The Internet has become the best innovative driver in the fourth industrial revolution, transforming businesses into a technological era with speed and cost-effectiveness. E-commerce is one of the modern business strategies used by many companies to expand their market without limiting its geographical boundaries. This business strategy was initially used by companies in developed countries and eventually adopted by developing countries. Sri Lanka is a developing country and e-commerce penetration is far below other countries in the region. Perceived benefits, transformational leadership, and competitive pressure are the influencing factors of e-commerce adoption. The Technology-Organization-Environment and Diffusion of Innovations theories were used as the base of this research, and 350 samples were collected from the senior managers of SMEs. All factors significantly influenced e-commerce adoption and that positively affected the organisational performance of SMEs in Sri Lanka.


In the fourth industrial or technology revolution, organisations have changed their growth strategies with innovative technological adoptions (Fonseka et al., 2020). The Internet has transformed the offline business environment into online businesses, which has reduced time, cost, and distance. This new instrument facilitates communication across the globe cost-effectively and super-fast. It opened the door to a unique aspect of trade without limiting it to geographical boundaries (Hidayati, Permatasari & Fajry, 2019). It is called "electronic commerce", which refers to exchanging goods and services between parties via computer networks (Wen & Guy, 2019). E-commerce is the modern trending art of trading method in the 21st century, and it is one of the effective growth strategies in business. Išoraitė & Miniotienė (2018) have explained that e-commerce is a business in which an online platform is used to enhance profitability through its activities and communicate with many individuals and entities at the same time. This trending platform creates opportunities for business owners and individuals to tap untapped markets within a short period of time and cost-effectively.

With the expansion of smart-device usage, people are addicted to using online platforms for their day-to-day lives and, as a result, e-commerce penetration has gone up globally (Chmielarz & Parys, 2018). This innovative adoption utilized by many organisations globally has significantly affected the global economy by increasing cross-border revenue. The COVID-19 outbreak has accelerated the growth of e-commerce globally (UNCTAD, 2021). Statista (2021) indicates the global picture of e-commerce revenue, which reached 2.38 trillion US Dollars in 2017. The forecasted global e-commerce revenue is 6.54 trillion US Dollars for the year 2024. It is an enormous growth of 175% revenue within six years.

Furthermore, the highest annual expected e-commerce revenue growth (2019-2023) rate of 17.8% in the Asian region is indicated by India, and the lowest rate of 9.1% is by Sri Lanka (Statista, 2021). The level of e-commerce usage is lagging behind in developing countries compared to developed countries. Developed countries initially adopted e-commerce, and they are harvesting the real benefit of it, more than developing countries (Xuhua, Chosniel Elikem & Akaba, 2019). The developing countries faced many issues when adopting e-commerce, such as the lack of resources, the management perception, lack of government support, or industry pressures, which are issues common to many developing countries (Dahbi & Benmoussa, 2019). The e-commerce penetration of Sri Lanka is shallow in the region since the country is still in the developing stage.

Previous researchers have described SMEs as the backbone of any economy (Kuruwitaarachchi et al., 2020). The Ministry of Industry and Commerce of Sri Lanka has highlighted that more than 75% of the enterprises are SMEs and that they contribute more than 52% to the Gross Domestic Product (GDP) of the country. The service sector is the most significant contributor to the national GDP, which is nearly 60%. The major contributors in the service sector are banking and finance, tourism, telecommunication, IT and related services, and retail sectors (Department of Census and Statistics, 2020).

The statistics revealed that Sri Lankan entrepreneurs are still reluctant to adopt e-commerce for their businesses. This is one of the biggest issues that Sri Lankan SMEs are currently facing when competing in the global market. This strategic weakness was highlighted with the COVID-19 outbreak in Sri Lanka. Therefore, the adoption of e-commerce by SMEs is extremely important in developing countries like Sri Lanka. Previous researchers have found many factors influencing the adoption of e-commerce in different contexts, but transformational leadership is not widely studied in such studies. Thus, this study is important for entrepreneurs to understand the significance of e-commerce adoption, and for regulatory bodies to amend their policies where necessary, to encourage SMEs to adopt e-commerce. Hence this study aims to address the following research questions:

  1. What is the most influencing factor which affects the adoption of e-commerce by SMEs?

  2. How does the adoption of e-commerce impact the organisational performance of SMEs?


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