Information Systems Journal - 2017 - Li - Digital Transformation by SME Entrepreneurs A Capability Perspective

Received: 4 February 2016 Revised: 1 March 2017 Accepted: 19 May 2017
DOI: 10.1111/isj.12153
SPECIAL ISSUE PAPER
Digital transformation by SME entrepreneurs: A

capability perspective
Liang Li1 | Fang Su2 | Wei Zhang3 | Ji‐Ye Mao4
1
School of Information Technology and
Management, University of International Abstract
Business and Economics, No. 10, Huixin This research investigates how entrepreneurs of small and medium
Dongjie, Chaoyang District, Beijing 100029, enterprises (SMEs) with inadequate capabilities and limited
China
2
resources drove digital transformation in their companies, a phe-
Management School, Jinan University, No.
nomenon that remains under‐researched in the extant literature.
601, Huangpu Avenue West, Tianhe District,
Guangzhou, Guangdong 510632, China We conduct qualitative research on digital transformation to
3
College of Management, University of cross‐border e‐commerce undergone by 7 SMEs on the Alibaba dig-
Massachusetts Boston, 100 Morrissey Blvd, ital platform. We inductively derive a process model that aims to
Boston, MA 02215, USA
describe and explain how SME entrepreneurs, with support from
4
Renmin University of China, School of
the digital platform service provider, drive digital transformation
Business, 59 Zhongguancun Street, Beijing
100872, China through managerial cognition renewal, managerial social capital
Correspondence development, business team building, and organizational capability
Wei Zhang, Boston College of Management, building. This model expands our understanding of both digital
University of Massachusetts, 100 Morrissey
entrepreneurship and digital transformation. It also presents new
Blvd, Boston, MA 02215, USA.
Email: wei.zhang@umb.edu insights into how digital platform service providers can help SMEs
Funding information transform and compete.
National Natural Science Foundation of China,
Grant/Award Number: 71402027 and KEYWORDS
71320107005; Beijing Social Science Fund,
Grant/Award Number: 16YJC058; China digital entrepreneurship, digital platform, digital transformation,
Postdoctoral Science Foundation, Grant/ dynamic managerial capabilities, organizational capabilities, process
Award Number: 2016M590762; Planning model
Projects of Philosophy and Social Science of
Guangdong, Grant/Award Number:
GD15YGL04; Planning Projects of Philosophy
and Social Science of Hangzhou, Grant/Award
Number: 2016JD27; Fundamental Research
Funds for the Central Universities in UIBE,
Grant/Award Number: 15YQ03; AliResearch,
Grant/Award Number: Open Research 2015
1 | I N T RO DU CT I O N
As information technologies (IT) have become “one of the threads from which the fabric of organization is now
woven” (Zammuto, Griffith, Majchrzak, Dougherty, & Faraj, 2007, p. 750), the role IT can play in organizational trans-
formation has drawn much research effort (e.g., Ash & Burn, 2003; Besson & Rowe, 2012; Daniel & Wilson, 2003;
Lucas, Agarwal, Clemons, El Sawy, & Weber, 2013; Pan, Pan, & Devadoss, 2008). Earlier research focused more on
Info Systems J. 2018;28:1129–1157. wileyonlinelibrary.com/journal/isj © 2017 John Wiley & Sons Ltd 1129
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1130 LI ET AL.
enterprise‐wide IT projects, such as Enterprise Resource Planning and Customer Relationship Management, examin-
ing how they precipitated organizational transformations (e.g., Ash & Burn, 2003; Boersma & Kingma, 2005; Sarker &
Lee, 1999). More recently, with the ever‐expanding and ever‐deepening reach of the Internet, we are seeing height-
ened research interest in the emergence of new business changes enabled by e‐commerce (e.g., Berman, 2012;
Chatterjee, Grewal, & Sambamurthy, 2002; Chen, Pan, & Ouyang, 2014; Cui & Pan, 2015).
In this study, we define digital transformation as transformation “precipitated by a transformational informa-
tion technology” (Lucas et al., 2013, p. 372). Such transformation involves fundamental changes in business pro-
cesses (Venkatraman, 1994), operational routines (Chen et al., 2014), and organizational capabilities (Tan, Pan,
Lu, & Huang, 2015), as well as entering new markets or exiting current markets (Dehning, Richardson, & Zmud,
2003). Although organizational transformation, in general, entails changes in strategy, structure, and power distri-
bution domains (Romanelli & Tushman, 1994), digital transformation highlights the impact of IT on organizational
structure, routines, information flow (Dehning et al., 2003; Orlikowski, 1996), and organizational capabilities to
accommodate and adapt to IT (Cui & Pan, 2015; Zhu, 2004). In this sense, digital transformation emphasizes more
the technological root of IT (Lucas et al., 2013) and the alignment between IT and businesses (Venkatraman,
1994).
Despite the heightened research interests and increased research efforts in this area in recent years, there
still exist many gaps in our understanding of IT‐enabled organizational transformation, especially of digital trans-
formations instigated by e‐commerce and other Internet‐related technologies (Besson & Rowe, 2012). One of
the gaps concerns the role played by governing agencies (Besson & Rowe, 2012): Although the literature gener-
ally acknowledges that a governing agency plays an important role in digital transformation, exactly how it exerts
its influence remains unclear. Another gap concerns the potential role played by digital architectures and their
service providers during the digital transformation (Besson & Rowe, 2012). Much previous research on digital
transformation was conducted in the pre‐Internet era and, thus, did not have the opportunity to address this
gap. Now that we know digital platforms and their service providers play an important role in shaping the eco-
systems in which companies compete and how they compete, it is imperative that we explore how they affect
digital transformations as well.
These theoretical gaps became even more glaring as we observed the improbable success of digital transforma-
tions to cross‐border e‐commerce (CBEC) by a group of small and medium enterprises (SMEs) in China. With CBEC,
the SMEs attempt to sell online to customers located in different countries governed by different jurisdictions.
Compared to domestic e‐commerce, CBEC imposes some unique, daunting challenges on SMEs, ranging from lan-
guage barriers (Lynch & Beck, 2001) and cultural differences (Sinkovics, Yamin, & Hossinger, 2007) to operational
complications such as international shipping, customs clearance, and tax compliance (Kim, Dekker, & Heij, 2017).
Intuitively, overcoming these challenges will require SMEs to acquire various capabilities in areas such as foreign
language proficiency, cross‐culture awareness, and familiarities with foreign law and regulations as well as interna-
tional operations. The odds were stacked against them: The entrepreneurs of these SMEs—the founders and
owners, and often the top managers—had little experience in foreign trade and/or e‐commerce before the transfor-
mation. They were generally poorly educated, and some “could not even recite all the 26 letters in the English
alphabet.” The resources available to them were limited, and the competition they faced was fierce. Nevertheless,
they successfully drove the digital transformations of their companies, piggybacking on the growing popularity of a
third‐party digital platform and transforming themselves to selling internationally online.
Fascinated by what we observed, we initialized a qualitative study to understand how it happened. Our
research question concerns how SME entrepreneurs with inadequate capabilities and limited resources drove their
drastic transformation to CBEC. Our analysis shows that with support from their digital platform service provider,
the SME entrepreneurs were able to do so through upgrading both their own managerial capabilities and their
companies' organizational capabilities in CBEC. The findings of this study expand our understanding of both digital
transformation and digital entrepreneurship. They also lead to new insights into how third‐party digital platform
service providers can help SMEs transform and compete.
LI ET AL. 1131
2 | T HE O R E T I CA L BA C K G RO U N D
2.1 | Digital transformation by SMEs

Digital transformation has received much research efforts over the last 2 decades (Besson & Rowe, 2012; Cha,
Hwang, & Gregor, 2015). The extant literature has discussed digital transformation in terms of its enablers (Chatterjee
et al., 2002; Jarvenpaa & Ives, 1991), required resources and capabilities (Cha et al., 2015; Daniel & Wilson, 2003),
transformation processes and modes (Kim, Pan, & Pan, 2007; Tan & Pan, 2003), and benefits (Ash & Burn, 2003; Lucas
et al., 2013). Transformational IT evolved over the decades. Earlier, companies were mostly concerned about
deploying internal management information systems such as Enterprise Resource Planning or Customer Relationship
Management (Boersma & Kingma, 2005). The transformations they introduced were primarily limited to improve-
ments to business processes within organizational boundaries in areas such as efficiency improvement, cost reduction,
and business process optimization (Ash & Burn, 2003; Kauffman & Walden, 2001). In recent years, cross‐boundary
technologies such as e‐commerce and social media have been quickly and widely adopted by companies. The trans-
formations driven by such externally oriented IT (Besson & Rowe, 2012) go far beyond changes to internal business
processes; they include drastic changes to business models (Berman, 2012), organizational strategy and culture (Cui &
Pan, 2015; Zeng, Chen, & Huang, 2008), and business alliance building (Ash & Burn, 2003; Chatterjee et al., 2002).
Riding on the recent surge in interest in externally oriented IT, our study investigates digital transformation
enabled by e‐commerce. E‐commerce is a disruptive technology (Johnson, 2010) that entails extensive changes to
an organization's routines, business processes, capabilities, markets, and culture (Cui & Pan, 2015; Zeng et al.,
2008). Large companies can develop and deploy their own digital platforms. Equipped with abundant resources and
capabilities, they can orchestrate internal resources to develop critical capabilities that allow them to overcome orga-
nizational inertia and resistance to changes (Chen et al., 2014; Cui & Pan, 2015). Most SMEs, however, have to rely on
third‐party digital platforms (Banerjee & Ma, 2012).
Although this phenomenon has drawn research over the last a few years, much research on SMEs' use of third‐
party digital platforms has tended to focus on specific technological functionalities offered by the platforms, investi-
gating the effectiveness of specific tools such as online communication tools and transaction processing in helping
SMEs better understand their customers and process orders (e.g., Alba et al., 1997; Bakos, 1991; Dai & Kauffman,
2002). However, as Besson and Rowe (2012) noted, digital transformation is more a managerial issue than a technical
one: Successful digital transformation demands not only acquiring and deploying technical resources but also—perhaps
even more importantly—tackling managerial issues (Doherty & King, 2005) such as redesigning business processes and
training (Markus, 2004) and investing in e‐Commerce human resources and organizational capabilities (Cha et al.,
2015). However, little research has explored how SMEs tackle managerial issues in digital transformation using
third‐party digital platforms.
Moreover, it has long been recognized that top management plays an important role in IT‐induced organizational
changes such as digital transformation (Jarvenpaa & Ives, 1991). In particular, top management's understanding of
e‐commerce and belief in its potential benefits is key to successful adoption and implementation of e‐commerce (Beige
& Abdi, 2015; Chong, Bian, & Zhang, 2016; Johnson, 2010). Nevertheless, many SME entrepreneurs are not knowl-
edgeable about IT and/or e‐commerce. Limited by their own experience and past success, they are not easily convinced
of the value of e‐commerce, nor are they ready to proactively engage e‐commerce (Santarelli & D'Altri, 2003). Such
cognitive inertia (Messner & Vosgerau, 2010) by SME entrepreneurs can be a difficult hurdle to clear when they are
forced to compete in the online arena. So far, researchers have barely studied how SME entrepreneurs can overcome
their cognitive bias and successfully lead the digital transformation. We intend to fill this gap with the current study.
2.2 | Capability perspective on digital transformation

Whereas capabilities can be analysed at different levels, the managerial capabilities of SME entrepreneurs and the
organizational capabilities of SMEs are particularly relevant for this study.
1132 LI ET AL.
2.2.1 | Dynamic managerial capabilities

The theory of dynamic managerial capabilities (DMC) provides a useful theoretical lens through which we can under-
stand digital transformation in SMEs. DMC refers to “the capabilities with which managers build, integrate, and recon-
figure organizational resources and competences” (Adner & Helfat, 2003, p. 1012). DMC's focus on managers'
capabilities is especially appealing to this study because, after all, it is the SME entrepreneurs who drive their organi-
zations' digital transformation, and their capabilities are key to their successes.
Previous research has suggested that DMC is built on three core underpinnings: managerial cognition, managerial
social capital, and managerial human capital (Helfat & Martin, 2015). Managerial cognition refers to managers' per-
sonal beliefs and mental models for decision‐making (Adner & Helfat, 2003). It includes managers' knowledge and
understanding of current events and predictions of future developments, which underlie their decision‐making (March
& Simon, 1958). It is also the framework that guides managers' acquisition of new information and knowledge (Cook &
Brown, 1999). Thus, managerial cognition affects managers' sense of market changes and their subsequent adapta-
tions to these changes. Managers with inert managerial cognition will fail to recognize the changes and update their
managerial cognition, which could in turn obstruct their organizations' efforts to transform (Helfat & Martin, 2015).
Managerial social capital consists of “formal and informal relationships that managers have with others” (Helfat &
Martin, 2015, p. 1286). Managerial social capital can help managers obtain diverse resources and information (Tsai &
Ghoshal, 1998), allowing them to better sense market opportunities and challenges (Adler & Kwon, 2002; Burt, 1992)
and push for the reconfiguration of organizational resources (Helfat & Martin, 2015). In this sense, managerial social
capital can facilitate digital transformation.
Managerial human capital includes the knowledge, experience, skills, and education (Helfat & Martin, 2015) of
both individual managers and teams of managers (Martin, 2011). Different managers with different background in
terms of knowledge, experience, and skills will respond differently in acquiring information, recognizing opportunities,
and reconfiguring resources (Helfat & Martin, 2015). A diversified team of managers with complementary knowledge,
experience, and skills are more likely to succeed in recognizing and seizing opportunities (Kickul & Gundry, 2001;
Wright, Coff, & Moliterno, 2014) and reconfiguring organizational resource, capabilities, and structure (Helfat &
Martin, 2015), facilitating digital transformation.
Therefore, superior DMC facilitate successful strategic changes—such as digital transformations in our research
context—and, subsequently, improved business performance (Helfat & Martin, 2015). Theoretically, organizations
can promote digital transformation through building the DMC of their top management. Top managers who can keep
their managerial cognition dynamic and up to date are more likely to believe in the potential value of new technologies
and support their implementation, which is key to digital transformation (Chatterjee et al., 2002). A top management
team with sufficient social and human capital is more likely to sense and seize market opportunities and use them to
motivate and initiate strategic changes such as digital transformation. Thus, DMC could be a useful theoretical lens for
this study.
2.2.2 | Organizational capabilities

Organizational capability is defined as the capacity by which an organization “perform(s) a particular activity in a reli-
able and at least minimally satisfactory manner” (Helfat & Winter, 2011, p. 1244). The overarching concept of orga-
nizational capabilities embraces a collection of more specific capabilities that matter to different organizations
under different circumstances. For example, companies competing in fast‐changing, dynamic markets need to have
superior market‐sensing capability (Teece, 2012); companies must build up their research and development (R&D)
capabilities to gain competitive advantages in hi‐tech industries (Eisenhardt & Martin, 2000); and channel manage-
ment capabilities are vital to traditional retail companies (Chopra & Sodhi, 2004).
Engaging in new businesses or competing in new markets after organizational transformation usually requires
organizations to cultivate new capabilities. Past research in IT‐induced organizational transformations suggests that
companies need to build not only IT capabilities but also complementary capabilities such as IT human resource
LI ET AL. 1133
capability or new service delivery capabilities to fully take advantage of IT (Aral & Weill, 2007; Singh, Mathiassen,
Stachura, & Astapova, 2011). Similarly, successful digital transformations require companies to cultivate new organi-
zational capabilities to survive and prosper. To our best knowledge, no previous research has attempted to identify
the specific CBEC capabilities necessary for SMEs to succeed in CBEC, let alone the cultivation and development
of such capabilities.
3 | RESEARCH METHODS
We employed a qualitative study for this research. Because our study concerns how SME entrepreneurs with inade-
quate capabilities and limited resources can drive SMEs to successful digital transformation using third‐party digital
platforms, a qualitative approach was appropriate for answering the question of how as well as exploring the why
underlying the observed phenomena (Yin, 2008).
3.1 | Research setting and case selection

We collected data from SMEs that used Alibaba as the platform for CBEC. In China, CBEC turnover enjoyed rapid
growth, averaging a yearly growth rate of approximately 30% from 2008 to 2015 and reaching approximately US
$750 billion in 2015. In 2016, Chinese CBEC turnover was estimated to reach approximately US$950 trillion (Interna-
tional Trade Centre, 2016). As one of the largest e‐commerce companies in the world, Alibaba is the world's largest
online business‐to‐business (B2B), trading platform for SMEs, and it claims to be the “leading platform for global trade.”
We employed purposeful sampling (Kumar, Stern, & Anderson, 1993) of all key informants who had insights into
the digital transformation in seven SMEs that had used the Alibaba platform to successfully transform themselves into
CBEC. The SMEs were from different cities and different industries. They initialized the transformation out of differ-
ent motivations. Some had experience in traditional foreign trade, whereas others had never sold to international cli-
ents. Table 1 summarizes the research sites.
3.2 | Data collection

We used semistructured interviews, focus‐group interviews, and field observations to collect data. For each SME, we
interviewed the president and/or CEO or the senior managers who were in charge of the CBEC. When possible and
appropriate, we also interviewed employees of the SMEs and their account managers from Alibaba. The three SMEs in
the artificial gem industry were located in the same building where the city Chamber of Net Commerce (CNC) was
located. The three SMEs were all members of the CNC. Because all three SMEs mentioned that the CNC played an
important role in their transformations, we organized a focus‐group interview with the president and vice presidents
of the CNC and interviewed two of the vice presidents to understand more of the artificial gem industry, the back-
ground of the three SMEs' transformations, and the role CNC played in the transformations. Table 2 summarizes
the interviews conducted for this study.
At each interview, one member from the research team followed a semistructured interview template; the other
members raised related questions aimed at exploring incidental findings. The interviews involved questions on topics
such as the history of the SMEs, the timeline and milestones of using the Alibaba platform, familiarization with and usage
of the platform, and the organizational changes brought by using the platform. Interviewers encouraged free reporting,
and there was no forced answer if the informants had no recollection. All interviews were recorded and later tran-
scribed. In total, we recorded approximately 24 hr of interviews, which were transcribed into more than 380,000 words.
We also managed to visit the SMEs' manufacturing sites and/or to observe how their CBEC teams work, spending
approximately 4 hr in each SME. In addition, we had numerous opportunities to interact informally with the inter-
viewees (e.g., riding or dining together). We took advantage of the site visits and the informal interactions to learn
more about the details we observed and the growth and transformations of the SMEs.
1134 LI ET AL.
TABLE 1 Overview of research sites

a
Firm City Products Brief descriptions of digital transformations under study
Outdoor HZ Outdoor products Outdoor was founded in 2007. It started using Alibaba in 2009 but did not quite
commit to it. In 2013, Outdoor started to invest more funds and efforts in using
the Alibaba platform, and business started to grow rapidly. The company
employed 16 and the revenue reached US$5M in 2015.
Bathware HZ Bathroom Bathware was founded in 2006. Before 2010, it only sold to domestic customers. In
products 2010, it started to use the Alibaba platform. By 2015, 95% of its businesses were
CBEC.
Gem1 WZ Artificial gems When Gem1 started, it sold exclusively to domestic customers. In 2009, it started
using Alibaba but still sold only to domestic customers. In 2013, it began selling
primarily to CBEC on Alibaba.
Gem2 WZ Artificial gems Gem2 started exploring B2B e‐commerce on the Alibaba platform in 2008. By the
time of this study, all of its business was CBEC on the Alibaba platform.
Gem3 WZ Artificial gems Gem3 started to transform to CBEC in 2013. At the time of this study, half of the
business came from CBEC.
Drinkware HZ Bottles, mugs, Drinkware was founded in 2005. It was a traditional exporter selling OEM products
lunch boxes to European and US clients met through Canton Fair (the largest and longest‐
running international trade fair in China). By 2014, its revenue had sputtered
around US$36M for a few years. In 2015, it started exploring CBEC on Alibaba.
Although the results were not final yet, it seemed that CBEC could offer the
opportunity to break through the growth bottleneck.
Hanger GL Clothes hangers Hanger was founded in 1988. When they started to sell to foreign clients, they
engaged clients mainly using mail, fax, and telephones. Later, they went to trade
fairs both inside and outside China to acquire new clients. Now, they primarily sell
through CBEC using social media to stay close to customers.
Note. HZ = Hangzhou, Zhejiang province; WZ = Wuzhou, Guangxi province; GL = Guilin, Guangxi province; CBEC = cross‐
border e‐commerce; OEM = Original Equipment Manufacturer.
a
All names of organizations and individuals are pseudonyms.
3.3 | Data analysis

We began our data analyses with thick descriptions of our cases. We described the digital transformations in all seven
SMEs in terms of the background before the transformation, the adoption and use of CBEC, the growth after the
transformation, and future growth plans. The descriptions were reported back to Alibaba and the SMEs to ensure cor-
rect understanding of the digital transformations by the research team.
We adopted the Gioia method (2013) for data analysis. This method was inductive in nature and allowed
researchers to iterate between data and theories. Three data analysis steps were undertaken.
TABLE 2 Overview of interviews

Firm Internal informants External informants
Outdoor CEO None

Bathware CEO, Business Manager, employee Senior Account Manager (Alibaba)
Gem 1 President (twice) Focus‐group interview with eight senior members of the CNC
Vice presidents of the CNC (2)
Gem 2 President, employee (3)
Gem 3 CEO
Drinkware Vice President Senior Account Manager (Alibaba)
Hanger Sales Director, Marketing Director None
Total interviews: 14 Total interviews: 4
Total focus‐group interview: 1
Note. CNC = Chamber of Net Commerce.

LI ET AL. 1135
Step 1. We attempted to identify how informants understand digital transformation in their companies through
first‐order analysis. This analysis is similar to Strauss and Corbin's (1998) notion of open coding (Gioia, Corley, & Ham-
ilton, 2013). The research team repeatedly read the interview transcripts to capture the informants' meanings. During
this process, one member of the research team conducted in vivo coding and compiled the initial coding table. The
coding was double‐checked by other members of the research teams. All disagreements were resolved through dis-
cussions until consensus was reached. We thus derived a set of first‐order concepts that represented informants'
views of what was going on in each case setting (Van Maanen, 1979).
Step 2. Through the second‐order analysis, we endeavoured to find theoretical interpretations for the first‐
order concepts derived in Step 1. The research team shifted back and forth between the derived concepts, the
themes emerging from the concepts, and extant literature on digital transformation for theories that could help
us better understand the concepts and themes. Step 2 is iterative in nature. We engaged in repeated comparison
and contrast of the first‐order concepts, looking for both similarities between the first‐order concepts and dif-
ferences. We made conscious efforts to identify theoretical differences between the concepts so that we could
group and congregate similar first‐order concepts to allow second‐order themes to emerge. Consequently, these
second‐order themes became the notions we used to “explain the patterning of the first‐order data” (Van
Maanen, 1979, p. 541).
As the second‐order themes emerged and we gained a better understanding of both the digital transformations
under study and the relevant literature in digital transformation, we began to see if we could distil the second‐order
themes into aggregate dimensions. As Gioia et al. (2013) noted, this is when our research transited from being induc-
tive to being abductive in that “data and existing theory are now considered in tandem” (p. 21). For the purpose of our
study, we were open to using concepts identified in previous research to summarize the second‐order themes and
aggregate dimensions, a practice also embraced by Pan and Tan (2011). It was in this effort that we discovered that
the second‐order themes emerging from this study could be further categorized into aggregate dimensions related
to the development of the entrepreneurs' DMC and the SMEs' organizational CBEC capabilities. Hence, the capability
perspective emerged as the focal category of our theory.
The data structure presented in Figure 1 summarizes the first‐order concepts, second‐order themes, and aggre-
gate dimensions we derived from Steps 1 and 2. Table A1 provides more information on representative quotations
for the first‐order concepts and second‐order themes.
Step 3. Although the data structure presented in Figure 1 provided us with a basis on which to understand digital
transformation, it is nevertheless static in nature (Gioia et al., 2013). To answer our research question, we need a pro-
cess theory to account for the dynamic phenomenon. This requires us to address how digital transformation evolves
in the SMEs over time and why the evolution path (Gioia et al., 2013; Langley, 1999). Thus, in Step 3, we build a pro-
cess model on the dynamic interrelationships between the second‐order themes and aggregate dimensions. With the
process model, we hope to create a comprehensive storyline that can help us make sense of the digital transforma-
tions we observed.
4 | FINDINGS
4.1 | Initial conditions of digital transformation

The SMEs we studied were experienced in the traditional way of doing businesses, but CBEC was far more compli-
cated than simply adopting the Alibaba platform. The entrepreneurs were not quite prepared to transit to CBEC,
and the SMEs all had a difficult time using the Alibaba platform when they started.
Most entrepreneurs in the seven SMEs were not well educated. Nor did they have much experience in e‐
commerce. The president of Gem2 mentioned that he “could not even recite all the 26 letters in the English alphabet.”
They paid a substantial amount for the platform, but the benefits did not quite meet their expectations. To some
1136 LI ET AL.
FIGURE 1 Data structure. CBEC = cross‐border e‐commerce; CNC = Chamber of Net Commerce; SME = small and
medium enterprise
entrepreneurs, the goal was simple initially: They just wanted a web presence. They were using the platform in the same
way as a web portal, content with presenting their companies and products online. In the words of the CEO of Outdoor,
At the beginning, we didn't really invest in e‐Commerce. … My thoughts were simple: Just to make sure that
when foreign customers search for “outdoor products companies around Hangzhou,” they could find our
official website. To put it differently, at least customers can find us and know that we are still up and
running, right? So we were spending RMB¥19,800 (about US$3,000) or ¥29,800 (about US$4,500) …
similar to paying for an ad … just to show that we exist.
Moreover, some entrepreneurs assumed that e‐commerce was just doing what they used to do offline but now
online, appointing a few employees to sell on the Alibaba platform in the same old way they sold before. The CEO
of Gem3 admitted,
I thought that since we already paid Alibaba to open a storefront on its platform, we only needed to post
the products online. The orders would come. We didn't realize that we need to find orders, to fight for
orders. Alibaba won't give us any orders.
4.2 | Managerial cognition renewal

Faced with the challenges at the early stage of the digital transformation, the entrepreneurs were able to break away
from old cognitions and mental models and change the old way of thinking. Such managerial cognition renewal was
primarily enacted through the iterations of and interactions between (a) learning: The entrepreneurs would participate
LI ET AL. 1137
in the training programmes organized by Alibaba, learning from Alibaba and benchmarking companies that exceled in
CBEC; and (b) reflecting: the entrepreneurs would reflect on their roles as the leader of their company, the new ways
to manage CBEC, and the new playbook for CBEC.
4.2.1 | Learning from benchmarking practices

As a platform service provider, Alibaba understood that the challenges faced by numerous SMEs in initializing CBEC
could be attributed to the out‐of‐date managerial cognitions of the entrepreneurs: Their mindsets had not adapted to
CBEC yet. To help these entrepreneurs, Alibaba organized a series of executive training programmes that offered
them opportunities to learn and to share. Almost all entrepreneurs we interviewed mentioned Orange Success Camps
and Dream Trips. The Orange Success Camps referred to events held at the Alibaba headquarters. Some of the camps
focused on learning: Alibaba would invite CBEC experts to teach and explain the concept of CBEC. Others were
more social in nature, providing an opportunity for attending entrepreneurs to share with each other. The Dream
Trips were field trips led by Alibaba to visit companies that excelled in CBEC. In these trips, entrepreneurs would
study the best practices, research their business models, and search for the solutions that could work for their
own companies.
From participating in these events, the entrepreneurs recognized the yawning gap between where they were and
where they needed to be. In our interviews, the entrepreneurs used words such as pilgrimage, a new and different
world, shocking, huge impact, and epiphany to describe their own sensations during their first Dream Trips. The CEO
of the Gem3 explained,
It is after these visits that I realized what we need to do to make money with CBEC. It is totally different
from what I imagined. It is safe to say that before then I had no idea how CBEC should be done. I had
been doing it according to my imagination, but I was totally wrong.
4.2.2 | Reflecting on innovative managerial issues

Inspired by what they learned, the entrepreneurs reflected on their roles as the leader of their company, the new ways
to manage CBEC, and the new playbook for CBEC.
First, the entrepreneurs reflected on their roles as the leader of their company. Some of the SMEs grew from
mom‐and‐pop shops. Internally, the entrepreneurs were stakeholders and bosses. Externally, they were sales and
staff. The hands‐on approach they took to running their businesses made them well aware of their companies and
their customers. However, as their businesses flourished and survival became no longer a concern, the entrepreneurs
began to ponder over how to achieve sustainable growth, especially after they attended Alibaba's executive trainings.
As the CEO of Outdoor explained, she began to realize that she needed to focus on being a boss. A boss should focus
on strategy, not tactics, as “one cannot cover laziness in strategy with diligence in tactics.” She delegated all the rou-
tine work at her hands to her employees and repositioned herself as a head coach who trains her employees for daily
operations and only helps them when problems arise.
Second, the entrepreneurs reflected on the new ways necessary to manage CBEC, especially in creating the right
organizational culture. The CEO of Gem3 was surprised to find that there indeed existed a generation gap between
himself, born in the 1970s, and the CBEC employees, who were typically born in 1990s. The younger generation
was not as financially pressured and cared less about compensation. They were more concerned about work condi-
tions and organizational atmosphere and made it a priority whether the company would regularly organize parties,
karaoke, and other team activities. The CEO of Outdoor used to wonder “why we need organizational culture. Can
we use it to feed employees? Can we use it to acquire orders?” After the training events and field trips, she realized
that even a one‐man company needed an organizational culture, vision, and goal so that it can have a direction for
future efforts.
1138 LI ET AL.
Finally, the entrepreneurs reflected on the new playbook for CBEC. After trained by Alibaba, the entrepreneurs
learned first‐hand how benchmark companies engage in CBEC practices, which led them to reflect on CBEC as a
new enterprise. For example, to acquire an order online, the salesperson needed to attract customer inquiries, which
entails screening the right keywords for the products and preparing great product images. The CEO of Gem3
explained,
At the very beginning, we didn't even have the right gear. We used DV cameras. I thought that would be
good enough. But it didn't work. Later, I bought a professional camera just to shoot products. That
camera cost me RMB¥16 or 17 thousand (about US$25 or 26 hundred). One lens cost another a few
thousand. We also went out of the way just to learn how to shoot products and how to PS the photos
after shooting.
4.3 | Managerial social capital development

4.3.1 | Strengthening social networks
All SMEs we studied used the Alibaba platform for CBEC. Their reliance on the platform makes them part of the digital
ecosystem created by Alibaba (Tan et al., 2015). Being involved in the ecosystem in turn made it possible for them to
build managerial social capital within the system.
Many entrepreneurs were impressed by a saying preached by Alibaba in the training events, “One man can walk
fast, but a group can walk long.” The entrepreneurs were taught that as members of the Alibaba digital ecosystem,
companies not only compete with but also learn from and collaborate with each other. It was a common practice
for Alibaba to push companies in the same region to form a local CNC. In fact, the three SMEs in the artificial gem
industry were headquartered in the same building. Orchestrated by Alibaba, Gem1 and Gem2 spearheaded the efforts
to form the local CNC in 2010. By the time of the study, the local CNC had over 60 members, most of them in the
artificial gem industry. An important mission of the CNC was to help member companies secure resources that oth-
erwise would not be available to them individually. For example, the CNC worked with banks to identify member com-
panies with good credit to make it easier for them to secure loans; it rented one floor of an office building and then
offered the space to member companies at a discount; in 2015, the CNC signed contracts with third‐party logistic ser-
vice providers on behalf of all member companies to lower logistic costs for all.
The SME entrepreneurs also made efforts to maintain good relationships with Alibaba. The sales director at
Hanger revealed that they would often sit and socialize with Alibaba employees to learn about Alibaba's views on
the future development of the industry or even the whole economy. The entrepreneurs regularly attended events
hosted by Alibaba to both learn about and show their support for Alibaba's initiatives. Some who had benefited from
the training activities volunteered to share what they had learned in future events. In the words of the CEO of Gem3,
I participated in all the e‐Commerce events Alibaba organized. Last time, they hosted an e‐Commerce
vendor competition in Guangxi. I was one of the referees. … I would go to all the events that are related
to e‐Commerce. If they train the companies in e‐Commerce, I will go and share.
4.4 | Organizational CBEC capability building

We found that after entrepreneurs build up their DMC through renewing managerial cognition and developing man-
agerial social capital, they begin to promote organizational capabilities for CBEC, starting with building a strong CBEC
team. A competent CBEC team then helps the SME enhance both its platform utilization capabilities and its business
development capabilities to support its digital transformation.
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4.4.1 | Building CBEC business teams

The enhanced social capital created more CBEC opportunities. To seize the opportunities, SMEs needed to build a
competent CBEC business team. They did so through training, building organizational culture, and setting up and fill-
ing key CBEC positions.
The SMEs learned from Alibaba and benchmark companies the importance of employee training. Following these
examples, Outdoor hired a management consulting company to offer on‐site training for CBEC employees and to help
introduce a more sophisticated management system for CBEC.
The entrepreneurs also recognized the importance of knowledge sharing, both within and between companies.
Outdoor enforced review sessions at the end of each workday. Employees would formally share what they learned
from training and interactions with customers in PowerPoint presentations, and colleagues would comment and offer
feedback. Local CNC played an important role in facilitating sharing and learning across organizational boundaries. It
regularly invited companies with outstanding performance to share with other member companies their best prac-
tices. It arranged site visits to both local high‐performing member companies and benchmark companies in other cit-
ies. It was also active in hiring consulting companies to offer trainings to all member companies. Such trainings could
be prohibitively expensive to individual member companies.
From the field trips organized by Alibaba, the SMEs observed that many benchmark CBEC companies had
adopted an organizational culture in which the workplace is also a school for employees to learn and a family
for employees to bond. They began to embrace this model, investing in building and developing organizational
and team culture. The entrepreneurs tried to treat their employees more equally, like family members rather than
subordinates. They organized company outings to bring employees together. Old‐timers were asked to mentor
newcomers, teaching them patiently and showing them the way. These measures helped flatten the organizational
hierarchies, making it possible for the entrepreneurs to catch problems early and thus greatly improving organiza-
tional efficiency.
To further motivate CBEC teams, most of the SMEs introduced team competitions. Gem2 and Gem3 both divided
the CBEC employees into teams. The teams would compete with each other every day in areas such as product
uploading, answering customer inquiries, the quantity and quality of email contacts, and, eventually, monthly sales.
These competitions inspired employees to do the same thing differently, thus providing opportunities for them to
learn from each other and to develop themselves.
As the CBEC business and team grew, the need for CBEC managers grew. Some entrepreneurs aggressively pur-
sued CBEC talents. The CEO of Gem3 ran into a potential candidate at a marketing event organized by Alibaba. After
a long investigation and close watch, he eventually recruited a candidate to assume the position of Vice President (VP)
for CBEC and be responsible for CBEC team building and business development.
4.4.2 | Building platform utilization capabilities

As they built their CBEC teams, the SMEs also built their platform utilization capabilities. For the purpose of our
research, we define platform utilization capabilities as an organization's capacity to take advantage of technological
functionalities afforded by the platform and to adapt to their constant updating and changes. Such capabilities were
essential for successful digital transformation. They allowed the SMEs to better analyse data generated through the
platform to sense customer preferences and to use platform functionalities to stay close to customers. They also
enabled the SMEs to keep up with the constant changes to the services rendered and the rules made by the platform,
taking full advantage of what the platform offered.
CBEC bridged the temporal and geographical gaps between companies and their customers, bringing to the SMEs
much desired exposure to a much broader market. The expanded market required the SMEs to improve at sensing the
changes to the market and the customers. The Alibaba platform helped by making some data available to its users.
Some SMEs set up and filled special positions to help promote capabilities in analysing data available from Alibaba
and making sense of the market. At Gem2, an employee was appointed to analyse regional preferences for products
1140 LI ET AL.
using click data available from Alibaba. Every week, the CBEC crew would adjust recommendations to visitors from
different regions based on the analysis.
The platform had built in a series of rules to guide the employees and a set of tools to facilitate the employees in
responding to customers. For example, employees need to upload complete information for a product for it to be ranked
higher when searched. When a customer makes inquiries, the response must be prompt, or the company ratings will suf-
fer. There were also rules regulating how to quote, how to negotiate, and how to take orders. Alibaba even offered an
instant messenger app on smartphones for employees to stay in touch with customers, even out of regular work hours.
By asking their employees to follow the rules and using the tools, the SMEs effectively exerted more control on how the
employees should respond to customers, leading to faster and better responses to customers (Li & Mao, 2012).
From time to time, Alibaba would offer value‐added customer‐oriented services. Which services to adopt and
how to take full advantage of the services can differentiate a company from others. For example, Gem3 paid RMB
¥80,000 (about US$12,500) for the Assessed Supplier service so that they could pass the assessment and display
the Assessed Supplier logo on its page on Alibaba, believing it would make the company look more attractive to
potential customers than companies without the logo.
4.4.3 | Building business development capabilities

In addition to platform utilization capabilities, the companies also strived to cultivate their business development
capabilities. We define business development capabilities as an organization's capacities in acquiring resources or ser-
vices to advance its CBEC business, directly or indirectly, with help from third‐party digital platforms. More specifi-
cally, we identified three themes of building business development capabilities.
First, some value‐added services offered by Alibaba helped the SMEs overcome CBEC business barriers. For
example, Alibaba OneTouch was the international trade process outsourcing platform for SMEs. It provided SMEs
with services such as custom clearing, logistics, foreign exchange, tax services, and financing, greatly facilitating their
CBEC. In the words of the sales director at Hanger,
I was afraid that there were barriers to foreign trade – trade barriers, language barriers, and knowledge
barriers. When OneTouch became available, we didn't need to take care of all the files by ourselves any
more. OneTouch took care of everything and all!
The CEO of Gem3 also stated,
I will let OneTouch handle my orders. It solves so many problems for us. We don't need to worry about
customs, tax, and so many other problems. I don't care that we have to pay for it. We make less money,
but it is still better than doing that much work and assuming that much risk.
Second, as the SMEs grew more comfortable with CBEC and using the Alibaba platform, they began to expand
into other CBEC channels and explore new ways to acquire customers. Social media such as Facebook, Twitter,
and LinkedIn offered functionalities that were different but close enough to what the Alibaba platform offered. They
were increasingly used by the SMEs. The CEO of Outdoor revealed,
Some of our employees are getting really aggressive. They now find the CEOs of some companies on
LinkedIn and get in touch with them directly. Everybody is hopping on the social media wagon, opening
accounts and using them to contact customers.
Third and lastly, doing business online also brought changes to the traditional customer relationship management
and transformed how offline channels were viewed and used. Although the majority of the SMEs had transformed to
conduct business primarily online, they still used offline channels such as trade fairs. Yet they no longer went to the
fairs to acquire new customers or do business with old customers. Instead, they used the fairs more as an opportunity
to greet old customers and to maintain relationships with them. The VP of Drinkware explained,
LI ET AL. 1141
We now go to these fairs more to keep in touch with old customers … than to take new orders. … We now
believe the traditional trade fairs are becoming less and less important for acquiring new customers and
new orders.
We note here that the development of organizational CBEC capabilities helped the SMEs under study address
challenges to their transformation to CBEC. In CBEC team building, training and knowledge sharing helped team
members lower foreign language barriers (Lynch & Beck, 2001) and handle cross‐cultural conflicts (Sinkovics
et al., 2007) when communicating with international customers. Analysing data obtained from the Alibaba plat-
forms allowed CBEC business teams to understand their international customers better without having to interact
with them. Perhaps most importantly, utilizing the value‐added services relieved the SMEs of the headache of
having to deal with foreign trade tasks such as customs clearance, logistics, foreign exchange, and tax preparation
(Kim et al., 2017).
4.5 | Transformation and strategic changes

At the time of our study, most of the SMEs we studied had achieved initial results from their digital transformation, as
reflected in their transformation to CBEC and the planned exploration for further strategic changes.
4.5.1 | Transforming towards CBEC

Six of the seven SMEs had successfully transformed to CBEC, except for Drinkware, which was still in the first year of
its transformation. However, the initial results for Drinkware were encouraging, and it appeared that CBEC would
help them break through the growth bottleneck. Digital transformations led to two fundamental changes: Their ways
of doing business had moved from offline to online, and their target market had switched from domestic to interna-
tional markets. Some of the SMEs had completely switched to overseas markets, which was an important sign of dig-
ital transformation (Lucas et al., 2013). Even for SMEs that started by selling offline, the offline channels were
primarily used for maintaining relationships with customers, and “almost all of them (new customers) came from the
Alibaba platform (CEO, Outdoor).”
4.5.2 | Exploring future strategic change enabled by CBEC

Encouraged by the initial transformation successes, the SMEs proactively explored future strategic changes and con-
tinuous transformation in the following directions.
For SMEs that sold OEM products to foreign dealers, the acceptance of their products in international markets
gave them confidence in the competiveness of their products. Bathware planned to further improve the functionali-
ties of their existing products and to expand to other product lines. Some other companies were more aggressive.
They figured that if only they could establish their own brands, they could further increase their margins. For example,
Outdoor wondered if it could test their own brand name domestically first. Drinkware, which had already owned a
brand in China, would soon begin to test its own brand name in North America.
Some companies were exploring how to take full advantage of the CBEC capabilities they had recently acquired.
The artificial gem industry was becoming saturated. Even with CBEC, the profit margin was becoming thinner. The
downstream industry that used artificial gems to make jewellery had a much healthier margin. Naturally, companies
in the artificial gem industry would consider expanding into the jewellery industry. Such vertical expansion looked
very attractive to the president of Gem1, who was considering forming an alliance with jewellery designers and using
their CBEC experience to sell jewellery on the Alibaba platform.
The CEO of Gem3 thought differently. He was more interested in porting the company's CBEC expertise to other
industries. To him, CBEC had evolved into a mature business model. With the support of Alibaba, a team of three or
four could handle an online business well. Thus, as long as he could build the teams, he could lead them to perform
1142 LI ET AL.
regardless of industry. He had put such horizontal expansions to the test by registering a new company to sell planters
on the Alibaba platform, and the new company recently took an order of more than US$100,000 from Mexico.
4.6 | The role of digital platform service providers

The digital platform service provider, that is, Alibaba, played a vital role in the SMEs' digital transformation. It inspired,
facilitated, and regulated the SMEs' digital transformation.
4.6.1 | Mentoring entrepreneurs and business teams

Alibaba was the mentor to the entrepreneurs and business teams at the SMEs we studied, both inspiring and educat-
ing them for CBEC. Alibaba provided the entrepreneurs with the opportunities to learn and to reflect. The Dream Trips
and Orange Success Camps primarily targeted entrepreneurs. These events helped the participants change their
mindsets, update their way of thinking, and inspire their enthusiasm for CBEC (see Section 4.2 for a discussion of their
effectiveness).
Alibaba also helped the entrepreneurs engage in new social networks. Alibaba pushed the SMEs to found CNCs
where the SMEs could get together to communicate with and learn from each other. In the words of an Alibaba senior
account manager,
Such Chambers of Net Commerce are new on the Alibaba platform. They are very different from traditional
Chambers of Commerce. Traditional chambers of commerce are probably more about business interests
and profits. The chambers of net commerce are more about sharing, communicating, and growing
together. They are positioned very differently.
Alibaba's Qicheng Institute and the training programmes it cohosted with local CNCs mostly targeted employees.
Compared with the programmes for entrepreneurs, these programmes focused on knowledge sharing, paying more
attention to practical operations. For example, the Qicheng Institute regularly offered a three‐day residency pro-
gramme where participants from different companies lived, ate, and played together, which afforded them an oppor-
tunity to form a circle. In Wuzhou, Alibaba worked with the local CNC to offer trainings every month. All local
companies that were conducting business on the Alibaba platform could join the training programmes there.
Moreover, Alibaba's culture became a model for the SMEs we studied. Inspired by what they saw from Alibaba,
the SMEs strived to cultivate their own organizational cultures following the example of Alibaba. For example, all the
entrepreneurs attempted to replicate Alibaba's team competition culture in their own companies. As noted by the
senior account manager from Alibaba, when his clients came to participate in the learning and sharing activities, at
the end of their sharing, many would cite Alibaba's culture and acknowledge that it was Alibaba's culture that had
the greatest impact on them.
4.6.2 | Facilitating CBEC businesses growth

As the most popular digital platform for e‐commerce in general and CBEC in particular, Alibaba offered necessary
functionalities to enable online transactions. Yet the value‐added services offered by Alibaba that supported the dig-
ital transformations were perhaps more impactful and noteworthy.
Alibaba provided SMEs with the customer and operation data to support their business and growth. As a digital
platform service provider, Alibaba's back‐end data processing was powerful. The data it provided to the SMEs allowed
them to understand their visitors and customers better. SMEs could use data such as visitors' nationalities, visitors'
websites, and clickstreams to help decide what type of customers the visitors could be and which products they might
be interested in so that they could be more prepared and target‐focused when engaging the visitors.
Alibaba offered a series of value‐added services to lower the barriers for SMEs to engage in CBEC. In 2010,
Alibaba acquired OneTouch, a company that offered SMEs a one‐stop service on various aspects involved in foreign
trades, including customs clearance, logistics, foreign exchange, tax refunds, financing, and so on. Such value‐added
LI ET AL. 1143
services greatly made up for the inadequate capabilities and limited resources of the SMEs we studied when they first
attempted CBEC.
4.6.3 | Making rules for CBEC

As the dominant firm in its business ecosystem, Alibaba guided the digital transformation in the SMEs through rule‐
making. Alibaba made the rules that directed how business should be conducted on its digital platform. These rules
were the constraints within which the SMEs ran their businesses on the Alibaba platform, and the SMEs had to follow
the rules for better performance and more profits. From time to time, Alibaba would revise the rules to better meet
the market and customer demand, and the SMEs needed to catch up with the changes quickly. As the vice president
of Drinkware said,
We need to pay more attention to the rules on the Alibaba platform. The rules do not stay the same but
change all the time. As they change, you need to have people focus on researching the changes,
communicating more with our account manager, and follow the rules. Only if we do so can we stay ahead.
For example, to maintain order in its business ecosystem, Alibaba constantly pushed forward new certification
services to verify the credits and qualifications of both buyers and sellers using the large amount of transaction data
accumulated on its platform. At the time of our study, Alibaba was promoting a trade assurance service. If a company
performed more transactions, delivered more goods on the Alibaba platform, and was classified as a golden supplier,
Alibaba would offer a higher level of assurance to cover buyers' potential losses due to delayed shipment or product
defects. Hence, through embedding business rules into the services they offered, Alibaba effectively prescribed how
SMEs could and should compete (e.g., maximize transaction volume), which greatly reduced confusion, lowered man-
agement burdens, and clarified the competition for the SMEs. In this sense, Alibaba guided the SMEs as they
attempted to cultivate their capabilities in transforming to CEBC.
5 | A P R O C E S S M O D E L ON D I G I T A L T R A N S F O R M A T I O N B Y S M E
E N T R E P R EN E U R S
By integrating the findings described above and comparing them with the literature, we propose in Figure 2 a process
model of how SME entrepreneurs with inadequate capabilities and limited resources can take advantage of third‐
party IT services to drive digital transformation. As the model shows, successful digital transformation initiated by
SME entrepreneurs entails far more than just embracing the technology.
Rather, to succeed in digital transformation, the SME entrepreneurs need to engage in both managerial and orga-
nizational capabilities building. For SMEs, digital transformation is usually initiated by the entrepreneurs. Their self‐
transformation is necessary for their companies to start organizational capability building and induce strategic
changes. As shown in our study, entrepreneurs can do so through the two processes of managerial cognition renewal
and managerial social capital development.
Managerial cognition renewal involves learning and reflection, and the inherent iterations of and interactions
between the two. In our study, the training events from Alibaba opened the entrepreneurs' eyes to best practices
in CBEC, triggering their managerial cognition renewal. They instilled new ideas and new thoughts into the entrepre-
neurs and exposed them to the gap between their company and benchmark companies, which led the entrepreneurs
to reflect on what they could do and what they needed to do.
Entrepreneurs can also improve themselves by strengthening their social networks. A stronger social network and
more social capital is important for acquiring information, knowledge, and resources (Adler & Kwon, 2002; Tsai &
Ghoshal, 1998). Through participating in sharing activities organized by Alibaba and joining the local CNC orchestrated
by Alibaba, the SME entrepreneurs we studied maximized their social capital within the Alibaba digital ecosystem,
gaining better access to knowledge and resources that otherwise would not be as easily and as readily available to them.
1144 LI ET AL.
FIGURE 2 A process model of digital transformation by SME entrepreneur. Note. In this model, the second‐order
themes identified in Figure 1 are represented in solid boxes. The aggregate dimensions are represented in dashed
boxes, except the first two aggregate dimensions, managerial cognition renewals and managerial social capital
development, which are two aspects of dynamic managerial capabilities building. SME = small and medium enterprise;
CBEC = cross‐border e‐commerce
With enhanced DMC, entrepreneurs can now drive the building of organizational capability for digital transforma-
tion. Our study suggests that they can begin with building a capable CBEC business team that can implement the dig-
ital transformation, which forms the foundation for building both platform utilization capabilities and business
development capabilities. Although platform utilization capabilities allow companies to respond quickly to market
and platform changes, business development capabilities enable companies to seize opportunities to develop and
grow businesses.
Thus, through the sequence of entrepreneur DMC building—CBEC business team building—and organizational
CBEC capability building, the SME entrepreneurs initiate, organize, and implement digital transformation. As a result,
we witnessed the changes in how the SMEs conducted business (from offline to online) and which markets they
targeted (from domestic to overseas). However, digital transformations can go above and beyond these changes.
Armed with newly acquired capabilities and more experience in conducting businesses digitally, the SMEs can pursue
further strategic changes such as product innovation, brand building, vertical integration with downstream industries,
and horizontal expansion into new industries.
In today's economy, the market constantly changes, the IT constantly evolves, and companies need to be able to
constantly transform themselves in respond to market and technology changes. We emphasize that digital transfor-
mation, as we observed, is likely a never‐ending iterative process of generative dancing between entrepreneur
DMC building and organizational CBEC capability building: Improved entrepreneur DMC leads to enhanced organiza-
tional CBEC capability, which in turn makes higher demands of entrepreneur DMC. Entrepreneurs should keep push-
ing the sequence of managerial capability building—business team building—and organizational capability building to
achieve sustainable competitive advantage.
We also note the mentoring, facilitating, and rule‐making roles played by Alibaba, the third‐party digital platform,
in the digital transformation process in terms of the services and IT functionalities it provided. Although SME entre-
preneurs certainly initiated digital transformations, it was clear that the services and the IT functionalities offered by
Alibaba greatly made up for their inadequate capability and limited resources: Alibaba was instrumental in the mana-
gerial cognition renewal and managerial social capital development of the entrepreneurs. The training and learning
events it organized were eye‐opening and thought‐provoking and were essential to sustaining the digital
LI ET AL. 1145
transformation. Once picked up by the business team, the IT functionalities and value‐added services offered by the
Alibaba platform evolved into the carrier of organizational capabilities and embodied both what SMEs need to do to
conduct their businesses and could do to expand and grow their businesses.
6 | D I S C U S S I O N A N D C O N C L U SI O N
6.1 | Digital transformation and the role of entrepreneurs

In SMEs, digital transformations were initiated and driven by the entrepreneurs. Successful digital transformation
entailed upgrading the entrepreneurs' capabilities. The theory of DMC, which is underpinned by managerial cognition,
managerial social capital, and managerial human capital (Helfat & Martin, 2015), helps us understand the SMEs' digital
transformation.
Our study showed that the SME entrepreneurs excelled at elevating two dimensions of DMC—managerial cogni-
tion and management social network—to make themselves capable of tackling the challenge of digital transformation.
This finding highlights the importance of managerial cognition and managerial social capital to managerial capabilities.
Whereas previous research often treats managerial capability as static and consider it an antecedent to organizational
transformation (e.g., Cha et al., 2015), our study showed that managerial capabilities—in terms of managerial cognition
and managerial social networks—were inherently dynamic, revealing in detail how entrepreneurs could promote their
own managerial capabilities through learning, reflection, and building up social networks. Thus, our study enriched our
understanding of DMC and gave us a greater appreciation of the transformational roles SME entrepreneurs can play in
digital transformations.
Intriguingly, we did not find sufficient evidence for improvements in managerial human capital, the third under-
pinning dimension of DMC (Helfat & Martin, 2015), from the data we collected. Although a few of the SMEs hired
outside talent to manage CBEC (e.g., Gem3 and Hanger, see Appendix, “Dedicating critical human resources for
CBEC”), they were hired more as CBEC team leaders than as members of the top management team. After all, the
SMEs we studied were rather small in size. Most did not have a top management team other than the entrepreneurs
themselves, and they did not always have the resources to add qualified members to top management teams. Nor
were they interested in adding to top management teams for fear of diluting control of their companies. Moreover,
the SMEs had all established competent CBEC teams, which might have relieved the entrepreneurs of the burden
to be adept at CBEC operations themselves. We hope that future digital transformation studies in SMEs of larger size
and with richer resources could paint a more conclusive picture of the role managerial human capital plays.
6.2 | From entrepreneur DMC to organizational capabilities

Although the upgrade in SME entrepreneurs' own DMC was indispensable to the success of digital transformations,
the development of organizational capabilities related to digital transformation appeared to be as important, if not
more. Our study identified two key organizational CBEC capabilities: platform utilization capabilities and business
development capabilities. Although there were probably other organizational capabilities that affected the SMEs' dig-
ital transformations, the theoretical significance of these two capabilities is clear: Together, they allow SMEs to sense
and respond to market and platform changes, to maintain durable relationships with customers, and to optimize and
grow their businesses. Hence, they are essential organizational capabilities that facilitate and sustain CBEC
businesses.
Our study suggested the sequence of entrepreneur DMC building—CBEC business team building—and organiza-
tional CBEC capability building as the mechanism through which SME entrepreneurs push to transform their busi-
nesses to CBEC (Figure 2). The key to this sequence is business team building, which bridges the entrepreneurs'
self‐transformation and the SMEs' transformation to CBEC. This is especially important, as a strong, competent CBEC
1146 LI ET AL.
team might have relieved the SME entrepreneurs of the burden to be versed in hands‐on CBEC operations so that
they could focus on renewing managerial cognition and building managerial social networks.
Our process model differs from the stage or phase models often described in previous research on organizational
transformation, such as the classic “Unfreeze–Move–Freeze” model (Lewin, 1951). In their review, Besson and Rowe
(2012) separated IT‐enabled organizational transformation into four phases: the uprooting phase, the exploration/con-
struction phase, the stabilization/initialization phase, and the optimization phase. Much other research took a similar
stage‐ or phase‐based approach (Kim et al., 2007; Tan et al., 2015). However, with such models, “the mechanisms that
explain the changes in stages and how events and actions unfold remain unknown” (Besson & Rowe, 2012, p. 114). Our
approach is categorically different. We strive to offer a satisfactory causal explanation of digital transformation based
on necessary causality (Markus & Robey, 1988): In the sequence of entrepreneur DMC building—CBEC business team
building—and organizational CBEC capability building described in our process model, not only is the theme to the left
of an arrow a necessary condition for the theme on the right side, but all these themes are combined in a “recipe that
strings them together in such a way as to tell the story of how [the outcome] occurs whenever it does occur” (Mohr,
1982, p. 37). In this effort, we opened the black box between the antecedents and consequences in our sequence
model, explaining the exact mechanism in which the identified antecedents are connected to the consequences.
6.3 | Digital transformation and the role of digital platform service providers
In recent years, there has been much research in e‐commerce. Much of the previous research in this area, however,
treated e‐commerce as a technological innovation to be accepted and adopted by businesses and by consumers
(e.g., Johnson, 2010; Son & Benbasat, 2007; White, Daniel, Ward, & Wilson, 2007). Our studies suggested that viewing
from the perspective of digital transformation, we need to consider the adoption and use of e‐commerce from a much
broader perspective than merely technology acceptance, and we need to ponder more holistically the roles played by
the company that offers the digital platform. In our study, Alibaba worked as a facilitator, a mentor, and a rule‐maker.
That Alibaba worked as a facilitator of digital transformation is consistent with findings from previous research
(Tan et al., 2015; Zhao, Wang, & Huang, 2008) in that their digital platforms provided SMEs with technical function-
alities and business services that went beyond merely enabling online transaction processing. Rather, the advanced
technical functionalities, especially the data analysis functionalities, allowed SMEs to know more about their busi-
nesses and customers. The value‐added services, such as OneTouch, greatly lowered the barriers for SMEs to enter
new markets. Working together, these functionalities and services on the Alibaba digital platform are the technolog-
ical foundation that supports the SMEs in acquiring new resources such as software tools and new analytic skills (Cha
et al., 2015) and in building new operational capabilities and routines (Chen et al., 2014). They allow the SMEs to not
only conduct business online but also to expand and grow their businesses in the cyber marketspace, thus sustaining
the successes of their digital transformation.
Nevertheless, service providers such as Alibaba can offer far more than technological functionalities and business
services. The management‐oriented services offered by Alibaba—the learning and training events, benchmarking
opportunities, field trips and site visits, and orchestration of local CNCs—stood out in this study. These services
appeared to be more instrumental in assisting the digital transformations we studied. Had Alibaba not provided these
management‐oriented services, the SME entrepreneurs might still not have grasped the essence of CBEC and or had a
clue of running CBEC, and their digital transformation would have been severely impeded.
Finally, a digital platform can facilitate SMEs' digital transformation through rule‐making (Boudreau & Hagiu,
2009; Eisenmann, Parker, & Van Alstyne, 2011). As the digital platform evolves and grows, the digital platform pro-
vider keeps updating the available services and refining and modifying the business rules (Tan et al., 2015) to meet
the ever‐changing demands from the market and users (Volkoff, Strong, & Elmes, 2007). Once embedded in and
enforced by the digital platform, the business rules prescribe how SMEs that rely on the platform can operate (Li &
Mao, 2012). In this way, for SMEs to gain a competitive advantage over their competitors, they need to compete fol-
lowing the rules made by the digital platform service providers. Therefore, service providers such as Alibaba can guide
LI ET AL. 1147
the direction of digital transformation by SMEs by incorporating and enforcing rules of their choice. Conversely, to be
successful in digital transformation, the SMEs must build their platform utilization capabilities so that they can be in a
better position to take advantage of the rules set and the services offered by the digital platform.
6.4 | Limitations and contributions

A limitation of our study is that our examination of SME digital transformation was conducted in the unique economic
context of China. Our findings might be unique to the particular social and economic development stage of China. By
the same token, we only studied digital transformation on the Alibaba digital platform. Similar research on different
platforms with different technical functionalities and offering different management‐oriented services is needed to
further test the validity and generalizability of our findings.
We also consider it a limitation that we had to rely mostly on interviews with a relatively small number of infor-
mants and had to ask the informants to recall events and actions that had occurred in some cases a few years before.
Even though we tried to enhance interview data with direct observations and informal conversations, for most inter-
views, we were unable to formally triangulate what an informant recalled. Moreover, most the informants in this study
were either entrepreneurs or senior officials. We did not have the opportunity to formally interview employees from
lower levels or working at the CBEC frontline in most research sites. It would have been preferable if we could have
better triangulated the words from the entrepreneurs and senior officials with what really happened to employees.
Finally, in this qualitative study, we used the capability perspective, which allowed us to shed new light on digital
transformation and digital entrepreneurship. This perspective, unfortunately, also restricted us from addressing many
other aspects, such as organizational structure and routines that probably had been adapted to the digital transforma-
tions in the SMEs. We look forward to exploring these aspects and their interactions with capability building in digital
transformations and their implications for digital entrepreneurship in future studies.
6.4.1 | Theoretical contributions

Despite these limitations, our study makes significant contributions both theoretically and practically. Unlike much
previous research in digital entrepreneurship, our study examines entrepreneurs who at first were least likely to
embrace IT and complex digital platforms for foreign trade and yet were ultimately able to successfully drive their
companies' digital transformation through proactive capability building, both for themselves and for their companies.
This study was phenomenon driven. We were drawn by the contrast between what the entrepreneurs had at the
beginning of their transformations to CBEC and what was required for their transformations to be successful. The
entrepreneurs indeed made “novel usage of digital technologies for entrepreneurial activities and venture develop-
ment” (Shen, Lindsay, & Xu, 2013). In this sense, this study made unique contributions to the literature on digital
entrepreneurship.
Our study also enriches the literature on digital transformation. Previous research often took the governing
agency as a black box (Besson & Rowe, 2012). We examined the actions the SME entrepreneurs took and the resul-
tant changes to their capabilities and offered a rich description of how the actions and the changes occurred and
worked to drive the digital transformations. In doing so, we opened the black box and shed light on this complex issue.
Although much previous literature on third‐party digital platform‐supported e‐commerce focused on the digital
platform as a technological innovation and investigated its acceptance (Cui & Pan, 2015), implementation (Chen
et al., 2014), and/or usage (Son & Benbasat, 2007), we took a different angle and viewed the adoption and use of the
digital platform as a form of digital transformation. Doing so allowed us to appreciate better and more holistically the
roles played by the digital platform and digital platform service providers, not only from a technical perspective but also
from a service—especially management‐oriented services—perspective. We hope that this broadened view on the roles
played by digital platforms will attract more research interest and efforts in digital platforms and their business impacts.
On the basis of the rich understanding of the digital transformations driven by SME entrepreneurs, we built a pro-
cess model summarizing how the transformations occurred and highlighting the importance of business team building.
1148 LI ET AL.
With this model, we hope to answer the call for more IS research that “describe(s) and conceptualize(s) the process of
transformation when studying such a phenomenon” (Besson & Rowe, 2012, p. 114). Collectively, the sequential
events and actions described in this model—managerial cognition renewal, managerial social capital development,
business team building, and organizational capability building—not only describe the pattern of how digital transforma-
tion can happen but also explain the mechanism of why it happens through the theoretical lens of managerial and
organizational capabilities, which is exactly the important way in which process models make theoretical contributions
(Langley, 1999).
6.4.2 | Practical implications

In addition to theoretical contributions, our study makes practical contributions, particularly with our process model.
The ever‐changing business environment is pushing companies to continue transforming themselves. For entrepre-
neurs, especially SME entrepreneurs, who are planning digital transformation or who are frustrated by unsatisfying
results from initial digital transformation, hopefully, the insights our study generated can help show them the way
to the promised success. Specifically, our study suggests that successful digital transformation starts with often
transforming the SME entrepreneurs themselves. The entrepreneurs need to invest in themselves to overcome cog-
nitive limitations and see and embrace the potentials of IT. They need to consciously build up their social capital to
facilitate their learning and gain better access to the resources they desire. These efforts are especially important
when it is difficult to upgrade existing top management teams.
Armed with new attitudes to and better understanding of IT, entrepreneurs can now turn to promoting organiza-
tional capabilities in using IT, beginning with and focusing on building the team responsible for IT‐enabled businesses.
Such team building entails not only recruiting the required talent and developing employee skills but also—perhaps
more importantly and more challengingly—cultivating the organizational and team cultures that allow the team to
flourish. A team with the right talent, skills, and culture can then take full advantage of the technological functional-
ities and competition manoeuvres afforded by the IT and build both platform utilization and business development
capabilities that lead not only to successful transformations but also to continuous strategic changes and renewals.
In this sense, our process model provides companies with an actionable blueprint that can guide their efforts in digital
transformation.
Our study also sheds new light on how digital platform service providers should compete when promoting digital
transformation. Although companies are often initially drawn to a digital platform by its technical functionalities, com-
peting effectively on the digital platform requires more than simply adopting the technology. The entrepreneurs and
their SMEs we studied perhaps benefited more from the management‐oriented services, such as learning and sharing
activities organized by Alibaba, than from the technical functionalities available from its digital platform. Moreover, we
noticed that as the entrepreneurs grew more comfortable with doing business on the Alibaba platform, they would
volunteer to share what they learned in future Alibaba activities. Such knowledge feedback attests to the extraordi-
nary loyalty of the Alibaba platform's customers. Obviously, the value‐added services add another dimension to the
competition between digital platform service providers, transcending it from a competition for technical functionali-
ties and services to a competition for the cohesiveness and resourcefulness of the ecosystems (Tan et al., 2015) cre-
ated and maintained by the digital service providers.
7 | C O N CL U S I O N
In this paper, we report how entrepreneurs with inadequate capabilities and limited resources drove their SMEs to
successful digital transformation using services and functionalities offered by third‐party digital platforms. Our pro-
cess model opened the black box of digital transformation in our CBEC research context, revealing the key steps of
the process, including managerial cognition renewal, managerial social network development, CBEC business team
building, and organizational CBEC capability building. Not only does it contribute to the existing research on digital
LI ET AL. 1149
transformation and digital entrepreneurship, but it also sheds light on what entrepreneurs and digital platform service
providers can do to drive and promote digital transformations. With this study, we add to accumulative theory build-
ing in digital architectures‐enabled organizational transformation (Besson & Rowe, 2012) and invite more research in
this area.
ORCID
Wei Zhang http://orcid.org/0000-0002-3722-8469
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1152 LI ET AL.
APPENDIX A
TABLE A1 More representative quotations for first‐order concepts
First‐order concepts Representative quotations

Second‐order themes: learning from benchmarking practices
Learning from Alibaba's executive training My own transformation started in 2013, when Ali took in a few SME
programme and microenterprise owners like us and organized two programs –
one called Orange success camp; the other called Dream Trip. The
two programs truly and totally transformed me. (Outdoor, CEO)
We often go to Alibaba to experience the Ali culture. A lot of times,
Ali will offer us some trainings and teach us some classes.
(Bathware, CEO)
Learning from benchmark CBEC companies Around August or September 2014, ZHANG Jian, the senior account
manager in Alibaba, told me a particularly good opportunity for us
to go to Shenzhen and visit a few companies there that flourished
on the Internet. President Yao, me, and another colleague bought
the airline tickets on the same day and participated in the Dream
Trip. We visited three companies; they all were doing
e‐Commerce on Alibaba. We felt that a door to a different world
suddenly opened for us. (Drinkware, Vice President)
Shenzhen is No.1 in B2B foreign trade. So they (Alibaba) take
companies there to visit and learn. Many companies were
influenced by them. Our chamber organized two Dream Trips too.
We took companies from Guangxi and brought them to Guangzhou
and Shenzhen to visit and see with their own eyes the companies
that perform well in e‐Commerce and examine how they built their
businesses. (Gem1, President)
Second‐order themes: reflecting on innovative managerial issues
Reflecting on the leadership role of executives I thought I needed to reposition myself. I had to be my own boss.
That is, a boss had to consider strategies, not tactics. You can't
hide laziness in strategy with diligence in tactics, right? OK, I will
now re‐plan the game. Re‐adjust. All the tasks I had in my hands, I
gave them all to my colleagues to handle. I then repositioned
myself: I am now a coach‐in‐chief, (my employees) are my
apprentices, and I let them train their own apprentices. When they
had problems, I would help them and we would deal with the
problems and solve them together. (Outdoor, CEO)
Reflecting on the new management style After completing the two training programs in 2013, I began my
transformation. I was truly transformed. Starting with changing
my mindsets, and then the executions. I began to understand
organizational culture. I used to think, why on earth do we need
organizational culture? Can you feed employees with culture? Can
you generate orders with culture? Right? (Outdoor, CEO)
My management style has changed. Before, I was the boss. The
employees took orders from me. … Employees of my generation
appreciated that I gave them a job and they worked hard for me. …
Now come the employees born in the 1990s. They first want to
know the quality of the working environment. … They ask if it is fun
to work here, how many times you party every month, if you play
ball and have dinner together every week, if the employees go to
KTV together … Now they call me by my name. (Gem3, CEO)
Reflecting on the new gameplay of CBEC Before, I had no idea. Later, I kept going to Alibaba to learn and
finally understood foreign trade. First, it requires much more than
access to a platform: You have to do a good job launching
products. The keywords you use have to be accurate. If you just
use any word, your customers won't be able to find your products
through searching. … I slowly learned all these. (Gem3, CEO)
E‐Commerce is a different game. Totally different from what we used
to do… Filters, keywords, … we never needed them before. To
choose a keyword, a hot keyword, a keyword that matches a
(Continues)
LI ET AL. 1153
TABLE A1 (Continued)

product; to process an image; to launch a product … There are so
many tricks involved. (Drinkware, Vice President)
Second‐order themes: strengthening social networks
Establishing and participating in Alibaba‐ The idea of founding the Chamber of Net Commerce in 2010 was
orchestrated CNC totally from Alibaba. We never thought about it. WEI Ning was
the account manager from Alibaba for our area at that time, and
Alibaba was encouraging its account managers to help found the
chambers of commerce in the areas they were assigned to. WEI
Ning was actively involved. Additionally, many of our businesses
here were located in the same building, which made it easier to
organize. (Gem1, President)
Contributing to activities organized Alibaba hosted talent competitions for net companies. I was the
by Alibaba runner up in one of the competitions. Those competitions were
actually sharing events, for me to share my own experience with
more net companies. The events were hosted in big meeting
places that can seat hundreds and thousands of people. I learned, I
grew, I shared, and I was honored by Alibaba. Now, we begin
founding the chamber of net commerce, and this is the trophy for
the chamber. (Outdoor, CEO)
I participated in all the e‐Commerce events Alibaba organized. Last
time they hosted an e‐Commerce vendor competition in Guangxi. I
was one of the referees. … I would go to all the events that are
related to e‐Commerce. If they train the companies in e‐
Commerce, I will go and share. (Gem3, CEO)
Second‐order themes: building CBEC business teams
Training team members to meet CBEC requirements We host many practical trainings for our new employees. For
example, when we launch new products, we will take a look and
check if they used the right keyword, if they made any mistakes
with the description … because new employees tend to make all
kinds of stupid mistakes. ….. New employees are required to
present their best answers to sales inquiries every day so that we
can review if they truly made the best answers. If yes, what they
did do right? If no, what they did do not so right? (Outdoor, CEO)
Knowledge sharing within CBEC teams We share every week. A lot of cases can be shared. For example,
how did you fail? How did you succeed? What happened when
you were contacted by a fraud? What did the fraudulent inquiry
look like? How did he try to cheat you? They will share all these.
(Bathware, CEO)
When we did something nice, we would all share … For example, if I
found a good method to identify keywords, I would show it to
everybody else and everybody else can learn. (Drinkware, Vice
President)
Building organizational and team culture We try to learn some in team culture from Alibaba, for example, the
team competition culture. We now put employees into a few
teams and let them compete against each other in terms of
number of online inquiries, sales, and conversion rates. This year
we did perform better than last year, and we learned it from
Alibaba. (Hanger, Sales Director)
We have a Dark Horse team and a Marching‐on team. They compete
against each other in a few aspects: sales targets, revenue growth
rates, number of inquiries, packaging increase rates. (Gem3, CEO)
Dedicating critical human resources We now hire outsiders. I recruited one VP and stopped micro‐
for CBEC managing the company. I evaluated him for a long time and kept
communicating with him since last year. Now we agree with each
other. It is now up to him to build the team for the future. I have a
great deal of confidence in him, and he has both the willingness
and the confidence to lead the team. We work together. (Gem3,
CEO)
(Continues)
1154 LI ET AL.

We recruited a marketing director who worked in Canada for more
than 10 years to supervise e‐Commence. (Hanger, Sales Director)
Second‐order themes: building platform utilization capabilities
Analysing Alibaba data to sense customer The data functionalities offered by Alibaba are very powerful. It can
preferences help you find out which countries the visitors came from, when
they visited, and for how many minutes ... so that I can decide
what products the visitors were interested in. Whichever
products the visitors were interested in, we will market them to
the visitors. We will let them know that we are the most
professional sellers of these products. (Bathware, CEO)
Every week we will review the data. That is, we will review the
exposures, clicks, and feedback every week. If there are more
inquiries for a product, I will market it on the B2B site, and I will
allocate more expenses to the product. (Gem2, employee)
Using Alibaba functionalities to stay close to Sales inquiries need to be responded to in time. If you don't respond
customers in time, your ranking will suffer. Thus, we have to respond quickly
to inquiries, quickly! In three hours!! In one hour!!! This made it
necessary for us to be more aware of the speed at which we
respond to our customers. (Hanger, Marketing Director)
Keeping pace with Alibaba's ever‐changing services Now that we are on the Alibaba platform and Alibaba constantly
and rules change the game rules, we have to constantly follow the changes.
If we don't, we are throwing more than RMB¥300K (about US
$47K) away into the water. (Outdoor, CEO)
Any new functionality comes from Alibaba, and we are sure to be the
first one to use it. … for example, to take advantage of the Pay‐for‐
Performance feature, we were actually in touch with Alibaba
employees, including the one who is in charge of the feature and
those working on the front‐end Web design. (Bathware, CEO)
Now they offer a new tool for chat. Now they offer a mobile version
of it. You just have to download it to make sure you can chat in
evenings. Sometime we feel that we didn't expect the changes to
be so fast. However, Alibaba makes fast changes, and we too have
to change fast. (Hanger, Marketing Director)
Second‐order themes: building business development capabilities
Overcoming CBEC business barriers Before Alibaba offered the OneToucha service, I felt that there
with value‐added services existed a barrier for us to enter foreign trade: You had to know
English. You had to be familiar with all different processes in
foreign trade. However, once OneTouch became available, you no
longer need an employee to manage all the files for foreign trade.
OneTouch takes care of everything. (Hanger, Marketing Directors)
All our orders are processed with OneTouch, because it solved many
of our problems. We don't have to worry about problems such as
custom clearance and tax rebates any more. (Gem3, CEO)
Operating CBEC on multiple platforms We also use Facebook and LinkedIn. We actually made deals with
quite a few customers on Facebook. I think third‐parity channels
are quite useful. (Bathware, CEO)
I am in charge of platforms other than Alibaba, for example, Facebook,
Twitter, Google+, LinkedIn, and Google SEO. Additionally, we are
doing B2C on DHgate.com, eBay, and Wish. (Gem2, employee)
Transforming offline channels We now go to those fairs more to keep in touch with old customers
… than to take new orders. … We now believe the traditional trade
fairs are becoming less and less important in acquiring new
customers and new orders. (Drinkware, Vice President)
I started to go to expos last year. Our goal is completely different from
others. We go there for the chance to meet our old customers or
ex‐customers offline … not to find new customers. … If we happen
to run into new customers, we will take their orders, but mainly we
go to the expos to meet our customers in person. (Gem1, CEO)
(Continues)
LI ET AL. 1155

Second‐order themes: transforming towards CBEC
Transforming to conducting business online Before last year, our companies exported about US$36million in
using Alibaba traditional foreign trade through the fairs. In Q2 this year, we did a
half million dollars in e‐Commerce. … In three years, we would like
to grow to $20 million in e‐Commerce exportation. (Drinkware,
Vice President)
Transforming from the domestic to Now we sell to foreign markets only. No sales in the domestic
the international market market at all. (Gem3, CEO)
We started foreign trade in 2010. In the first year, we doubled our
sales; in the second year, we doubled (our sales); and in the third
year, we doubled again. … Now we mainly do foreign trade.
(Bathware, CEO)
Second‐order themes: exploring future strategic changes enabled by CBEC
Improving on existing products and expanding We will focus on products. Before we only offered bathroom
product lines cabinets. Now we may extend to facets, floors, tiles, toilets … and
sell all of them internationally. (In the future) We will add more
value to our products through, for example, developing new
models and adding new functionalities. We may add anti‐fogging
to mirrors, or Bluetooth. … Now you can make calls in bathrooms.
… We will focus on adding value to our products, especially
considering it may be difficult for us to build our own brands.
(Bathware, CEO)
Building own brands I think we need to build our own brand. It might be difficult and take
time to promote our own brand immediately abroad. So, I have
been considering if we should start with the domestic market to
build our own brand. (Outdoor, CEO)
We want to build our own brand. For all these years so far, we've
been doing OEM even though we have our own design. Next, we
prepare to register our own brand. If we can use our own brand, we
can certainly do much better than without. (Drinkware, Vice
President)
Extending vertically along the value The downstream of artificial gems is accessories, which vary greatly.
chain using CBEC Accessories from different vendors differ from each other and are
priced differently too. … When we work with foreign customers,
we have various designs for them to choose. … This year (2015),
we created a team in Guangzhou to design fashion accessories
and took more‐refined pictures to put them for sale on
AliExpressb. (Gem1, President)
Porting the CBEC capabilities horizontally I want to build my foreign trade teams, not just selling accessories
to enter new industries and jewelries. I am thinking, as long as you have the teams, …, as
long as your teams are healthy, stable, and knowledgeable, they
can sell cellphones today, newspapers tomorrow, furniture the
day after tomorrow … they are all the same as long as you know
how to do it ... They are all products, just different words, right? …
I will specialize in e‐Commerce, and my goal may be to develop
ten e‐Commerce companies out of 10 teams. (Gem3, CEO)
Second‐order themes: mentoring entrepreneurs and business teams
Offering entrepreneurs opportunities The dream trips and orange success camps target the entrepreneurs.
for learning and reflecting Dream trips are site visits. Orange success camps are local
activities, inviting entrepreneurs of successful companies from
other cities to come and teach through educational activities. I
found that participants in orange success camps can become very
open. Even traditional, conservative older participants can
become very open. In our Alibaba culture, we embrace dramatic
changes. We will incorporate open formats such as parties to
broaden their minds, to enlighten them that they can be like us
and get open too, and to convince them that they can be open
(Continues)
1156 LI ET AL.

even if they are older. (In the end,) the older they are, the more
energized and more excited they become at the parities. (Alibaba,
Senior Account Manager).
I hosted two orange success camps. That is, I learned with them, spent
time with them, shared with them. I also joined them on the dream
trip to Shenzhen. Therefore, I felt quite a bit (of the effectiveness of
these events). Basically, the companies who went to these events,
especially if the entrepreneurs brought their employees with them
to these events, have a much better atmosphere, understanding of
the Internet, and passion (for CBEC) than the companies that didn't.
(Alibaba, Senior Account Manager)
Helping entrepreneurs connect with each other Alibaba will help customers organize chambers of commerce, let our
customers get together, learn from each other when they grow, or
even integrate some resources. Such Chambers of Net Commerce
are new on the Alibaba platform. They are very different from
traditional Chambers of Commerce. Traditional chambers of
commerce are probably more about business interests and profits.
The chambers of net commerce are more about sharing,
communicating, and growing together. They are positioned very
differently. (Alibaba, Senior Account Manager).
In fact, it was totally Alibaba's idea to found this Chamber of Net
Commerce. We never thought about it. It was all because of the
account manager from Alibaba, who played an active role in this.
His ideas and mindsets were way ahead of everybody else's.
Alibaba might also have given them some supports to found such
chambers of Net Commerce in areas they were managing.
(President, CNC)
Educating CBEC business teams We offer targeted training for different customers. For example, we
have a QiCheng Institute that targets business employees. It is a
three‐day residency program where participants stay, eat, and
play together. It also allowed them to form their own circle.
(Alibaba, Senior Account Manager)
At the beginning, we learned how to operate the Alibaba platform by
watching the training videos. We learned much from that. When
we got more familiar with Alibaba and knew how to use the
platform, we also went to Alibaba to take a few classes and
participated in some trainings. (Bathware, employees)
Inspiring Alibaba‐like cultures in SMEs Alibaba gives them more than just the customer resource from its
platform: We pass them our Alibaba culture …… Many times when
I talk with my clients, at the end of their sharing, many successful
clients will mention that it is probably Alibaba's culture that had
the biggest impact on them. (Alibaba, Senior Account Manager)
I just came back from a dream trip and was really shocked, greatly
shocked by Alibaba culture. The mindset, the culture, was really,
really powerful (Hanger, Marketing Director)
Second‐order themes: facilitating CBEC businesses growth
Supplying SMEs with customer and The data functionalities offered by Alibaba back end is very
operation data powerful. It can help you find out which country a visitor today
came from, when she came, how many minutes she stayed, and
which products she were interested in. I can then tell which
product the visitor might be interested in and target her
accordingly. I can tell her, I am the best in this product. (Bathware,
CEO)
The Alibaba back end makes it possible to analyze customers. I can
see the mailboxes of a customer and her website, which helps me
decide what kind of customer she is, how price sensitive she is,
what kind of style she likes … We can pre‐determine what kind of
product she may like. All of this is very helpful to our negotiation
later. (Bathware, CEO
(Continues)
LI ET AL. 1157

Offering value‐added services to OneTouch helps us solve and avoid the messes of customs
lower business barriers clearance, tax refund, and so on. We no longer need to take care
of those. (Gem3, CEO)
Now with OneTouch, I am more confident in growing our businesses.
As long as OneTouch works, it can spare me a lot of trouble. I only
need to interact with OneTouch and charge the customer whatever
I pay OneTouch. It is OK if we can still make the money we used to
make. (Gem3, CEO)
Second‐order themes: making rules for CBEC
Making and updating business rules Alibaba makes its own game rules. For one example, earlier the rule
was that you need to post more messages. You would be ranked
higher so that visitors can see you only if you posted more and
posted every day. Thus, we were urged to post more. Later, the
rule said that the information you post can't be too simple. Your
message needed to include pictures, keywords, detailed
descriptions, and tables. You message would only be considered a
five‐star message with all these, which pushed us to photograph,
copywrite, and provide detailed descriptions for an item. (Hanger,
Marketing Director)
If Alibaba comes out with a new rule, we absolutely have to adapt to
it. Otherwise, we will be ranked far behind and may even be
eliminated. (Drinkware, Vice President)
Regulating CBEC through new certificates Ever since OneTouch joined us, we have recorded both online and
and new services offline customer inquiries. We collect data on orders and online
transactions. We use these data for comprehensive evaluations of
buyers. Alibaba users all know that we certify international
buyers. … Certified buyers' identifies were verified, and their
transactions passed our comprehensive evaluations. (Alibaba,
Senior Account Manager)
Golden Quality Certification is a service offered by Alibaba … It is a
certification by a third‐party agency recognized internationally.
(Once certified,) the agency will issue you a certificate that allows
you to display a logo on your website. Only certified companies can
display this logo. (Gem3, CEO).
We now offer the Trade Assurance service through OneTouch, which
is now merged into the Alibaba platform. This service was a
collaboration with Sinosurec. We authorize credits on the platform.
When you do more business on our platform, deliver more goods
through our platform, we will authorize you more credit, thus
building a protection mechanism for your businesses. If there is
ever a problem, Alibaba will assume the responsibilities. (Alibaba,
Senior Account Manager)
Note. CBEC = cross‐border e‐commerce.

a
OneTouch is a one‐stop online service offered by Alibaba to help companies in areas such as customs clearance, trade
financing, foreign exchange, and logistics.
b
AliExpress is a retail platform from Alibaba for international sales.
c
China Export & Credit Insurance Corporation.

Information Systems Journal - 2017 - Li - Digital Transformation by SME Entrepreneurs A Capability Perspective

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Information Systems Journal - 2017 - Li - Digital Transformation by SME Entrepreneurs A Capability Perspective

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Received: 4 February 2016 Revised: 1 March 2017 Accepted: 19 May 2017

SPECIAL ISSUE PAPER

Digital transformation by SME entrepreneurs: A

2.1 | Digital transformation by SMEs

2.2 | Capability perspective on digital transformation

2.2.1 | Dynamic managerial capabilities

2.2.2 | Organizational capabilities

3.1 | Research setting and case selection

3.2 | Data collection

TABLE 1 Overview of research sites

3.3 | Data analysis

TABLE 2 Overview of interviews

Outdoor CEO None

Note. CNC = Chamber of Net Commerce.

4.1 | Initial conditions of digital transformation

4.2 | Managerial cognition renewal

4.2.1 | Learning from benchmarking practices

4.2.2 | Reflecting on innovative managerial issues

4.3 | Managerial social capital development

4.4 | Organizational CBEC capability building

4.4.1 | Building CBEC business teams

4.4.2 | Building platform utilization capabilities

4.4.3 | Building business development capabilities

The CEO of Gem3 also stated,

4.5 | Transformation and strategic changes

4.5.1 | Transforming towards CBEC

4.5.2 | Exploring future strategic change enabled by CBEC

4.6 | The role of digital platform service providers

4.6.1 | Mentoring entrepreneurs and business teams

4.6.2 | Facilitating CBEC businesses growth

4.6.3 | Making rules for CBEC

6.1 | Digital transformation and the role of entrepreneurs

6.2 | From entrepreneur DMC to organizational capabilities

6.4 | Limitations and contributions

6.4.1 | Theoretical contributions

6.4.2 | Practical implications

Wei Zhang http://orcid.org/0000-0002-3722-8469

TABLE A1 More representative quotations for first‐order concepts

First‐order concepts Representative quotations

First‐order concepts Representative quotations

First‐order concepts Representative quotations

First‐order concepts Representative quotations

First‐order concepts Representative quotations

First‐order concepts Representative quotations

Note. CBEC = cross‐border e‐commerce.

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