SME E-Procurement Adoption in Hong Kong

- The Roles of Power, Trust and Value

Joyce K. Y. Chan, Mattew K. O. Lee

Department of Information Systems, City University of Hong Kong,
1-3 Tat Chee Road, Kowloon Tong, Kowloon, Hong Kong, China
Tel: (852) 2788 7771, (852) 2788 7348
Email: {isjoyce, ismatlee}@is.cityu.edu.hk

Abstract areas, including internal and external communications,

The objective of this research is to test a model of
electronic procurement (e-procurement) adoption
behavior by Small- to Medium-sized Enterprises (SME).
We investigate the phenomenon from the perspective of
buyer-seller relationship and argue that, value of e-
procurement adoption, trust on supplier, trust on IT,
power of e-procurement and power of suppliers are
factors leading to SME’s adoption behavior. Research
findings from the four case studies provide some evidence
that the former four factors have significant effect on
SME’s e-procurement adoption behavior when the last
one does not. This study contributes to a better
understanding of how and why SME in Hong Kong
employ e-procurement using a snapshot approach.
Practical and theoretical implications are also provided.
1. Introduction
Direct procurement is one of the most frequently
performed business activities. It encompasses all items
that are part of finished products, such as raw material,
components and parts [18]. Most organizations spend
more than 30% of their income dollars on purchasing
goods and services [17]. It is even possible that about
20% of an organization’s purchases constitutes 80% of
the total purchase value [29].
Suggested by its name, electronic procurement (e-
procurement) is the application of electronic commerce in
procurement. It involves the use of various forms of
information technology (IT), such as e-mail (electronic
mail), EDI (Electronic Data Interchange), and e-
marketplace (electronic marketplace), to automate and
streamline the procurement process in business
organizations [11], improving efficiency and transparency
and thereby reducing the costs of operation within and
between businesses. Electronic procurement can result in
significant changes and improvements in a number of
business transactions, as well as management of supply
chains and alliances.
The Small- to Medium-sized Enterprises (SME)
sector is of increasing significance for its contribution to
the national economy in terms of the wealth created and
the number of labour employed [36]. Because
procurement is an expensive business activity, they may
reduce operation costs if they adopt electronic
procurement (e-procurement). Their competitiveness will
be improved as well. It will ultimately benefit the
economy.
A number of research studies have been conducted to
explore the factors leading to adoption of e-procurement
(see [12], [26], [28], [37]). This paper intends to
investigate factors leading to Hong Kong SME’s e-
procurement adoption behavior from a buyer-seller
relationship perspective. We argue that value of e-
procurement, power of e-procurement, power of supplier,
trust on IT and trust on suppliers are determinants of their
e-procurement adoption behavior. This study was
conducted in Hong Kong, where SME is the primary
pillar of the economy [5].
The remainder of the paper is organized as follows.
Section 2 dedicates to literature review. Research model
is described in section 3 when research methodology can
be found in section 4. Research findings and discussion
are provided in sections 5. Finally, practical and academic
implications are discussed in section 6 as a conclusion.
2. Literature Review
Trust has been the interest in various disciplines, such
as marketing [27], industrial buyer-seller relationships [13]
and economics [10]. It has recently been a concern of the
researchers in the studying inter-organizational systems
and applications such as e-procurement (e.g. [16], [21],
[22], [23], [38]). Many of them tried to construct their
own model of trust for e-commerce (e.g. [14], [25], [40]).

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 Ratnasingham and Kumar [35] further expanded the
notion of trust. They applied it in the context of electronic
commerce and tested their model proposed through
multiple in-depth case studies.
Perhaps the study by Premkumar et al. [33] is the first
paper that introduces the notion of power in investigating
inter-organizational system adoption. In their study, they
tried to distinguish early and late adopters of inter-
organizational systems. They suggested a relationship
between power and the probability of adopting inter-
organizational systems, where "power" was measured by
the relative dependency of the adopting firm and the
initiating firm (see [31], [32], [33]). On the other hand,
Cox and his colleagues were dedicated to studying the
effect of power on the supply chain (e.g. [7], [8], [9]).
Different from most of the previous studies, they
emphasized the imbalanced power distribution between
buyer and seller in a supply chain. In this regard, they
provided detailed analysis of its impacts on the supply
chain and on the stakeholders’ individual behaviors.
Hart and Saunders [19] and [20] combined the
notions of power and trust on their study of EDI adoption.
They argued that a firm with greater power could
influence its trading partners to adopt EDI, where power
is determined by its dependence on the other party. On the
other hand, trust encourages a firm to expand the amount
of information sharing through EDI. These two factors
thus contribute to the adoption and use of EDI. Later,
Allen et al. [1] studied the relationship of trust, power and
inter-organizational information systems under the
context of an electronic trading community. Drawing
upon qualitative empirical data collected through action
research, they developed a model describing the inter-
relationship of various stakeholders in such a system.
Shaw and Subramaniam [39] studied the value of
electronic procurement to an organization. They proposed
a formula to measure value of e-procurement:
Value of E- = Price + Transaction - Technology
Procurement Benefits Cost Benefits Lock-in Costs
Price benefits comes from potential price reduction
off average market price while transaction cost benefits
result from savings in search, negotiation and contracting,
and coordination costs. Technology lock-in costs are costs
involved in choosing and using a specific procurement
system, including switching costs, opportunistic behavior
by contracted suppliers. These costs are offset by the
extent of protection from uncertainty [39].
3. Research model
The research model of this study is shown in Fig. 1.
The five components are discussed in detail below.
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Power of supplier
Power
Power of e-Procurement Electronic
Value Procurement
Trust on supplier Adoption
Trust
Trust on IT
Fig. 1 E-Procurement Adoption Model Among SMEs
3.1. Value of e-procurement
Rather than using the definition proposed by Shaw
and Subramaniam [39], value of e-procurement adoption
is defined in this study simply as benefits from its
implementation over costs. E-procurement adoption is
justified only when the former are large enough to cover
the latter. Benefits from using e-procurement include
enhancing effectiveness and improving efficiency [24]
whereas costs comprises of initial investment and on-
going expenses of e-procurement implementation.
Reduction in transaction cost is one of the most
attractive benefits from e-procurement adoption. To SME,
a small percentage saving in procurement expenses can
impact the profit margin considerably. Procurement cost
is made up of actual expenditure (on procurement goods
and services) and process costs (transaction cost). The
efforts (time, money and human resource) spent on
carrying out any exchange become transaction cost. The
existence of transaction costs indicates a waste of time
and efforts of purchasing personnel in non-value added
activities, such as performing data entry and correcting
errors in paperwork [29].
Under the financial driven pressure, SME have to
find ways to reduce costs and to improve revenue
generation. If the purchasing process can be improved and
streamlined with the aid of information technology, then
the administrative cost associated with purchasing can be
considerably reduced, and the speed of process can be
increased. Reduction in (transaction) cost is one of the
ways small businesses can survive, which is their ultimate
goal. Given that the perceived benefits are large enough to
cover the costs, a firm is likely to perform procurement
through electronic means. Therefore, this study argues
that value of e-procurement (i.e., justified benefits over
cost) is playing a role in the adoption process.
3.2. Trust
A great deal of activities in electronic commerce
systems relies on trust. Relationship between buyer and
supplier is a mix of mutual dependency and suspicion.
Blau [4], an authority on trust, defines trust as "the belief
that a party's word or promise is reliable and that a party
 will fulfill his obligations in an exchange relationship."
Trust seems to play a significant role in any exchange
[23]. Mutual trust among businesses, consumers, and
other stakeholders is especially crucial to the development
of e-business where involved parties may never see each
other. With its growing impact of electronic markets, trust
is playing an increasingly important role as a key factor
for successful transactions.
Players in the cyberspace must first trust on that
environment before they trust on any particular player
[16]. In particular, SME are more vulnerable to external
threat than their larger counterparts. Risk exists not only
due to their unfamiliarity with their trading partners, but
also due to their unfamiliarity with the technology that
they are using. If they use electronic means to accomplish
procurement, they have to suffer the possible risk of, for
example, confidential information being eavesdropped on
the network.
Business buyers perform differently based on their
own level of risk perception on e-procurement or their
own level of trust on their suppliers [23], [38]. Lack of
previous experience or relationship with Internet-based
suppliers may increase the risk perception in buyers’
minds. If a buyer trusts the competence of its suppliers
and trusts their intentions (for mutual benefits of both
parties and not for getting unfair advantages over one
another), then the buyer can lower the risk perception of
suppliers and the transaction costs substantially [6]. Thus,
the level of e-procurement is positively related to buyer’s
level of trust on its Internet-based suppliers. Bensaou [2]
argued that a good relationship with suppliers lowers the
buyer’s uncertainty and ultimately will affect their
intention of e-procurement adoption and the acceptance
level. On the whole, without a sufficient level of mutual
trust, even low value transactions would not have started.
3.3. Power
Power is at the heart of all business-to-business
relationships [8]. It is the ability to control, authorize, or
influence an individual/ an organization on his/ its action
[20]. Ratnasingham [34] defined power as “the capability
of a firm to exert influence on another firm to act in a
prescribed manner” The one who possesses power over
another party possesses the ability to cause that party to
do something that it would not otherwise have done.
Cox et al. [9] gave a detailed discussion on the nature
of power:
“… the power of one actor or organization over
another is determined by the extent to which that
actor or organization is dependent on the other for
particular resources. It is further argued that the
level of such dependency is determined by the
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relative utility and relative scarcity of the resources
brought by each of the parties to an exchange
relationship… the utility of a resource refers to its
commercial and operational importance for the firm,
and the scarcity of a resource refers to the extent to
which an equivalent resource can be found
elsewhere.”
Accordingly, power of something (over another) can
be measured by its utility and scarcity. Following this
definition, the power that makes businesses adopt e-
procurement comes from two sources: power of suppliers
and power of e-procurement. The former measures the
non-substitutability of the online suppliers to a business
buyer that it has no choice but adopt e-procurement. The
latter measures the usefulness of the e-procurement
technologies to that buyer.
Organizations are dependent on external stakeholders
for some of their resources. Resource dependence exists
when a stakeholder is supplying a resource to another
party and can exert some form of control to it. Such
control could be based on the amount of the resource
controlled, the non-substitutability of the resource, and
the essentiality of the resource. The more important
(higher utility) and the more rare (higher scarcity) the
resource is, the more power the resource owner possesses.
In other words, the seller has power over the buyer when
it is not easy to find a substitute for its good or service. In
this regard, Hart and Saunders [20] pointed out that the
use of persuasive power has been used extremely
effectively by a number of organizations in making their
trading partners to adopt EDI. Similarly, Deeter-Schmelz
et al. [12] discovered that supplier support and
communication convenience are the ways by which
suppliers can exert influence on their customers to adopt
e-procurement. Suppliers’ actions may affect their
customers’ decision because they have power over the
customers.
On the other hand, power also comes from the
technology itself. There is no technology except the
Internet that can keep global trade operating so smoothly
24 hours a day and 7 days a week. The value of electronic
procurement over the conventional approach suggests that
power of e-procurement should play a significant role in
the adoption process. If a party can find a substitute easily
to replace e-procurement, the power of e-procurement
perceived by that particular party is low. Business would
not adopt e-procurement, and even if they did, the level of
use is limited.
4. Research Methodology
Case study research methodology is a rigorous
method of research. It is powerful in understanding “the
 dynamics presented within single settings” [15]. It is
therefore suitable for studies focusing on information
systems in organizations when interest has shifted to
organizational rather than technical issues [3]. This study
aims to provide a description of the current practice of e-
procurement utilization by small firms, and explain their
adoption behaviour with the suggested factors. Case study
can fulfill the qualitative aspect of the research question.
In contrast, survey suffers from a limitation that it may
not be able to suggest factors working behind a particular
phenomenon. Hence, in-depth case study research
methodology was employed to answer the “how” (current
practice e-procurement) and “why” (the factors leading to
adoption behaviour) questions [42].
Furthermore, a multiple case study research design
was chosen to enable literal replication [42]. The cases
were selected based on their similarity to support the
theoretical explanation. The selected companies, either
garment manufacturer or trading firm, belong to the SME
sector. SME in Hong Kong is defined as manufacturing
enterprises with fewer than 100 employees and non-
manufacturing enterprises with fewer than 50 employees
[41]. All the cases have adopted at least one Internet
applications in doing procurement. Moreover, all business
organizations investigated have close relationship with the
manufacturing process of a product where direct
procurement is essential. Two trading firms were selected
because the commodities they are selling are “product-
based” (such as giftware) rather than “service-based”
(such as airline tickets).
Data sources included interviews with SME key
personnel, direct observations and documents. Documents
included letters, administrative documents, newspaper
articles and web sites. As the major data source, Semi-
structured interviews with SME top management captured
the information reflecting their perceptions and practice in
using electronic procurement tools. Two persons on
average were interviewed per site. All interviews were
conducted in Chinese. Each interview lasted for about two
hours. If possible, interviews were conducted in the
interviewees’ own office as field visits can create
opportunities for direct observations. The questions asked
during the interview gathered four types of information:
1. background information of the company;
2. current practice in procurement;
3. their view on factors leading to e-procurement adoption;
4. other information relevant to the research question.
The unit of analysis is the adoption behaviour of the
SME who have adopted e-procurement. Interpretivist
perspective was taken in analyzing and interpreting the
data collected. A two-level analysis approach was
employed. The study commenced with within case
analysis. Interview transcripts of each case were coded
using the coding scheme. The data was then summarized
into data displays like tables, matrices or graphical
representations. These data displays not only help to
describe the case but also contrast it against the proposed
factors. All cases went through the steps described above.
5. Research findings and Discussion
The demographic information of the four cases is
provided in Table 1. These companies are called company
A to company D in our discussion.
The four cases are alike in terms of their technology
levels. They have built their own Intranet in the local
office. These companies have their own website. They
employ technicians, either part-time or full-time, to solve
computer-related problems. Each employee is assigned a
computer set and an email account. However, employees’
acceptance level varies in different companies.
Companies A and C heavily rely on computer and
Internet access in daily operations when companies B and
D do not. The practice of direct procurement in the four
cases is summarized in Table 2.
The procurement procedures of the four companies
are similar in the sense that they are all customer-
triggered. Each company negotiates with or order from
one or several suppliers after a customer has placed order.
It is a normal practice in SME as they always aim at
minimizing their stock level. They all target at Just-in-
time (JIT) purchasing.

Table 1 Company Demographics

Main No. of Staff Headquarter/
Co. Business Nature Target Market Location of Suppliers
Product in HK Subsidiary
Mechanical & Trading 1 office in mainland
A 6 Mainland China Germany, UK and Italy
electrical products company China
Down filled Manufacturing Western Europe, N. Mainland China, Taiwan, 2 factories in
B 45
outerwear firm America Germany, Korea, UK mainland China
Giftware & Trading Japan, Western Europe, Mainland China, Japan,
C 5 Headquarter in Japan
premiums company N. America Korea
Children’s Manufacturing Western Europe, New 2 factories in China
D 4 Mainland China
underwear firm Zealand, Japan (Joint venture)

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Procurement Steps
Co.
Information Retrieval
Search in supplier’s website or
CD-ROM for suitable product
E-mail as the main
A communication tool
Figures out the details (color,
quality, quantity, and cost) of the
raw material needed
B -
Search for potential supplier by
posting messages in some apparel
e-marketplaces
Look for suitable vendor from the
database developed in-house
Search for vendors by posting
C messages in some e-marketplaces
Look for potential supplier in
some e-marketplaces, trade shows
D
and magazines
Table 2 Procurement Procedure in the Four Cases
Notes
Negotiation Settlement
Negotiation with supplier Rely on e-mail as the All documents (fax and e-mail)
through e-mail, fax or main communication are kept systematically in the
telephone call tool server based on contract
Documents (e.g. purchase Settle the bill by number
order) are sent through e-mail telegraphic transfer or Will use e-banking to settle the
or fax letter of credit bills if security issue is
alleviated
Order through e-mail, fax or Use e-mail to
supplier’s online ordering communicate with
system depends on supplier’s overseas suppliers
request Settle the bill by
letter of credit
Communication and exchange Use e-mail or phone Store all information in a
documents with supplier call to communicate database developed in-house
through phone calls (local with overseas Will use e-banking to settle the
ones) and e-mail (overseas) suppliers bills if security concern is
Important documents are sent Settle the bill by alleviated
twice by e-mail and fax cheque or telegraphic
transfer
Communication with supplier Settle the bill by Will use e-banking to settle the
through phone calls cheque bills if the system is well
Important documents are developed
exchanged through fax

They are also similar in the way they settle the bill.
None of them use electronic banking (e-banking) services.
They still heavily rely on traditional payment methods
like cheque, L/C (Letter of Credit) and TT (Telegraph
Transfer). This is partly because they or their suppliers
still suspect the security level on the Internet and
therefore do not use e-banking. Another reason is that
their suppliers, which are manufacturing firms, prefer L/C.
Moreover, these companies pay cheaper costs of
procuring foreign exchange. foreign supplier gets the
payments only after the shipment arrives port of
destination and passes customs clearance.
The e-procurement tools adopted in the process are
contrasted against companies in Table 3, which is
obtained mainly by analyzing and interpreting the
interview contents. The tools are grouped into two
categories, communication oriented and transaction
oriented, following the classification scheme by
Osmonbekov et al. [30]. Some tools appear twice, e-mail
for example, as can they serve the two functions. As
clearly shown in the table, these SME mainly rely on e-
mail as the main communication tool. Most of them still
heavy rely on traditional procurement tools, which are,
fax telephone call and face-to-face.
It is obviously shown in the table that e-mail is the
most frequently used e-procurement tool in both
communication and transaction. Among the
communication-oriented tools, e-mail is ranked number
one, followed by search engine and online directory.
These tools assist buyer to search for potential sellers and
provide initial contacts within the buy-seller dyad. On the
other hand, e-mail is almost the only transaction-oriented
tool used in e-procurement. Only company B makes order
in supplier’s website occasionally.

Table 3 Electronic Procurement Tools Adopted (Based on: Osmonbekov et al., 2002)

Communication oriented Transaction oriented

Co. Search Online E- 1 1
E-mail Fax Tel E-mail Website Fax 1
Engine Directory Marketplace
A ** **** *** *
B ** * ** *** * *** * **
C **** **** ** *** ** ** * ***
D ** * * * * *** * ****

Key: * Least frequently used **** Most frequently used

Note: 1 Not electronic procurement tools

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 In all, SME in Hong Kong tend to adopt e-
procurement tools that are more suitable for maverick
buying rather than contract buying. The results show that
many SME are still in the beginner’s level of e-
procurement adoption. They are hesitated to use advanced
e-procurement tools such as Internet-based EDI, extranet
applications and procurement software suggested by
Osmonbekov et al. [30]. Small companies are still waiting
for the existence of critical mass of e-procurement adopter.
The need some role models to follow in carrying out
successful e-procurement.
By analyzing the interview contents, Table 4 is
derived. It shows the strengths of importance of the
factors in the eyes the interviewees. The more the number
of asterisks for a particular factor in a particular case, the
more important that factor is in leading to e-procurement
adoption behavior in that company.
Table 4 Factors Leading to E-Procurement Adoption
Co.
Power of Power of E- Trust on Trust Value of E-
supplier Procurement supplier on IT Procurement
A *** **** *** *** ****
B * *** **** ** ****
C * *** * * ***
D * * *** ** * transmission and overcoming time and geographic
Key: * Least Significant **** Most Significant
5.1. Value of e-procurement
Value of e-procurement adoption is defined as the
benefits over costs of implementing e-procurement. E-
procurement adoption is justified only when the perceived
benefit is large enough to cover the costs. Benefits of
using e-procurement include enhancing effectiveness and
improving efficiency [24] when costs comprises of initial
investment and on-going expenses of implementing e-
procurement. E-procurement promised to reduce the time,
effort and costs of buyer company associated with
requesting, negotiating and, ultimately, purchasing from
suppliers. It further enables purchasing staff to extend the
speed, quantity, and quality of information processing.
However, it is not important whether benefits of using
procurement are perceived before or after their adoption
behavior. Instead, it is the focus of the paper to see
whether value of e-procurement (justified benefits over
cost) is playing a role in the adoption process.
Among all the factors proposed, value of electronic
procurement is the most significant driver to e-
procurement adoption. It is found that the higher the value
they perceive from e-procurement adoption, the higher
level of e-procurement utilization sophistication. The
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frequently mentioned advantages include save in money
and time. “To us, money and time are everything. Using
IT can lower the cost of communication,” said Marketing
Manager of company A. “Now we seldom send fax or
make IDD call. And the vendors response more quickly to
email than phone call.” Other interviewees also provided
a similar answer, as save in money and time are the main
benefit of using e-procurement.
More than cost cutting and time saving, e-
procurement can bring other advantages to its adopters,
such as eliminating paperwork, improving data accuracy,
reducing inventory levels. However, according to the
interviewees, there are three main intangible benefits from
the use of e-procurement. These benefits include
eliminating time zone obstacles, capacity for easily saving,
filing and retrieving of procurement information, and
smoothened workflow.
The first benefit is eliminating time zone obstacles.
Communication between buyer and seller is an important
component of procurement. It happens throughout the
procurement process. Use of e-procurement saves small
companies from paying expensive long-distance calls.
Most importantly, Internet can provide its users what the
telephone or fax services fail to offer – asynchronous
communication, enabling electronic document
limitations. To the purchasing personnel, the last
advantage is the most attractive reason to use electronic
means of communication. “Life was painful without
Internet – I once stayed until 8pm for their answer to our
query,” said the Purchasing Officer of company B.
More than communication, procurement is a
standardized business activity. Many documents are
involved inside. Electronic procurement allows the firms
to keep record of all the procurement activities easily.
This is the second advantage. “Telephone conversation
fades away in the air. E-mail can serve as a record, but
we need not do the filing,” said the Sales Manager of
company A. E-procurement makes the job easy as all the
documents (including e-mail) are typewritten in soft copy.
E-mail provides capacities for convenient saving, filing
and retrieving a large number of messages. The Sales
Manager of company C reported, “Giftware includes
many things. We put down everything we’ve asked (the
vendor) in a database.” Company C built a database to
accumulate every piece of information they have retrieve
from the vendors. E-procurement keeps track on the
purchasing progress but saves the salesperson from doing
routine and repetitive job of paper documentation. The
staff is thus free for other value-added activities such as
benchmarking suppliers, communicating with the clients,
and building profound relationships with them.
 Last but not least, e-procurement can smoothen the
workflow. People working in front of computer replies
much faster to e-mail than fax. “Time is everything.
Today people are concerned about their inventories and
tend to buy later with a shorter lead time,” said the
Marketing Manager of company C. E-procurement
streamline the flow of procurement information. The
laborious routine of the purchasing function is speeded up,
thus freeing up purchasing professionals to focus on more
strategic purchases. E-procurement adopters are
subsequently benefited from their adoption behavior. .
The interviewees did not mention the costs of
acquiring computer set and Internet access. This is partly
because computers are installed to facilitate daily
operations long time before the existence of electronic
procurement. Another reason is that Internet has become
one of the basic communication tools nowadays: “Those
who do not have fax or e-mail account are not real
businessmen,” said the Marketing Manager of company B.
Given the costs and benefits of e-procurement, the
adoption of e-procurement is justified. As a result,
tangible and intangible benefits drive these companies to
switch to the new way of purchasing.
5.2. Trust
Trust reflects a reliance on a partner and involves
vulnerability and uncertainty on the part of the trustor
[27]. In other words, the level of trust a party possesses in
another can be weakened by risk and uncertainty.
Business buyers perform differently based on their own
level of risk perception (or the level of trust). This
ultimately will affect their intention of e-procurement
adoption, and the acceptance level. The risk and
uncertainty of e-procurement come from the suppliers and
the technology. Small firms always find that they are not
familiar with the technology they are using. Moreover,
risk may exist because of the supplier: small firms are
more vulnerable any external threat. If they use electronic
means to accomplish procurement, they have to suffer the
possible risk of, for example, confidential information
being eavesdropped on the network. As a result, like
power, trust is further broken down to trust on suppliers
and trust on IT.
5.2.1. Trust on suppliers
Trust on suppliers is ranked second in terms of
significance in affecting e-procurement adoption by SME.
The Internet is a important communication medium for
SME to establish and tighten relationships with their
suppliers. However, without trust, even low-value
transaction would not have been done. The level of trust
the company has in its trading partner depends on how
familiar it is with its partner. In other words, the longer
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the relationship the buyer company has with a particular
supplier, the more it is familiar with that supplier, and
trust is built in this way.
It is easier to maintain a higher trust level in supplier
in some industries. Consider the case of company B.
Firms in the apparel industry tend to maintain long-term
pleasant relationships with its trading partners for a
guarantee of stable raw material supply. Trust is an
essential foundation for collaboration between businesses.
Likewise, without mutual trust, e-procurement would not
have happening in this company. As a result, when its
supplier started to provide an alternative of making order
online, company B switched to the new channel without
hesitation.
Not all companies are given the chance to nurture
trust with their trading partners. A typical example is
company C, which buys a wide variety of products from
many different vendors. It cooperates with its trading
partners on project basis. This kind of purchasing is
known as “maverick buying” (that is, buying from non-
contract vendors, in contrast to “contract buying”). The
two parties do not have a chance to maintain a long-term
buyer-seller relationship. The Marketing Manager of
company A also showed her concern. “It’s still risky to
buy online, especially from those vendors we’re not
familiar with. Say, we ask them to show us an ISO
certificate that they don’t have; they may make a fake one
to cheat us. Anyway, they scan the document into the
computer. It’s real or not? God knows!” Initial trust on
new supplier is low. Thus, trust is not a significant
determinant of e-procurement adoption in maverick
buying.
5.2.2. Trust on IT
Trust on IT is greatly affected by the perceived risk
level of using the technology. The risk of transacting
online stems from the poor security of the Internet. The
interviewees are skeptical about transacting on the
Internet. They still heavily rely on fax to send and receive
important documents like purchase orders, confirmation
notice and invoices. The General Manager of company C
said, “The other side may fail to get my mail. It is even
hopeless if the computer is down.” They suffer from
computer attacks and virus attack from time to time. As a
result, they worry about theft of information and consider
that it is too risky to settle the transaction online using
electronic payment systems.
Therefore, trust on the technology is a significant
factor that affects the intention to adopt e-procurement.
This is especially obvious in the SME sector, as small
companies tend to have lower technology level. The
higher the level of trust on electronic procurement, the
 more sophisticated use of it is expected. Participants of
Business-to-Business electronic commerce are looking for
a trust security environment for doing business. There are
four key concerns of doing business on the Internet,
authentication, integrity, non-repudiation, and
confidentiality. Most companies perceived no guarantee
on any of these issues. However, there are some
companies that do not perceive the threat. The General
Manager of company C reported his opinion, “If I buy
online, the risk I bear is the same as (that of) mail order.”
Yet, the optimists are still the minorities. Most business
organizations are still lingering whether to participate in
electronic commerce or not. The interviewees’ hesitation
to involve in e-procurement exposes the tip of the iceberg.
Electronic procurement cannot reach its full potential
unless this security problem is solved or alleviated.
5.3. Power
Power is the ability to control, authorize, or influence
an individual/ an organization on his/ its action [20]. One
who possesses power possesses the ability to cause
another party to do something that it would not otherwise
have done. Hart and Saunders [20] pointed out that the
use of persuasive power has been used extremely
effectively by a number of organizations. In dyadic buy-
seller relationship, power of one party over another is
determined by the extent to which party is dependent on
the other for particular resources. In other words,
exchange power is a function of the relative utility and
relative scarcity of the resources brought to a particular
transaction by each of the parties involved [9]. The side
with more power possesses an advantage to leverage more
value from the relationship [7]. It is anticipated that the
supplier possesses more power if the buyer is a small
company. Consequently, the small buyer has to follow the
supplier’s requests, such as adopting electronic
procurement, as it is not the power-holder. Similarly,
power also comes from the technology itself. If a
substitute can be found easily to replace e-procurement,
the power of e-procurement perceived is low. Business
would not adopt e-procurement, and even if they did, the
level of use is limited. As a consequence, power is
classified as power of suppliers and power of IT.
5.3.1. Power of Electronic Procurement
The value of electronic procurement over the
conventional approach also suggests that power of e-
procurement should play a significant role in the adoption
process. There is no technology except the Internet can
keep global trade operates so smoothly 24 hours a day and
7 days a week. However, power of e-procurement even
seems to have little effect among the cases, though the
Internet is extensively employed to perform information
seeking. They would not have accomplished the task so
Proceedings of the 36th Hawaii International Conference on System Sciences (HICSS’03)
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easily without the aid of the technology. However, if the
computer is out of order, the firms can still call or send
fax to its suppliers. After all, telephone and fax are still
the most popular communication tools. E-procurement
tools such as e-mail are alternatives only.
However, the situation will not last forever. Business
organizations have realized that Internet usage is
ubiquitous nowadays. “If the computer is down, the whole
day is ruined,” the Marketing Manager of company C
commented. Business organizations gradually appreciate
the advantages accompanied by electronic procurement
adoption. The General Manager of company D mentioned,
“If more companies use it (electronic commerce), we will
follow.” What he said represents the attitude of many
SME. Most of them are not taking any action but
observing how the situation would be. When a critical
mass of electronic channel users is gathered, power of
electronic procurement will increase. Electronic
procurement is a tremendously powerful tool that will
revolutionize the purchasing climate. Enterprises will find
that there is no better substitute of e-procurement.
5.3.2. Power of suppliers
Power of suppliers is not as significant as expected.
Although e-procurement is a synchronous adoption of
technology, none of the firms interviewed consider power
of suppliers as an important factor driving them to adopt
e-procurement. A typical case is company C. This
company is a relatively large and important client to its
suppliers that they have to follow what it requires them to
do in afraid of losing this important client. In other words,
it is not the suppliers but company C who is the power
holder in the dyadic relationship. Hence, power of
supplier is not significant in company C.
In contrast, there is an exceptional case that is worth
to mention. Power of suppliers has an effect on the e-
procurement adoption behavior of Company A. Yet, the
power mainly comes from the desire to retain its
customers. Once a certain brand of machine is installed,
the same brand must be used or the machines cannot work
properly together. Therefore, company A maintains a
long-term relationship with the same vendors for the sake
of customers.
Except the special case of company C, power of
suppliers is not perceived as important in other companies.
One explanation is that it is seldom the case that two
trading partners by agreement switch to electronic
communication channel. Individual adoption is a more
common practice. Internet just a place (space) for
companies to find each other, explore opportunities to
cooperate and leverage value from the relationship. Yet,
perfect matching of company buyers and sellers still not
 easy with the aid of the Internet. And interviewee
described the Internet as nothing more than “a giant but
incomplete and outdated directory of companies”.
Besides, there are many choices available in the market.
Except company A, none of the companies interviewed
has to rely on a particular supplier(s). It is not considered
as a threat even if the supplier exerts pressure on the small
company. In all, power of suppliers is not considered as a
driver to adoption e-procurement by SME.
6. Conclusion
The research study aims to investigate the
determinants of electronic procurement adoption by SME.
It is found that determinants of e-procurement adoption
by small firms include value of e-procurement, trust on
supplier, trust on IT, power of IT and power of suppliers
in the order of significance.
The research findings provide practical implications
to various stakeholders. Intermediary organization (such
as e-marketplace) can encourage more and higher level of
e-procurement usage among SME by demonstrating to
them the benefits of e-procurement adoption and carrying
out some measures to build their trust on the technology
application (e-marketplace). Suppliers can build the trust
on it customers by, for example, responding instantly to
customers’ query and providing technical support, in
order to encourage them to switch to the electronic
channel. The government provides various supportive
measures to meet the needs of the SME, such as enacting
electronic commerce regulations and laws, educating the
SME issues in electronic commerce adoption, providing
subsides, and perfection of telecommunications
infrastructure.
In addition to practical implications, the findings also
have theoretical implications to future research. It is
founded that trust on IT is playing a role in determining e-
procurement adoption behavior. The characteristics of the
technology (e-procurement) can be embedded in the
buyer-seller relationship. This finding suggests that, in
addition to technological characteristics, social aspect of
an innovation (for example, e-procurement) should be
addressed when studying the adoption or diffusion pattern
of the innovation. Researcher should pay particular
attention on this aspect if the use of the innovation in
question involves more than one party (buyer and seller in
the case of e-procurement adoption). Oversimplification
of a phenomenon may scarify the nuance the research
should have discovered. One may argue that a good
theory should be parsimonious. It is therefore important
but difficult to get a balance between the two. In short,
study of innovation adoption should analyze not just the
nature of the innovation, but also the whole network of
involved parties.
Proceedings of the 36th Hawaii International Conference on System Sciences (HICSS’03)
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