23.8% from the previous year) (Eschen, 2005). Even though e-commerce is controlled by corporate world, plenty of small businesses are also exploiting the possibilities of electronic sales of goods and services. For example, freelance writing is one of the major services developed as a result of e-commerce. Freelance writers from India or China can work for companies in America or Europe from the convenience of their home because of the development of e-commerce. E-commerce helps businesses to reduce the prices of products and services since the tax liability is less. It should be noted that a substantial portion of the prices of the goods and services purchased through offline means are related to various types of taxes. In the case of e-commerce, business groups are getting lot of tax incentives and hence they can reduce the prices of their commodities immensely. Advertising is another in which internet helps small businesses immensely. Many of the traditional offline advertising strategies were given way for online advertising with the introduction of internet. It should be noted that advertising is the core business activity which helps organizations to promote their products and services to the consumers. Even better quality products may fail in the market if proper publicity is not given. At the same time, even cheap product may excel in the market with the help of effective advertisements. In short, advertising can make or break a product. Thus, it can influence the success and failures of an organization. Internet helps companies to place targeted ads in front of the consumers. In other words, the themes of advertisements can be changed based on internets of the consumers across the world. No other advertising channels provide the facilities to promote customized advertising. Moreover, advertising with the help of internet is cheaper and effective compared to other channels of advertising. The growth of social networking with the help of internet related technologies, helped small businesses immensely. Social networking marketing spending has been increased a lot in the past. According to a report, it has increased from $884 million to $2.34 billion in between the period 2007-2009 (Dickey & Lewis, 2010, p.140). The term viral marketing has been evolved in the business world, mainly because of the influence of social networking. The major theme of viral marketing is mouth publicity. People on social networks are discussing the features or merits and demerits of the products or services, they purchased. “Recently, there has been a growing interest in understanding how WOM (Word Of Mouth), particularly online WOM (which is a form of social media), impacts sales, diffusion, and other marketing performance measures” (Stephen & Galak, p.5-6).Companies can influence the online WOM or discussions on social networks with the help of suitable marketing strategies. Internet and social networks can be used effectively by small businesses for the recruitment purpose. Social networks and web 2.0 are used extensively as the major tools in the online recruitment process. Web 2.0 is a collection of active technologies that allows users to interact with online content. Some of the most popular Web 2.0 applications include: social networks, blogs, podcasts, and online video” (Web 2.0 Recruiting, n.d., p.1). Online recruitment is believed to be cheaper, quicker and effective than offline recruitment. It should be noted that the employers may get access to millions of bio-data instantly from all over the world with the help internet. Social networks such as LinkedIn have millions of bio-data posted by job aspirants from all parts of the world. Recruiters can go through these databases and identify the right talent instantly. “Earlier research into small business and IT has identified a number of factors which are important for IT success among small firms. These factors include; management, enthusiasm and leadership, use of IT consultants to provide know-how, competition and user participation” (Poon, 1997, p.466). The efficiency of management and leadership has been increased a lot because of the introduction of internet related technologies in small businesses. For example, it is easy for the leaders or managers to forecast the fluctuations in the market properly and take remedial actions well in advance with the help of internet related technologies. Timely market feedbacks are necessary for small businesses to make adjustments or fine tuning in business strategies. Internet helps small businesses to read the ups and downs in the market instantly. “More recent research on the topic of the Internet and small businesses points to the importance of training and demonstrated benefits while another view suggests that competitive advantage and competitor benchmarking are key issues in Internet use” (Poon, 1997, p.466). Competitive advantage is one of the major talking points in the business world at present. Competitive advantage of an organization depends on many factors. Adoption of internet related technologies definitely help small business organizations to increase its competitive power. Rather than using the internet solely as an advertising device, communication has become popular too. Recent studies show that lots of small businesses have favored E-mails especially when it comes to international clients. Its popularity is because it allows for constant communication without necessarily being worried of the where about of the customer in question, making it very convenient. E-mails have made it possible to exchange documents (as e-mail attachments) instantly with customers saving small business a lot in terms of cost incurred. Negotiations between clients and companies are now convenient as customers need not to travel in order to settle a deal which may turn out sour incurring losses on both parties. Every deal can be sealed online and transactions occurs smoothening business. Internet has brought a platform for all businesses, whether small or large, to participate in a fair completion. It has brought an opportunity for small business to grow and concur with the vast market available. Everyone is capable of acquiring e-mail addresses and establish websites to boost their popularity and compete favorably with others without discrimination of any kind. In the way of growth, internet has played a great role in search for new business opportunities for small businesses. Small businesses have met and collaborated to do business in greater heights thanks to internet. Some have got other ideas from the internet and establish other businesses as they still run the previous ones with much ease[ CITATION Gar10 \l 1033 ]. Websites have gone a long way to boost business for small businesses. The websites contains basic information about a business. Usually the website will provide contact information, hours of operation, directions/maps and corporate information. Many customers expect to find the information they require about a business online. This saves companies a lot of trouble in printing advertisement and sticking them every where as done before. Resent studies show that websites are a growing trend, every small business is struggling hard to exploit them[ CITATION Gar10 \l 1033 ]. Negative impacts of internet on small businesses It is noted that even though e-commerce may reduce many of the disadvantages associated with traditional direct purchasing by decreasing marketing, communication, and information costs and increasing access to lower cost suppliers and services, it increases competition for the local or traditional customers from nonlocal Internet businesses (Barkley et al, 2007, p.1). Current business world is extremely globalized. Majority of the prominent companies are operating internationally at present. As a result of that small businesses are facing immense problems all over the world. Corporate companies have huge resources and hence they can increase their competitive power in the market at will whereas small businesses have limited resources to compete effectively with the corporate companies. For example, before the introduction of globalization, Indian retail industry was in the hands of some small business groups. However, the arrival of Wal-Mart like corporate giants has destroyed the small scale retail sector in India. It appears that a survey conducted by a reputed research institute has concluded that a single Wal-Mart store can substitute for more than a thousand average retail stores in India. On the face of it, the claim is simultaneously dramatic as well as disturbing, both from the point of view of employment generation as well as that of the business interest of small and medium retailers (Dasgupta, 2012). It should be noted that globalization is responsible for spreading of cross cultural business. Internet related technologies helped implementation of globalization in many ways. Under such circumstances, it can be argued that the development of internet related technologies have caused big threats to the existence of small scale industries across the world. Cain & Jones (2008) “cited some examples of cases that involve the use of the Internet, such as the case of an employee in the Alberta Public Service who was terminated by her employer due to derogatory remarks made on several of her co-workers and management on her blog” (p.59). The above example clearly suggests that Internet has the potential to cause problems to organizations. It is easy for employees to engage in activities against the interests of an organization and stay anonymous. It is difficult for an organization to identify the culprits since the same computer could be used by many of its employees. According to Jaques (2009), “businesses are afraid of social networking because it represents a real and present danger to their corporate security.” (p.20). The utility of social networks for small business has been discussed earlier in this paper. However, it should not be forgotten that social networks can also cause immense harm to an organization. An organization may have employees of different types. Some of them would be satisfied whereas others would be dissatisfied by the policies of the organization. Dissatisfied employees can make use of internet and social networks to spread rumours about the organization and thereby they can cause damages to the reputation of the organization. The Internet is not an end-all, be-all solution for business. Many businesses, small and large, often face significant upkeep charges for maintaining current technology in their business operations. Failing to maintain current technology in business may allow a competitor to use new Internet-based technology for creating a competitive advantage in the economic marketplace. Companies also must be careful to invest in technology that will be supported and commonly used in the business environment (Vitez, 2013). Advancements in internet related technologies are taking place at a rapid pace. Earlier internet related technologies utilized 2G band width whereas modern technologies use 3G bandwidth for the spreading of information through internet. It is believed that 4G is going to introduce across America in near future itself. In short, the speed of information exchange through internet is becoming lightning fast. It is impossible for small businesses to keep a blind eye towards such internet related technology developments. It is necessary to upgrade the existing technologies by the small businesses to stay competitive in the market. However, such upgrading may cause additional financial burden to them. Internet security is another big problem facing by businesses at present. Hackers are capable of breaking any firewalls created by the organizations to keep their data secure. Under such circumstances, it is difficult for business to update its internet firewalls time to time with modern technologies to stay secure. Such forced updating of technology may incur additional financial burdens to the business groups. Small business owners may not have the capacity to maintain and pay for such services constantly due to their limited resources. The Internet also brings new competitors to many areas of business. It is within the ability of just about anyone to offer his products or services online through any number of selling venues, thus adding literally millions of new merchants to the global marketplace. For existing businesses, these new online sellers represent a challenge to retain customers or risk being driven out of business (Hartman, 2013). Internet has the potential to convert an ordinary person into a business person. In other words, the simplicity of doing business with the help of internet may encourage people to open more ecommerce websites. Thus, completions are getting stiffer all the time in the online businesses. Big companies may not be affected much with trends. However, small businesses may definitely feel the heat. The internet can open ground for unfair competition. Its feature of being a free zone for anyone to do anything may be a disadvantage to those who fall victims unfairly. It is easy to come up with stuff that may poison the market of a fellow competitor, just to get it out of the market. So many small businesses may fall a victim of this as they may not be able to deal with the damage that comes along with it. This could be a negative performance impact on small firms. Conclusions Internet has immense potential in bringing huge benefits to small businesses. It can help small business in areas such as recruitment, communication, management, leadership development, procurement, sales, marketing and advertising. The efficiency and productivity of small business organizations can be increased heavily with the help of internet. Internet helps business to operate cross culturally. Outsourcing and off shoring like modern business concepts are the contributions of internet. At the same time, internet has many negative impacts also upon small businesses. Internet is indirectly responsible for the spreading of globalization and international businesses. International businesses are destroying the backbone of small scale industries all over the world. It is easy for anyone to spread rumours about a company through internet or social networks. Competition is getting tougher as time goes on because of the arrival of new entrants into the market with the help of internet. This requires additional skills to ensure smooth management of this issue. Small business are under pressure to go the internet way. Some of them are into it simply because everyone is doing it. It come be noted that a small business can go into so much trouble to develop a website and have very little people visiting it. It is important for small business owners to exploit internet only when it is necessary and not just because everyone is doing it. They should identify what is beneficial and what is not. It is not a must to exploit the full potential of the internet since managing it may turn out cumbersome for small business owners. However, the various demerits of the internet can be limited if used carefully by small business owners[ CITATION Hee10 \l 1033 ]. It is clear that the internet usage depends on the kind of model that a small business owner would opt for. It is advisable to use the internet as a strategy to exploit the vast internet market. Internet product promotion is a common way of starting the market hunt. It has always shown positive revenue growth as the firm is able to access the market that it could not has reached without the use of internet. On the other hand, when the same small firm uses the internet for sales, it experiences negative impact on revenue growth. 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