JOURNAL OF SMALL BUSINESS~ TRA TEG+ DIGITAL DIVIDE: IMPACT ON HISPANIC-OWNED SMALL BUSINESSES Cecilia Temponi Texas State University-San Marcos c.rem poni@ctstate, edu Jaime Chahin Texas State University-San Marcos tc03@txstate. edu ABSTRACT Information inequity creates a major gap between minority and non-minority businesses in the areas of business opportunities, communication, and information technologies. The purpose of tliis study is to survey the technological potential of Hispanic-owned small businesses (HSBsj to engage in e-commerce, specifically in e-procurement. The nanies of the HSBs were requested from tlie Ofiice of Small Business Administration, whicli provided a national database of 9,800 businesses. A total of l,200 businesses were randomly selected to receive the survey. Results indicate that small businesses haveissues ofconcern regarding ihe process to access the Internet. HSBs find limitations in gaining access to e-commerce and its elements. Some limitations relate to financial constraints to buy computers; other liniitations relate to Iniernet access methodology and ability to hire information technology personnel. Assisting HSBs to gain access to financial resources is crucial towards narrowing the digital divide and therefore reducingleliminating its ejfects on the long-term sumival of Hispanic small businesses. Government agencies and non-profit and private business organizations should develop financial and outreach opportunities to enhance participation of Hispanic- owned small businesses. INTRODUCTION Information inequity creates a major gap between minority and non-minority businesses in the areas of business opportunities, communication, and information technologies. The technological gap or "digital divide" defines the disparity between people or communities that are able to effectively utilize information technology and those who do not have that ability (Benton Foundation 2001a). More recently, a new term, "business divide" was introduced to refer to the issues in the technology inequity debate. A study of minority-owned small businesses reported by PR Newswire (2002) shows that only two percent of African American small businesses and six percent of Hispanic small businesses have an e-commerce strategy, compared with that of 35 percent of non-minority small businesses. Today, e-commerce (which is defined by Chan and Swatman (1999) as one that involves the undertaking of normal, commercial, government, or personal activities by means of computers 73 Journal of Small Business Strategy Vol. /4, No. 2 Fall/Winter 2003 and telecommunications networks; and includes a wide variety of activities involving the exchange of information, data or value based exchange between two or more parties) is one of the fastest growing segments of the economy. Concerns have evolved over the infrequent participation and use of e-commerce by minority-owned small businesses. These concerns are not unfounded. Ferguson (2000) reported that more communications are being conducted over the Internet than over the telephone. He states that 50 percent more mail is being delivered via a private online carrier, America Online, than via the U.S. Postal Services everyday. Ferguson cites that 65 percent of all medium size businesses use the Internet, and 41 percent of businesses have a web site. The numbers of electronic transactions through e-commerce by businesses and individuals have increased by more than 100 percent since the year 2000. This trend is continuing mainly due to rapidly changing business markets and a decrease in procurement and operating costs (Manor, Riolli-Saltzman & Luthans, 2001; Robson Et Benett, 1999; Hecht, 2001). However, Brush (2000) states that businesses that employ less than 100 people are more likely to have little or no use of the Internet as part of their business operations. The Tomas Rivera Policy Institute (TRPI) reported that 31 percent of Hispanic adults have never used a computer; 71 percent of these who have never had the opportunity to connect to the Internet had a household income below $25,000, and 84 percent did not have a college education. Nevertheless, some researchers also believe that the issue of information inequity is not so much about physical or financial capability as it is about education and Internet access (The Economist, 1998). This issue has been also addressed in research by Cutler (2001), Ong (2001), and Nute (2002). The situation of infrequent participation and use of e-commerce by minority-owned businesses might be anributed to a complex combination of factors. These factors are explored by Wallace (1999), La Noue (2000), Kennard (1999), Krasnow (1999), Twist (2001), Yudowsky (2001), Borgida, Sullivan, Oxendine, Jackson, Riedel & Gangl (2002), Black, Robison & Schweitzer (2001), and Benton Foundation (2001a, 200 lb). According to these authors, some of the factors/problems preventing a small business from participating in e-commerce include the lack of: ~ Knowledge and manpower to take on the scope of changes that the Internet and e- commerce bring to a business. ~ Capital to invest in costly systems that allows them to be ready for participation in e- commerce. ~ Trust in the security of the method - uncertainty about the transaction process, especially the security of personal information on the Internet. ~ Direct access to products and opportunities available only through costly Internet systems. ~ Administrative and technical support that can assist in the development of e- commerce. ~ Friendly systems with language-specific content on the Internet to accommodate non-English speaking communities. A few researchers (Garcia, 2001; La Noue, 2001; Lorek, 2002) found that the digital divide appears to be closing for Hispanics. Their views are based on the Hispanic population that is logging on to the Internet. However, the studies show neither the percentage from this group with their own Internet access or the type of users. Nevertheless, these studies recognize the complaints from Hispanic users regarding language-specific content on the Internet that is not addressing the Hispanic population's needs. This brings to light the core issue of lost opportunities for Hispanic-owned small businesses and the lack of Internet access for Hispanic customers. 74 Journal of Small Business Strategy Voh /4, No. 2 FalllWinter 2003 The objective of this research is to explore the perceptions of Hispanic-owned small businesses, HSB hereafter, regarding the impact of the digital divide on their ability to maintain a competitive business position and to actively participate in government procurement, which is significantly conducted through the Internet —electronic procurement. The article is organized as follows: in section one, literature review of the digital divide and of the financial issues that relate to minority-owned businesses is presented. The methodology and survey sent to Hispanic-owned small businesses is presented in section two. Results from this study are discussed in section three. Based on these results, section four provides conclusions and recommendations to private businesses, government, and communities to develop strategies that can decrease the digital divide of Hispanics-owned small businesses. LITERATURE REVIEW Digital Divide Small businesses are the backbone of the U.S. economy; they are the ones that help keep productivity, creativity, and employment flowing (Twist 2001). However, potential of small businesses, especially Hispanic-owned small businesses, is being undermined by the problems dby h dlbl ldl ld . K dll999ll dl lh «h d~iiddl ld 9 ly b inequality in access to technology but also about the unequal access to opportunities to participate in the ownership and management of these vital companies. The Benton Foundation (200la) has defined the digital divide as the disparity benveen people or communities who are able to utilize information technology effectively and those who do not have that ability. More recently, business divide has been defined as the disparity between minority-owned small businesses that use technology at rates far lower than non-minority small businesses (PR Newswire 2002). In spite of these divides in the state of information access in the V.S., there is a general myth that all Minority-Owned Businesses (MOB) know about the Internet. But in reality, many MOBs have no experience with the Internet and do not have financial and technical resources for full access. Even though the Internet can help MOBs provide consumers with better service, create faster productivity, and keep track of business interactions, many Hispanic-owned small businesses face additional problems of access and education. These businesses are struggling to stake a claim on technology while the challenges they face are unique to the underlying technology and its rapid changes (Ford-Livene, 1999). Among the issues related to the underlying technology and its rapid changes, three core items are: qh~bd lbl«h* l,qy lhd 9, and specific software for development of applications. v The human resources to support the technical aspects of e-commerce, e-procurement, and other items as they relate to the fast and constant technological changes. v The financial resources to gain and maintain Internet access. It can be argued that any business must address these core problems when it comes to the digital divide; however, entrepreneurs who own small businesses and are minorities face even more problems when it comes to the digital divide. Not only do they struggle to get customers, raise capital, and comply with government regulations, but they also struggle to leam new computer skills and to become e-commerce literate. Ford-Livene (1999), Twist (2001), Hecht (2001), Cutler (2001) and Chaston, Badzer, Mangles tk Sadler-Smith (2001) pointed out that MOBs must also realize the potential of the Business-to-Business (B2B) and the Internet. It is difficult for business owners to pursue opportunities if their business operations absorb most of their cash inflows and leave them with a little or no surplus 75 Journal of Small Business Strategy Vo/. l4. No. 2 Fall/Winter 2003 resources. Additionally, the digital divide has not been narrowed due to community/cultural and logistics/methodology reasons (Wa)lace 1999, Borgida et aL 2002, Kennard, 1999, Black et al., 2001). Dodge (2000) recognizes that the impact of the digital divide on the ability of minority citizens to compete and operate a successful business is interconnected to class inequality. Minorities (African American and Hispanics) are about 35 percent less likely to have Internet access at home than other Americans, and Hispanics seem more resistant to the Internet use due to the lack of a technology access-friendly culture (Hecht, 2001). Many small businesses are struggling to capitalize on the emerging opportunities of an Internet based economy. They lack the time, money, expertise, and Internet access needed to develop their information technology (IT) capacity in a timely and strategic manner (Twist, 2001; Hecht, 2001; Robson Ec Benett, 1999). According to the U.S. Census Bureau, minority groups have $ 1.3 trillion in annual buying power. This will continue to grow over the next 45 years. Most business transactions will be more likely to happen over the Internet. But little more than half of minority-owned businesses use computers, and of this half, less than half use e-mail, and fewer than that use it to conduct business (Benton Foundation, 2001b). Therefore, for minority-owned businesses, the digital divide is expected to remain a problem in the near future. E-commerce activity is estimated to increase, but numbers show that MOBs are going in the opposite direction (Cutler, 2001). This is because many MOB owners believe that they do not need the technology; there are no business opportunities on the Internet; and/or small profits do not justify Internet investments to stay in business. On the other hand, MOBs need to understand that in order to survive and stay in business, they must get on to the Internet, not only to obtain a competitive edge, but also to help other MOBs stay afloat (Chaston et. al. 2001). Some of these important issues are the result of economic circumstances and the negative predisposition to the status quo, which may have been caused by cultural sentiment or past experiences (Twist, 2001; Dodge, 2001). Research by Hecht (2001), Benton Foundation (2001b), The Economist (1998, 2000) indicates that Internet access is more than a convenience. It is about opportunities for businesses and education and training for those having electronic access. Financial Issues Every business owner has to take into account her/his access to capital; specifically, funding limits or liquidity constraints. Liquidity constraints impact businesses with respect to their start-up and their performance following the inception period and thereafter. Reacting to funding constraints, small business owners supplement insufficient funds with funds from informal sources (personal funds and/or family loans) as well as formal sources (bank loans, government loans, and trade credits). Suppliers occasionally extend trade credit to preferred businesses when their personal funds are not sufficient. Huck (1999a) conducted a study about financial issues for Hispanic-owned small businesses and found that only 57.6 percent of Hispanic business owners were offered trade credit and only 44.4 percent of Hispanic business owners took it. However, this percentage value was based on a pool of Hispanic business owners who were offered trade credit. On the other hand, Martinez (1999) suggests that Hispanics are less inclined to loan money within their own communities, be it out of distrust or lack of adequate collateral. Another source of formal funding available to MOBs and small businesses is the U.S. Small Business Administration (SBA). SBA provides loan guarantees and other help programs to small businesses. These programs have been specifically designed to improve access to capital by small and disadvantaged businesses. However, information channels regarding these funding opportunities serve to only accentuate the gap. Some businesses have the knowledge 76 Journal ofSmall Business Strategy Vol. l4, No. 2 Fall/)Vinter 2003 and skills necessary to access the information while other businesses, especially HSBs, lack of both to access this information (Huck, 1999a, 1999b; La Noue, 2000). As a result, small businesses continue to face difficulties in obtaining the sufficient capital necessary for operating in their particular industries, some of which are capital intensive (Ford-Livene, 1999). Minority-owned businesses represent 12 percent of all the nation's businesses, but they receive only 2 percent of all private equity investments. Discrimination by banks and other financial institutions and the lack of research on the economic potential of minority-owned businesses are some of the challenges faced by many Minority Owned Businesses (Benton Institute, 200 la; Black et, al., 2001). Additionally, recent court decisions have eliminated some crucial economic assistance programs, which once helped small businesses obtain additional capitaL One of the most recent and most devastating decisions was the congressional ruling to eliminate the Federal Communication Commission's Minority Tax Certificate Program. Before its elimination in 1995, the program sought to create opportunities for minority ownership in the communication industry by, among other things, allowing sellers of ownership interest in a minority-owned firm to defer the payment of capital gains taxes. The elimination of tax breaks, and other forms of assistance, has contributed to the continuing barriers faced by minority-owned businesses in accessing supplemental capital (Krasnow, 1999). On the other hand, there are non-profit as well as private groups advocating for tax incentives to MOBs that want to make investments in Internet and e-commerce technology and training (Borgida et al., 2002; Brush, 2000; Ferguson, 2000; Manor et. al., 2001; Robson & Benett, 1999). RESEARCH AIMSANDMETHODOLOGY The main objective of this research is to explore the perceptions of Hispanic-owned small businesses regarding the impact of the digital divide on their ability to maintain a competitive business position and to actively participate in electronic procurement. The term electronic procurement is also used as electronic commerce, in this paper. Two main research questions are formulated. Research conducted by Nute (2002); Benton Foundation (200la, 2001b); Cutler (2001); Chaston et al. (2001); Ford-Livene (1999); Robson & Benett (1999), and Ferguson (2000) facilitated the formulation of the first research question: Ql - Hispanic-owned small businesses believe that the digital divide has an effect on their ability to stay competitive. Proposltlon 2: Increased additional capital to satisfy bid requirements by Hispanic- owned small businesses should lead to an increased level of accessibility to e- procurement opportunities. Proposition 2i Increased personnel training to access electronic information by Hispanic-owned small businesses should lead to an increased level of accessibility to e-procurement opportunities. Proposition 3i Obtaining and improving internet access by Hispanic-owned small businesses should lead to an increased level of accessibility to e-procwement opportunities. Research issues explored by Borgida et al. (2002), Dodge (2000), Benton Foundation (200 la, 2001b), Cutler (2001), Chaston et al. (2001), Twist (2001), La Noue (2000), Ford-Livene (1999), and Huck (1999a, 1999b) led to the formulation of the second research question: 77 Journal of Small Business Strategy Vol. 14, No. 2 Fall/Winter 2003 E}2 - Hispanic-owned small businesses believe financial constraints impair their ability to participate in electronic procurement and electronic commerce. In order to accomplish the main objective of this research data was gathered from interviews with the U.S. Department of Agriculture, USDA hereafter, and other government personnel as well as Hispanic-owned small business owners already engaged in businesses with the USDA. This data was used to develop the survey instrument to be sent to HSBs across U.S. The names of HSBs were requested to the Office of Small Business Administration (SBA) through the USDA, who supported part of this study. The USDA request criterion to SBA was on Hispanic-owned small business from US continental states and with special emphasis on California, Texas, Florida, Midwestern states, the East coast and the commonwealth of Puerto Rico. We received a database with over 9,800 HSBs names. From this population of HSBs, we selected the sample to receive the survey. A simple random selection process was used for the selection to ensure an adequate sample population. A total of 1,200 businesses were selected from the database received from the USDA. In the survey, the questions used were mostly objective and multiple-choice. Some questions required a selection from a five-point Likert scale. See Appendix I for a sample of questions sent out to HSBs. Once the form and structure of the survey were established, we solicited critiques and comments from various groups, including faculty who specialize in statistics, survey development, and issues pertaining to procurement programs. Graduate students also contributed with suggestions regarding the structure and content of the survey. A subset of Hispanic-owned small businesses was also selected to provide input on the survey instrument. After several revisions, the final survey was mailed out through U.S. Postal Service to the randomly selected HSBs. The span of elapsed time between the mail-out date and the due- back date was three weeks. The rate of response remained generally constant throughout the three weeks scheduled period of time. A follow-up message with a reminder regarding the due-back date of the survey was sent a week and a half after the survey had been mailed. This follow up was done by an e-mail message to everyone who was sent the survey and who had an e-mail address. HSBs participating in the study and without an e-mail address were sent the message via U.S. Postal Services. The message was identical for both groups; the ones who were reached by e-mail and the ones contacted by regular US Postal Services. The response rate for the survey was approximately 22.33 percent. Since there were 220 surveys returned due to erroneous addresses, the final and adjusted response rate was 27.55%( 28%). Several barriers were present throughout the course of the development and administration of the surveys. In the developmental stage, feedback from various groups was delayed due to schedule conflicts. The most commonly encountered problem seemed to be the time constraints people and businesses had to respond to our inquiry. Other limitations were related to logistics in the process of administration of the surveys. For instance, some business addresses drawn from the database provided by the Small Business Administration were not current. Consequently, 220 surveys were returned due to non-existing or invalid addresses. Also, some of the selected businesses refused to return the survey due to negative feelings with one of the sponsoring government organizations, as stated in the business call of these businesses to the authors. There were about 12 calls of this type. No adjustment was incorporated for this situation. Data received were processed in a spreadsheet format, and analysis was performed using SPSS™data analysis program. Data entries were checked twice for each returned survey to ensure accuracy and diminish error in coding. The analyses were performed using 78 Journal of Small Business Strategy Vol. /4, No. 2 Fall/Winter 2003 frequencies, means, correlations, analysis of variance, and regression. The results of these analysis are discussed next. RESULTS The responses from the states surveyed were distributed as follows: California (22%), Texas (17.2%), Florida (9.3%),and New Mexico (7.8%).The responses from midwestern states, the East coast, and Puerto Rico accounted for 36.6 %. There were 7.1% responses with no state declared. The most widely represented industry in the sample was the construction industry with 28.7% response. The manufacturing of food and machinery industry was represented by a combined value of 4.5%. The remaining 66.8% responses were from a variety of businesses, such as printing, translation, consulting in a variety of technical and business fields —meaning software, hardware, advertising —janitorial services, and waste management design/services. A consistent combination of two-industry type was reported by nine (3.27%) businesses that participated in the survey. The combination was construction and engineering services. The businesses'nnual revenue and the type of additional funds used to supplement capital were requested in the survey instrument. Table I reports the distribution of each category. This distribution indicates that about two fifths of the companies have less than $0.5 million in annual revenues, and businesses with $0.5-1.0 million as well as $ 1.0-5.0 million represented about one fifth, respectively. Those in larger annual revenue brackets (& $5.0 million) represented a small percentage of the sample population (12.7%). Businesses that needed additional funds to supplement capital - see Table I - used bank loans (67.5%), personal funds (47.5%), trade credit (16%), and government loans (14%). By Pearsnn's correlations and statistical counts, it was observed that 35% of these businesses supplemented capital with two different types of funds, and 12% of these businesses supplemented capital with three different types of funds. The most favored combinations of types of funds are bank loans-government loan, and trade credit-government loans. The Pearson correlations were significant at a p & 0.01 (I-tailed). Nevertheless, Hispanic-owned small businesses (HSBs) that used personal funds were less likely to pursue government loans; the Pearson correlation was significant at p & 0.01 (I-tailed). Information regarding electronic commerce (e-commerce capacity) and its components was requested from HSB. Electronic commerce components (Kennard, 1999; Yudowsky, 2001; Benton Foundation, 2001b) include owning computers; access to personnel trained in computers, electronic commerce and Internet use; direct Internet access; and other items that could be business specific. Responses indicated that these businesses have access to Internet (85%), knowledge about Internet usage (70%), and trained personnel (50%). Businesses that owned computers (90.3%) were also more likely to have knowledge on Internet usage, Internet access and trained personnel. This was assessed by Pearson correlations, which were significant at a level of 0.01 (I-tailed). Almost 50% of the respondents indicated that they did not have trained personnel in electronic commerce and its components due to cost issues. Thus, small and disadvantaged Hispanic businesses seem to lack necessary financial resources to take full advantage of e-commerce opportunities. It was observed that small business owners listed equipment such as computers as part of their personal possessions and part of their businesses as well. It was also observed that a large number of businesses in printing, manufacturing, and construction had more computer 79 Journal of Small Business Strategy Vol. /4, No. 2 Fall/Winter 2003 equipment and elements of e-commerce than business in other industries. The first research inquiry is discussed next. Table li Hispanic Small Business Collected Data Frequency Categories A. Industry type Construction 28.7 Food Man%cturing/Machinery 4.5 Other 66.8 Construction-Engineering Services 3.27 B. Average Annual Revenue Less than 5500,000 40.7 Benveen 50.5-I.OMillion 20.5 Benveen $ 1.0-5.0Million 26.1 Morc than 55.0Million 12.7 C. Type of Additional Funds Brink loans 67.5 Government loans 14.2 Trade credit 15.7 Personal funds 47.5 Others (Line of credit, credit cards, personal funds, etc) 6.3 Not applicable (have not pursued them, etc.) I 1.9 D. Electronic commerce components Own computers 90.3 Trained personnel 50.4 Internet access 85.1 Know-how Internet usage 70.3 No component 4.9 Percentages do not add up to a l00% because respondents were allowed to choose more than one answer. QI - Hispanic-owned small businesses believe that the digital divide has effect on their ability to stay competitive. HSBs were asked to rate from very important to less important issues related to the Internet, its components and access to the Internet to conduct business with the government and private businesses. The government and private businesses have moved a significant portion of procurement to an electronic mode (Ursery, 2003; Dillehay, 2002; Norris, Fletcher gc Holden, 2001; Mitchell, 2000; Anonymous, 2000b), which is also known as e-procurement. A sample of some of the items queried include: Making the right contacts, learning the procedures to access information, attaining additional capital to satisfy bid requirements, having trained personnel to access electronic information, obtaining and/or improving Internet access, and improving computer hardware. The complete list of survey items is presented in Appendix l. The responses indicate that 86.6% of the participants believe that making the right contacts to conduct business with the government is very important, and 76.9% believe that learning the procedures, usually on the websites of government and private businesses, is also very important. The issue of attaining additional capital to satisfy bid requirements is believed to be very important by 69% of the respondents and the remaining respondents indicated it was moderately important (18%) or unimportant (12%). Results for training personnel to be able 80 Journal of Small Business Strategy Vol. l4, No. 2 Eall/Winter 2003 to access e-information for doing business was reported as very important by 79% of the respondents. The issue of improving computer hardware shows that 55.9% of the respondents believe this dimension is very important in the process of enhancing their ability to do e- business. The category of obtaining/improving of Internet access is considered as very important by 53.3%of the respondents. Stepwise multiple regression was conducted to determine which independent variables (Contacting the appropriate offices/agents, finding out/learning basic requirements and procedures, locating/receiving bid solicitations, attaining sufficient capital to satisfy bid requirements, making the right contacts, learning the procedures, attaining additional capital to satisfy bid requirements, training personnel to access USDA information, improving computer hardware, obtaining/improving internet access) were the predictors of level of accessibility of e-procurement opportunities to HSB. The dependent variable, level of accessibility, was defined as the ability of HSB to conduct electronic procurement with the government. The equally weighted average of four main items - gaining access to a computer, gaining access to Internet, conducting Internet research, and improving Internet skills, determine level of accessibility (Dillehay, 2002; Norris et al., 2001; Benton Foundation, 2001a; Anonymous, 2000b). These items all have a significant correlation at a p ( 0.01 (I- tailed) and were consistently rated by the respondents as very important. For each item, frequencies of very important responses were obtained in the range of 70% to 90%. Level of accessibility composite measure has an internal consistency measured by the Cronbach's alpha of 0.835 at a significance level less than 0.000, and an average inter-item correlation of 0.601 (Garson, 1999; Nunnely, 1978). The scales of related questions as well as the composite measure of Level of Accessibility were mapped to an interval-scale measure by frequency analysis of the variable. Items were recoded to reflect very accessible = 5, accessible = 4, moderately accessible = 3, rarely accessible = 2, and inaccessible = 1. The composite variable Level of Accessibility was mapped as low = less than 2.20, low-medium = 2.21 —2.90, medium = 2.91 —3.59, medium-high = 3.60-4.12;high = above 4.13. Models were developed with criterion of Probability-of-F-to-enter 0.050, and Probability- of-F-to-remove 0.100. The model that better explained the overall variance of the level of accessibility of e-procurement opportunities to HSB is a model of three predictors (Obtaining/improving internet access —Obt//mp/ntdccess, Attaining additional capital to satisfy bid requirements - AttainingdddCapital, Training personnel to access USDA information - Having TrainedPersonnefl. Model 3 from Table 2 has an R = .688, i.e. model 3 accounted for 68.8% of variance in the level of accessibility explained by the independent variables. Table 2: Model Summary Ri Std. Error of theModel Estimate I .799'639 .4036 2 .822 .675 .3845 3 .829'688 .3790 a Predictors: (Constant), Obt/ImplntAccess b Predictors; (Constant), Obt/lmplntAccess, AnainingAddCapital c Predictors: (Constant), Obt/ImplntAccess, AttainingAddCapital, HavingTrainedPersonnel 81 Journal of Small Business Strategy Vol. /4, /i/o. 2 Fall/IV(nrer 2003 Results from the regression analysis are presented in Table 3. The overall model - F (3, 105) = 77.094 at p & 0.001 —indicates that the probability of determining the level of accessibility of e-procurement opportunities for HSB could be determined at least by one of the predictors (Obtaining/improving internet access, attaining additional capital to satisfy bid requirements, training personnel to access USDA information). Table 3: Regression Analysis (ANOVA) Source Sum of Degrees of Mean F Sig. Squares Freedom Square P&.001 Regression 33.218 3 11.073 77.094 .000 Residual 15.081 105 .144 Total 48.298 108 Table 4a presents the coefficients of the final model. The coefficients of the independent variables are significant at p & 0.001 and p & 0,05 when evaluated together. Table 4a: Coefficients'f the modeL 5% Confidence nterval for b Source Coefficient Std. Error t Sig. Lower Upper Bound Bound (Constant) .707 .263 2.684 .000 .185 1.229 Obt/ImplntAccess .677 .049 13.821 .000 .580 .774 AttainingAddCapital .113 .030 3.742 .004 .053 .172 HavingTrainedPersonnel .0689 .034 2.101 .033 .002 .136 'ependent vanable: Level of Accessibility. Table 4b: Individual Contributions of the Study Variables to the Dependent variable Source DF SSE MSE F Part Corr (Constant) Obt/ImplntAccess I .754 27.458 27.458 190.68 AttainingAddCapital I .204 2.010 2.010 13.96 Having TrainedPersonnel I .117 0.661 0.661 4.59 Significant at p = 0 001; Significant at p =.05 The Level of Accessibility intercept bii computed as .707, estimates the expected Level of Accessibility in a given time if the predictors did not exist. However, these values of the predictors are outside the range of Obt/ImplntAccess, AttainingAddCapital, HavingTrainedPersonnel, and are nonsensical. The value of bii (.707) has no practical interpretation. Assessment of the individual contribution of the independent variables on the Level of Accessibility is performed by the part correlation and F test (see Table 4b). For the predictor Obt/ImplntAccess, the partial F-test statistic (190.68) is significantly greater than the critical value F (.005, I, 105) - 8.18.The expected Level of Accessibility is expected to increase by .677 units for each unit of Obt/ImplntAccess (b, computed as .677) for a given amount of the 82 Journal ofSmall Business Strategy Vo/. /4, No. 2 Fall/Winter 2003 other two independent variables, which supports Proposition 3. For the second predictor, AttainingAddCapital, the partial F-test statistic (13.96) is much greater than the cntical value (-8.18) and then the predictor (AttainingAddCapital) significantly improves the Level of Accessibility model already containing the other two predictors. The value of bi is .113 and this means that for a given amount of the other two predictors, the expected Level of Accessibility is estimated to increase by .113 units for each unit change in AttainingAddCapital, which does support Proposition l. The partial F-test for the other predictors - HavingTrainedPersonnel - indicates that adding this independent variable also improves the model (4.59 & 3.92 at p = 0.05). The slope of Having TrainedPersonnel, bi .0689 indicates that increases in this predictor will also increase Level of Accessibility, which supports Proposition 2. Each of the three independent variables significantly contributes to improve the model after the other independent variables have been included. The Level of Accessibility model should include all three variables Obt/ImplntAccess, AttainingAddCapital and Having TrainedPersonnel. The level of accessibility to e-procurement opportunities for HSB can be expressed as: Level of Accessibility = .707 +.677 Obtllmpln/Access +.//3AttainingAddCapital + .0689 Having TrainedPersonnel For a HSB reporting that Obtaining and/or Improving Internet Access (Obt/lmplntAccess) was unimportant (= I), Attaining Additional Capital to Supplement a Bid (AttainingAddCapita/), and Having Trained Personnel to Access Internet information (HavingTrainedPersonnel) were unimportant (= I) respectively, the composite Level of Accessibility of e-procurement opportunities will yield a LOW level of Accessibility of 1.5659. However, for a HSB reporting that Obtaining and/or Improving Internet Access (Obt/lmplntAccess) was important (= 5), Attaining Additional Capital to Supplement a Bid (AttainingAddCapital) and Having Trained Personnel to Access Internet information (Ha vi ng Train ed Personnel) were unimportant (= I) respectively, the composite Level of Accessibility of e-procurement opportunities will yield a HIGH level of Accessibility of 4.2739. The analysis performed on the regression model as well as the contribution of individual independent variables to the dependent variable assist in supporting that the digital divide has an effect on HSB's ability to stay competitive. HSBs are well aware of the importance and impact of the digital divide on their long-term success. If HSBs have adequate level of Internet access and/or the ability to improve their existing Internet access and have access to trained personnel, then HSBs have the opportunity to access critical information from the government and private companies. Government and private companies have moved their procurement to Internet base (Ursery, 2003, Dillehay, 2002, Norris et al., 2001, Mitchell, 2000, Anonymous, 2000b). Additionally, once the opportunity is located, small businesses need additional capital to support bid requirements and adequate trained personnel not only to navigate the websites, but also to facilitate the bidding process, which also has become an Internet based process. HSBs want to mcrease their ability to participate in e-procurement with the government and private businesses. The issue of opportunities to HSBs and their financial constraints is developed on the second research issue. Q2 - Hispanic-owned small businesses believe financial constraints impair their ability to participate in electronic procurement and electronic commerce. Analysis of the data through cross tabulations of each type of financing (bank loans, government loans, trade credit, personal funds, others) and the annual average revenue were performed. Also, similar analysis was conducted with each component of electronic commerce (computers, trained personnel, Internet access, knowledge about computers) and 83 Journal of Small Business Strategy Val. 14, Na. 2 Fall/Winter 2003 the annual average revenue. Results show the following: Bank loans are the largest type of financial funds used by HSB (67.8%). A contingency table of 2 x 4 on HSB that used bank loans and the HSB's annual average revenue (AAR) indicates that businesses with an AAR of less than $0.5 million are very likely to use bank loans (expected count is 73.2 out of a total count of 108 HSB that have such AAR). Table 5a shows the results of the 2 x 4 contingency table. HSBs with annual average revenue of $ 1 to $5 million, $.5 to $ 1.o million, and $5 to $ 10 million were also likely to pursue bank loans as additional source of capital (41 out of 71, 38 out of 56, and 17.6out of 26 respectively). The value of Chi-Square is 15.273 at a p & .005. It was also observed that HSB's preferred choice to pursue additional capital is personal funds. Businesses with average annual revenue of less than $ 1 million seem to be the most inclined towards personal funds as source of additional funds. This was not significant at p & 0.10. Table 5: Relationships of Annual Average Revenue of HSB a. Type of funds vs. AAR Bank Loans &$0.5 M $0.5- 1.0 M $ 1.0-5.0M & $5.0 M Total Yes Count 64 33 58 22 177 Expected Count 73.24 37.98 48.15 17.63 No Count 44 23 13 4 84 Expected Count 34.76 18.02 22.85 8.37 Total 108 56 71 26 261 X i.dds,dt-i) Cntical & 15.273 &$0.5 M $0.5- 1.0 M $ 1.0- 5.0 M & $5.0 M TotalFunds Yes Count 58 30 29 9 126 Expected Count 52.14 27.03 34.28 12.55 No Count 50 26 42 17 135 Expected Count 55.86 28.97 36.72 13.44 Total 108 56 71 26 261 X Ci,dt-» Critical & 5.416 b. E-commerce components vs. AAR Having Trained &$0.5 M $0.5- I.OM $ 1.0-5.0M &$5.0M TotalPersonnel Yes Count 43 27 43 22 135 Expected Count 55.77 29.19 36.49 13.55 No Count 64 29 27 4 124 Expected Count 51.23 26.81 33.51 12.45 Total 107 56 70 26 259 X.odd,df 3 Critical & 19.880 84 Journal ofSmall Business Strategy Vol. )4, No. 2 Fall/Winter 2003 HSB's e-commerce capacity components and the AAR were also cross tabulated, Table Sb. Results indicate that HSBs with an AAR of $ 1.0 to $5.0 million and above $5.0 million are the ones with the highest capacity as it relates to trained personnel. Their relative advantages are 61.4% and 84.6%, respectively. HSBs with AAR below $0.5 million and $0.5 to 1.0 million seem to be at a significant disadvantage (40.2% and 48.2% respectively). Each pair had statistical significant at p & 0.001. It appears that HSBs with smaller AAR have a more difficult time attracting qualified and knowledgeable employees to assist with issues related to electronic procurement and therefore opportunities with the government. Although all surveyed HSBs used primarily bank loans, it seems that the HSB with annual average revenue of less than $0.5 million tends to rely more on personal funds. Furthermore, other types of funds (government loans, trade credit, and others such as line of credit, etc.) are not being utilized as much by HSBs to supplement capital. It should be noted also that the need for additional capital to supplement bid requirements was one of the dependent variables complementing the model for Level of Accessibility to e-procurement opportunities. Claims of Research Issue 2 should be rejected. This is further supported by the fact that a significant number of HSBs participating in the survey have an AAR of less than $0.5 million (40.7%- from Table lb) and these HSBs are the ones with less access to trained personnel. These are also issues reported as barriers to participate in e-commerce by La Noue (2000), Kennard (1999), and Benton Foundation (2001a, 2001b). This situation seems to produce a cycle such that if HSBs have financial constraints then they cannot improve the digital divide disparity and effectively utilize technology to take advantage in e-procurement opportunities. CONCLUSIONS AND RECOMMENDATIONS Responses from HSBs indicate issues of concerns regarding effective deployment of information technology to pursue e-procurement opportunities with the government as well as with private companies. A complex scenario develops when the digital divide and HSB's financial resources interplay. Hispanic small businesses have difficulties to secure additional sources of capital. These businesses have limited financial resources to pursue the hiring of qualified personnel. HSBs are in a disadvantage to keep pace with the constant technological changes and therefore to keep afloat with e-commerce opportunities. Hispanic small businesses are well aware of the importance of bridging the gap of the digital divide. HSBs want to be part of the technology wave and are making efforts to diminish the effects of the digital divide; nevertheless, more assistance to these businesses is necessary to speed up the process. For instance, a Hispanic Internet study (Lorek, 2002) finds that just over 50 percent of Hispanics in the United States are on line. Consequently, vendor programs need to strategically plan outreach activities using Hispanic or minority databases in order to increase participation rates. Geographically, the outreach should focus on California, Texas, and Florida. These states were reported in the 1997 economic census as having the largest revenues generated by Hispanic businesses. Responses from our survey were also higher in these three states. Agency contractors need to disseminate their requirements on their own home pages to minority databases. If agencies are seriously going to increase HSBs participation in e- commerce, these agencies need to proactively increase their outreach by Internet and by sharing information with the membership of national organizations such as the National Hispanic Chamber of Commerce. Direct contact with the National Hispanic Chamber of Commerce and its state affiliates, who have national databases stratified by services, would be an effective mean for improving outreach services. 85 Journal of Small Business Strategy Vol. /4, No. 2 Fall/Winter 2003 Private and government agencies need to hold small business fairs throughout the country. The business fairs should facilitate workshops that emphasize how to do business and e-procurement with the government. Private and federal agencies could partner with state and local Hispanic Chambers of Commerce that are located in states and communities throughout the country to promote the business fairs. In addition, national organizations like the Hispanic Chamber of Commerce, National Council of La Raze and the League of United Latin America Citizens could also facilitate Internet related workshops during their annual national meetings. Hispanic small business organizations and small business organizations should collaborate with foundations and corporations that have funded website development for some inner city businesses. HSBs could strengthen their e-commerce capacity and access to opportunities by creating and/or enhancing their websites with the assistance of such foundations, but also other sources such as institutions of higher education with Small Business Development Centers should be explored for such endeavors. University business students, small business assistance centers, and corporate staff on loan at Universities should be able to assist in enhancing the utilization of information technology of HSBs. A joint effort among government, businesses (large, medium and small size) and communities should be initiated. Such efforts will develop partnerships that could increase access to technology training and small capital to buy and build HSBs technical capacity (Technical Personnel, Attaining Capital to enhance e-commerce technology related issues as well as bid requiremems) as well as to respond and access external markets and opportunities. Collaboration with non-profit as well as private groups advocating for tax incentives to HSBs that want to make investments on Internet and e-commerce technology and training should be strategically explored and developed. Mutual partnerships between large corporations and small businesses, once identified, should enhance the technological capacity of HSBs and provide technical support to HSBs. Reducing the digital divide will determine the participation level of minority businesses in e- procurement/e-commerce opportunities. Hispanic small businesses need to enhance their technical capacity in order to access and compete for contracts that are being solicited by government agencies. Technology is critical to access information and to partner with business organizations with similar interests. Thus, government intervention is critical to enhance the opportunities of Hispanic small businesses and therefore HSBs level of accessibility to government e-procurement. Assisting HSBs to gain access to financial resources is crucial towards diminishing the digital divide and its effects on the long-term existence of Hispanic small businesses. The model developed to assess Level of Accessibility of HSBs to e-procurement opportunities indicates that minority small businesses'apacity is significantly impacted by the business'bility to obtain/maintain Internet access, by their ability to attain additional resources to support bid requirements, and by their difficulties in accessing trained personneL This empirical investigation places in perspective a combination of factors and also provides a better understanding of the causes of the digital divide for Hispanic owned small businesses. Having a better understanding of these issues facilitate policy and strategy development by a wide array of interested parties —government, private organizations, small business owners, and non-profit organization. Since financial resources impact HSBs ability to secure trained personnel and to increase e-procurement opportunities, a comprehensive program to diminish the digital divide should account be developed by government agencies and private corporations seeking to increase small business participation. 86 Journal of Small Business Strategy Vol. /4, Na. 2 Fall/Winter 2003 These findings should be the beginning point of collaborative efforts that can effectively address the specific needs of HSBs and MOBs at large towards narrowing or completely bridging the gap in the effective use of information technology. REFERENCES Anonymous. (2000a). Minority Owned Businesses Show Steady Growth. Jacksonville: Free Press. Anonymous. (2000b). A guide to government and e-commerce: the digital future of government. Public Management, 82, 1-8. Benton Foundation. (200 la). Digital D/v/de Basics. Retrieved April 7, 2001, from http: //www. dig its 1 divide network.org/content/sections/index.c fm? key=2. 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Retrieved from http: //atlanta.bcentraLcom/atlanta/stories/2001/07/10/smallb2.html. (Biographies and Appendix on following pages) 88 Journal ofSmall Business Strategy Vol. /4, No. 2 Fa/IIIYinter 2003 Cecilia Temponi received a PhD in Industrial Engineering from The University of Texas at Arlington, MS from Louisiana State University, MBA from St. Mary's University, and BS in Chemical Engineering from Universidad de el Zulia, Venezuela. She is currently an Associate Professor of Management at the College of Business of Texas State University. She has over ten years of national and international industry experience in several sectors of the economy —oi I, software, and consulting —at various levels of management. She has authored numerous published articles in cross-disciplinary fields, with over 30-refereed publican'ons. Her work has been published in the European Journal of Operational Research, International Journal of Production Economics, Journal of Contemporary Business Issues, Journal of Knowledge, Culture, and Management. Her current research includes impactlimp/ications of technology access, enterprise modeling and process improvements, quality management and supply chain management, and technology outsourcing-prof ect management. Jaime Chahin, Dean of the College of Applied Arts and Associate Professor at Texas State University-San Marcos, has over twenty-six years of varied experiences in education. He received the "Ohtli " award from the Secretary of Exterior Relations of Mexico in July 2002. He was executive producer ofa documentary, The Forgotten Americans, a film about colonias in the U.S. Mexico border, which premiered at the Smithsonian and on PBS on December 14, 2000. The documentary received a First Place Award from the National Council of Families. His principal research interests involve cultural and public policy issues that impact access and equity in Higher Education. His most recent publications include the following articles: "Las Colonias, Entre dos Mundos" (2003); "Latino Deinographics and Education in the US. Southwest" (2003); "The Educational and Occupational Aspirations of Colonia Children" (2002); "Reflections of a Migrant Farmworker" (2000); "Lessons Learned in the Development of Human Capital" (/999). Dr. Chahin received his Ph.D. in Education Admim'stration in /977 and his M.S. IV. in /975 in Administration and Policy from the University of Micliigan. His B.A. degree in Sociology and Political Science was awarded in l974 from Texas A & I University. (Appendix on following pages) 89 Journal of Small Business Strategy Vol. l4, No. 2 Fall/Winter 2003 APPENDIX Sample of Survey sent to Hispanic-owned Small Business (HSB). 1. What type of products/services do you offer? (mark all that apply with an X) FruitsNegetables Food manufacturing Construction Other (specify): Machinery manufacturing If you have a Specific Industrial Code (SIC), please specify 2. What is your average annual revenue in dollar amount? less than $500,000 $500,000-1,000,000 $ 1,000,001-5,000,000 $5,000,001-10,000,000 more than $ 10,000,000 3. If you have needed additional funds to supplement your capital, what type of funds have you pursued? (mark all that apply with an X) Bank Loans Personal funds Government Loans Trade Credit Other (specify): N/A 4. How many employees does your business currently have? less than 100 101-400 401-700 701-1,000 More than 1,000 5 a. Have you tried to acquire USDA contracts? Yes No b. If yes, were your attempts successful? Yes No (briefly describe the problems): 6. Indicate afl essential components of electronic commerce that you and your business possess. (mark all that apply with an X) Do not possess any Internet access Computer(s) Knowledge about Internet usage Trained personnel Other(specify): 90 Journal ofSmall Business Strategy Vol. /4, Ato. 2 Fall/Winter 2003 For uestions 7 CIB marh with an X the box thatindicates our ratin or each cate o /actor within each o the uestions. 7. Indicate the level of accessibility you have in doing the following: Category Very A .bl Accessible Moderately Rarely .bl A .bl InaccessibleAccessible Accessible Accessible Gaining access to a ; computer Gaining access to internet : Conducting Inteniet , research Improving your internet skills g. Indicate the level of difficulty you have encountered in the process of contracting with the USDA. Category Very Easy Easy D ff I Difficult Slightly Very Difficult DtNcult Contacting the appropriate offices/agents Finding out/learning basic requirements and procedures Locating/receiving bid solicitations Attaining sufficient capital to satisfy bid requirements 9. Indicate how important each of the following factors is in enhancing your ability to do business with the USDA? Very Moderately BarelyFactors Important UnimportantImportant Important Important Making the right contacts Learning the procedures Attaining additional capital to satisfy bid requirements Training personnel to access USDA information Improving computer hardware Obtaining/improving internet access 91