ICT STRENGTH, TRANSACTION COST AND BUSINESS PERFORMANCE: AN EMPIRICAL INVESTIGATION OF SMES IN SRI LANKA

Abstract

Many scholars highlighted that SMEs suffer hazard from opportunism which arises due to insufficient and asymmetric information. Safeguard measures to avoid opportunism lead to the generation of Transaction Cost (TC) which discourages firms’ Business Performance (BP). In modern society, SMEs have possibilities to access sufficient information through Information and Communication Technology (ICT). Based on information accessed through ICT, SMEs have ability to safeguard their transaction from opportunism and thereby improve their BP. However, no recent empirical evidences on how the use of ICT affects the opportunism and thereby TC and BP of SMEs. Therefore, this study is concerned of investigating the effect of ICT strength on TC and BP of SMEs, particularly in Sri Lanka. Survey method is used to collect quantitative data from 383 SMEs, which are selected using multi-stage sampling method to represent whole SMEs in Sri Lanka. Data are collected for a pre-tested structural question having face-to-face interviews. Partial Least Square-Structural Equation Modelling (PLS - SEM) is utilized to analyse the data. In addition, case study method is used to collect qualitative data. Cases are selected to represent all the categories of industries and data are gathered for a case protocol having in-depth interviews. Qualitative content analysis is used to analyse qualitative data. The study develops combined model using ICT strength, TC theory and BP are used to understand how ICT strength affects the TC and BP, as well as hopes to test it empirically developing working hypotheses. Thus, the study attempts to recognize the power of ICT strength as a governance tool of TC and BP. This research mainly addresses a critical issue faced by SMEs and the results will contribute to understand alternative solutions to improve the BP of SMEs governing TC.