Digital Transformation in China’s SMEs: Critical Success Factors and Framework

Digital Transformation in China’s SMEs: The
Critical Success Factors and Transformation
Framework
A Case Study of a Chemical Company
YAO Mengying
EMSI, Grenoble Ecole De Management

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Table of Content
Abstract ......................................................................................................... 2
I. Introduction................................................................................................ 3
II. Literature Review....................................................................................... 8
2.1 Digital Transformation Concept ....................................................................................8
2.1.1The Importance of Digitalization .........................................................................8
2.1.2 Digital Transformation Concept and Framework..............................................14
2.1.3 Digital Strategy – The Key Element in Digital Transformation ..........................21
2.2 Digital Transformation in SMEs...................................................................................26
2.2.1 Critical Success Factors (CSFs) of SMEs.............................................................26
2.2.2 China’s SMEs .....................................................................................................30
III. Methodology .......................................................................................... 33
3.1 Descriptive case study approach ................................................................................33
3.2 Data Collection............................................................................................................35
IV. Case Study .............................................................................................. 37
4.1 Case Description .........................................................................................................37
4.1.1Company Introduction.......................................................................................37
4.1.2 Digital transformation in the Company ............................................................39
4.2 Findings and Discussions.............................................................................................44
4.2.1 Main Boundaries in Digital Transformation ......................................................44
4.2.2 Digital Strategy Analysis....................................................................................50
4.2.3 Implementation Steps.......................................................................................52
4.3 Recommendations ......................................................................................................53
V. Conclusion and Future Study ..........................................................54
Reference ......................................................................................56

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Abstract
Digital transformation in China is customer-driven instead of
enterprise-driven. The Internet adoption ratio in SMEs that contribute 70 percent of
China’s GDP is way much lower than that in developed countries. The paper aimed
to identify the critical success factors for SME’s digital transformation and then
provide a sufficient transformation framework through analyzing a small chemical
company in China. Three issues are defined as the main boundaries in digital
transformation in China’s SMEs: the lack of awareness and strategic vision of Digital,
the lack of sufficient change management, and the lack of experts. The seven main
activities of MICEP methodology can be applied in Chinese SMEs. But the emphasis
may different between one and another.
KEYWORDS: digital transformation, China’s SMEs,

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I. Introduction
McKinsey Global Institute published a report on the Internet’s impact on
productivity and growth to understanding China’s digital transformation in 2014. The
statistics in the report showed that in 2014, Chinese internet users had increased to
632 million, nearly half of the population. In generally, 700 million active smart
devices connected to network that allowed users to access to the Internet from office,
home, and on the road. Thanks to all these Internet audiences, customer-oriented
e-business generated 4.4% share of China GDP in 2013. This proportion was higher
than the United States and Germany – the two biggest well developed economies in
the world. However, China’s Internet is a more customer-driven instead of
enterprise-driven as the major contribution is coming from e-tailing. In the entire retail
industry, 7-8% of the trades are conducted via Internet. Compare to the United
States, this percentage is 6%. It seems quite similar. But when taking the internet
usage of the country population into account, the e-tailing in China is 2.5 times
powerful than the U.S. since 87% of American are the internet users and China only
have 46%. The situation on enterprise side is contrary to the consumer side. In
China, SMEs (Small and Medium Enterprises) Internet adoption ratio which
responses for the use in procurement, sales, and marketing is less than 25%. In
developed countries, the use of internet has been universalized in their entire
economies regardless the size of the firms. In the US, around 85% SMEs has adopt
Internet in their business operations.

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Due to the differences of population bases and economic structures, the
definitions of SMEs among countries are different. In China, SMEs are generally
defined as companies with less than 1 000 employees. China’s small and micro
businesses are those with fewer than 250 employees, which makes them
comparable to SMEs elsewhere. SMEs contribute some 70 percent of China’s GDP
and are an important source of employment and innovation. From McKinsey’s report,
“within the SME sector, China could generate even more dynamic growth from its
small and micro businesses, which contribute 35 to 40 percent of GDP, compared
with 52 percent in Germany, 54 percent in Mexico, and 67 percent in Italy”.
Therefore, a great economic growth potential might be coming from China’s SMEs
digital transformation. Estimated by McKinsey, new applications of the Internet,
especially the greater digitization of SMEs, could account for up to 22 percent of
China’s labor-productivity growth by 2025.
Nowadays, in China, although most SMEs have realized the importance of
information and digitalization, and nearly half of them have their own intranet, the
use of Internet and the penetration of e-commerce are not be able to measure based
on this number. Among firms in different industries or even in the same industries,
the Internet plays different roles in their business operation system, and the gap is
becoming larger and larger. In the industries whose information technology has been
implemented in a higher level on average – such as automotive and ecommerce,
only around 30 percent of SMEs participating in the digital world (China.com.cn,
2002). Moreover, among these participants, the digital development is unbalanced. A

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lot of websites have serious problems, including unclear understanding on
e-business and digital transformation, undefined digital objective and strategy, no
target audiences. Therefore, the websites lack of functional aspects, visitors could
not find the information they were looking for, and the clients cannot receive the
replay from client services by leaving online message. Moreover, the statistics
indicated that less than one third websites support online payment, and only 1.4%
corporate purchases happened through online trading (L. Jiang, 2004). The digital
strategy of most SMEs focuses on online advertising and promotion. Internet users
can check only the basic information of the firms – corporate name, brands, address,
contact number from yellow page platform as majority of them don’t have their own
domain name or official website. For others who have established their website, the
usage of the sites is extremely low, some even became empty shell page. The firms
may not update their online content for years (H.D. Wang & R.X. Wang, 2009). They
still prefer to the traditional offline marketing model rather than the new digital trends.
In the Internet era, the traditional marketing strategy cannot satisfy the need
of the market, as customer behavior has changed with the revolution of technology.
The Boston Consulting Group’s China’s Digital Generations 2.0 (D.C. Michael & Y.
Zhou, 2010) indicated the most significant changes in online behavior in China since
2007 is the embrace of e-commerce. The main Chinese Internet users are following
three generations: the older generation – aged 36 to 55, the middle generation –
aged 26 to 35, and the young generation – aged 14 to 25. The older generation grew
up before the economic boom and they still exhibit moderate levels of Internet

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adoption. Many use Internet as a practical solutions to their everyday lives, such as
easy access to news, and encyclopedia of the newest concept and terms. Learning
from the experiences, this group is becoming increasingly comfortable with more
recreational Internet use, social networking sites, instant message applications, as
well as with e-commerce. The second group tends to have high rate of adoption of
digital devices and services as they are the beneficiaries of the country’s reforms.
The richness of information accessible via popular portals is also appreciated. The
mobile-phone use and the Internet is readily embraced by the young generation as
they have grown up in an openly capitalist environment and have seen rapid
modernization. Moreover, BCG’s researchers believes that users who have the
differences in educational background and income levels behave differently. Two
most active groups have been defined: University Students – have grown up with
digital service, spent 3.6 hours a day on the Internet, and focus on information,
entertainment, and community; and Young professional whose motivation is for work
and career – spent 4.0 hours a day online, focusing on communication and
information, and perform some e-commerce and online transaction. In addition, with
the digital transformation in China economy – public service, e-government, finance
and etc., the internet older generation is expanding since more and more
middle-class people started their Internet experiences at work. The Internet is no
longer a “new” thing for them, and the benefits of Internet becomes more and more
clear and obvious. As a result, they are not only using the Internet to work but also to
support daily life. The updated research by D.C. Michael, C. Nettesheim, and Y.

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Zhou (2012) confirmed the Internet development trends. In 2011, each Chinese
consumer spent 3.6 hours a day on an average – about one hour more than in the
US. Younger users tend to log more hours on the Internet, but many are not yet
spending large sums of money online. Seniors and rural residents are new to the
online world but are rapidly making the Internet part of their lives.
As people spend more and more time online, presence only offline is not
efficient any more. Currently, a large number of enterprise, especially SMEs could
not reach online audiences, not even mention acquire online customers or client.
They need to shift part of their businesses as well as investment from offline to
online. The efficient digital transformation is required. However, digital transformation
in China is still in the earlier phase. Firstly, the online customers are still “young”,
their Internet expectations and behavior are in a certain extent easily influenced by
new internet trends. Most firms that present online are learning from not only
developed countries but mainly from practical experiments. Secondly, most Chinese
SMEs use to traditional marketing model. The digital transformation which required
the changes from internal organizational operation to external partnerships and
digital business model is a new and complex concept. The lack of framework keep
most SMEs away from digital adoption.
The objective of this study is to provide an efficient business workflow as a
guidance, helping to set a suitable sustainable digital strategy.

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II. Literature Review
2.1 Digital Transformation Concept
2.1.1The Importance of Digitalization
Requests of Model Information Exchange and Communication
With the development of technologies, people has more and more demands
on information. Fang concluded in 1997 six information revolutions – writing, printing,
mass media, entertainment, the toolshed home, and the highway – present the “new
means of communication that permanently affect entire societies, changes that have
shaken political structures and influenced economic development, communal activity,
and personal behavior”.
Writing is defined as the first revolution as important experiences and
knowledge were able to be stored by writing. The knowledge would be boundless. In
the second half of the fifteenth century, information spread through many layers of
society thank to Printing. It contributed to a series changes – “the Reformance, the
Renaissance, humanism, mercantilism, and the end of feudalism”. Then, the Mass
Media Revolution began in Western Europe and eastern United States during the
middle of the nineteenth century. Since then, the way information was conveyed had

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been changed. Normal people could easily buy and review newspapers and
magazines. Therefore, apart from continue improving knowledge and sciences,
people are able to get the latest information about what was going on in the
surrounded society, what kind of policies might be proposed, if the grocery store
announced a sales during Christmas season, which restaurant was looking for a chef,
and etc. Starting this period, the short-term information began to be recognized and
demanded. For longer distance communication, telephone were used as early radio
for receiving the latest information from other regions. In the meantime, following the
inventions as stored sound, affordable camera, and motion photography, stories
were printed and sold cheaply, and the movie industry was first introduced in the
human history. The normal life became colorful: words, pictures and actions – all of
them can be stored and spread easily.
In the end of nineteenth century when the voice was first recorded,
voice-related products started their journey: the records of opera and symphony,
phonofilm, and broadcasting. This is the fourth revolution – Entertainment. Thanks to
all these technology, the arts and music had been improving. People started to
express their own opinions in the way they sang, they draw, and they acted. Entering
to 20th century, a new information revolution – the Toolshed Home had taken place
without any notification because of the electricity. Information can be spread and
communicated without locomotion. Even normal citizens could start their day by
reading the newspaper from home delivery or listening to the radio for the breaking
news. Then, they checked their mail box in from of the house and wrote back to

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friends or commercial partners. To deal with emergency issue, they can call directly
to the person from a cell phone. Wherever the contact was, they were able to get in
touch. After diner, families could set around and watch television while
communicating with each other about their daily life. Since then, the communication
turned from mass communication to more personal or individual or intimate one.
The last information revolution presented by Fang is still happening – the
Highway with the invention and development of computer and network. It extends
communication in three important areas: 1). It provides new media and more
communication options. People can use telephone to communicate with close
friends and families, and leave email address for professional contacts. For saving,
one can subscribe important magazines for supporting your studies or expanding
your knowledge and in the meantime, listen to radio or browse through the portal
sites for the latest news; 2). Interaction – gives users more control of the information
and entertainment being transmitted. For instance, gamers can organize an online
competition without gathering to the same place and knowing each other; 3). It
makes distant connections to personal activities. Everything can be done at home:
work from home with internet support, such as email communication, video
conferences, FTP sharing; shop from home by purchasing from online shops; learn
from home by registering for online courses or accessing for powerful and global
e-library.

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That’s why the presenting on Internet is important. Throughout along the
history, nowadays, people have higher expectations from information, it needs:
• To be updated timely
• To be able to access from various channels and from distance
• In different forms: words, images, videos, and etc.
• To be understandable: serious and interesting
Requests of Competitive Marketing Environment
The global marketing environment is more and more competitive with the
invention of new technology and the decline of costs. Starting from the First
Industrial Revolution (the mid-1700s to the mid-1800s), the competition among large
industrial firms became intense. However, this competition did not have much
individual influence on competitive outcomes. On the contrary, described by
Professor Ghemawat in 2000, in the most lines of business, firms had an incentive to
remain small and to employ as little fixed capital as possible. Adam Smith indicated
that under this period, the market forces as an “invisible hand” that was largely
beyond the control of individual firms. The new market participants born during this
period – small industrial and merchant firms did not need formal planning or strategy
in the modern sense. However, the situation had been changing since the Second
Industrial Revolution. Due to the mechanization, the firms of all sizes (small, media,
and large) had becoming more and more productive and their costs was less and

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less. The observations of this time says that the emergency of strategy was regarded
as a way to control market forces and to shape the competitive environment. Alfred
D. Chandler pointed out the market is dominated by “visible hand” of professional
managers instead of previous “invisible hand”. Staring from this time, the strategic
thinking was applied in the business management.
Different strategic analysis models are introduced by scholars and experts.
The final objective of all these models is to help a firm to establish its own business
strategy by better understanding the competitive industry that it belongs to and its
position in the industry. SWOT framework – strength, weakness, opportunity, and
threat – was introduced as a major step forward in bringing explicitly competitive
thinking to beat on questions of strategy. This theory indicates that there are two
directions that a firm need to take into consideration: self-diagnostics and industrial
analysis. According to the elements put by Kenneth Andrews (1980), self-diagnostic
should mainly focuses on firms’ distinctive competences, including: Capabilities,
such as financial, managerial, functional, and organization, Reputation, and History.
The industrial analysis in SWOT model – opportunities and threats from
macro-environment, such as economic, technical, political, and social is more like an
industrial introduction than an exclusive analysis.
To understand the attractiveness of an industry environment, Michael Porter
(1980) presented Porter’s elaborate framework for the structural analysis is more
efficient. It encompasses many variables and seeks to capture much of the

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complexity of actual competition. As a player in the industries, the firms as well as
their competitors, they are highly influenced by the other stakeholders within the
industry: suppliers, buyers, substitutes, and new entrants that is the outcomes of
“invisible” hand – the free market automatic equilibrium process due to economies of
scale, the entry capital requirement, brand equity and etc. and of “visible”
government policies. The competitive industrial environment is dynamic. The firms
need to be prepared with all the incoming challenges.
After analyzing the industries and pointing out the key competences and
weakness of the firm, to survive in the competitive environment is to set a strategic
planning which will bring the best interests to the firms. Porter (ibid) proposes three
different approaches to gaining or strengthening competitive advantages proposed:
Overall cost leadership; Differentiation; and Focus. In a low cost strategy –
commodity, the company with actual lowest cost in the market place wins the market
share. In order to avoid the price war in the market, companies with higher margin,
meaning lower cost gain more. The Differentiation approach involves being
perceived by the market place as having a relatively higher value to the customer or
user than the offerings of its competitors. This approach requires deeper
understanding of customers’ needs and continually innovations to fast response to
the market demands (Bladwin, 2014).
By digitalizing, companies have better chance to gain competitive
advantages. The Digital Procurement Strategy (Murray, 2013) addresses the use of

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cloud, mobile technology, social media and big data to achieve its strategic
objectives such as cost reduction, information access acceleration, risk mitigation,
innovation and CSR. In the digital world, buyers have better understanding of the
products and have knowledge of the industrial price as the Internet reduce the
boundary of information transparency; suppliers can increase the productivity and
reduce the price by benefiting from Information System; competitors may reach
potential clients faster and provide better service by communicating with them
directly via Internet; New entrants can provide innovated products by conducting an
exhaustive online marketing research in professional communities and popular
portals, etc. In the digital world, the pressure and threat are coming from all aspects,
to keep the market share and position, the firm should at least fall behind others.
2.1.2 Digital Transformation Concept and Framework
Context of Enterprise Transformation
Enterprise transformation is the changes that a company performed to adopt
new challenges to well adopt the competitive business environment. Purchase, Parry,
et al (2011) claims that there are three significant perspectives of enterprise
transformation. First, transformation is a response to radical changes in the
economic, market, or social environment. As argued by Rouse (2005), enterprise
transformation is prompted by the significant changes within the economic and
market context which lead to “experienced or expected value deficiencies” requiring
fundamental changes to reverse. Transformation is also regarded as a fundamental

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alteration of context that somehow changing the context within which firm operate.
Goss, Pascale and Athos (1998) argued that this alteration is a reinvention of the
companies to create “what isn’t” concerning how they operate, the relationship with
customers, and the sources of past success. Rouse (ibid) proposed that “Enterprise
transformation concerns change, both routine and fundamental changes that
substantially alters an organization’s relationship with one of more key constituencies,
such as customers, employees, suppliers, and investors. Transformation can involve
new value propositions in terms of products and services, how these offerings are
delivered and supported, and/or how the enterprise is organized to provide these
offerings”. In addition, the transformation is a step change in performance. The firms
that conduct a conscious and sustainable transition are expecting “a higher level of
business performance and organizational health, based on a fundamental shift in
underlying capabilities, systems, and processes” (Gerstner, 2003).
Rouse (2005) introduces a model describing the theory of enterprise
transformation (Figure 1) as a system provides a basis for understanding the
possibilities for transformation – relationship between the enterprise and context. In
this model, “transformation is driven by value deficiencies and involves examining
and changing work processes”. For a long-term development, the model can be
used in order to exam how changes are likely to affect future states of the enterprise.
Potential impacts on enterprise states are assessed in terms of value consequences:
potential value and projected value. The projected consequences influence how
investment of inputs – i.e. attention and resources are allocated. How to organize, to

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operate and to achieve a good results are depending on the problem solving and
decision-making abilities of management, as well as the social context.
Figure 1: Theory of Enterprise Transformation
Digital Transformation
In this paper, Digital Transformation is the enterprise transformation in
adopting digitalization wave of economy, society, and human behavior. A research
conducted by MIT Center for Digital Business and Capgemini Consulting in 2011
defines Digital Transformation as “the use of technology to radically improve
performance or reach of enterprise”. Chaffey, Ahrel, et Carson (2015) explained the
concept with more operational details “A staged programme of business
improvement to People, Process and Tools used for integrated digital marketing to

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maximize the potential business contribution of digital technology and media”. To be
conclude, the digital transformation has two main aspects:
1. Companies need thoughtful internal changes in both operational and
practical levels: concept understanding, strategic thinking digital,
advanced systematic work process with new technologies.
2. A continue improved digital business strategy need to be planned and
implemented to adopt the requirements of the customers, partners, and
industries.
Digital Transformation Framework: The What and the How Framework
In the research of MIT and Capgemini (2011), executives in all industries
consider digital as an important changing factors that needs to be pay attentions to
and adopt to. Some of them are now changing customer relationship, internal
processes and value propositions by improving the use of traditional technologies
such as ERP and benefiting from digital advances such as analytics, mobility, social
media and smart devices.
Three key areas are affected by enterprises’ digital transformation: customer
experience, operational processes and business models. Nine key elements – three
possibilities of each area compose the transforming visions. Companies use
technology and online channels and tools to gain an in-depth understanding of
specific geographies and market segment – gain from customer experiences. In the

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virtual digital world, even front-office staff in the companies are lack of face-to-face
clue during the communication with customers. However, the positive side is that it’s
possible to get the most realistic information by analyzing how people behavior in the
digital world. In addition, social networking sites or professional communities can
also be used for interacting with customers directly. The use of technology in order to
enhance in-person sales conversations is so-called Top-line growth. Benefiting from
the advantage of big data, companies be able to provide personalized services and
information in order to increase the purchase perspectives and finally the
conversions. Due to the trust issue, the touch points are required. Multichannel
activities allows customers to interact with companies and purchase via multiple
devices and even in the psychical stores or agencies.
Apart from the most visible transformed customer experiences, the
operational process transformation that takes place internal is important in
supporting corporate complex tasks. New technologies are extending the trends of
gaining benefits beyond efficiency: automation can reduce labor requirements,
improve product quality, and reducing product development lifecycle and changing
quickly in response to market changes; enable companies to refocus people on more
strategic tasks, including R&D processes. With the unlimited communication paths
and channels within the companies in both vertical and horizontal, the employees in
different domains are able to collaborate with others. The data is more transparency
with the digital transforming internally, enabling organizations to more accurately
monitor and manage their performance with the help of Key Performance Indicators

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(KPIs). The strategic decision-making are more realistic and corresponding to the
competitive environment.
The last aspect is the business model. Digital provides a great business
opportunities: the companies can growth by providing digitally-modified businesses
such as sales on e-commerce platforms; they can expand the business scope from
new digital businesses such as the trackable delivery from logistics companies.
Multi-national firms are transforming to global operations thanks to digital
globalization. Both local and central can benefit from broader view of the business
through centralized data and make strategic decisions.
The study argued that in order to transform from traditional business to
digital successfully, a diagnosis of the potential value of existing corporate assets
need to be done first and then building a transformative vision for the future. Then
the company need to invest in skills and initiatives to make the vision a reality.
Three-step process is proposed to drive digital transformation (Figure 2):
1. Envision the digital future for your firm
2. Invest in digital initiatives and skills
3. Lead the change from the top
After setting up the strategic objectives and preparing the assets in both
capability (initiatives) and competence (skills), the work streams – efficient
communication and governance - are taken place as fundamental indicators

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determining the outcome of the digital transformation process by ensuring the firm
moving in the right direction.
To have a clear version in this complex framework, two terms are the “must”
in the digital maturity of an organization: “The What” – digital intensity of the
organization – the specific set of elements (e.g. nine digital elements) implemented
by the organization and sources like digital capabilities and investment used to do so;
and “The How”, as the transformation management intensity, the ways in which the
transformation can lead to a successful outcome, including digital vision, governance
and engagements.
Figure 2: The What and the How Framework

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The framework is combined micro and macro elements, analyzing the
company from internal operation process and investment to external digital
marketing strategy to satisfy customer expectations and to gain competitive
advantage in the industry. The logic of “what” and “how” facilitate understanding of
this mechanism and enable decision-makers in the company establish a helpful
digital strategy and transformation process.
2.1.3 Digital Strategy – The Key Element in Digital Transformation
As studies explained before, digital transformation is not only about the
technology, but also about the challenges and opportunities associated with the use
of it. Digital as a new concept that is being recognized after the development of
Internet, is an attracting and developing field for all industries. As a key element in a
successful digital transformation framework, a clear digital strategy is essential to
point out the right direction to move forward.
Kane, Palmer et al (2015) in the annual survey conducted by MIT Sloan
Management review in collaboration with Deloitte pointed out that “Strategy, not
technology, drives digital transformation”. In this survey, it captured insights from
individuals in 129 countries and 27 industries and involved organizations of various
sizes – large, medium, and small ones. No matter how much companies have
invested in digital technologies – social, mobile, analytics, and cloud, the strength of
these technologies doesn’t lie in the technologies individually. The important thing is
how companies integrate them to transform their businesses and how they work.

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One of the key finds in this survey is that apart from leadership approaches and
cultures needed to support, digital strategy drives digital maturity to a great extent. A
digital maturing organization follows a clear and coherent digital strategy and
effectively communicates it to employees. From the companies at the early stage of
digital transformation, only 15% of respondents say that their organizations have a
clear and coherent digital strategy. This percentage increased to 49% in developing
stage. Among the more digitally mature, the number leaps to 81%. Depending on the
digital transformation level, the companies build their strategies by focusing on
different aspects:
• Early-stage: Customer and Productivity Driven – about 80% cite focus on
customer experience (CX) and efficiency growth
• Developing-stage: Growing Vision – more than 70% cite focus on
transformation, innovation and decision making
• Maturing-stage: Transformation Vision – over 87% cite focus on
transformation, innovation and decision making
Key Elements of Designing a Digital Strategy
Bharadwaj, El Sawy, et al (2013) argued that the term Digital Business
Strategy should be used for describing the information technology strategy in
companies by rethink the role of IT strategy, “from that of a functional-level strategy –
aligned but essentially always subordinate to business strategy – to one that reflects

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a fusion between IT strategy and business strategy”. The study identified four key
elements – the scope, the scale, the speed, and the sources of business value
creation and capture to guide future thinking on digital business strategy and provide
a framework to help define the next generation of insights (Figure 3).
Figure 3: Drivers of the Four Key Themes of Digital Business Strategy
The scope is used to define the portfolio of products and businesses as well
as activities that are carried out within a company’s direct control and ownership. In
the research (ibid) argued, “understanding the scope of digital business strategy
helps to conceive its relationship to firms, industries, IT infrastructures, the external
environment, and how digital business strategy can be more effective in a variety of
settings”. All of the functional and process strategies are encompassed under the
umbrella of digital business strategy with digital resources serving as the connective

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tissue. Rai et al (2012) explained that digital business strategy relies on rich
information exchanges through digital platforms inside and outside organizations,
allowing multifunctional strategies and processes to be tightly interconnected with
the aid of interfirm IT capabilities. Over time, as firms and industries become more
digital and rely on information, communication, and connectivity functionality, digital
business strategy will be the business strategy. The digitalization of benefiting from
the power of digital resources in the company encourages them to create new IT
capabilities and craft new strategies around new products and services (Ray et al.
2005). As a result, the clear reconceptualization of the role of digital connections
within a firm4s corporate portfolio of its scope – products and services help to better
prescribe the digital business strategy under increased digital conditions in a certain
extent. Moreover, in digital dynamic environment, the business ecosystems cannot
be conceived independently as it enables firms to break traditional industry
boundaries (Saraf et al, 2007).
When infrastructure becomes increasingly digital, firms need to think of the
scale in both physical and digital terms as both fields confer benefits of lower unit
cost of products and help enhance profitability (Bharadwaj, El Sawy, et al, 2013).
Cloud computing solution provides a strategic dynamic capability for firms to scale
up or down its infrastructure based on on-demand of digital resources in competitive
market. Network effects become the key differentiator and drive the value creation as
the products and services become digital and connected. In addition, the

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understanding and capabilities of acquiring the huge quantities data, information,
and knowledge affect digital business strategy.
In digital world, the information is more transparent and easier to access.
The speed of product launches, of decision making, of supply chain orchestration,
and of network formation and adaptions become an important driver of competitive
advantage for firms. The firms that act faster than competitors have greater chance
to gain market share by satisfying the customer demands and gain margin by
reducing the costs from more efficient internal innovation, production, working
processes.
The fourth driven element is the sources of value creation and capture.
Digital business brings in additional dimensions that may provide opportunities of
value creation and capture. The basic source is Information. Facebook, Google, and
eBay are few examples of new value creation from information collection,
re-organizing, and exchanges. Multisided business model in digital industries is
well-developed, not only software like Adobe Reader, but also network platforms,
and any other possible products or services can benefit from multisided interaction.
Coordinated business models is more commonly adopted in technic-oriented
companies, especially, in the case of mobile ecosystem, the value capture involves
complex coordination between app developers, and the mobile operation systems
like iOS, Android, and Windows.

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2.2 Digital Transformation in SMEs
2.2.1 Critical Success Factors (CSFs) of SMEs
Small and medium-sized enterprises (SMEs) have a vital role in the private
sector of each nation. As described in the study of Ensari and Karabay (2014), SMEs
have a very important role of introducing and exporting the local products and
services to the international markets, as well as competing with multinational
competitors and foreign SMEs in the domestic markets. “The benefits of smallness,
flexibility and rapid response to changes, on the other hand, the disadvantages of
size may provide SMEs different paths in globalization phase”.
Rockart (1979) developed the definition of critical success factors as “areas,
if satisfactory, that will ensure successful competitive performance for the
organization” to help executives identify their needs. Based on the findings of
previous researches, the factors that affect SMEs business success were classified
into different categories: entrepreneur characteristics, characteristics of SME,
management and know-how, products and services, customers and markets, the
way of doing business and cooperation, resources and finance, strategy, external
environment, and internet. Due to the economic, geographical and cultural
differences, the CSFs could vary from one country to another. Ghosh et al. (1998)
found the six top components for a successful strategy dynamics of SMEs in
Singapore: “1) A committed, supportive, and strong management team. 2) A strong,
visionary, and capable leadership. 3) Adopting the correct strategic approach. 4)

27 |
Ability to identify and focus on market. 5) Ability to develop and sustain capability. 6)
A good customer and client relationship. However, after analyzing 163 SMEs in
Jordanian, Al-Mahrouq (2010) argued that the top factors that have positive and
significant impact on the success of SMEs are “Technical procedures and
technology, Structure of the firm, Financial structure, Marketing and productivity and
Human resource structure”.
Digital Business CSFs of SMEs
The small and medium enterprises are the type of enterprise that can benefit
more using the Internet for digital business. Rahaya and Day (2015) claimed that the
determinant factors of e-commerce adoption by SMEs in developing country are
perceived benefits, technology readiness, owners’ innovativeness, owners’ IT ability
and owners’ IT experiences. The key of the digital transformation process is the level
of integration of digital business (DB) and trade between external and internal
processes and systems, to enable enterprise to do development of successful and
sustainable digital business models. As SMEs are very susceptible to environmental
factors (Blili and Raymond, 1993), it is crucial the identification of contexts and
significant factors for the success of digital initiatives and an explanation of their
impact. Therefore, the studies about digital integration and e-transformation
framework and process in SMEs were performed.
MICEP “Metodologia para a Implementação de Comércio e Negócio
Electrónico nas Pequenas e Médias Empresas”– a methodology for digital business

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in SMEs was introduced by Mademe (2009). The idea is to provide a visual
representation of the major steps to be taken towards the transformation to a digital
business, so that a company is able to see its current position and plan the future
path. Each step represents a level of sophistication in particular. The methodology
consists of several stages and sets up its implementation in continuous cycle (Figure
4). The activities included can be divided into two parts: a group of main activities
which constitute the core of the methodology, and the second a set of
complementary activities which support the realization of the main activities: a full
analysis of the work done and the results achieved in order to define future paths for
improvement.
Figure 4: The MICEP Methodology

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“As the main activities (MA), 7 steps are being defined:
MA1. Current Situation Analysis
MA2. Verification of the existence of conditions for the digital
business
MA3. Amendments to the creation conditions for the digital business
MA4. Strategic Lines Definition
MA5. Tactical Definitions
MA6. Implementation
MA7. Analysis of Result and Impacts

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As complementary activities (CA), 3 steps that should be followed:
CA1. Initial Setting (characteristics of digital business, conditions for
e-adoption, conditions for digital business)
CA2. Change Management
CA3. Definition of Success Metrics”
2.2.2 China’s SMEs
As in most developing countries, SMEs constitute an important economic
sector in China because they are significant sources of wealth and employment.
Even though the individual contribution of a SME to the national economy may
appear relatively insignificant when compared to a large corporate, the aggregate
contribution of all SMEs can be sizeable. As described before, 70% of China’s GDP
are generated from SMEs in 2014.
In the macro level, the study on the development of Chinese SMEs’ by Chen
(2006) found that (1) the economic laws and the fundamental role of the market in
allocating resources should be respected to guide SMEs to a sound track of
industrial development; (2) the self-operation status of SMEs facilitate the
establishment of a mechanism of self-investment and self-development of SMS; (3)
to encourage SMEs to optimize industrial structure and enhance their
competitiveness benefiting Chinese SMEs to gain an amazing expansion in terms of
number and scale; (4) it is important to properly handle The relations between the

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government and enterprise and bring the role of the government in macro control
into the full play so as to create a fire competitive environment for SMEs.
In the operational level, within the SMEs, several important conclusions of
strategic decision-making process have been drawn by Huang (2009). In China’s
SMEs, the steps involved in the decision making process are less complex than
theoretical models. Chinese SME owners and managers rely heavily on their
personal networks for identifying opportunities in the business environment, and for
information search and advice. The ownership significantly influences the degree of
participation and the level of political activities in the strategic decision-making
process.
Digital transformation in China’s SMEs
Digital transformation is still in the earlier stage in China. A survey (Fong,
2011) indicates that Chinese SMEs are involved in a limited range of business
activities in e-commerce. Their level of trust for new business features such as online
payment is low, because of their unfamiliarity with security issues. Therefore, most
SMEs tend to use the Internet only for basic purpose. A large number of online
activities are directed towards product-oriented information search retrieval and
announcements including advertising and brand building by creating webpage for
business information purposes. The adoption of electronic interconnection for
strategic objectives is low.

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The study showed that the Chinese SMEs indicated that for surviving the
competitive marketplace, highest priority needed to be given to IT applications in
marketing and sales activities. And in terms of IT investment, “Chinses SMEs’
investment in IT training, consultancy, and maintenance, as a percentage of sales
revenue, was on average 60% less than large corporations”. The study believed that
Chinese SMEs are lack of long-term planning and IT budgeting that has resulted in a
high level of resistance towards investing in IT. The limited awareness of owner and
managers, of IT potential and, of the benefits of implementing strategic and
integrated systems enabled by IT is affected by this lack of technical resources and
expertise.

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III. Methodology
3.1 Descriptive case study approach
Schelle (1992) said that management studies and organizational theory rely
heavily upon the case study as a form of data collection and even as a type of
unstructured analysis. And the case study is the best suited to considering the how
and why questions, or when the investigator has little control over event. Robert Yin
(1984) defined a case study as an attempt to examine: “a contemporary
phenomenon in its real life context, especially when; the boundaries between
phenomenon and context are not clearly evident”.
Yin (1993) has identified case studies into three types: exploratory,
explanatory and descriptive case studies. “An exploratory case study is to define the
questions and hypotheses of a subsequent study or to determine the feasibility of the
desired research procedures, exploratory cases are sometime considered as a
prelude to social research; an explanatory case study is to investage the causal
relationships in the hypotheses; and the purpose of a descriptive case study is to
present a complete description of a phenomenon within its context. Descriptive

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cases require that the investigator begin with a descriptive theory, or face the
possibility that problems will occur during the project (Yan, 2003). Digital
transformation study is a topic existing in the latest decades. Certain studies applied
quantitative methods by conducting survey with certain group of people, normally the
CEOs of SMEs. Other researches studies through either qualitative studies by
interviewing top-management team of the companies or descriptive case studies by
describing companies historical development processes and conducting the
interviews with certain key stakeholder in the changes. From previous studies, the
key fields, elements, and involved parties have been clear identified. The difference
of the CSFs and transformation process are mainly due to the variety of macro- and
micro- environments that SMEs belong to. To see how traditional Chinese SMEs
implement digital transformation in their daily business and adopted the challenging
market, it is essential to have a close observation on exactly “what” companies do
and “how” to do it. Therefore, this paper selected descriptive case study approach to
understand the reality of China’s SMEs.
Single-Case Study
Willis (2014) argued that there are three key points that are central to the
principles of single-case study research: respectively concerning issues of ontology,
epistemology, and methodology. In his study, he concluded that: the various forms of
single case analysis can provide a nuanced, empirically-rich, holistic account of
specific phenomenon; when analyzing a single case, it incorporates both idiographic

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sui generis cases and, where the potential of generalization may exist, nomothetic
case studies suitable for the testing and building of causal hypotheses; and finally,
single case study benefits at a more practical rather than theoretical level. To
conclude practical framework and advices and to understand the whole structure and
management performance under digital transformation pressure, this paper analyze
one single case exhaustively.
3.2 Data Collection
The six sources of data collection in case study research are identified by
Yin (2003): documentation, archival records, interviews, direct observation,
participant observation, and physical artifacts. Documents could be letters,
memoranda, agendas, study report and etc. Stable, unobtrusive, broad coverage are
the advantage of documentation. Archival records have not only all above strengths,
but also precise and quantitative since it include service records, map, charts, lists of
names, survey data, and sometimes even personal records. Interviews can focus on
case study topic and get insightful opinion. The rest three sources – direct
observation, participant observation, and physical artifacts require a site visit to
observe or event participate in the activities. No single source has a complete
advantage over the other; rather, they might be complementary. Thus, in a case
study, it would be better to use as many sources as are relevant to the study.
As this study is a single case analysis, many sources of data are used to
have a global and detail view of the digital transformation process, its influences, and

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performances within the company. There is no existing study that focus on the
company. Therefore, the major information are gathering from corporate publications
and articles from local newspapers and web portals. In addition, three interviews
were performed from long-distance through Skype or QQ – a Chinese instant
messaging software. The interviewers were the owner and manager of the company,
comprehensive department manager, and sales and marketing manager. According
to each one’s responsibilities and working aspects, different questions have been
asked. With the director, most questions were related to the strategic management,
including company’s long-term strategy, the objectives of digital transformation, the
financial strategy and digital investment. The manager in comprehensive department
is responsible for operation management, human resources, security, and logistic.
Therefore, the questions were in operational level, focusing on the challenges and
changes to normal working life – the requirement of material, equipment, and experts,
the response of employees within different departments, and the challenges to
company’s structure. Sales and marketing manager in this company is
objective-oriented people as he is responsible for generating the revenues. As a
result, during the interview, the major topic was to find new business opportunities
and benefit from the new technology and networks to establish brand equity. The
objectives of the questions are to know the main marketing work stream of the
department in the digital era, the challenge for current team (from internal and
external), the new opportunities, and the future business development plan.

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IV. Case Study
4.1 Case Description
4.1.1Company Introduction
This paper selected a small-sized joint venture who expands its business in
chemical industrial sector. The company was a traditional manufacturing company,
its registered capital is 50 million RMB (more than 7 million US dollars at that time),
covering an area of more than 50 square kilometers in the National Chemical district
in a secondary-level city. In terms of production, at the beginning, the company
invested more than 200 million RMB (early 29 million US dollars) to build its factory
with the 2 automatic product lines and annual production 60 tons of carbon black.
The product of the company is carbon black – a material produced by the
incomplete combustion of heavy petroleum products – which is widely used as a
model compound for diesel soot for diesel oxidation experiments such as reinforcing
filler in tires, and other rubber products. The company commits to meet the
diversified and unique requirements of its customers. So far, it owns 3 carbon black

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production lines to provide the market 6 series rubber car tires. Besides, the
powered carbon black produced by the special power line is widely applied to the
field of sealant. The rest special production lines are designed for more than 10
grades of DT series carbon black which could be used for making fiber, conduction,
ink, and plastic field. Now, as a famous brand in the region, apart from the domestic
market which contributes more than 70% of total revenue, company’s products have
been exported to more than 10 countries in the global market, covering the rest 30%
of company’s revenue.
As a high-tech chemical enterprise, the company has a provincial
engineering and technology center as well as a post-doctoral research center. Vast
amount of funds for researches are focusing on the topics of process equipment,
plant control, product development and application and environment protection. So
far, the company has owned 13 patents, involved or presided for revising 9 national
standards.
So far, there are about 150 employees, among them, 25 engineers, and 60%
of total employees were collage-trained. Apart from the top management team
including the director, vice director, chief engineer, and chief financial officer, the
company has 5 departments, and most of the department take care of more than two
missions (Figure 5): Finance department – accounting management and statistical
planning; comprehensive department which is responsible for administration,
security, human resource, and operation management; trade department includes

39 |
both purchase and sales and marketing; production technology department which
takes in charge of production, logistic, and maintenance; and research and
development center.
Figure 5: The Organizational Structure
4.1.2 Digital transformation in the Company
Customer Experience
Director
Financial
Department
Comprehensive
Department
Trade
Department
Production
Technology
Department
Research &
Development
Center
Chief Financial
officer
Vice Director
Chief engineer

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The digital transformation in the company is in the early stage. The digital
activities are customer and market oriented. The company built its corporate website
from beginning in order to get customer know about the company and the products.
Therefore, the website is designed as an information center instead of online
business platform. Eight sections have been defined on the website: About Us
including introduction of the company, corporate culture, and organization structure;
Products – a main catalog page including available carbon black series, and detailed
information such as the technical standards, the performance, and the usage can be
found in the product page – each series has a dedicated page to present. Quality
Certification presents the high quality control of the company; Supply and Demand;
Equipment – similar to a gallery as in this section, it shows the photo of production
equipment, the control center, and as well as the R&D center; News – articles of
important internal and external events; REACH regulation – in this part, the company
presents the REACH (Registration, Evaluation, Authorization and restriction of
Chemicals), a European Union regulation which is important for chemical products
import and export to European market. In this article, the company explained in what
way the company achieved the standards and can supply the European market
without any legal issue; and finally the Contact Us – a list of contact information for
sales, purchase, and technology support.
To support the sales growth and let customer be able to reach the company
and product via different channel, the company have generated introductory content
for itself and the product on regional “yellow page” platform, aiming at attracting

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potential clients as well as supplier contacting them directly. To catch the digital
trends, company has an official account or so-call e-shop on “China.eb80.com” – a
Chinese domestic B2B platform in all kinds of products. For each corporate account,
the platform provides different modules for displaying the content reasonable and
logically: homepage, products displays, purchase list, company introduction, news,
gallery, career center, and contact. However, even the company created an account
to open a shop, most of the modules are empty, and even for product, only “carbon
black” – the generic term is displayed without any detailed product description. The
content on the platform are exactly the same as the ones on corporate website.
Moreover, in 2014, the company joined O2O platform “oky61.com” which provides
trading platform, comprehensive service information, marketing and promotion,
technical support, logistics especially warehouse monitoring and financing services
for industrial products suppliers and buyers. As the platform focuses on global
business explanation and has offices in Russia, Germany, Thailand, Korean, the
United States, India, Brazil and etc, the objective of joining this platform is to expand
its international market. Similar as on China.eb80.com platform, no content apart
from company introduction, product “carbon black”, and contact information is
displayed.
In the social media, the company run a public account WeChat – one of the
most popular free messaging & calling app in China - try to contact with customers or
potential buyers directly. For customer contact, the company does not invest in
corporate email, meaning no official email with company’s name in the domain.

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Instead, they apply a free normal email account with the company’s name before @
plus the server name.com. In addition, for instant messaging contact, they are using
QQ accounts.
Operational Process
Within the company, the digital activities are much simpler. The company
built an intranet on local drives to share internal information, documents, as well as
data which has high requirement level in the transparency among different
departments for logistic management. The main objective of this intranet is to
manage the employees working activities when using companies by controlling their
capabilities on the Internet. In the meantime, share certain internal document,
normally agenda, contact information, new company’s regulation, and certain
working process instruction. Besides, the transformation in work stream is more like
an informatization rather digitalization. ERP – Enterprise Resource Plan is integrated
in Production Technology Department and Trade Department as it is widely and
efficiently used in production and logistics management. Based on the requirements
of the order form sales combing with production capabilities of the chemical plat, the
software will update a production plan with required materials and the quantities, as
well as the estimated time line. Moreover, according to the production plan, it will
check the quantitative information of all required materials and therefore ensure a
stable production plan. This material demands will send to Trade department to
purchase the correct materials on time. In order to ensure the production quality,

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DCS – Distributed Control System and SPC – Statistical Process Control are applied
to ensure the product qualities during and after the production process. All these
three solution are based locally, no cloud solution is integrated.
Initially, the company had only the DCS and SPC for production purpose. As
the whole production process is automatic, there was less than 20 employees
working in this areas. The major job here is to monitor the process and material
quality. The employees whose missions include operating the system are the ones
that have gained knowledge in the industrial sector and that are able to work
independently after the short-term training. Moreover, the operation of these two
system is within the department, meaning no coordination between departments is
required. With the implementation of the first informatization in the working stream –
ERP, the coordination and communication are becoming critical. To full in the
updated information in the software costs labor power as well. The employees of
trade department are hardly working from the company as most of them have to visit
clients or suppliers, only the staff who is in charge of international business has the
chance to update the information as the major communication between him and
international clients is via email. The challenge is that he is not familiar with the
situation in the domestic market and not be able to gather order information in time.
Due to this initial delay, the production could not get a precise plan to organize the
manpower within its own department. The problem had not been solved until the
second half year of the implementation of ERP. It took a real long period for involved

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parties understanding the advantage of the solution and trained them to consider the
use of this solution as a part of routine work stream.
Business Model
The way of doing business in the company does not change with the
implementation of digital or information system. All of the company’s revenues are
coming from offline businesses – partner particularly. From the business perspective,
as a chemical industrial company, the director believes that “it does not make sense
to provide other service or products apart from carbon black”. And currently, the key
missions within the company are to differentiate from competitors by improving the
productivities and diversifying the range of products. However, the presences on two
online platform indicate that the company would like to participate into e-business.
4.2 Findings and Discussions
4.2.1 Main Boundaries in Digital Transformation
Lack of awareness and strategic vision of Digital
“I know the company need to go Digital, but we have not figure out
why…most of our clients would like to visit our plant and see the samples before
giving an order…the trade manager said we needed to present on e-commerce
platform and it does not cost much, then I agreed”, director said.

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The director of the company does not have a clear vision of the opportunities
in digital era or the strategic vision of digital transformation impacts within the
corporate. Two main reasons that causes the issue:
1. The understanding of the industry in this dynamic environment
2. The lack of knowledge about digital capabilities
According to MICEP methodology, the first step of the process is to the
current situation analysis. This is an essential step to prepare the transformation in
the company. Several analysis frameworks have been introduced, such as SWOT
and Porter’s Five Forces that are the most popular used ones. Following all the
studied item, the company would be able to perform a throughout industrial analysis.
To conduct this analysis, the company need to know its competitors including their
latest improvements like the new equipment to improve production capability, new
marketing channels (online or offline), or new innovation to increase the efficiency.
The macro environment such as national policy, economy (i.e. price of base oil, labor
cost, etc), as well as technology innovation have serious impact to SME’s decision
making. The studies of suppliers and buyers can help company have first-hand
information about the new requirements or even the standard in the market.
Therefore, it can have a clear direction to work on. Without a clear understanding of
the environment, it is difficult to have a long-term strategy.
In addition, the company need to be aware of new technology and its
capabilities. As digital has become a new industrial revolution, the company need to

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pay attention to the challenges and opportunities that digital era brings. It is more
than marketing and sales, it can benefit company’s whole value chain to not only
become more and more efficient but also figure out the improving point by
implementing digital services and solutions. Cloud computing and big data are the
most important topic for the internal working process improvement.
Now, the company is definitely a “follower” as all its digital activities are
learned from others and highly influenced by the so-called “digital trends” – the hot
subjects. As e-commerce become popular, it goes to B2B platforms; and then joined
O2O platform when this new concept is shifting from B2C to B2B industry. Same for
the social networking platform. With the Internet infrastructure development, the
smartphone is becoming one the most used devices in China. The touch point on
mobile channel is absolutely necessary. The wechat business – an M-commerce
digital model is invented based on WeChat ecosystem. Some famous brands have
create their official account in WeChat. The company created its own account in
2015 trying to expand their business by benefiting from the new trends. All above
activities were proposed by trading department, mainly the marketing team.
“We have quarterly quota of orders, the priority for us is to find buyers to
achieve the target…The brand reputation is important and we definitely want to work
on it, however, it is difficult under this sales pressure…”, said trade department
manager.

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This is a common limitation for traditional small and medium-sized
enterprises in China. Brand equity – “the set of associations and behavior on the part
of a brand’s customers, channel members and parent corporation that permits the
brand to earn greater volume or greater margins than it could without the brand
name” (Leuthesser, 1988) – is a luxury product for these companies as they must
ensure the normal operation, meaning keep receiving orders, maintaining a regular
productions, gaining revenues, and be able to pay all the salaries in time. The brand
management is a supplementary and may not be invested in the first 5 and even
longer period as this is a long-term investment and cannot be able to receive
expected result. That may explains why the initial company introduction on corporate
website has not been updated for nearly 10 years. Between certain pages, the
content are different. It is dangerous for the company, especially the objective of the
corporate website is to promote the brand and let people know company’s name and
products.
With Internet, everything spreads fast and effectively. Markers need to be
careful about what to put on the Internet. In digital marketing, the major challenge is
the acquisition – how to get traffic – letting corporate website present when people
are looking for products that company provides, company name (brand), or even
other services within the industrial ecosystem. Therefore, one single mistake or
inappropriate context, functions and etc. will descry visits first impression and they
may not come back in the future again. Therefore, the company losses their future
clients.

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Lack of sufficient change management
In the operational level, the top concern is how to change efficiently with
supports from all employees that involved in the changes.
“The trouble is to let all employees understand the importance of the
changes and align with the strategy. Most of them don’t like changes as they believe
that with the changes, more work will be given…sometimes, without clear
explanation and efficient communication, there might be conflict among
departments”, operational manager.
As for informatization, the digital transformation is a serious change which
will impact the company. For example, the work process in Trade Department might
be change if a cloud computing solution such as salesforces is integrated. All
department member would need to spend sometimes on their applications and share
the network with coworkers. The daily sales meeting may be not needed any more
and all information are posted on internal cloud solution. The CRM would be
managed at a higher level. From a positive side, first, it saves money in certain
extent. There is no need for employees coming back to the office after visiting the
clients and the working hours are more flexible as they can manage their own tasks
whenever they need. It helps the company to save their transportation cost as well
as the time consumption. Secondly, by gathering all information together, the team
manager can have a global view about the clients and their requirements. Therefore,
they are able to provide useful and accurate information for R&D and show a future

49 |
working direction by analyzing the data of customer demands, behavior as well as
the buyers’ profile (in corporate level). In additional, the department can have a
targeted marketing strategy by segmenting their clients. It will help the company to
gain better knowledge about the clients. Last but not the least, However, from
individual point of view, the drawback of this solution is significant. As in the
department, the individual bonus are tight to the orders, meaning more orders more
revenue. Sharing clients from individual point of view is a loss. It may motive
employees in a negative way. To solve the issue above, there must be a change in
the salary policy. It means additional work for human resources and finance.
“No change happens independent and isolated. In the company, any
changes will affect others’ interests more or less…” The comprehensive department
manage does not want any changes as they are the one in charge of all the
coordination among departments, the office suppliers and maintenance, and one of
the most important part – human resources. The inefficient ERP implementation in
2007 indicated that there was no sufficient change management or internal
communication in the company, meaning in certain extent, the comprehensive
department was not working properly. Without any turnover or training, the
coordination skill and execution ability of this department may not be able to handle
a major digital implementation.
Lack of experts

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From management perspective, the company does not have experts to
provide useful suggestions or proposals in order to facilitate the digital transformation
process. In terms of technology, there is an IT expert in the company taking care of
the safety of the intranet, as well as supporting and maintaining the use of information
system within the company. However, in the digital level, these skill are not enough, a
training would be one of the basic requirements. In the operational level, with current
labor force, the company is shorthanded to having several employees taking care of
digital work stream. In addition, the lack of experiences and certain expertise indicate
a recruitment is needed.
4.2.2 Digital Strategy Analysis
Current customer-oriented digital presents are not efficient for a company.
Firstly, the contact email with @163.com and QQ as a communication tool in
B2B indicate the company does not pay attention to their online image. Official email
address in large or medium-sized enterprise always use company’s name as a
domain adding after @. The use of 163.com the email service provider explains the
company does not know or at least not an adventure in digital world. When doing
business with a foreign company, this email domain will let them question about the
reliability of the company and therefore, lose opportunities. In addition, for the instant
messaging solution, it’s OK of using QQ. However, two attentional disadvantages
should call an alert. 1. The communication via QQ will make contactor leave as in
order to chat, the contactors would have to install QQ in their devices. For the person

51 |
who use a company computer, there is a great chance that the software does not
exist. And the users may also do not have the right to install a new software without
asking IT. 2. The initial marketing position of QQ is a friend and family oriented tool.
Therefore, most of QQ users are considering it as a personal one. When
communicating with a stranger via QQ, the privacy and the security are always the
reason that people leave.
Looking at the corporate website, which is acceptable in terms of structure
and functionality. The website have a product selector tool for visitors searching for
the products based on the series and price. However, maintenance is the biggest
problem on the website. The content are out of date, some partner links are expired,
the product selector stopped working as there is no successful search can be
performed with the integrated database, and etc. The presence on the Internet needs
to be accurate since in digital age, the first information that potential clients receive is
on the Internet.
The company does not have a real e-commerce activity. The presence on the
Chinese B2B and the O2O platforms are not representative. The objective of
expanding the business is difficult to achieve as part from company introduction and
“carbon black”, nothing is generated on the platform. Meanwhile, the selection of
China.eb80.com may not be a good choice as there are way much Ad exchange
banners displaying on the page. It is easily to miss the key content that belong to the
company.

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4.2.3 Implementation Steps
Reviewing the real situation with MICEP model (Mademe, 2009), all seven
main activities are essential in company’s digital transformation. However, the weight
of each highly depends on the firms. For the selected company, the current situation
analysis would be one of the most important steps. With a throughout analysis of the
firm as well as the industry, the company will gain a broad vision of digital and
establish a strategic vision in certain extent. The step2 – verification of the existence
of conditions for the digital business and step3 – amendments to the creation
conditions for the digital business are less important for the company as the internally,
digital participate tiny part of its business. However, studies of both factors are
needed to review the external environment, such as the most used B2B platforms,
and new technology that can benefit the product process and etc. The next step –
strategic lines definition would be the most important step for the company as does it
in most of the enterprises. Executive management should spend some time to
discuss and agree with the digital strategy. Once this step is achieved, the next one of
tactical definitions will be clearly reviewed. Implementation as the step6 is the key to
success. It is important to ensure the costs as well as the accurate of the solution or
activities before actually using it. It would a time consuming task, but it’s worth to slow
down. The last step – analysis of results and impacts is a continue mission. This is the
moment to measure the performance of all internal and external digital activities. The
result will help to identify the area of improvement. A regular reporting is needed.

53 |
4.3 Recommendations
As conclude before, the major issue for the company is to understand the
market and industry and set a clear digital strategy. Depending on the budget as well
as the positioning, two approached can be proposed:
1. Business-oriented digital transformation;
2. Enterprise-oriented digital transformation.
The first approach is focusing on the e-business and e-marketing activities.
Although sales is the top priority, in digital, the e-business activities is less important
than brand image at this stage, especially in B2B market. The main area to work on
would be the optimization of corporate website, including functional specification
evaluation and re-design, SEO, Media and Campaign acquisition, and analytics
based performance measurement. The company can prioritize these topics according
to each topic’s impact, cost, and labor force. In addition, in this approach, the
changes can happen little by little, without challenge the current work stream.
Therefore, the company would have time to adjust its digital strategy in the dynamic
environment. Within the company, the change would be easier to manage as the
small changes such as add company domain in official email address or shift instant
messaging solution QQ to iframe contact form. Changes in this operational level with
limited number of involving parties are easily to adopt and manage.

54 |
The second approach about enterprise-oriented transformation is mainly
about the internal digital integration, such as a cloud solution for data storage, an
internal communication platform including community, forum, and etc. These kind of
changes are the fundamental improvements and any of them have serious impacts in
the company work stream. The changes here are better adopted as fast as possible.
Then, with the support of targeted training sessions, the employees do not participate
into the decision-making process. Once the implementation is taken place, the
employees’ job is to adopt it. This approach has high-level requirements in
coordination skills and managing abilities. For the company, it would be a challenge.
No matter which approach will be applied, the key to success for the
company is to have the right people to complete the right missions. An exhaustive
analysis of industry and digital need to be done. The hire of external experts might be
a good point to start as these experts know the industry and the digital trends. The
involvement of external experts would help the company to understand itself better
and help executive team to make a practical digital transformation strategy.
V. Conclusion and Future Study
This paper tried to provide a practical used framework to support China’s
SMEs digital transformation as compared to developed economy, the digital
transformation rate in China is low. Companies face the challenges from digital: the
requirement of information in digital channels, the large Internet audiences and

55 |
market, and competitions in digital related topics. To survive and growth in the digital
era, SMEs need to go digital either from internal process-oriented to external
customer or market-oriented. After an insight study of a small traditional chemical
company in China, the study can conclude that three main boundaries that stopped
the digital transformation process in the company: top executive team is lack of
strategic vision in digital; the company does not ready to change as the change
management is insufficient; lack of expert is also a key item that affect the
transformation process in a negative way. MICEP model can be used for Chinese
SMEs digital transformation process. The importance of each step depends on
various factors, such as industry digital performance and the key objective to go
online. As a result, before a SME implements Digital as a work stream, an exhaustive
study need to be done during the preparation.
The future study will be the testing of the findings in different industries. The
paper analyzed a single case may misjudge the global situation. A qualitative and a
quantitative study in other sectors and different sized companies are required.
Moreover, as the global environment may challenge the SMEs in a different way, the
investigation of the performance of digital business models for both SMEs and large
firms might be needed.

56 |
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