The effect of E-commerce adoption on business performance of SMEs in Ethiopia

Abstract

The current expansion of digital transformation is playing a major role in fostering economic growth through enabling SMEs, but most developing economies have not yet adopted e-commerce. This study investigated the effect of e-commerce adoption on the business performance of small and medium enterprises (SMEs) in Ethiopia. This study included data collected from 359 SME owners and managers across Addis Ababa and Sheger city and employed descriptive statistics, linear regressions and propensity score matching (PSM) to analyze the effect of e-commerce adoption on SMEs’ business performance. According to the findings, only 43.18% of SMEs have adopted e-commerce platforms, mostly through company websites and online marketplaces. This study revealed that e-commerce adoption, employee expertise, internet connectivity, and average annual capital are statistically significant determinants of SME sales performance at the 5% significance level. In addition, the result of propensity score matching indicates that e-commerce adopters have 36.3% higher sales performance than non-adopters. Previous studies emphasized on the role of e-commerce in the growth of sales performance of SMEs but such evidence remained uneven across countries. This study mainly contributes to the body of knowledge by examining the effects of e-commerce adoption on business performances of SMEs in Ethiopia. It thus contributes to the limited evidence on the casual impact of e-commerce adoption on SME business performances in the context of developing countries focusing on SMEs in Ethiopia.