Determinants of application software adoption the case of SMEs in HCMC

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V niversity of Economics

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Institute of social studies

Ho Chi Minh City

The Hague

Vietnam

Netherlands

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Vietnam - Netherlands
Project forMA Program in Development Economics
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DETERMINANTS OF

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APPLICATION SOFTWARE ADOPTION:
The Case of SMEs in HCMC

By

LE THANH BINH

Academic Supervisor:
Associate. Dr. NGUYEN DINH THO

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Ho Chi Minh City, March 2011

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Declaraiion
I declare that the thesis hereby submitted for the Master degree at the VietnamNetherlands Program for M.A in Development Economics is my own work and has not
been previously submitted by me at another university for any degree.

Ho Chi Minh City, March 2011

Le Thanh Binh


Acknowledgements

In the first of all, my heartfelt thank goes to my supervisor, Associate Dr. Nguyen Dinh
Tho. During the course of my thesis research and writing, I received precious guidance,
useful comments and encouragements. My deepest thank also goes to Associate
Professor Dr. Nguyen Trong Hoai, Co- Director of Vietnam - The Netherlands
Program for M.A. in Development Economics, for his encouragements during the
course and thesis research. In addition, I wish to offer much thanks to: my kindly and
enthusiastic classmate, Mr Nguyen Ngoc Danh, who was always ready to give me his
ideas and recommendations; my friend and ex-colleague, Mr. Marc Nguyen, who
assisted me to edit English writing of my thesis.

My heartfelt gratitude also goes to my wife and my son, Trinh and Trung Quoc, who
are my love and motivation during the studying time.

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Abstract
This study mms to investigate the factors that affect the adoption of application
software by SMEs in Ho Chi Minh City. A sample of 140 firms in HCMC was
surveyed to test the model.
It was found that perceived usefulness and ease of use of application software are

potential predictors of application software adoption. It was also found that IT
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knowledge has impacts on the adoption of application software. BOM Innovativeness
was not significant. It may be due to the limitation of this study. Some questionnaires
were answered by who were not from BOM and the sample was not large enough to
make sure the results are entirely credible.
The findings of this study suggest that the government and software firms should focus
on improving the IT knowledge of people who work in the office, especially people
from BOM. Software fim1s should promote the usefulness and ease of use of
application software. In addition, the laws of intellectual property and laws to protect
the software users are also recommended to the government.

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Table of Contents
DECLARATION ..................................................................................................... I

ACKNOWLEDGEMENTS ..................................................................................11
ABSTRACT .......................................................................................................... III
TABLE OF CONTENTS .................................................................................... IV
LIST OF FIGURES ............................................................................................. VI
LIST OF TABLES .............................................................................................. VII
LIST OF EXHIBITS ........................................................................................ VIII
ABBREVIATION ............................................................................................. VIII
CHAPTER 1 - OVERVIEW .................................................................................. !
1.1 INTRODUCTION ............................................................................................... 1
1.2 THE CONTEXT OF VIETNAMESE SOFTWARE INDUSTRY .................................. 2

1.3 OBJECTIVES OF THE RESEARCH ...................................................................... 5
1.4 RESEARCH QUESTIONS ................................................................................... 5
1.5 RESEARCH METHODOLOGY AND SCOPE ......................................................... 5

CHAPTER 2- LITERATURE REVIEW ............................................................ 7
2.1 INTRODUCTION ............................................................................................... 7
2.2 DEFINITIONS ................................................................................................... 7

2.3 THEORIES AND EMPIRICAL STUDIES ............................................................... 8

2. 3.1 Innovative ness ........................................................................................ 9
2.3.2 Perceived Usefulness .............................................................................. 9
2.3.3 Perceived Ease ofUse .......................................................................... 11
2.3.4 IT Knowledge ............................................................................ ........... 11

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2.3.5 Size ofFirms ......................................................................................... 12

2. 3. 6 Competitive Intensity ............................................................................ 13
2. 3. 7 Type ofBusiness .................... ,.............................................................. 13
CHAPTER 3 - METHODOLOGY ..................................................................... 15
3.1 INTRODUCTION ............................................................................................. 15
3.2 RESEARCH PROCESS ........................................ ········· .................................... 15

3.2.1 Questionnaire Design ........................................................................... 15
3.2.2 Survey Design ....................................................................................... 16
3.3 0PERATIONALIZATION OF MEASUREMENT .................................................. 16

3. 3.1 Dependent Variable .............................................................................. 16
3.3.2 Independent Variables .......................................................................... 18
3.3.2.1 BOM Innovativeness ................................................................................ 18
3.3.2.2 BOM IT Knowledge ................................................................................. 18
3.3.2.3 BOM Perceived Usefulness ...................................................................... 19
3.3.2.4 BOM Perceived Ease of Use .................................................................... 20

3.3.3 Moderator Variables ............................................................................ 21
3.3.3.1 Competitive Intensity ................................................................................ 21
3.3.3.2 Business Size ............................................................................................ 22
3.3.3.3 Type of Business ....................................................................................... 22

3.3.4 Measurement Scale and Notation ofVariables .................................... 22
3.3.4.1 Measurement Scale ................................................................................... 22
3.3.4.2 Notation of Variables ................................................................................ 23
3.4 SURVEY DESIGN ........................................................................................... 23

CHAPTER 4- FINDINGS AND DISCUSSION ............................................... 24
4.1 INTRODUCTION ............................................................................................. 24
4.2 THE SAMPLE ........................................... ~· ..................................................... 24

4.3 DESCRIPTIVE ANALYSIS ............................................................................... 24

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4.4 RELIABILITY ANALYSIS ............................................................................... 26
4.5 REVISE MODEL ............................................................................................. 27
4.6 FACTOR ANALYSIS.·········· ............................................................................ 28
4.7 OLS REGRESSION ......................................................................................... 31
4.8 HYPOTHESIS TESTING .................................................................................. 34
4.9 DISCUSSIONS ................................................................................................ 37
CHAPTER 5- IMPLICATIONS AND CONCLUSIONS ................................ 39
5.1 INTRODUCTION ............................................................................................. 39

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5.2 MAIN RESULTS CONTRIBUTION AND IMPLICATIONS ..................................... 39
5.3 LIMITATIONS AND DIRECTIONS FOR FUTURE RESEARCHES ........................ .42
REFERENCES .................................................·..................................................... 43
APPENDICES ....................................................................................................... 48
APPENDIX 1: THE QUESTIONNAIRE .......................................................... .48
APPENDIX 2: NOTATION OF VARIABLES .................................................. 55
APPENDIX 3: CRONBACH'S ALPHA ............................................................ 57
APPENDIX 4: FACTOR ANALYSIS ................................................................ 60
APPENDIX 5: HETEROSKEDASTICITY TEST ............................................ 63

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List of Figures

Figure 2.1 -Conceptual Model ............................................................................ 13
Figure 3.1 - Research Process .............................................................................. 15
Figure 4.1 -Revised Conceptual Model .............................................................. 26

List of Tables
Table 2.1 -List of Applications ............................................................................. 7
Table 4.1- Type ofBusiness ................................................................................ 24
Table 4.2- Business Size ..................................................................................... 24
Table 4.3 -Application Software ......................................................................... 25
Table 4.4- Reliability Analysis ........................................................................... 25
Table 4.5- Rotated Component Matrix( a) ........................................................... 27
Table 4.6- KMO and Bartlett's Test ................................................................... 28
Table 4.7- KMO and Bartlett's Test (ASADOPT) ............................................. 29
Table 4.8- Component Matrix (a) ....................................................................... 29
Table 4.9- Frequency Analysis of sum values of two items of CINT ................ 30
Table 4.10- Business Type with dummy variables ............................................. 30
Table 4.11 -The dummy variables of the business size ...................................... 31
Table 4.12 -Regression with data survey ............................................................ 32
Table 4.13- Summary of Hypothesis Testing ..................................................... 34

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List of Exhibits
Exhibit 3.1 -Application Software Adoption ...................................................... 17
Exhibit 3.2 - Innovativeness ................................................................................. 18

Exhibit 3.3- IT Knowledge ................................................................................. 18
Exhibit 3.4 - Perceived usefulness ....................................................................... 19
Exhibit 3.5- Perceived ease of use ...................................................................... 20
Exhibit 3.6- Competitive intensity ...................................................................... 21

Abbreviation
BOM

Board Of Managers

VIII


Determinants of Application Software Adoption: The Case of SMEs in HCMC

Chapter 1 Overview

1.1 Introduction
Nowadays information technology plays a crucial role in economic development.
Among them, the software industry is growing faster than most other industries. The
world software market was approximately US$11 0 billion in 1988 (Schware 1992),
and is about US$600 billion (Rizk 2002). Software industry is viewed as a good choice
for developing countries to leverage their economy and strengthen their national
competitive power (Lee & Lee 1994). For example, the annual growth rate of India's
software industry has been consistently over 20 percent since 1996. The revenues from
software industry oflndia were US$8.7 billions in 2001 (Economy Watch). The annual
growth rate of Brazil's software industry has been also 11%-12% (Schware 1992).
According to Schware (1992), the developing countries should focus more on the
domestic software market; therefore, it makes software exports develop faster because
of increases in experience and innovation in software production.

In acknowledging the importance of the software industry to the economic
development, the Vietnamese government has paid much attention to developing the
software industry in general, and the domestic software market in particular by issuing
many policies to support the software industry and software firms and by investing a
lot of money to its development. Vietnam's domestic software market has a lot of
potential with approximately 7,000 organizations, 6,000 state firms, and nearly 260,000
limited firms. However, the number of firms using application software continues to be
very limited. In the year of 2006, the revenues of application software were only 93
million USD (Laodong 2007). Many conferences have been organized to discuss on
how to leverage the demand of domestic application software but to date, no effective


Determinants of Application Software Adoption: The Case of SMEs in HCMC

solutions are chosen. Even though the growth rate of domestic market is about 25%, its
size and growth rate are still below expectation. (Nguyen 2004 ).

1.2 The context of Vietnamese software industry
The Vietnamese software industry has grown prosperously in recent years. Before
2006, its growth was about twenty five percent per year. The government plan for the
software industry in 2000 - 2005 was aimed to reach 500 million US dollars as revenue
but without success. The growth in 2006 and 2007 was up to forty percent and its
revenue mostly reached 500 million US dollars (498 million). The government
expected that the revenues for the software industry in the year 2008 were 600 million
US dollars, and for 2010 would be 800 million US dollars (Tram 2009). The target for
the year 2008 was reached, however, the economic recession curtailed revenue goals.
In late 2008, most of the software firms, especially outsourcing software occupied the
most in the revenue structure, were negatively affected by the financial crisis and
economic recession. For example, FPT software- one of the leading software firms in
Vietnam - had a revenue growth of 40%, a decrease of 50% compared to year 2007.

The picture of total gloominess of the Vietnamese software industry in 2008 - 2009
reappeared in results of the survey that was conducted by VINASA in May and June of
year 2009 and was issued in late August of 2009. 64% of the Vietnamese software
firms had negative growth compared to the year 2008. Of this number, 12% of the
firms declined severely and met with financial difficulty. There were only 36% of
firms able to sustain stable growth at equal or higher than the year 2008 (Nguyen
2010).
However, in late 2009, there were some positive signals. Some software outsourcing
firms got new projects. It happened because Vietnam software outsourcing firms had

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Determinants of Application Software Adoption: The Case of SMEs in HCMC

an advantage of labor cost of less than 30% compared to that of China and India. IT
department of the Ministry of Post and Telematics, adyised that the revenues of
Vietnamese software industry was 880 million US dollars. The growth rate remained at
35% and surpassed the norms that were set by the government for the year 2010
(Nguyen 2010).
In general, Vietnamese software industry grows very fast, about 35-40% per year in
recent years. However, the software outsourcing occupies the major revenues in the
software industry. According to the results of the survey conducted by Vinasa, 50% of
software firms are in software outsourcing (Tram 2009).
According to statistics, there are 2000 firms registering as the software firms but in
actuality, there are only 800 firms that participated in the software industry. The total
number of people that participated in the software industry is approximately forty-five
thousand. Most of the software firms have less than 30 employees and their charter
capital is less than 500 millions Vietnam Dong. According to Jefrey Haddee- Deputy
Chairman of Business Software Associate, Vietnamese IT and software labors are still

too weak. For every ten candidates, only one is qualified. Mr. Haddee assesses that: out
of date teaching programs, failures in teaching and practising soft skills, and
weaknesses in foreign languages, are the biggest deficency of Vietnamese IT labors
(Manh 2009).
Some experts believe that in order to leverage the Vietnamese software industry; the
Vietnamese government needs to focus on developing its IT services. The revenue rate
for this field occupies over 75% of the revenue in the whole IT and telecom in the
world (Hiep 2009). According to Deputy Minister of Post and Telematics Nguyen
Minh Hong, the domestic IT services industry has not developed to its fullest potential.
One reason is because mechanism in place is not clear enough. The rest is because the
government does not have preferred policies for specialization of the services industry.

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Determinants of Application Software Adoption: The Case of SMEs in HCMC

Other opinions by specialists believe that the current Vietnamese IT services industry
has a lot of limitations in areas like: quantity, investment capacity, professionalism,
lack of intellectual property protection, and a shortage of legal documents. The
government should therefore define specific assessment standards for service quality.
Some firms think that government should not stipulate the quality of service as a
pretest like before. They should make assessment based on the service quality
agreement between business providers and their clients (Ha 2009).
In order to leverage the IT industry, particularly software, the government has trusted
to assign Minister of Post and Telematics to propose an action plan. The Minister of
Post and Telematics Le Doan Hop reports that he propose this strategy to Prime
Minister and hopes that it would be approved soon. Because there is an enormous
amount of work, he insist on the six major things (Ha 2010):
First, build up IT human resources on a large scale as well as key resources.

Second, develop IT industry in order that Vietnam not only consumes but also
produces IT products.
Third, establish a high bandwidth infrastructure
Fourth, IT should reach everyone, such as communication and internet; tools
that contributes to development in modem and civilized countries
Fifth, apply IT into the State management system to save money by: establish egovemment to ensure the transparencies from central to local, eliminate back
logs and bureaucracy while and speeding up paperwork;
Sixth, establish telecom incorporation with international stature.
In April 2009, the Prime Minister has decided. to invest 980 billions Vietnam dong to
develop the software industry and electronic content from 2009 to 20 12 (Decision
50/2009/QD-TTg). At the end of the year 2009, the Prime Minister has decided to
invest 16,9 billions Vietnam dong additional for this program (Mai 2009).

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Determinants of Application Software Adoption: The Case of SMEs in HCMC

1.3 Objectives of the research
As stated above, Vietnamese domestic software market has very good potential but it
has still not advanced as others. Therefore, figuring out why Vietnamese domestic
software market has not become a booming sector like in other places of the world is
very important and crucial since the government has invested a lot of money into the
software industry. In addition, there have never been studies to research the factors
affecting the application software adoption in Vietnamese domestic software market.
This study will fill hopefully this gap. The domestic software market is a huge area to
research. This research only addresses the ·.domestic application software market
because application software plays a very crucial role in improving the management
efficiency. Understanding the factors affecting the Vietnamese domestic application
software market would be a good reference for fmiher comprehensive researches on

what Vietnamese policy makers should do to leverage the Vietnamese domestic
application software market.

1.4 Research questions
This study tries to answer the following questions:
1. Do BOM Characteristics affect the software application adoption?
.., Do Business Characteristics affect the software application adoption?
It implicitly answers the question why the domestic software market in Vietnam does

not grow as expected. The results of this study completely assist the government in
understanding what to do to change SME's perception of application software adoption
and help the software firms know what to focus on to expand the local software
market.

1.5 Research methodology and scope
This study only focuses on application software in Ho Chi Minh City's market.

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Determinants of Application Software Adoption: The Case of SMEs in HCMC

Applications chosen for the study are the ones used for managing firms or businesses'
activities. This study researches small and medium enterprises (SMEs) in Ho Chi Minh
City by using the structured questionnaires. After collecting data, Cronbach Alpha and
EF A are used to validate the collected data. After that, the regression with OLS model
is carried out to recognize the determinants of application software adoption. The
statistic software Eview 4.1 is employed in this study .

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Determinants of Application Software Adoption: The Case of SMEs in HCMC

Chapter 2 - Literature Review

2.1 Introduction
Chapter 1 presented the overview of this study including the important role of the
software industry in the economic development of developing countries and research
objectives. Chapter 2 is an introduction to the argument basis for this study based on
the empirical studies. This chapter is composed of two main sessions: (1) the
definitions of terms that are used in this study, (2) the theories and empirical studies
review.

2.2 Definitions
"Software engineering 1s the systematic approach to the specification,
development, operation, maintenance, and retirement of software" (Schware 1989,
p.l2).
System software: is a component that is used to control the hardware (including
peripheral equipment such as printers, keyboards, monitors, and memory storage
devices) and provide the environment on which application software executes. It plays
a mediation role in linking application software to hardware (Schware 1989).
Operating system and drivers are called as system software.
Application software: is designed to exploit computer power to perform and
manage some tasks to facilitate management and administrative issues, i.e. Payroll,
Human Resources, Accounting, etc (Schware 1989). Softwares that do those tasks
above such as Ms Excel, Ms Word are not considered as application software. A
business can implement the application )Oftware for them or purchase it from a

software development finn.

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Determinants of Application Software Adoption: The Case of SMEs in HCMC

2.3 Theories and empirical studies
Application software refers to many kinds of software applications, which are used for
managing a business. It is not possible to study all the factors that can impact on the
adoption of application software for all types of business. Hence, in this study, only
factors that are more applicable to the adoption of application software (denoted by
ASADOPT) in the small and medium enterprises (SMEs) are selected to be placed in
the model. According to Government Decree No. 90/2001/ND-CP, a business is
considered as SME if its registered capital does not exceed VND 10 billion or its
annual labor does not exceed 300 employees.

This study focuses on the following application softwares:
Application
Accounting
Inventory control
Sales
Purchasing
Personnel and Payroll
CRM
SCM
MRP
Table 2-1: List uf Applications

The factors that are invest1gated in this study are mainly extracted from empirical

studies from Thong and Yap (1995), Nguyen and Barrett (2006), and Nguyen (2007).
These factors are Innovativeness, Perceived Usefulness, Perceived Ease of Use, IT
Knowledge, Size of Business, Competitive Intensity, and Types of Business. Other
empirical studies are also reviewed to support for them.

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Determinants of Application Software Adoption: The Case of SMEs in HCMC

2.3.1 lnnovativeness
According to Leonard-Barton and Deschamps (1998), personal innovativeness plays an
important role in the adoption of innovation because individuals who are highly
innovative are more willing to take more chances. Highly innovative employees are
usually highly skillful as they might be less influenced from managerial directives.
Therefore, managers with innovativeness influence the employees who are less
innovative to adopt the innovation (Leonard-Barton and Deschamps 1988). The CEO
with innovativeness does highly affect to the innovation adoption in the SMEs because
he may prefer risky solutions that have not been tried (Thong & Yap 1995; Al-Qirim
2007.) According to Ritu and Jayesh (1998), personal innovativeness influences the
relationship between perception and adoption decisions of innovation. In the SMEs, a
CEO usually gets an agreement from Board Of Managers (BOM) to make a final
decision because he or she cannot master in everything. For example, a CEO may not
know more about Human Resource software than his Human Resource manager.
Therefore, this study focuses on the BOM, not only the CEO. Since application
software is a product of innovation, Innovativeness of BOM (denotes as INNO) likely
determine if organization applies the new application software to its business.

Hypothesis 1: Firms with BOM who are more innovative have positive effect on
adopting application software

2.3.2 Percefved Usefulness
According to Thong and

Tf ap

( 1995), if CEO has a positive attitude towards the

adoption of IT, the business is more likely to implement IT. Attitudes toward
implementing IT are considered as the perception of IT (Thong & Yap 1995).
According to Nguyen and Barrett (2006) and Nguyen (2007), the technology

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Determinants of Application Software Adoption: The Case of SMEs in HCMC

acceptance model (TAM) is a strong theory base and supported by many empirical
studies. Perceived usefulness and perceived ease of use are known as two constructs in
TAM and they determine an individual's attitude towards using a system (Davis et al.
1989). Nguyen and Barrett (2006) find that perceived usefulness and perceived ease of
use can be used to predict the intention to use of IT applications. Besides, perceived
usefulness and perceived ease of use can be applied to predict the IT usage (Nguyen
2007). Nguyen and Barrett (2006) and Nguyen (2007) prove that TAM can be used to
explain both the intention to use and the usage of IT applications not only in terms of
individual attitudes but also in terms of organizational attitudes. Therefore, attitudes

toward adoption of IT are considered as both the perceived usefulness and perceived
ease of use of IT. Application software is one of aspects of the IT fields. This research
adopts the concepts of perceived usefulness and perceived ease of use and applies them
in

t~e

context of BOM that represents for a firm in implementation of application

software.
Perceived usefulness (denoted as OPU) of application software is a degree to which the
SME believe that application software is useful (Nguyen & Barrett 2006; Nguyen
2007) but they cannot verify the usefulness of software before it is applied to in that
firm. The usefulness of application software can be known as the efficiency and
effectiveness of application software on business performance. When BOM believes
that the application is useful for their business, they are more likely to adopt it (Davis
et al. 1989; Nguyen 2007.) Perceived usefulness can be increased if the BOM have a
good experience with the application. The good experience is best described as using
the application or knows of someone who uses the application to help improve his or
her performance.
Hypothesis 2: Firms with the BOM who perceive the usefulness of application
software have positive effect on adopting application software

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Determinants of Application Software Adoption: The Case of SMEs in HCMC

2.3.3 Perceived Ease of Use
Perceived ease of use (OPEU) directly affects the behavior of the intentions to use IT

(Davis et al. 1989.) Perceived ease of use of application software in an organizational
context is the degree to which the SME believes that utilizing the application software
to perform and manage some tasks to facilitate management and administration issues
would be free of effort (Nguyen & Barrett 2006; Nguyen 2007.) In other words, the
less effort the firms are spending to perform and manage their tasks by using
application software, the more perceived ease of use they have. When the BOM of a
firm thinks that application is easy to use, they tend to use that application for their
business.

Hypothesis 3: Firms with the BOM who perceive the ease of use of application
software have positive effect on adopting application software

Research also shows that the usability of a system is considered as one of many factors
to determine the effectiveness of its functionality. Therefore, the perceived ease of use
of application software also influences perceived usefulness of the application software
(Nguyen & Barrett 2006.) According to Ritu and Jayesh (1998), innovativeness
;;

positively moderates the relationship between perceived usefulness and the adoption of
application software, and the relationship between perceived ease of use and the
adoption of application software. However, this study will not examine the
relationships between innovativeness, perceived usefulness, and perceived ease of use.

2.3.4 IT Knowledge
Thong and Yap (1995) find that lack of IT knowledge (denoted as ITKNOW)
contributes to the failure of small firms to adopt IT, howe~er, CEOs understanding the

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Determinants of Application Software Adoption: The Case of SMEs in HCMC

benefits of IT may be more willing to adopt it. When organizations need to use an IT
application, they may believe that it is too difficult to use that application, even if they
believe that it is useful (Nguyen & Barrett 2006; Nguyen 2007). Therefore, if the BOM
of organizations have well IT awareness, they can believe that IT application is easy to
use (Ritu & Jayesh 1998). IT knowledge is considered the same as IT awareness
(Thong & Yap 1995), so it influences both perceived usefulness and perceived ease of
use (Ritu & Jayesh 1998) of application software. However, the scope of this study
does not examine the influences of IT knowledge on perceived usefulness and
perceived ease ofuse. According to Thong and Yap (1995), many CEOs reject to adopt
IT because they have no idea of the benefits of IT, and if they can be educated on the
benefits of IT, they may be willing to adopt IT easily.

Hypothesis 4: Firms with BOM who have IT knowledge have positive effect on
adopting application software

2.3.5 Size of Firms
Hashim (2007) identifies organizational size as one of determinants having influence
on adoption of IT and e-commerce. Al-Qirim (2007) also finds out the positive
influence of firm size on Intranet adoption and EDI adoption. Thong and Yap (1995)
find out that the size of firms (SIZE) impacts on the adoption of application software.
Small firms face more resource constraints than large firms. Large firms have a large
scale of operations; therefore they are more likely to use IT than small firms.

Hypothesis 5: Firms with larger in size have positive effect on adopting
application software.

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Determinants of Application Software Adoption: The Case of SMEs in HCMC

2.3.6 Competitive Intensity
Another organizational characteristic that has impacts on the adoption of application
software is competitive intensity (CINT). Competitive intensity, at some points,
influences the acceptance of innovation (Robertson & Gatignon 1986.) Al-Qirim
(2007) identifies that SMEs in New Zealand tend to adopt eCommerce communication
and application technologies to increase their competitiveness. Thong and Yap (1995)
identifies that firms are able to change their competitive environment by adopting IT in
three ways. IT can change the industry structure and alter the rules of competition. IT
can create competitive advantage because firms have new ways to perform better than
their rivals. Finally, IT spawns new business opportunities from existing operations of
the business. It is a reason why a firm in a more competitive environment adopts IT to
gain a competitive advantage. In contrast, a firm in an environment that is less
competitive is not rushed to be innovative.
Hypothesis 6: Firms who perceive high competitive intensity of the industry
have positive effect on adopting application software.

2.3. 7 Type of Business
Type of business (BTYPE) is also one of organizational characteristics that were found
as J"1ajor determinants of IT adoption (Hashim 2007). This study investigates the
following types of business: manufacturing, trading, and services. A firm can do
manufacturing, trading and services at the same time. However, this study only focuses
on the main types of business, which brings the most revenue to the firm.
Lee and Lee ( 1994) identify that manufacturing firms were the largest buyers in
Korean software market in 1991. Al-Qirim (2007) finds out that wholesale and
manufacturing industries had the highest rate of e-Commerce adoption. It seems that
the firms, which do manufacturing or trading, are most likely easy to adopt application
software.

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Determinants of Application Software Adoption: The Case of SMEs in HCMC

Hypothesis 7: Firms, which do manufacturing or trading, have positive effect on
adopting application software.
Figure 1 shows a conceptual model that explains the adoption of application software
by SMEs. BOM innovativeness, BOM IT knowledge, BOM perceived usefulness, and
BOM perceived ease of use are proposed to be predict'ors of application software
adoption. In addition, business size, type of business, and competition intensity are
expected to have impacts on the adoption of application software.

BOM Characteristics

Innovativeness

Perceived usefulness

Adoption of
application software

Perct:;ived ease of
use

IT knowledge

Competitive intensity,
Business size,

Type of business

Figure 2.1- Conceptual Model

With all the variables above, the regression model for this research is suggested as follow:

A SA DOPT = f rTNNO OPT T OPFT T TTKNOW ST7F C:TNT RTYPF)

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Determinants of Application Software Adoption: The Case ofSMEs in HCMC

Chapter 3 - Methodology
3.1 Introduction
This chapter is to discuss the methodology that is employed to test the conceptual
framework developed in Chapter 2. This chapter introduces (1) the research process,
(2) the operationalization of measurement, and (3) the design of the survey
questionnaire.

3.2 Research Process
The research process of this study was composed of two main steps illustrated in Figure 3 .1.

Step 1
Literature
review

Survey

Questionnaire

review & revision

Reliability
analysis

Explanatory
Factor Analysis
(EFA)

Least
Square
Regression

Figure 3.1 - Research Process

3.2.1 Questionnaire Design
The first step was to design questionnaires for the survey. This was undertaken from
the literature review. From the literature review, all items from the questionnaire were

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Determinants of Application Software Adoption: The Case of SMEs in HCMC

generated. These items were refined to be relevant with the context of application
software. The questionnaire is presented in the Appendix 1.

3.2.2 Survey Design
This research was conducted in one phrase: a main survey. The pilot phase was skipped
because this study used the items from the empirical studies· and the measures did not

need to be modified or refined. The main survey was used to test the measurement and
structural models.

This study utilized both face-to-face interviews and mail survey. The survey was
conducted with a BOM member of the firms in Ho Chi Minh City. The measures were
further refined via Cronbach' s alpha and EFA based on the data of this survey. Then,
the measures were put into the least squared regression to estimate the results.

3.3 Operationalization of Measurement
This study presented the estimate of a OLS model of application software adoption. In
a OLS model, the dependent variable was developed by using factor analysis. First, it
was developed by using Likert scale and was measured by 5 items. It was assessed by
Cronbach's alpha and EFA. Finally, factor analysis was carried out to get the
dependent variable. The model describes the level of application software adoption of
SMEs. This level is moving from 1 to 5. 5 means highly adopt application software and
1 means highly not adopt application software.

3.3. 1 Dependent Variable
Measurement of application software adoption was based on the management areas
that software applications could help the firms improve their activities. This variable
indicated many applications, not only one. Each firm might use one or many

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