DUMF5078 Dissertation

In order to develop methodological frameworks and collect data which are relevant to the aims and objectives of a study, it is imperative to first comprehensively and extensively review the background of literature. A literature review, as the name suggests, is an extensive and elaborate review of existing repertoire of studies which have been conducted and published till date pertaining to the chosen topic of research. For this reason, a literature review is important to identify or develop a conceptual framework which then can be used to direct and guide the research collection and evaluation process. Additionally, a literature review is also important for the purpose of identifying the gaps or limitations in existing literature. This in turn, prompts the research to develop research questions, aims and objectives which can pave the way for the fulfilment of this gap in future evidence based research. Thus, with this respect, the aim of this chapter is to provide a comprehensive overview of existing literature which till date have explored the concept of e-commerce and its associated impact on micro and small businesses and firms. In doing so, this chapter also builds upon a diagrammatic representation of a conceptual framework as well as briefly assesses the key limitations which were observed in existing literature.

Concept of Micro and Small Sized Businesses in the UK

A micro business is a small scale organization which is comprised of approximately 0 to 9 employees. Additionally, in order to be categorized as a micro business in the United Kingdom (UK), a firm must experience an annual rate of turnover of less than or equal to £632,000, and demonstrates a value of less than or equal to £316,000 or less on its balance sheet. According to the Department for Business, Energy and Industrial Strategy, the prevalence of micro businesses in the United Kingdom is approximately 5.7 million or 95.72%, of which, 4,567,775 are run by the owners without any employees and 1,156,925 comprise of a workforce of 1 to 9 employees. Further, as per governmental estimates during October 2020, micro businesses in the UK contribute to the employment of approximately 9.1 million employees – thus demonstrating the significant role played such firms in sustaining the labour force and economic growth of the nation. Despite their limited resources pertaining to financial and human capital, the Covid-19 pandemic has paved the way for an exponential growth in the prevalence of micro and small businesses in the UK.

According to the Companies Act 2006, a small business is one which comprises of a workforce of 50 employees or less, demonstrates a balance sheet of £3.26 million and an annual rate of turnover of not more than £6.5million. According to the Federation of Small Businesses (FSB), the prevalence of small businesses in the UK during the beginning of the year 2020, was 5.9 million – a 1.9% increase in comparison to their prevalence in 2019. Small businesses have been estimated to contribute to three-fifths of the labour force and half of the annual rate of turnover within the private sector of the UK. Further, one fifth of small businesses in the UK have been evidenced to be employed in the construction sector, while less than 1% of the SMEs have been evidenced to be employed in the Utilities, Quarrying and Mining sector. Further, 9% of SMEs in the UK have been estimated to be employed in the Repair, Wholesale Trade and Retail sector while 15% of small businesses are accounted to provide Technical, Scientific and Professional services. Such business growth may be as a result of the large rate of unemployment facilitated by the Covid-19 pandemic – which in turn, prompted a number of former business owners and employees to start their own business.

State of Micro and Small Sized Businesses in the United Kingdom 

Brexit

During June 2016, the UK government, undertook the decision to depart from the European Union – a political move which contributed to a range of significant consequences and impacts on the economy of the United Kingdom. The cross sectional study by Brown, Liñares-Zegarra and Wilson (2018) aimed to examine the perceptions held by owners of small businesses in the UK concerning the potential impact of the Brexit and how the same will facilitate their strategic direction and decision-making in the future. To address the same, a descriptive, self-reported survey was implemented across 10, 000 small businesses. Based on the findings, it was observed that small scale firms which are operating in business services and large scale, innovative small firms oriented towards exports were perceived as greater obstacles for the business growth, profits and strategic direction of small scale businesses as a result of Brexit. Additionally, findings from the regression analysis also revealed that Brexit could adversely impact the financial performance of small firms by disrupting their growth, decrease their rate of innovation, reducing their accessibility to acquire external financial assistance and as a result, experience decreased rate of investment in capital and future projects. These findings were also similarly supported by another cross sectional study by Brown, Liñares-Zegarra and Wilson (2019), which aimed to examine the impact of Brexit on small scale businesses as well as the potential implications of supportive external public and financial policies. As per findings from a longitudinal survey, it was examined that small scale firms are decreasing their future plans of investments as a means of sustaining the impact of Brexit. Additionally, the authors found that small scale firms which were regulated under devolved administration – that is, under the governance of local governmental or regional authorities – were found to be better competent to cope with the negative economic consequences of Brexit. Such findings thus demonstrate how external environmental and political factors like Brexit can induce adverse economic repercussions on small scale firms which contributed to an extensive rate of economic growth and employment to the nation.

Covid-19 Pandemic

In addition to Brexit, the next global factor which inflicted extensive negative impacts on the financial performance of SMEs was the Covid-19 pandemic. Upon its onset during the early phases of 2020, the Covid-19 pandemic compelled governments, healthcare sectors, businesses and citizens worldwide to reconsider their decisions and daily life operations. Due to the uncertainty of treatment and also the highly infectious nature of its symptoms, governments were forced to impose stringent physical distancing guidelines and lockdowns on a global scale. These regulations coupled with imposition of trade and travel restrictions, subsequently contributed to an adverse reduction in the movement of goods and consumers, across and within the nations. As a result, industries and organizations – including small and micro businesses in the UK – experienced a drastic reduction in the influx of customers. This is in turn, coupled with an increasing rate of employee illnesses resulted in decreased revenue generation, decreased rates of profit and hence a state of bankruptcy, recession and reduced economic growth which forced both large as well as small scale businesses to shut down or lay off employees. These negative impacts of the Covid-19 pandemic were especially severe with respect to micro and small businesses in the UK, who were already in short of financial resources. The cross sectional study by Cowling, Brown and Rocha (2020), aimed to examine which micro or small businesses of the UK were at greater risk of experiencing the negative economic impacts of the Covid-19 pandemic lockdown, as well as which small businesses had acquired sufficient cash holdings which can sustain themselves in the event of the lockdown being extended. Based on the findings, it was observed that only 39% of small businesses had acquired a substantial amount of cash holdings thus resulting in 61% of small businesses demonstrating the risk of being devoid of cash and another 8.6% of small businesses not having any savings to sustain themselves economically in the event of the Covid-19 pandemic being extended. Such findings thus demonstrate how small and micro businesses in the UK, while contributing extensively to the economic and employment growth in the country, are also prone to experiencing adverse economic consequences as a result of the Covid-19 pandemic and Brexit. Such adverse factors are especially aggravated in the event of micro and small businesses not having any savings or profits which can sustain their survival amidst future economic or global crisis.

Factors contributing to Profits and Business Operations of Micro and Small Sized Businesses

Considering that micro and small businesses are known for their limited labour and financial capital, it is evident that the profits and continuity of business operations experienced by such businesses are influenced by a range of factors, some of which have been reviewed below. These findings demonstrate useful implications in the form of highlighting the need to provide external financial and resource based assistance to micro and small businesses due to their risk of experiencing constraints amidst global crisis situations – as observed amidst the Covid-19 pandemic. Such assistance becomes especially important in the context of the UK concerning the contribution of micro and small businesses in the rate of employment and economic growth in the country.

Resources and Capabilities 

As mentioned previously, small and micro businesses have a limited number of workers thus resulting in their acquisition of revenue and profits at rates and amounts which are much lower in comparison to large businesses. Thus, a lack of adequate financial and labour resources thus limit their ability to engage in novel business operations or expand their business or service portfolio, which could then have contributed to greater profits. Additionally, the limited labour capabilities of small and micro businesses also limit the ability of their workforce to acquire and engage in new skillsets thus hinder their ability to contribute to improved quality of their business operations and thus potential to earn more profits.

Risk of Financial Constraints

Additionally, as evident from previous definitions, micro and small businesses, due to their limited workforce, are unable to acquire adequate profit or revenue from their services. This is turn, increases their risks of experience financial constraints in the event of any market recession or during the purchase of any new resource, equipment or technology within their workplace. Such financial constraints thus limit their ability to innovate their existing operations or product portfolio thus resulting in decreased profits and ability to improve the quality and diversity of their business operations.

Risk Capacity 

Risk capacity implies the extent to which an organization or business is able to tolerate or recover from market risks and constraints. As a result of their limited human capital and financial resources, it is likely that micro and small businesses demonstrate limited capacity to hold and retain sufficient cash holdings or acquire profits from investments. Such limitations thus decrease their risk capacity especially amidst global crisis situations. Indeed, it was observed that the Covid-19 pandemic as well as politically significant movements like Brexit, limited the ability of micro and small businesses in the UK to sustain themselves during lockdown or engage in future strategic directions.

Constraints in Service Portfolio 

Due to their limited financial resources, it is evident that micro and small businesses do not have the ability to recruit new employees and expand their workforce. This also demonstrates their inability to engage their workforce in training which can enable employees to acquire new skills and acquire greater profits via expansion of their service portfolio. Thus, the limited working capacity, skill sets and revenue hinder the ability of micro and small businesses to expand on their service portfolio resulting in decreased profits and decreased expansion or quality improvement in their business operations.

Market Volatility 

Market volatility implies the prevalence and frequencies of economic changes and stock market directions in the market. Organizations with sufficient cash holdings are usually able to sustain market volatility in the form of erratic rates of inflation and global recession. The same is however not possible for micro and small businesses due to their limited profits and workforce – thus resulting in economic losses during recession induced by the Covid-19 pandemic and associated adverse consequence of employee layoffs, bankruptcy and suspension of business operations.

Inadequate Market Exposure 

Lastly, due to their limited investments, resources and workforce, micro and small businesses are also not able to engage in adequate marketing research or venture into new markets and target customers by diversifying their service and product portfolio. This in turn, limits their ability to generate additional revenue, create value or expand the scope of their business operations.

Concept of e-Commerce 

Electronic commerce, known popularly as, ‘e-commerce’, implies the practice of selling or purchasing services and goods on the internet, as well as the transferring of data and money to complete a purchase over the internet. E-commerce comprises of the application of a range of systems, data and tools which consumers can avail in order to access the products and services of a firm digitally – such as online retail platforms and platforms to facilitate online transactions. The application of e-commerce in business is associated with the application of a range of business models. Business to business based e-commerce models are associated with selling services and products online from one firm to another. This can comprise of wholesale businesses operating online. Business to consumer based business models of e-commerce are one of the prevalent marketing practices and comprise of business displaying, advertising and promoting their services and products online – either from their own websites, their social media account or form third party advertising platforms – so as to enable consumers to access, view and purchase the same at any time or location from the comfort of their homes. Popular examples of the same include Amazon or any retail business which offers an option to shop online from their website. Lastly, consumer to consumer based business models of e-commerce are when consumers sell products or services online for other consumers, as observed in the case of websites like eBay.  

Conclusion

Therefore the study followed a systematic format way by the primary goal of the paper was to examine the way in which the e-commerce developments and facilitations in the United Kingdom had a critical influence on the small and micro businesses in the country. The study had intended to examine the overall impact both positive and negative which the ecommerce generally has on the small and micro sites businesses. Here it becomes critical to underline the fact that the micro and small businesses are generally small enterprises with very limited resources and due to this consideration, it is important that the environment for these businesses is conducive so that they can prosper accordingly. However, recently, thee different developments in the UK markets such as the impact of Brexit, increase in competition within the industries, the entrance of ecommerce facilitations in every industry and the related Covid 19 pandemic influences have had a very poor influence on the small and micro sized businesses whereby majority of the enterprises have had to shut down their business operations. Hence the study followed a systematic format way by the first chapter of the study laid down the overall objectives and research questions which had been set for the purpose of the paper. The chapter provided an overall background to the study and set the path  for further analysis. Here it is essential to take a note of the fact that the format of the study and the rationale behind choosing the different related topic was also examined. In the next chapter , a critical literature review had been presented.

 Here the key developments related to e commerce and the way in which the micro and small businesses have developed within the last few years in UK has been critically discussed. The literature review follows an integrative format where by several previous studies undertaken in this domain have been critically examined and short review has been presented accordingly. The third chapter is the research methodology chapter whereby the key ways in which the research methods have been adopted has been justified. As the study is  aimed to understand how the ecommerce affected the Micro and small businesses, it becomes effective to note that the collection of data needs to be such that it matches the importance and context of the study. Hence with this purpose, the study applied the primary quantitative research strategy whereby the data was collected using survey questionnaire which was distributed amongst different small business owners and managers in the United Kingdom. This was then followed by the analysis of the data collected using graphs charts and correlation analysis. Once this was done, it was found that the e-commerce facilitations in the different industry has had a considerate influence on the micro and small business operations as well as their profitability scenarios. Hence the research objectives which had been set for the study have been achieved critically. This was then followed by the discussion chapter where by the key ways in which the different ecommerce facilitations have impacted the micro and small businesses have been discussed and supported by theory as identified from the review of literature. Therefore, the study laid down the fact that ecommerce facilitations have served both as a boon and a curse to the small businesses. The different businesses which have learnt how to take advantage of the e-commerce facilitations and help themselves well in the international market have been able to find success irrespective of their size of business, whereas on the other hand, businesses who have not been able to adapt themselves appropriately have not been able to find success.

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