Evaluating the impact of government polices and regulations on mobile commerce in India: a system dynamics modelling approach

Abstract

Mobile Commerce is the subset of e-commerce, which includes all e-commerce transactions, carried out using a mobile (hand held) device. This study attempts at figuring out the factors that influence the diffusion of m-commerce in India and potential role that government policies and regulations can play in it. M-Commerce in India is at its infancy, with significant uncertainties and complexities due to evolving business and regulatory models, which are further complicated by the involvement of large number of interrelated players in it. Timely and correct public policy interventions are needed to allow it to unravel its potential and help the country to reap the benefits. The traditional tools and techniques of analysis and forecasting (for e.g., econometric models and regression analysis approaches) seem to be inadequate to study the dynamic nature of interrelatedness among the entities in the m-commerce domain to draft a policy framework. System Dynamics based modelling approach is more suitable in dealing with the complex interrelatedness and to develop a policy model. In this work, it has been attempted to develop System Dynamics based simulation models, based on user perceptions on' adoption of mobile commerce and related=-policy factors. These models will facilitate the policy makers and analysts to infer the impact of various policy options to decide on policies that can foster both technology and business in India for public good. The model framing was approached sequentially with designing business model for mobile commerce and identifying the Stakeholders and their interests in m-commerce space at first stage. There are eight stakeholders identified in M-Commerce ecosystem viz. End Users, Content Providers, Retailers, Banks/ Financial Institutions, Mobile Service Providers, Government, Application Developers and Mobile Terminal Manufacturers. In next stage the user perception towards adoption of m-commerce services were studied and the various industry/ economy sectors that would influence m-commerce in a large way were identified. Banking sector, Content industry, Retail industry, Mobile telephony industry and Mobile terminal manufacturing industry are the five--..identified ones whose policies and development stage would influence mobile commerce diffusion in India. There are eighteen independent factors that would decide the policy environment in these sectors- Fair revenue sharing mechanism, Payment related mechanisms, Legal governance, Banking Code, Micro Finance and Micro Credit, Security and Privacy, Gaming Regulations, Availability of Content, Retail Policy, Import Duties on Equipment, Taxation Policy, Availability of Technical Manpower, Infrastructure Support Policy, Regulatory Charges, FDI and other investment laws, Dispute Settlement Mechanism, Competition laws and Labour Laws. The policy environment of a sector shall be determined by a set of these factors and the salience of a factor is determined by its multiple presences in different sectors. Sectoral diagram representing sectoral relationships; policy structure diagram representing information flows and Causal loop diagram representing the cause and effect relationships; for policy design in m-commerce were made as a first stage of modelling process. The inter-relationship of all the sectors was defined to frame models at two levels- macro and micro levels. Macro level model facilitates users to give the input values for each of the policy environment over a period of time and their weightage in determining the overall policy favourability for m-commerce diffusion. The model simulation results in the number of mobile commerce users over a period of time. This helps in determining the growth rate of mobile commerce users and impact of an individual policy on it. The micro level model facilitates users to input the values for eighteen policy factors individually, over a period of time, to analyse their impact on mobile commerce user growth rate. The status and salience of each identified factor was studied to arrive at its favourability for mobile commerce for the period 2004-05 to 20 I 0-11 and used as inputs to the model with equal weights to all sector. The model run indicated an expected number of mobile commerce users to be 262 million out of 319 million expected mobile users in India by the year 2010-11. Any delay in policy efforts effects the M-Commerce subscriber base substantially. Model test under various scenarios and sensitivity analysis indicated that the growth rate of mobile commerce users will catch up with the mobile user growth rate after2007 when the 3G services are slated to be rolled out. The importance of mobile industry and services cannot be undermined in the recent past and future social and economic development of the country. It therefore becomes necessary on part of government to be proactive in fostering the industry. A delay in initiating policies can prove to be harmful for the industry. A two or three year delay would lead to 15-17%and 30-35% reduced subscribers than those expected if policies are initiated timely. This implies low revenues and profitability for the industry .Of the various policy sectors influencing mobile commerce, banking policy environment would be the most important one. Banking policies will play the role of" an enabler in the development of mobile commerce as their presence would foster and absence would retard the growth of mobile commerce user base. Content based services will be the most demanded services in m-commerce. The various factors related to development and sale of content over mobile need to be addressed on top priority to build confidence of all stakeholders. The mobile industry and its regulatory supervision have matured in last one decade and it will be comfortable to tackle the various issues related with mobile industry. The various issues related to mobile operators like revenue sharing, interconnect agreements of mobile operators with content providers etc. and Competition laws and their enforcement have to be addressed. Last but not least is the availability and price of mobile terminals for mobile commerce. Bringing down the costs would bring in a larger user base capable of affording mobile commerce services. Policies promoting local manufacturing by inviting large MNCs to establish their production base in India are a welcome step. The regulatory framework needed to for m-commerce need to have a wide span covering financial, content, mobile, retail, manufacturing and retail segments. The discussion with experts concluded that the present sectoral regulatory framework is competent to tackle the issues related to m-commerce but a coordinating mechanism to coordinate among these bodies is needed.