Formalizing F-commerce & Its Effect on SMEs

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The year 2020 will go down in history as a pivotal year for several reasons. While humanity was hit hard with tragic events, the occurrences in turn brought about unprecedented changes in their behavior. Science made the process easier than it otherwise would have been. Internet and telecommunication gave people their desired access to essential and non-essential goods and services from the comfort of their home. The behavioral change soon translated into a change of perception about business and marketing, alongside a boom in new e-commerce businesses. Many Bangladeshi people, including housewives, opted out of the conventional business system, and ventured into selling homemade food items, organic food products, clothes, fashion accessories, saplings, and gardening materials on online platforms. But the surge in e-commerce businesses started way before the current boom took effect. Since 2014, an increasing number of youths have forayed into this field and have successfully taken control of their own fate. The market size bears the testimony to this statement. The total value stands at a whopping 2.77 billion dollars but could soon rise to 3.77 billion dollars or more.

Facebook-based e-commerce: the newest platform of business

Many of these young entrepreneurs find Facebook more convenient to test the waters before a full and wholehearted entry into business because it enables them to reach a wider and more targeted audience, while requiring only a minimal start-up cost. This was further bolstered by the launch of the Facebook Live feature, as potential customers could now be reached with minimal cost, while allowing for sellers to directly engage with potential customers in real time via a combination of audio-visual stimuli. As of now, there are more than a hundred thousand Facebook-based entrepreneurs in Bangladesh. With planned and systematic development of a viable f-commerce ecosystem, the platform can be leveraged to tap into the promise of demographic dividend period and add new horizons to the economic landscape of Bangladesh.

However, starting a business, be it online or offline, entails a lot of groundwork and preparation to tackle challenges that might present themselves along the way. In the ocean of online warehouses, getting the right customers can be a daunting task. There have been several complaints about product not being delivered on time, product not being of promised quality and not to mention the fraudulence of not delivering a product altogether. The expansion of the fast-growing sector can be somewhat tainted if more and more Facebook based e-commerce sites face similar complaints. So far, they have not been under any sort of regulatory structure and thus, it was easy to evade any confrontation.

What is the way out?

Considering this, the Government of Bangladesh has decided to draw up policies on the operations of f-commerce business. In a meeting by the digital commerce consultative committee, a decision was taken to bring over five lakh small e-commerce businesses running on Facebook and other social media platforms under trade license norms. Subjecting the platforms to license will keep the businesses at check in terms of customer interest alongside expanding government’s tax collection from this sector. As for the larger e-commerce entities, registration for VAT (Value-added tax) has been made mandatory apart from obtaining the trade license. The sector specific instructions were put together by the commerce ministry under the ‘Digital Commerce Operation Guidelines 2021’ set to prevent frauds in e-commerce and building confidence of consumers. Meanwhile, the Bangladesh Bank has drafted a policy to make transactions in the banking channels compulsory for courier services that collect cash from buyers through the delivery of e-commerce products in the cash-on-delivery system.

To further safeguard the rights of consumers, a complaint cell will be formed to foster the Consumer Protection Act and other relevant laws. Specific guidelines about timely delivery by the Facebook-based platforms have also been highlighted. A maximum of five days has been allotted to the companies to deliver the product to the customer within Dhaka city. For cities or villages outside of Dhaka, a maximum of 10 days will be permitted. Failure to do so may result in revoking the trade license, company registration or VAT registration of the seller and banning the business platform.

Digital Commerce Consultative Committee is also responsible for providing its support to the e-commerce operators to secure loans from banks and non-bank financial institutions. The committee would identify risks and obstacles that may create hindrance towards growth and actively take measures to remove them. Policies will also be formulated after due consultation with the committee.

Effect of trade license mandate for E-commerce on Facebook

But the question remains, is the decision timely? Are all Facebook business owners equally capable of undergoing such stringent regulatory burden? To answer this, one needs to take a dive into the reasons behind the success of Facebook Business. Most f-commerce owners can make a handsome figure because they require very little investment to start the business. The diversified collection of products and the access to buying goods and services from the comfort of home encourage customers to visit and purchase from the pages. But customer traction, footfall, impressions are all lengthy processes which take months, if not years. Especially for beginners, profit margin is often very low. Thus, E-commerce operators have voiced their concerns that imposing strict regulations too early could stifle growth and cause more harm than good.

To start with, e-commerce has not yet received a distinct category in the trade license provision of Bangladesh. Facebook based e-commerce operators, thus, have to obtain their licenses in the IT or software category which is primarily meant for other purposes. The required fee varies between Taka 1,100-1,500 depending on the area and type of business. An additional Taka 4,000 is required to pay VAT, signboard tax and physical visit tax. The process is difficult for solo entrepreneurs who run small f-commerce operations. Not to mention the time and hassle associated with obtaining the license. The case is also subject to corruption and favoritism, as have been seen in several other cases. This will not only force many small scale e-commerce entrepreneurs on Facebook to shut down their businesses but also act as a barrier to the creation of new entrepreneurs.

Trade License is important too

In one view, Digital Commerce Operation Guidelines 2021 is merely laying some ground rules for the e-commerce industry to flourish in Bangladesh. On the other, the regulatory policies are protecting the consumer rights to push the sector towards further growth. Despite all the challenges that come with obtaining a trade license, a legal framework will create transparency and accountability for the businesses and prevent malicious motives. Fraudulence does not only come from the seller’s end. Recently, a lot of complaints have surfaced on the global round table about hackers stealing customer information and hurting businesses. A trade license will ensure that f-commerce operators take adequate measure to ensure utmost security of consumer data.
Trade license will also be a source of revenue for the government as it expects to earn over Taka 200 crore by issuing trade licenses to more than five lakh e-commerce operators on Facebook and other social media platforms. Renewal of licenses each year will bring a permanent flow of money to the exchequer.

A cost-benefit analysis

The cost to SMEs due to necessitating trade license far outweighs the benefits accrued from it. This is because if a large number of businesses shut down and further entry is restricted, the expected revenue will automatically be lesser than expected. Experts have suggested alternatives to the trade licenses to reap the same benefits. They believe information from mobile wallets; MFS and courier services can be utilized to identify the Facebook based e-commerce entities rather than making trade licenses mandatory for them. Experts also pointed that VAT registration itself can identify sellers who deliver illegal products or cheat with customers. If in any case trade license is made mandatory, the process of acquiring them should be made easier so that small businesses do not feel discouraged by it.

Before finalizing any decision about trade licenses or any other decision henceforth, it is necessary to organize regular meetings, focus group discussions to identify the challenges and gaps correctly. Solutions should be taken by keeping the sector growth in focus. An inclusive discussion of sellers, customers, government policy makers and supply chain agents will put practitioner’s views, ideas, and experiences in perspective to bridge the gap and unlock new e-commerce opportunities. Rules should be made to halt the negatives, not to halt the growth.

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