International Journal of Business and Management; Vol. 7, No. 23; 2012 ISSN 1833-3850 E-ISSN 1833-8119 Published by Canadian Center of Science and Education
Evaluating the Impact of Government Policies and Regulations on M-Commerce in India: A System Dynamics Modelling Approach Deepali Sharma1, Diatha Krishna Sundar2 & Rajluxmi V. Murthy3 1 2 3
Deepali Sharma, Broadcasting Corporation of India, India Chairperson-POMA & Chairperson–ERP Center, Indian Institute of Management Bangalore, India Indian Institute of Management Bangalore, India
Correspondence: Diatha Krishna Sundar, Chairperson-POMA & Chairperson-ERP Center, Indian Institute of Management Bangalore, Bannerghatta Road, Bangalore 560076, India. Tel: 91-802-699-3276. E-mail: [email protected] Received: July 31, 2012 doi:10.5539/ijbm.v7n23p54 Abstract Mobile Commerce (M-Commerce) is a subset of E-Commerce, which includes all E-Commerce transactions, carried out using mobile (handheld) device(s). With significant uncertainties and complexities due to evolving business and regulatory models, growth of M-Commerce is a function of appropriate and timely policy interventions from the government(s). M-Commerce business growth is further complicated by the involvement of several interrelated stake-holders and various regulatory agencies that are part of the M-Commerce eco-system, which comprises of mobile telecom service providers, banking/financial institutions, content facilitators, retailers, mobile terminal industry, and end users as the major stake-holders. To understand the M-Commerce growth facilitators in India, where M-Commerce is at its infancy, system dynamics simulation models are developed. The simulation models are used to analyze the impact of policy and regulatory interventions on the growth of M-Commerce in India. These models can help policy makers in understanding the inter-play between various independent regulatory/policy approaches and assessing their impact in a holistic manner on the business eco-system. Keywords: M-Commerce, policy interventions, regulation, system dynamics, simulation 1. Introduction The merger of telecom, broadcasting and IT Services has resulted in formation of Global Information Infrastructure (GII) which is capable of carrying any type of information. Wireless technologies and devices have further enhanced the capabilities of GII by facilitating wireless information carriage advancing the concept of e-economy to mobile domain. The counterparts of E-Commerce in the mobile domain are termed as M-Commerce (Sundar et al., 2002; Sundar & Garg 2005a; Sundar et al., 2005b). M-Commerce is convergence of mobile telecom (including network and receiving devices), computing power, internet technologies & applications and content provision (Lehner & Watson, 2001; Mylonopoulos & Doukidis, 2003) and refers to, “any transaction with monetary value that is conducted via a mobile network” (Clarke, 2001). M-Commerce has many advantages associated with it such as reduced transaction costs, wider access on both supply and demand side, improved quality of life through increased security and autonomy, wider choices of entertainment, communication, shopping while on move, location based services, ease and convenience of use and so on. M-Commerce is expected to play an important role in economic and social development of a country (Krishnamurthy, 2001). Growth in M-Commerce brings down transaction costs besides increasing the reach and scope of business. This leads to enhanced productivity of related industry verticals and in turn Gross Domestic Product (GDP) of a nation. Using global telecommunications panel data from 56 countries, a dynamic demand model was estimated for mobile telephony (Madden et al.2004). A direct relationship between average GDP growth and mobile penetration was established based on the data collected from 57 developing countries from Sub-Saharan countries, Latin America, Middle East and Asia Pacific along with 15 European Union countries (GSM Association Report, 2006). With respect to India, it is estimated that 10% increase in mobile penetration can translate to a 0.61% increase in GDP (McKinsey, 2006). Increase in mobile penetration will increase M-Commerce uptake and is expected to influence GDP. The growth of the M-Commerce industry is powered by synergies between various stakeholders/players such as Accepted: September 20, 2012 Online Published: November 8, 2012 URL: http://dx.doi.org/10.5539/ijbm.v7n23p54
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media, mobile, content and service providers and aggregators of these along with appropriate payment mechanisms. In the M-Commerce domain, many applications and services are possible and the success of technology depends on the innovative services and content push. But as value enhanced services increase such as retail and content delivery on the communication value chain, the associated complexities and risks also increase (Henten et al., 2003; Samarajiva et al. 2002; Sundar et al., 2006). One of the thrust areas for M-Commerce growth is educating subscribers on the added value in consuming M-Commerce services which in turn will lead to mass mobile adoptions (Wong & Hiew, 2005). Another important facilitator for mobile commerce is the presence of properly functioning payment systems that reduce transaction costs in the economy and promote the efficient use of financial resources (Bank for International Settlement, 2003).Various models for payments in M-domain are available (Salvi & Sahai, 2002; Krueger, 2001) but the appropriate payment mechanisms would be influenced by customer and merchant acceptance (Heijden, 2002). Appropriate policy frameworks and regulatory mechanisms/agencies are necessary for dealing with the complexities of enhanced services and stakeholder interrelatedness; and enabling payment mechanisms. Absence of appropriate policies would hamper the growth of the industry while a poorly regulated industry may result in high prices, inferior quality services to the consumers and prevalence of grey markets for handsets resulting in revenue losses for the government. Policies related to an industry are framed by the government to steer the industry growth in desired direction with an aim to benefit the state and its citizens. Regulation is a way to modify behaviour of individuals, organizations and businesses to work in a desired way, which is in the interest of society. Regulation is a "sustained and focused control exercised by a public agency over activities which are valued by a community” through specific set of commands, deliberate state influence and social control or influence (Baldwin and Martin, 1999). Regulation is thus used to achieve wider social goals such as equity, diversity or social solidarity and to hold powerful corporate, professional, or social interests to account (Walshe, 2002). Government tries to achieve its policy objectives through regulations by defining the codes of conduct, setting standards, monitoring and enforcing them. Hence it becomes obligatory on the part of the government to regulate these concerns with a multidisciplinary approach. To design a good regulatory framework and ensure reasonable level of compliance it is important to understand the characteristics of market, structuring of individual organizations and their interrelations in the setup and obstacles in their compliance (OECD, 2000). Many technologies have been developed and marketed in last few years but only few have witnessed commercial success, irrespective of their potential and capacities. In a dynamic environment development of technology is followed by business applications further followed by regulations. Policies and regulations in advance are often not recommended fearing that excess control over a technology business in initial stages may reduce the number of economic experiments hampering its overall development. However, there is a need for policies and regulations to co-evolve with the technology and markets. India is an example of timely regulatory reforms inmobile telephone industry where the regulatory system co-evolved with technology and industry developments. The number of mobile subscribers stands at 893million in December 2011 (TRAI). The Mobile Value Added services (MVAS) besides plain voice services are increasingly gaining acceptance among users. MVAS revenues were estimated to contribute INR 51.3 billion in 2009-10and areexpected to grow at a CAGR of 21 percent in next five years(CRISINFAC 2010b). With these high growth rates and a multitude of stakeholders, M-Commerce in India requires advance regulatory framework to be designed that would synergize various stakeholders and act as a catalyst for further growth. This paper addresses the impact of policies and regulation on the growth of M-Commerce, with specific reference to India. The Indian context in E-Commerce and M-Commerce is not very different from that of other developing countries. More than 65% of the Indian population resides in rural India with poor connectivity. Rural telecommunications system has to keep variety of concerns other than technological issues (Andrew, 2003) and also cellular network penetration on fixed line diffusion (Biancini, 2011). Extending last mile connectivity to these areas, which is required for e-governance, was a major bottleneck. This has been overcome to a great extent by wireless technologies as rural tele-density is nearly 36.5% (TRAI 2011) and an increased percentage (as high
as 40%) of new additions come from rural subscribers(CRISINFAC 2010a). It is further needed to facilitate convergence of media and technologies through proper regulatory and policy support. With the commercial introduction of digital mobile telephony in India in 1995, the diffusion of mobile telephony is different from the developed nations as it is a beneficiary of the size of customer base and also that of established standards (Rouvinen, 2006). Connectivity issues being resolved, policy and facilitation have become critical to bring in efficient and economic services in the M-domain. Empirical research in many areas of M-Commerce is lacking because of considerable uncertainties (Okazaki,
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2005). Recent review on M-commerce research has identified the progress made so far and gaps for future research (Ngai, 2007). Lehner and Watson (2001) have prescribed various perspectives to conduct research on mobile commerce such as the stakeholder perspective, mobile commerce services perspective, applications perspective and the mobile commerce market players (Institutional) perspective. The stakeholder perspective was further extended to identify stakeholders and develop an M-Commerce business model (Sundar et al., 2006) There is ample literature available on mobile commerce applications, services, statistics, business adoption and user acceptance related issues (Chu & Lihua, 2005; Karjaluoto, 2006; Lin & Wang, 2005; Udo, 2001; Varshney et al., 2000;Varshney & Vetter, 2002; Wang et al., 2005). Out of 149 identified M-Commerce research and application papers, only seven dealt with legal and ethical issues in M-Commerce (Ngai & Gunasekaran, 2007). However, literature on M-Commerce related policy aspects in the Indian context is not available as M-Commerce is still at a very nascent stage in India (Sharma, 2007). The M-Commerce eco-system is complex (Lee et al., 2003; Sundar et al., 2006) and it is difficult to analyze the socio-economic and political inter-relatedness of M-Commerce subsystems using qualitative and intuitive judgments. Econometric analysis and regression analysis, though can provide explanation for past behaviour, are inappropriate for analyzing socio-economic changes, nonlinear relationships and various interrelated factors (Wang & Cheong, 2005a, 2005b). Given the complexities involved in designing policies & regulatory frameworks, taking stakeholders’ interrelationships into account and understanding their impact on the stakeholders – Systems thinking is the most appropriate approach for analysing policies and their impact. Particularly, in the case of analysing policies for M-Commerce, it is all the more difficult as there are no historical precedence available. Systems thinking and SD modelling are best suited to address such situations. “System dynamics model are noteworthy in the insistence on a high degree of structural realism and a high level of explanatory content relating system structure to observed behaviour patterns. Beyond objectives of forecasting or prediction, a system dynamics model is intended to yield operational insights about the feedback relations that can produce or contribute to problems, can counteract policy interventions, or can reinforce benefits of policy actions aimed at high leverage points. System dynamics modelling is the best forum for organizing complexity in public systems. Interactions can be identified, albeit somewhat hypothetically, that take form of inputs and feedback loops between sectoral policies” (Mass, 1991). In the present context System Dynamics model based analysis is more relevant as M-Commerce and its growth is a function of enabling technologies, business and revenue models of the stakeholders, facilitating government policy frameworks and regulations. Growth opportunities, strategies and sustainability issues in E-Commerce at firm level were discussed and analysed (Oliva et al., 2003) and for small and medium firms using System Dynamics models was looked at (Bianchi & Bivona, 2002). Park and Ahn studied impact of self- regulation policy versus tax and rebate policy on online game addiction problems using System Dynamics models (Park &Ahn. 2010). Study of influencing factors for mobile commerce market, mobile commerce diffusion and also strategic planning of mobile commerce terminal industry with specific reference to China using System Dynamic modelling approach was conducted by Wang and Cheong (Wang & Cheong, 2005a, 2005b).Casey and Toyli evaluated the effect of technology harmonization and mobile number portability policies on mobile voice diffusion and service competition using system dynamics (Casey and Toyli, 2012). In the present paper the authors develop system dynamics simulation models to represent the interrelatedness and complexities of the M-Commerce eco-system and understand the impact of various regulatory and policy interventions on M-Commerce growth with specific reference to India. The objective of this work is to study the impact of facilitating policies on the extent of M-Commerce growth in India and also identify the critical policy area(s) for M-Commerce growth. Section 2 of the paper elaborates the M-Commerce eco-system and regulatory and policy challenges in the Indian context in particular. Based on the policy evolution in telecommunications and E-Commerce, the policy design for M-Commerce is described and discussed in section 3. (Appendix 1 presents the major regulatory interventions that have taken place in India and their impact on the mobile industry). Section 3 also contains the causal loop diagram along with the stock & flow diagram. Section 4 details the model, basic assumptions, scenarios generated and analyses of the results. (Appendix 2describes the policy factors and explains their status, which have been used to build the policy factor curves). Section 5 gives the summary and conclusions.
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2. M-Commerce Ecosystem: Regulatory and Policy Challenges The M-Commerce ecosystem is influenced by policies and regulations that impact the stakeholders, in turn enabling healthy and fast growth of M-Commerce. However, M-Commerce is at a nascent stage in India poses challenges in the regulatory and policy domains. Services in M-Commerce are a convergence of services in mobile telecommunication industry and electronic commerce. Therefore, studying the factors and policies that have influenced the growth of mobile telecom and E-Commerce sectors/services will be helpful in understanding the desired policy interventions and their impact on M-Commerce. 2.1 Regulatory Challenges The mobile telecom sector in India has been performing outstandingly well in last few years, due to a good regulatory system. However, the sectoral regulatory system that has evolved, in India, as a result of liberalization and privatization fails at many fronts to address the issues raised by convergence of technologies in both wired and wireless segments. With the advent of third generation technology in mobile communications facilitating internet access and commerce on mobile devices, the existing sectoral regulatory system needs some alterations. The regulatory governance in case of M-Commerce falls under the purview of numerous sectoral regulators. The regulatory gamut of various sectoral authorities in India such as the Reserve Bank of India (the Central Bank and financial regulator), Securities and Exchange Board of India (the Capital Market regulator), Ministry of Information and Broadcasting (content regulator), Telecom Regulatory Authority of India (Telecom and broadcasting carriage regulator), Ministry of Commerce& Industry, Ministry of Communication & IT, Competition Commission of India, The IT Commission, various utilities’ regulators, taxation bodies are independent of each other. Independence and autonomy being considered as the prime factors behind their successful working, there are no coordination frameworks. Stakeholders in businesses based on new technologies such as M-Commerce would have to provide a range of services falling under the regulatory jurisdiction of multiple authorities. In the absence of coordination among various regulatory agencies, it is the industry which stands to lose. The situation is worsened in case of difference of opinion and interests among the regulators on any issue (Sharma, 2007). There is an increasing inclination of businesses to diversify in unrelated areas, such as telecom companies into banking sector and broadcasting; white goods and infrastructure companies into telecom industry; power companies into the internet market; banking companies into the futures and commodity markets. This has not only increased competition among business entities but has also introduced competition among services and their delivery platforms. Thus horizontal expansion of business firms has further increased the need for integrated regulatory mechanisms and the regulatory responsibility of states to check any a...