SMEs and Digital Platforms: Opportunities and Challenges

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Abstract:
Small and medium-sized enterprises (SMEs) are the backbone of most economies. However, their resource constraints, including their limited financial and human capital, hamper their ability to survive and grow.

Various studies have suggested that SMEs can leverage digital platforms, including multi-sided e-commerce platforms (e.g., Amazon, Alibaba), to overcome their resource limitations and benefit from the opportunities driven from the platforms. Existing studies largely highlighted the benefits of digital platforms for SMEs, and there has been limited understanding of challenges SMEs face while growing their business over the platforms. In this thesis, I investigate this research gap by conducting two empirical studies exploring organizational capabilities development (study one) and dependence and its implications (study two).

The following is a summary of the two studies.

The first study investigates how multi-sided e-commerce platforms help SMEs develop organizational capabilities. The current literature has highlighted how platforms provide resources and other benefits to SMEs, but our understanding of how SMEs turn those benefits into enduring organizational capabilities remains limited. In this study, I draw on the organizational learning perspective to examine how platform-provided resources enable SMEs to develop capabilities for their survival and growth. I build on a qualitative field study of retail SMEs on a major e-commerce platform. The findings suggest that SMEs can develop operational and dynamic capabilities by leveraging platform-provided infrastructural and informational resources. I identified three learning mechanisms through which SMEs develop the new capabilities: experience accumulation, socialization, and acquisition of codified knowledge.
However, the findings also reveal that platform-provided resources have limitations in the development of capabilities as a result of incomplete information and equivocal learning processes. I propose a theoretical framework that offers a basis for understanding the dual nature of the platforms' effects on SMEs' development of organizational capabilities.

The second study examines SMEs' dependence on multi-sided e-commerce platforms which have become a prevalent form of organizing economic exchanges in the era of the digital economy. Extant studies have examined aspects of this dependence on specific platforms in the SMEs' environment, but less research attention has been paid to the increasingly common dependence relationship between SMEs and multiple dominant platforms. Understanding this relationship is important because, strategies adopted by SMEs to navigate digital markets, such as multi-homing, are assumed to be effective in reducing dependence on platforms. Drawing on resource dependence theory and a field study of SMEs participating in three large multi-sided e-commerce platforms in Singapore, this study delves deeper into the nature of SMEs' dependence on platforms within an oligopolistic platform market. In contrast to the assertion that multi-homing reduces SMEs' dependence on platforms and has negative repercussions for platform owners, the findings suggest that the oligopolistic nature of the platform markets maintains the dependence of SMEs on platforms, even when SMEs multi-home. The findings of this research extend current literature by redefining the boundary conditions of SMEs' dependence on digital platforms and identifying key coping strategies for reducing dependence.

Taken together, in this thesis, I present both the opportunities and the challenges SMEs encounter through participation on digital platforms to uncover the implications for SMEs' survival and growth over time.