Home-based e-business - an option for the self-employed?

Chapter 2 – Literature Review

 There is a lack of objective literature on home-based e-businesses. However, there is a lot of promotional literature available online purporting to show how to set up an incredibly successful home based business with little investment in time and money. Needless to say, the majority of these schemes are either scams, or do not work anywhere near as well as the authors claim they do. This chapter will review the literature concerning previously mentioned issues and the attitudes and characteristics of the people in Hong Kong in relation to the adoption of e-business.

2.1. Entrepreneurship in Hong Kong

“ Hong Kong has been an entrepreneurial society .” (Yu, 1997) [39]. Hong Kong people are well known to be flexible, adaptable and willing to take risk. They have always been keen to start their own businesses, they would like to be their own boss instead of being an employee. The Hong Kong government also encourages this phenomenon; its policies encompassed an easy access to business, a relatively small public sector and free mobility of capital and human resources. Therefore, it is no surprise that no matter in a booming or weak economy, the number of new firms established each year has always out-numbered the failed one. It was revealed by (Yu, 1997) that both the numbers of enterprises and the company formation rates, after controlling for population size, were higher in Hong Kong than in the USA. A similar survey (Yeung, 2002) [38] also indicated that the number of establishments in all sectors and establishment-population ratios in Hong Kong has doubled every 7-10 years.

2.2. Entrepreneurs and Micropreneurs

However, most of today's home-based businesses were not started by traditional entrepreneurs, they were started by a new breed of entrepreneurs called micropreneurs (Leboreuf, 1996) [26]. According to Leboreuf, micropreneurs usually have a different type of personality from traditional entrepreneurs. They come from different backgrounds, have different values and go into business for totally different reasons. There are basically three major characteristics that distinguish the micropreneur from the traditional entrepreneur. Micropreneurs tend to be well educated and highly employable, many hold advanced and professional degrees. The decision to go out on their own is not thrust upon them but is rather a choice they make. The greatest incentive behind micropreneurs is not money, is the promise of personal freedom, so as to achieve a better lifestyle for them and their family. Micropreneurs don't take stressful risks because they don't have to. They will take calculated risk to start a home-based business with little or no capital. This means that they can choose opportunities with high potential payoffs and little to lose. In that sense, home-based e-business can be regarded as the most suitable choice for micropreneurs.

2.3. Home-based business or Micro-business

In the United States, almost all industries in the economy are beginning to use the Internet as a means of cost savings on purchasing, managing supplier relationships, streamlining logistics and inventories, planning production, and reaching new and existing customers more effectively. (U.S. Department of Commerce, 1998 According to the U.S. Small Business Administration report on e-commerce 1999 [32], the number of U.S. households that have a home-based business currently exceeds 12%. Home-based businesses represent about 18 percent of all homes with personal computers (PCs) and 22 percent of home businesses that have made an online purchase. The number of home-based businesses in the United States surpassed 20 million in 2001, and is expected to eclipse 25 million by 2003 (see table), according to the research firm International Data Corp. (IDC) [24].

Exhibit 1. Source: International Data Corp

The average household income of those with home businesses topped US$57,000 in 1998, says the (IDC). Nearly 8,500 new home businesses start every day, and there are no signs of a slowdown. By 2003, home-based business technology spending is projected to be $30 billion, and 71 percent of those businesses will be conducted online. ( Forrester Research, 1998 ). Home-based e-businesses has grown substantially in the United States , but this type of set-up is not very popular in Hong Kong despite its relatively high company formation rate each year. By comparison, most of the home-based businesses in Hong Kong nowadays are still confined to some early home businesses (Hot Home-Biz Directory) [17] such as private tuition, freelancer or direct sales which have a low adoption level of e-business.

2.4. Low Adoption Level of e-business in Hong Kong

  As most of the home-based e-business is small-scale enterprises that are usually run by 1-2 persons, these can be categorized as SMEs. Therefore, to study the activities of home-based e-business, it is worthwhile to obtain more detailed information on the behavior of SMEs in e-commerce by surveys and analyses that had been carried out by different sources. To be more comprehensive, surveys of SMEs practices and their attitude towards E-Commerce in US and European countries, Asian Pacific countries, People Republic of China and Hong Kong should be included. The analyses included the classification on the SMEs adoption levels and their capability levels of E-Commerce, the perception by SMEs of the Opportunities/ Benefits and the Inhibitors on E-Commerce and concluding remarks on the critical success factors that encourage the adoption of E-Commerce by SMEs.

Under the "Survey on E-business Adoption in Hong Kong" by HKPC and IMB (2000) [21], the deployment of E-business was classified into six levels ranging from level 0 to 5, representing "No Intention", "Show Intention", "Basic Adoption", "Prospecting", "Business Integration" and "Business Transformation" respectively.

Exhibit 2: Source: Hong Kong Productivity Council

Besides the relatively low adoption level of E-business, the transaction rate in the Asia-Pacific regions are also ranked low as indicated in the Gartner's Predictions [13] for "B2B"  Transactions (2000-2004), 39% out of 7.29 trillion world transaction belongs to US market, and 32% from Europe. The Asia Pacific regions only account for less than 14% of the total volume. The following charts indicate the distribution of the total world e-commerce revenues (B2B & B2C) predicted from 1999 to 2000

In the survey of "KITE" (1999) [25], the opportunities offered by E-Commerce are simply split into cost savings, timesaving and quality benefits. In Cost Savings Factor, the respondents from both the survey of "KITE" (1999) and the PricewaterhouseCoopers' report (1999) [31] indicate that "Cost" is not a key driver for SMEs to engage into E-Commerce. Rather, the respondents seem to be interested in time and quality benefits which include the quicker response to market conditions, higher flexibility, gain of access to new markets, improvement in customer service and competitive position.

2.5. Barriers in adopting e-business in Hong Kong

  Regarding the factors inhibiting the adoption of E-Commerce, the major concern perceived by SMEs varies between different surveys. In the PriceWaterhouseCoopers' report (1999) [31], the most significant barriers to E-Commerce adoption for participating SMEs in APEC member economies are the relatively low use of E-Commerce by both customers and suppliers.

In the survey "KITE" (1999) [25] that focused on the US and European firms, most respondents cited costs as the primary obstacle, slightly outweighing security and technology concerns combined. SMEs' investment costs constitute typically a greater proportion of revenue than large firms. For example a web server, database and leased lines plus case management tools, or a third party "virtual office" service run by an Internet service provider can be very expensive for a small company.

  In Hong Kong, although the "Survey on E-business Adoption in Hong Kong" by HKPC and IBM (2000) [22] shows that the major problems among local SMEs in adopting E-business are lack of financial resources, lack of skills required and lack of human resources. It is worthwhile to be aware of the Chinese Cultural factors as raised by Deng Shoupeng [9] if the E-business involve domestic market or intend to explore and access the market in China after it enters the WTO.

Summary

Although Hong Kong is regarded as an entrepreneurial society, e-business has not taken off in Hong Kong . Most companies are still focusing on traditional business as reflected by the low adoption level of e-business for the SMEs in Hong Kong . In the next chapter, the business opportunities that are available for home-based e-businesses will be explored and discussed.