Embracing e-business: Does size matter?

Small firms are less likely to have access to the Internet compared with their medium-sized and large counterparts, according to the new issue of the Connectedness Series titled Embracing e-business: Does size matter?

This report shows that medium-sized and large businesses have been quick to adopt the Internet and to create their own Web sites. But when it comes to more sophisticated business applications, such as buying and selling online, businesses of all sizes in Canada are slow to implement.

While size does appear to matter as to whether a firm is connected, industry also plays an important role. Industries in the information and cultural sector, as well as those in educational services, were clear leaders in both Internet use and Web site ownership, regardless of firm size.

Data for this report, which came from the annual Survey of Electronic Commerce and Technology (SECT), showed that 68% of small firms had Internet access in 2001, well below the proportion of 91% among medium-sized firms, and 94% among large firms. (Firm size groupings were based on the number of full-time employees: small firms had up to 19 employees, medium firms from 20 to 99, and large firms 100 or more. For manufacturing industries, medium firms had between 20 and 499, and large firms 500 or more).

Roughly 29% of all firms had their own Web site in 2001, up slightly from 26% the year before. In 2001, these firms accounted for 81% of Canada's gross business income, indicating that large firms continue to dominate the Internet market. About 74% of large firms had a Web site in 2001, compared with 57% of medium-sized firms and only 24% of small firms.

Differences in size and industry were also apparent for selling and purchasing online. However, businesses of all sizes have been slower to adopt these more sophisticated e-business applications, compared with Internet connectivity and Web site ownership.

The proportion of firms selling online remains low, dropping from 10% in 1999 to 7% in 2001. However, the dollar amount of online sales has been steadily increasing - from $4.2 billion in 1999 to $10.4 billion in 2001. This suggests that e-commerce is growing and consolidation is occurring in the electronic marketplace. In 2001, 6% of small businesses were selling online, compared with 12% of medium-sized firms and 15% of large firms.

Smaller firms accounted for relatively more business-to-consumer transactions than did large firms. In 2001, such sales by small and medium-sized enterprises accounted for 25% of their total Internet sales, compared with 18% for large firms. This may indicate that the flexibility of small firms allows them to move more quickly to take advantage of market opportunities, and to customize their operations to satisfy market demand.

The proportion of firms that made purchases online was higher than the proportion of firms selling over the Internet. Moreover, this proportion increased from 18% in 2000 to 22% in 2001. About 20% of small firms, 33% of medium-sized firms and 52% of large firms purchased online, again emphasizing the gap between large and small.

The leading sectors for both selling and purchasing online were again information and cultural industries, and educational services. However, while both sectors recorded a relatively high proportion of small firms engaging in online sales and purchases, the gap between small and large firms was significant for online purchasing, but negligible for online selling.

Canadian businesses, regardless of their size or sector, identified two major barriers to e-business implementation. The most common, cited by 52% of respondents, was that the firm's goods or services do not lend themselves to Internet transactions. The second major barrier, resistance to alter the current structure of the firm and the preference to maintain the current business model, was cited by 36% of firms.

Note: The Survey of Electronic Commerce and Technology is based on a sample of about 21,000 enterprises, covering all industries in the economy except agriculture. The survey excluded businesses with low revenues. The exclusion threshold typically ranges from $150,000 to $250,000, depending on the industry. Firm size is based on the number of full-time employees.

The new issue of the Connectedness Series, Embracing e-business: Does size matter?, no. 6 (56F0004MIE, free), is now available on Statistics Canada's Web site (). From the Our products and services page, choose Research papers (free), then Communications.

For more information, or to enquire about the concepts, methods or data quality of this release, contact George Sciadas (613-951-6389, george.sciadas@statcan.gc.ca) or Heidi Ertl (613-951-1891, heidi.ertl@statcan.gc.ca), Science, Innovation and Electronic Information Division.