PERCEIVED FACTORS INFLUENCING THE FINANCIAL PERFORMANCE

OF SMALL AND MEDIUM ENTERPRISES UNDER E-COMMERCE

INDUSTRY

By:

EICEN PAPIONA

RODERICK PAME

RENA SIGO

RODERICK SIGO

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 CHAPTER 1

INTRODUCTION

THE PROBLEM AND ITS SETTING

This chapter includes the background of the study, statement of the problem,

objectives, theoretical framework, conceptual framework, hypothesis, scope and

delimitations, significance of the study and the definition of terms.

Background of the Study

In the Philippines, small and medium enterprises (SMEs) play an essential role in

promoting vital economic growth. They are responsible for more than 99% of registered

enterprises in the country, and those sectors provide 60% of jobs. Things began to be

difficult for these organizations caused of the Covid 19 pandemic while maintaining their

sustainability. According to the Covid 19 business impact survey (2020), many

businesses were affected by the current crisis, with more than two-thirds being

significantly affected. The impact of the Covid-19 can be seen in everything from the

decrease in sales and the difficulty to put on sale their products and services in the view

that customers are also affected by the pandemic. Several businesses decide to adopt other

strategies for the sake of their sustainability. Such strategies include adapting online

channels, which make them enter the e-commerce industry (Centre, 2020).

The Internet was invented to be used for communication, which people still use

today. The internet has emerged as a major force in transforming how companies do

business (Quimba and Calizo Jr.). Electronic commerce (e-commerce) is the purchase and

sale of information, goods, and services through computer networks (Kalakota and

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Whinston 1997). E-commerce allows a rapid response toward the communication service

to complete a transaction (Morsheda et al. 2021).  The means of reducing the cost and

requirement for physical stores also eliminate the need for hiring people to get sales.

Establishing the business online, it helps to increase business transactions at an

economical price. (Attaran and Woods, 2019; Matzler et al. 2019). With less need to

operate the business they can have the capability to generate more profit, which can be a

suitable opportunity for small and medium-sized enterprises (SMEs). Due to the COVID-

19 pandemic, many businesses were closed for the reason that they were suffering losses.

After two years, it has become the "new normal." Both the public and private sectors have

put forward various initiatives to restart businesses and recover jobs. (Crismundo, 2021).

Some businesses think of an alternative solution because the government implements

social distancing and limits customer service for restaurants, grocery stores, etc. The

majority of customers use mobile phones, laptops, and computers to access any website

or app to find what they need and want. This is an opportunity for them to enter the e-

commerce industry. 

The Philippines' e-commerce business has grown slowly over the last few years,

as shown by sales figures for 2020 ( Statista Research Department, 2021). However,

many businesses have become profitable as a result of their capacity to operate online.

There can be no ups without downs, or benefits without disadvantages, and e-commerce

is no exception. One of the most serious disadvantages of e-commerce is a lack of

reliability and security as a result of bad implementation (Bhasin, 2019). User reluctance

is another problem. Most people do not want to buy something they have not tried or felt

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first. This is one of the factors that can affect the financial performance of SMEs who are

in the e-commerce industry.

Statement of the Problem

The problem to be addressed by this study are the factors that affect the financial

performance of SMEs under eCommerce, corresponding to the use of online platforms.

Several factors that could affect the financial performance of SMEs may vary because it

also has its limitations—considering that the business has to operate and transact

everything virtually.

The crucial risks that they need to watch out for are the following; (a) data privacy

and security, as it contains much confidential information, any person who can navigate

and go through the system and accounts may significantly impact the brand identity and

affect the financial performance. (b) the supplier that can cause fraud on the business via

the internet by giving fake documents, proofs, and fake identities, (c) a customer who

made fake orders could affect the business's daily operations. (d) The publicity and

exposure of the business which could attract the consumers is also a significant factor in

making a high volume of transactions to produce capital, (e) but also a risk in terms of

tending to the consumer's inquiries that may lead to misinformation due to tons of

business activities to process the products or services that is available to offer. (f) Using

social media as a driving force for gaining sales without interaction or failure to respond

to the negative feedback given by the customer can damage the reputation of the business.

(g) The authenticity of the products and services posted online would enable the

consumers to know what the brand can offer and the benefits they can receive if they

purchase it, which would pique their interest, and entice them to try it out. The proper

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documentation of registrations to prove the legitimacy of the business and its product and

service would enable the consumers to engage and enjoy the product without

contemplating if they purchased an authentic one. Since it would be convenient for them,

they do not need to worry about trying and using it because they are proven safe. 

Any online platform reflects the business’s branding image, enabling customers to

engage in business quickly. Furthermore, if the company engages in different online

portals, it can utilize them for marketing strategy, sales, product development, and

customer satisfaction. It helps the consumers to look out for the business and check out

the products and services from the business. In addition, it helps the business obtain

various benefits such as improved customer relationships, lowering costs, and increased

income.

Objectives of the Study

The following are the objectives of the study:

1. The study’s main objective is to determine the perceived factors influencing the

financial performance of SMEs in the e-commerce industry.

a.) Data security on website

b.) Transaction

c.) Misinformation

d.) Customer Feedback

e.) Product and Service

f.) Fraudulent act

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 2. Determine the extent to which this influence affects financial performance in e-

commerce SMEs.

3. To assess how the SMEs within the e-commerce industry will deal with the

influence of these factors. 

Theoretical Framework

The evolution of establishing electronic businesses has been revolving for the past

years, leading to a good opportunity for SMEs to gain external and internal capital

(Naude et al., 2014). Earning online provides opportunities for people to create their

network and engage in social and economic benefits. Troshani and Rao (2007) proposed a

theory that focuses on two mainstream schools to provide a theoretical foundation. The

resource-based view and the transaction cost theory, these two theories can help SMEs to

get a strong foundation that can enhance their financial performance and be competitive

in the marketplace. It will help the SMEs establish a strong identity that will let them

acquire and know the flaws and benefits of their brand by publishing it online.  

The theory of the resource-based view (RBV), or the most prominent, is a widely

accepted paradigm for understanding strategic management. RBV pertains to the valued,

diverse, immovable resources owned exclusively by the organization and are difficult to

replicate by competitors. According to proponents of the RBV, they are more likely to

produce favorable results, such as lower costs or increased income. As per the RBV,

resource-outcome interactions may be influenced by causal ambiguity, defined as "the

relative difficulty of identifying causal links between organizational resources and

outcomes" (Lado et al., 2006, p. 116). The fundamental strength of this theory is causal

ambiguity, which acts as a substantial impediment to imitation. As there are many starting

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businesses or large firms in the industry, it may not be easy to enhance their identity as

they might seen as a copy of the older firms who were the first to adopt e-commerce. But

still, it can be an advantage if it is carefully imposed to start building the enterprise's

competitive advantage.  

On the other hand, transaction cost theory is a helpful tool for determining the

transaction costs and risks of organizational connections. The theory of transaction costs

(TCT) focuses on buyer-seller trade relationships, where a transaction is defined as a

transfer of products "through a technologically separable interface" (Williamson, 1985, p.

1). Transaction costs are costs associated with economic transactions that fluctuate

regardless of the traded products or services' competitive market prices. As data privacy

and security are critical factors to securing the reliability of the sharing information with

the customers, it is also essential to invest in the things that will help the transactions be

safe. Search and information costs and expenditures required to monitor and enforce

contractual performance are typically included in transaction costs. Cost efficiency is a

significant factor in why many businesses embrace the concept of e-commerce. They

should ensure the effective use of the available online platforms, as businesses can

enhance their resources by engaging in social media business sites and online activities

(Quinton & Wilson, 2016). Optimizing various business activities and lowering costs by

using the product of technology immediately impacts business, including distribution,

sales after-sales service, and inventory management. It is essential to know the edge of

using the platforms to maximize their use so that the risks will most likely prevent them

from happening, and the benefits will be able to meet to enhance the effectiveness of the

platforms. In terms of cost reduction, sales, and revenue, websites and social media

significantly impact a company's financial performance. 

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Conceptual Framework
The researchers developed an Input Process Output to discover the aspects that
could affect the financial performance of small and medium enterprises influenced by e-
commerce.
INPUT
 Data security on
website
 Fraudulent acts
 Transaction
 Misinformation
 Customer Feedback
 Product and Service
PROCESS OUTPUT
Distributed the survey  Perceived factors
questionnaires via that influence the
Goggle form to small financial
and medium enterprises, performance of
and after the researchers SMEs in the e-
collected the commerce industry.
information, the
researchers analyzed and  Dealing with the
tallied the results and effects of the factors
performes the hypothesis that affect the SME’s
testing. financial
performance.
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Hypotheses

The researchers developed the hypotheses with a 5% significance level. The

significance and rejections of the following hypotheses are investigated:

Ho1:  There is no significant difference on the factors that affect the financial

performance of small and medium enterprises under e-commerce industry.

Scope and Delimitations

This study focuses on the significance of the factors that influence the financial

performance of Small and Medium Enterprises under the E-commerce industry,

considering the benefit of utilizing the online platforms to establish the publication of

products and services in modern times.

The researchers will assess only the factors that affect their financial performance,

specifically the sales performance of Small and Medium Enterprises. Due to the current

situation caused by the pandemic, many businesses, specifically SMEs, have begun to

enter e-commerce. As a way to reach out to the customers and start advertising, it can

help promote their product and services to minimize losses and ensure that they obtain

profit despite the situation. Given that the pandemic is still ongoing, the respondents

would be limited to those who work in SMEs under e-commerce. The survey

questionnaire created by the researchers will be the primary source of data gathering in

this study that will be overseen this year 2022. This study does not intend to promote

using social media to create and establish a business online; hence, this study will focus

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only on applying social media to stimulate the continuous income of SMEs in the e-

commerce industry.

Significance of the Study

The significance of this study is to provide information on the perceived factors

influencing the financial performance of small and medium enterprises in the e-commerce

industry. The beneficiaries of this study are the following:

E-commerce industry: It will provide information that can help expand their target

market with internet access using the available websites or platforms and provide

information to individuals or people who are business-minded that want to enter the e-

commerce industry by using online platforms as their channel.

SMEs: Small and Medium Enterprises. It will help them determine what factors can

influence their financial performance. It will also provide recommendations on how to

improve their business when they are in the e-commerce industry.

Students: For those students who want to start a business. It will help them establish

initial information regarding the convenience of using available online platforms to

enhance brand identity that would help them increase their financial performance despite

having limited resources.

Future Researchers: It will provide knowledge and information for researchers who

have research and aim to know how these factors can influence financial performance in

the e-commerce industry. They can use this study as related literature for their research.

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Definition of Terms

For clarification purposes, the following operational definitions are provided for the

keywords in the research.

E-commerce- known as electronic commerce, is the buying and selling of products and

services through the internet and the movement of money and data to complete these

transactions.

Enterprises - An enterprise is a for-profit firm founded and operated by an entrepreneur.

Furthermore, we often claim that those who manage such enterprises are entrepreneurial.

Financial performance- the term used as a general measure of a firm's overall financial

health over a given period. It is a subjective measure of how well a firm can use assets

from its primary mode of business and generate revenues.

SMEs- these are small and medium-sized businesses operating under the e-commerce

industry in the Philippines with around 10 to 199 employees and a total asset value

amounting to P3,000,000 up to P350,000,000. 

CHAPTER 2

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 REVIEW OF RELATED LITERATURE AND STUDIES

This chapter includes some previous related literature and studies from local and

foreign which are presented in the following paragraphs.  

Foreign-Related Literature

Financial Performance

In the business world, accounting is essential in a company because it allows them

to monitor revenue and expenses, maintain statutory compliance, and offer investors,

management, and the government with quantifiable financial data that can be utilized to

make business choices. One part of accounting is financial performance. A business's

financial performance is an examination of its performance progress report over time to

determine how effective and lucrative it is in generating income, sales growth,

profitability, share price, and profits per share. (Saputra and Che Haat, 2021). Financial

performance is used to assess a company's financial condition and performance over time

and may also be used to compare comparable enterprises in the same industry or to

compare industries or sectors in aggregate.

E-Commerce

E-commerce has wholly transformed shopping over the previous two decades. It

evolved from a primarily non-existent business concept to a possible challenge to the

conventional mall as we know it. These have changed and altered throughout time to fit

the ever-changing desires and demands of the modern customer (Olenski, 2015). In the

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near future, the e-commerce industry will enhance its performance quickly. In terms of e-

commerce, there are three primary varieties used in the modern environment: business-to-

business, consumer-to-business, and business-to-consumer (Andonov, Dimitrov, and

Totev, 2021). Although most retail areas have suffered, the transition to digital is one of

the most exciting shifts that will occur in 2021. With more individuals at home, the

volume of Google searches has increased, and consumers have begun to use e-commerce

to purchase things that they would have previously purchased in physical retail

establishments. According to Sanjay Gupta, Country Head and VP, Google India, the

bright side is that entrepreneurs have crammed four years of change into four months

since the lockdown started in terms of business transformation and skills. Satya Nadella's

comment on digital transformation in Microsoft's financial report to Wall Street adds

gasoline to the notion that the e-commerce industry will prosper in the "new normal."

(Team Vue.ai, 2021).

There are operational risks, including bankruptcy (Yucao Niu, 2016) and security

breaches, which are a problem. When dealing with eCommerce, there is a lot of

information/data involved, and a technical problem with data may cause serious harm to

the retailer's everyday operations and brand image. Competition and competitors It does,

however, reach a contentious conclusion: the less a business provides clients, the more

inclined they are to acquire anything. Many people these days are overwhelmed by all of

the available alternatives. A simple Google search for headphones can provide hundreds

of results. As a result, knowing the fundamental aspects influencing e-commerce success

becomes vital for company performance. Pricing and Transporting: People have all heard

of customers who prefer to buy things from free delivery sites. The e-commerce industry,

like Amazon, Walmart, eBay, etc., provides enticing delivery prices that buyers seldom

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look for elsewhere. Policies on Product Returns and Refunds, According to ComScore,

more than 60% of online customers research a retailer's return policy before making a

purchase. Whenever an e-commerce website states "no returns or refunds," a customer

becomes uneasy and less inclined to trust the merchant. Customers who purchase online

want the freedom to make a mistake that will not cost them anything (Team Vue.ai,

2021). The reason why some e-commerce platforms have this policy is because of fake

orders. The platform wants to protect its users or retailers. Despite federal consumer

protection standards enforced by the Federal Trade Commission, no federal statutes

oblige a merchant to return the money unless the goods they sell are faulty (FTC).

Internet transactions may confront challenges comparable to normal company

transactions in their everyday operations. However, e-commerce transactions face

additional challenges as a result of cyberspace regulations. It is practically impossible for

a company to succeed these days without a website. Although not all websites actively do

business over the Internet, having an online site may result in e-commerce-related

concerns and conflicts. Recently, privacy issues have been raised in the media due to

large organizations disclosing crucial personal information about their customers (e.g.,

date of birth, Social Security numbers, and credit card numbers). As a result, to protect

their clients' privacy, these businesses must maintain a particular degree of security. Not

only are laws in place to regulate the security of consumer information, but businesses

must also follow their contractual duties to preserve client privacy (Law Offices of Salar

Atrizadeh, 2015). Because more people are in business nowadays, some people spread

misinformation that can affect any business or industry. Some feedback does not help the

business. People want to ruin it. Experts are equally divided on whether the next decade

will see a reduction in false and misleading narratives on the Internet. Those who predict

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improvements expect technology fixes and social answers. Others believe that technology

helps, rather than hinders, the evil side of human nature. Oxford Dictionaries named

"post-truth" the word of the year in late 2016, describing it as "related to or characterizing

situations in which objective facts are less effective in molding public perception than

drives to emotions and personal conviction." (Anderson and Lee, 2017). Customers

nowadays are pickier about the service they get from a company. Besides purchasing

goods and services, customers pay special attention to how the business reacts to their

problems. Ineffectively addressing their inquiries may significantly impact the business's

reputation and hinder its development. To assure that their consumers have a positive

experience while doing a transaction with their business, the company must be aware of

the frequent issues in e-commerce customer care.

Small and Medium Enterprises 

Some SMEs enter the e-commerce industry, allowing them to approach customers

without a physical store and contact them. The significance of e-commerce platforms is

that businesses enable virtual interactions and contain relevant information about the

product (Chandna and Salimath, 2018) that customers may view as economic advantages

(Zhang, 2017). Nowadays, social media is essential in every business, and social media

has expanded from cyber world geek talk to a vast platform for companies, entrepreneurs,

professionals, and organizations seeking more visibility and identity at a low cost (Lucas,

2022). It helps small and medium-sized enterprises promote their goods and services and

sell them to many customers without spending much money. It may enhance sales income

by leveraging current customers, attracting new ones, building social networks, and

ensuring compatibility with old systems (Lee, 2018). 

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Local Related Literature

Philippine public accounting techniques date back to the 1700s, and the Philippine

government legally recognized the accounting profession on March 17, 1923. This

formalization served as a first step toward the country's increasing accounting profession,

and it was enacted by Republic Act (RA) 3105 (David, 2018). Accounting is a well-

established profession. Every company needs to have an accountant to perform critical

financial responsibilities. It is vital in business and the average person's day-to-day life

(RPV, 2018). With a well-organized financial data record, most business owners want to

devote their time and attention to running and expanding their company. As a result, their

personal and corporate financial paperwork is often jumbled up. Unorganized financial

paperwork generates tension and anxiety for company owners since they do not know

whether they are profitable or losing money. The first sign of accountants is keeping an

ordered record and filing the company's day-to-day financial data. The business will not

have to worry about arranging all of the transaction receipts that must be submitted and

recorded (Yanuaria, 2012). One of the duties of an accountant is to know the business's 

financial performance. Every industry has financial performance: the real estate industry,

construction industry, manufacturing industry, business services, retail industry, e-

commerce, etc.

Electronic commerce helped and developed organizations’ economies in every

part of the world. It is a new concept that excludes certain aspects of industries that are

bound to a new practice. Electronic commerce is changing many aspects of business and

social life and becoming modified by electronic commerce. If companies want to retain

their competitiveness in the marketplace, they must adapt their strategies to the new

15
realities. To avoid a competitive disadvantage in their industry, managers of small and

medium firms must overcome the barriers to e-commerce and understand the benefits to

their companies. The Philippines is one of the fastest-growing internet populations in the

Philippines; according to statistical data published by the DTI – the Philippines, the

annual growth of internet users in the Philippines in the past years has reached 530%. In

the Philippines, e-commerce has shown to be quite promising. From 2013 to 2018, the E-

commerce industry grew by 104 %, reaching $1.15 billion. (Maniquiquiz & Samson et

al., 2021). With about 73.65 million monthly web visits as of the third quarter of 2021,

Shopee, Lazada, and Zalora are the Philippines' top three online shopping platforms.

Shopee is the most popular business-to-customer e-commerce site in the Philippines.

Lazada came in second with around 39.43 million monthly visits (Statista Research

Department, 2022)

The nation's e-commerce business is still in its early stages, but it cannot deny that

this growing country has a bright future if it can use its assets to provide a solid

foundation in this industry. Consider the Philippines' strength in developing a robust e-

commerce business nationally and worldwide. Adaptability to technological changes:

Filipinos' quick adaption to technology is a positive development for the country's e-

commerce business. In 2015, smartphone penetration in the Philippines was predicted to

quadruple to 50 percent. With the likes of Lazada.com, Ensogo.com.ph, and

Metrodeals.com, more and more Filipinos are turning to online shopping. Social media is

widely used in the Philippines. As the world's "social media capital," it has an excellent

opportunity to positively affect the country's e-commerce economy. E-commerce and

social media work together to bring enterprises to a broader market. The nation has

around 40 million active internet users, and this number is rapidly expanding. 

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 Additionally, Filipinos are not just active content producers and syndicators on

social media. With a 556 percent increase in the previous five years, the Philippines is

thought to have the fastest-growing internet population. With the country's internet

population rapidly increasing, more Filipinos will become increasingly interested in e-

commerce. It might be an excellent opportunity for firms to engage in business.

Nevertheless, although the Philippines is rapidly improving, it is also a harsh

reality that the nation is falling behind in several fields of technology and management.

According to the 2015 IMD World Competitiveness Rankings, the Philippines is ranked

41st. Although that moved up one spot from the previous year's standings, it still lags

behind neighboring Asian nations such as Malaysia (14), Taiwan (11), and Singapore (3).

It also implies that the country still has work to do. There will be several hurdles that this

nation will face as it develops its e-commerce business. Here are some of the most

apparent flaws that might hinder the country's efforts to expand e-commerce. One of the

biggest problems in the Philippines is that it has the slowest internet speed in Southeast

Asia, at 3.6mbps, and ranks 50th out of 55 countries. In a BBC interview, Silicon Valley

investor Peter Fabian called the nation the "end of the earth" in terms of internet speed.

The Internet seems to be a recurring issue in the Philippines' technological sector.

Because of this problem, investors and foreign entrepreneurs seem to neglect the country

as a good location for developing the e-commerce industry.

Foreign-Related Studies

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 E-commerce is a fundamental shift in business. The internet and e-commerce

mainly target developed economies. However, if used as an ideal business goal, they can

benefit developing countries enormously (Ohidujjaman et al., 2013). Small and medium-

sized enterprises (SMEs) play a significant role in creating career opportunities for

society members, providing for a substantial portion of total employment. The new

resources for developing goods or services, commodities, operations, and working

experience. They make up a large part of a nation's economic structure with goods and

services supply (Dehkordi et al. 2014). SMEs are engaged in certain areas and markets

where large corporations cannot participate (Leitao et al., 2013). In the production sector,

numerous small businesses supply expert-level parts, extras, and sub-assemblies, and

then, in fact, they are large business contractors. They serve as a foundation for an

economy, ensuring big industries' growth, flourishing, and accomplishment because their

success is directly dependent on SMEs, the performance of large sectors formed by the

performance of small enterprises (Monavarian et al. 2014).

SMEs on online platforms

Social media is one channel that promotes an effective way to communicate and

interact with others. This product of modernity is advantageous to businesses to

accommodate the use of the internet. The SME’s adoption of online platforms to improve

financial performance; by posting activities, and the use of publicity and the perceived

benefits of using the channel is a big help to enhance the business performance and its

target market (Maske & Steiglitz, 2013; Oztamur & Karakadilar, 2014). Online platforms

can mobilize an influence in deciding a concise decision in a short amount of time, no

matter what the location is. The importance of these platforms in the entrepreneurial

18
process has been recognized by supporting the virtual collaboration approach for a vital

start-up business and deliberate behavior strategy in the marketplace. Attai et al. (2015)

also recognize that they established a positive relationship that allows them to provide

information and feedback to the customers by using social media. It revealed that network

sites like Facebook have a positive impact on the financial performance of SMEs in terms

of cost reduction on customer service, marketing, improved customer relations, and

improved information accessibility. Compatibility, cost-effectiveness, and interaction

have all considered variables that impact SMEs' use of Facebook. (Parveen et al., 2015). 

According to the study by Ainin, Parveen, & Moghavvemi (2015), SMEs have

improved their financial performance through social media usage. Because of the

substantial cost reduction associated with advertising and other promotional activities. As

a result of the efficient and effective use of innovative techniques and accessing the

internet in advertisement and other transactions, SMEs are currently enjoying cost

advantages for business advertising operations because of the easy access to promotional

publicity that attracts consumers. Concerning SMEs, lower costs for social media

promotion will increase financial returns.

In the last two decades, social media technologies have played an increasingly

essential role in the performance of businesses and SMEs. Although some research on

social media and its financial performance has been done, there are still significant gaps

in the literature. Rodriguez et al. (2015) asserted that social media has a substantial

impact on an organization's sales performance through its customer-oriented processes,

whereas Wong (2012) claims that social media has a positive impact on an organization's

financial and non-financial performance. In a similar paper, Kwok and Yu (2013)

concluded that social media enhanced sales volume and helped Small Medium

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Enterprises meet their sales targets. According to Rauniar et al. (2014), various social

media handlers such as blogs (open diary), social networking (Facebook), and

communities have helped firms reach their sales and financial aims (YouTube). SME

financial performance is also influenced positively by social media applications, which

improve sourcing assistance through the quality relationship between the firm and its

consumers (Rodrigues Pinho & Soares, 2011). Small and Medium Enterprises (SMEs)

have improved their financial performance due to social media bridging the gap between

them and potential customers. The widespread adoption of social media via platforms

such as Facebook, Twitter, and others has helped SMEs improve their financial health

and expand their international competitiveness. In the investigations of Ainin, Parveen,

Moghavvemi, et al. (2015) discovered that social media lowers the cost of a marketing

campaign and aids in the creation of awareness, as well as developing meaningful

customer-driven product innovation and increasing sales revenue.

According to Zhang and Pentina (2012), social media has achieved marketing

intelligence, including Facebook and YouTube integration. Social media has enabled

SMEs to raise corporate awareness and market the company from several angles at a low

cost (Cohen and Lancaster 2014). Furthermore, many SMEs exchange information on

social media channels. The role of cost in the adoption and use of social media has been

examined. According to Jibril et al. (2019), there is a clear and significant relationship

between cost and technological adoption, mainly in social media. Social media has

created opportunities for organizations to continuously communicate with their

customers, thereby promoting their shoppers' interest in the organizations' products and

services. Customers who become hooked to certain goods and services via social media

continue brand co-creation and have a beneficial influence on the organization. According

20
to Giannakis-Bompolis and Boutsouki (2014), when consumers become the company's

focal point through social media, firms may fulfill their goals because customer

relationship managers are allocated to each client to answer their difficulties. Similarly,

Bazi et al. (2020) demonstrate that enterprises are always in close interactions and good

relationships with customers via social media. As a result, new customers are attained

based on recommendations from customers to others; therefore, it helps SMEs reduce the

cost of a marketing effort.

Local Related Studies

Businesses can use the internet to conduct E-Commerce activities such as

collecting, storing, and transferring personal information gathered from website users. E-

commerce enterprises are paying more attention to privacy due to client concerns. Their

crucial difficulty is to balance the competitive advantages afforded by their use of

personal information and the danger of losing customers concerned about potential data

abuse. How we shop is changing as a result of the internet. It has evolved into a lively

virtual marketplace for selling and purchasing information services and products. Online

shopping refers to purchasing and selling goods or services over the internet. Users can

browse the online shopping website to do online purchasing. Security enhancements,

which are still the most severe threat to e-commerce, are also being pushed with vigor and

have yielded substantial results. According to studies, growing privacy concerns pressure

businesses to establish customer-centric privacy policies. One of the information privacy

issues on the table is that e-commerce privacy should be on the agenda of researchers in

management information systems (MIS) and accounting information systems (AIS). E-

Commerce is one of the most rapidly evolving new technologies; even though it has been

21
around for several years, it is a technology that has yet to reach its full potential. Privacy

is a primary concern in electronic trade, regardless of the source one examines.

Individuals' perceptions of what happens with the information they supply over the

internet are represented by Internet privacy issues. Managing how one's personal

information is gathered and utilized is known as information privacy. Consumers'

utilization of online channels is one of the prerequisites for E-Commerce growth. These

channels are used for each stage of the purchasing process: determining requirements,

selecting vendors, purchasing, and providing after-sales assistance. E-commerce has

come a long way to become a dynamic force that affects all types of corporate operations

around the world E-commerce is carried out across a global network, the internet. The

internet has been entrusted. As a result, confidentiality is necessary during transmission,

and it must be protected from all kinds of threats. Information technology is

fundamentally involved in this never-ending gathering of data in several ways. First and

foremost, computerized databases have given it the appropriate environment.

Computerized databases store information gathered from the physical world, giving these

records the permanence, malleability, and portability that have been synonymous with

information technology (Cagaoan, Buenaobra, Martin, & Paurillo, 2014).

Synthesis

The articles used in the study agree that SMEs under e-commerce have advantages

and disadvantages in terms of their financial performance. More businesses are now

adapting to the new normal of marketing and realize that it benefits both SMEs and new

companies. Businesses took many benefits from operating their business online. While

22
there are mostly cost advantages to the companies, technical difficulties, data

management, and publicity could affect their financial performance. Establishing the

brand online, promoting, and advertising the goods and services to encourage the

consumers are just a part of obtaining sales. What makes it more complex is when it is

time to operate and transact with the customer. Arranging the orders and preparing them

could also be complicated as they will be processed online. There can be unforeseen

events that might affect the operation. If handled poorly, it will reflect on the brand's

reputation, reflect on the business, and leave a bad impression on the public. Especially

during this time, people prefer to shop online as it brings convenience, the more needed to

transact and process the orders carefully. With the studies presented, there are limiting

factors that should look carefully to understand the process of managing businesses in the

e-commerce industry. 

Studies have shown that online platforms play a vital role in increasing the

performance of businesses. Social media has a significant role in influencing the financial

performance of businesses, particularly in sales performance. Small and medium

enterprises threatened to maintain their sustainability during the pandemic; using the

online platform, they created a strategic plan wherein they established a quality

relationship between the business and consumers that would positively influence cost

reduction. In addition, SMEs can use social media as a driving force to raise brand

awareness, reach out to potential customers, and sell their businesses from various

perspectives at a reasonable cost.

23
 CHAPTER 3

RESEARCH METHODOLOGY

This chapter describes the research methodologies used in the study. It contains

information on the participants, such as the criteria for inclusion in the research, who the

participants were, and how they were chosen. Furthermore, it presents the research

design, research instrument, data gathering procedure, and hypothesis testing.

Research Design

The present study is descriptive in nature for it to describe the factors influencing

the financial performance of small and medium enterprises in the e-commerce industry.

The descriptive research design allows to provide insights and determine to what extent

the relationship of those factors affects the financial performance of the SMEs in the e-

commerce industry. 

Population and Sample 

The study's population will be composed of owners or managers of small and

medium enterprises wherein the business enters the e-commerce industry. Due to the lack

of data available to know the specific population of businesses that operate under the e-

commerce industry, the researchers will use the convenience sampling method to identify

the chosen respondents in this study. It is a method of relying on the population data that

are conveniently available to participate in the current study. The researchers have come

up with 30 business owners as respondents who are currently available without the actual

use of actual data as their population.

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Data gathering and Statistical Analysis 

The researchers will provide a letter to the respondents to survey the small and

medium enterprises in the e-commerce industry which would be composed of those

businesses who offer their products or services on the available websites or platforms

with a history of managing the business with a minimum of 1 year operating online. The

survey questionnaire will be distributed via Google forms, given the present situation.

And before they fill out the survey forms, the respondents will be informed that all the

data collected will be handled confidentially under the policy governed by the Data

Privacy Act of 2012. After gathering the data collected, the researchers and the

statistician will analyze and tally the results and perform the hypotheses testing.

Hypotheses Testing

QUESTIONNAIRE

25
Good Day! We are Grade 10 students at Lim -ao National High School that are currently
conducting a research study. A researcher would like to ask for a few minutes of your
time to participate in this survey. And rest assured that all information collected from the
participants would not be used for any other purpose aside from completing the study and
will be kept confidential under the Data Privacy Act of 2012.  This study aims to
determine the factors influencing the financial performance of the Small and Medium
Enterprises under the E-commerce industry. 

Name(optional):
Name of the business (optional)
Type of the business (e.g. clothing, cosmetics, etc.):
Number of years being engaged in the e-commerce industry:
Type of Enterprises: ( ) Small ( ) Medium

Instructions: Below are questions that are related to each factor influencing the financial
performance of SMEs in the e-commerce industry. Put a check that corresponds to how
these factors affect their financial performance.  Your responses will be beneficial to the
researchers in this study.

Scale: 1 – Strongly Agree 2 – Agree 3 – Disagree 4 – Strongly Disagree

1 2 3 4

Transaction:
 Service performance to attain
quota or goals.
 Sales performance on quota or
goals.
 A high volume of transactions to
approved orders.
 Transactions through online
platforms increase sales growth.

Data Security: to maintain the privacy

and confidentiality of information.
 Performing data security system
checks will enable the business to
operate at ease and will lessen the
worry on the daily operation to
continuously attain sales.

 Having or deploying trustworthy

personnel to perform security
checks.
 High security to ensure the data

26
 on the system will not be
corrupted or stolen.
Product and Service: to provide
quality products and services.
 Quality types of equipment are
used to ensure the product is
made safely.
 Quality ingredients or material
used.
 Provide customer-friendly space
for the customers.
 The appearance of physical
facilities (if applicable).

Customer Feedback:
 Customer satisfaction with
excellent feedback or a 5-star
rating can attract potential
customers, leading the sales
performance to rise.
 Customer feedback with
dissatisfaction affects the
branding identity that leads to
revenue
 Customer feedback with
recommendations for further
improvement helps the enterprise
to come up with a strategy to
serve better and increase their
sales performance. 
 Customer service representatives
accommodate the potential
customer with their concerns that
may lead them to buy the
product/service that results in
sales.

Fraudulent acts: occurs in the daily

performance of the business.
 Fraud orders by the customers
will affect the daily performance
including the inventory count and
the ability to obtain sales on the
product.
 Fraud on supplier or manufacturer
will affect the financial

27
 performance as they are the one
who supplies products/services
needed to be offered to the
consumers.

Misinformation: the aspects that will

affect the financial performance
 Lack of formalities and improper
use of words.
 Negative impressions of the
customers may affect the potential
growth of sales.
 Publications of business with
reliable information for
promotional activities help to
boost sales performance.
 Verified account or links used in
posting helps the public to
recognize and will generate
revenue,


1 2 3 4

Dealing with the influence of the

factors:
 Customer feedback is essential for
service improvement.
 Fraudulent acts lead to waste of
inventory and efforts that affects
the daily operation.
 With misinformation, it is
necessary to inform the customers
about the matter to help them
clarify the point of the issue.
 In the presence of data security
issues, it is required to have
backup security options to prevent
data losses.
 The e-commerce platform has a
feedback section where the
potential customer can see the
feedback of the previous
customers on how good the
product and service are.

28
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