Some Economics of Vertical Standards: Integrating SMEs in EDI Supply Chains

Despite the benefits associated with vertical communication standards such as electronic data interchange (EDI) or WebEDI, their diffusion among small and medium‐sized enterprises (SMEs) has failed to a surprising extent. Accordingly, SME integration into value chains is still a critical issue for information systems research on standards diffusion. The goal of this contribution is to reveal the reasons for the slow diffusion of EDI and WebEDI among SMEs and to propose concrete solutions. Based on an empirical survey among SMEs in the German office supply industry, economic and technical obstacles to vertical standard diffusion are identified. First, it is shown that EDI and especially WebEDI solutions are economically dominated by a widespread practice in SMEs, which is using faxes for business document exchange. Second, as many SMEs do not deploy automated material management systems (MMS), they lack the necessary technical preconditions for economically viable EDI. Third, based on these findings an EDI application service provider (ASP) solution is delineated that accounts for the economic and technical particularities constraining SMEs. The solution developed may help to reduce some economic disadvantages linked with EDI for SMEs. It is successfully applied in the office supply industry today and enables SMEs to reap the benefits of bidirectional EDI while avoiding the expensive investments in EDI translator systems that have so far restrained them from participating in vertical standardization.