Business Ecosystems

Constructs, Configurations, and the Nurturing Process

K. Rong,Y. Shi

• Publisher: Palgrave Macmillan
• Year: 2014
• ISBN:
  9781137405920
• Topic: Negocios y empresa
• Subtopic: Negocios internacionales

The book examines business ecosystems in an emerging industry context whilst exploring four essential areas of business ecosystems: the business ecosystems' key constructive elements, their typical patterns of the element configurations, the five phase process of their life cycle, and the nurturing strategies and processes from a firm perspective.

1

Introduction

1.1   New industry frontier: from supply chains towards business ecosystems

The mobile phone industry has experienced dramatic changes in the last five years. In the West, while Apple has dominated the industry and Samsung has risen in popularity, previously established players such as Nokia, Sony-Ericson and Motorola have almost disappeared. In the Chinese market, the new smartphone company Xiaomi sold almost 19 million smartphones in 2013, up from only 400,000 in 2011. By taking advantage of established manufacturing resources and integrating them on its business platform, Xiaomi successfully imitated Apple’s business model, tailoring it to the Chinese mobile phone market. It co-opted the Chinese mobile phone ecosystem into its value-creation network, delivering unprecedented rapid growth and creating the most popular Chinese domestic mobile phone brand within two years.

Xiaomi’s success may demonstrate the end of an era when the vertically integrated firm has been the dominant mode of industrial organisation in the emerging and fast-growing phases of industry development. Its alternative model illustrates that collaboration among complementary organisations, diversified resources and skill sets are essential for nurturing new firms, supply chains, value networks and industries.

A second example of rapid change is that the mobile phone industry has also converged with the personal computer (PC) industry to form a new mobile computing industry, potentially improving the performance for portable devices. Two groups of companies have been engaged in developing potential end-user products in this emerging industry. The mobile phone group produces a portable device used for daily communication while the PC group is normally involved in data processing or entertainment. However, consumers have an increased expectation to be able to carry out various simple computing operations while they travel, and mobile computing functions such as easy access to the Internet, long standby time and simple computing have become very appealing. To meet these expectations, the mobile phone group has devoted more attention to smartphones or MIDs (Mobile Internet Devices) than to the 2G phone in order to add more computing functions to enable users to carry out simple computing tasks while travelling, while the PC group seeks to make the notebooks much smaller in size, portable and with long standby times, so that the product can perform more functions without being recharged.

However, the convergence of these two industries is not straightforward. Products of the mobile computing industry are still in flux, although iPad dominates the market. Each group hopes to retain its advantages to form new generations of products. They cannot reach an agreement in the design of end-user products. More critically and interestingly, the industrial structures and the business models in the two groups are very different. The PC industry has been dominated by the Win-Tel system for more than 30 years while the mobile phone industry is mainly enabled by ARM IP architecture and more diversified networks domination. The serious competition between these two groups inspires and forces many firms to concern themselves deeply with their selection of business ecosystems (Moore 1993). The new competition in the emerging industry has been transformed from the traditional levels between firms and supply chains towards a new level between Win-Tel–based and ARM-based ecosystems.

The third example has nothing to do with mobile phones but goes back to China again. The Chinese central government has invested a huge amount of money in renewable energy vehicles in the last fifteen years (from its 9th to the 12th Five-Year-Plan periods). Strategically it intends to find new ways to develop the family transportation industry and to solve two longer-term issues. First, although China has emerged as the largest producer and market in the automotive industry, the Chinese government has been convinced that its state-owned car producers have become Chinese subsidiaries of foreign, multinational corporations (MNCs). They are weak in innovation and high-value–capturing capabilities. Secondly, the fusel fuel combustion engine automotive industry is almost towards its own end, and China has yet to develop its own renewable energy vehicle industry. The politically motivated investments have, unsurprisingly, not brought on any significant industrial breakthroughs. However, the grass-roots entrepreneurs, aligning with their local governments in the Shandong Province (located between Beijing and Shanghai), amazingly created a very successful but quite low-end and largely ‘illegal’ electric vehicle (EV) industry (it is also called micro-EV) in the last ten years. When its market size almost reached 200,000 units in provincial annual EV sales in 2010, the Chinese central government forbade the EV productions based on Chinese established regulations and policies in the automotive industry.

The serious arguments and thoughts are that, although there are very strong and increasing demands for the low-end EVs from the rural market and even stronger supply capabilities from the province and global industry supports, it is useless unless the automotive industrial policies, regulations and legislation are able to be adapted according to the new development requirements. The emerging EV industry must be the best example to demonstrate the increasingly critical challenge for an industry development. For the Chinese grass-roots EV manufacturing companies and their local and global collaborators, it is not the most serious challenge to understand the increasing demands for the EV, or to set up a supply chain or value network to co-develop the EVs to satisfy the targeted markets, or even to identify the complementors, such as electric charging service providers and their underlying renewable energy infrastructures. It is so essential that all parts – demand, supply, intermediary sides – work together. In the Chinese Shandong EV industrial development case, the intermediary part is obviously the most significant bottleneck.

As a result of the above three examples, industries are facing emerging challenges in order to cope with the dynamic changes and uncertain business environments as well as the fast emergence and transformations of new technologies and market demands. These challenges may not come mainly from an individual firm or supply-chain levels but from a more complex, dynamic and much wider range of business contexts and systems together. Industrial people adopted ecological metaphors and gave the new challenging totality a very imaginable terminology: business ecosystem (BE).

There is no doubt about the BE existence and its strong impact on industrial development and global competition. However, industry also asks, if the business ecosystem is so powerful and critical,

•what a business ecosystem is, and what key building blocks organise a business ecosystem;

•and how a business ecosystem should be nurtured.

1.2   Business ecosystems: from a fantastic metaphor to scientific understanding

Although academics have paid close attention to business environmental changes and features for a very long time, the concept of a ‘business ecosystem’ was only formally proposed in 1993. James Moore developed a theory to explore and explain the interactions and co-evolutions between firms and their business environment (1993). He defined the business-related firms and their environments from a totality named a business ecosystem. A business ecosystem contains opportunity space, supply-chain–related companies and different levels of organisations, such as industry associations, competitors and policymakers. These organisations have a big impact on the development of an industry, especially when that industry is experiencing rapid change. A business ecosystem has a life cycle of four sequential phases: birth, expansion, authorities and renewal. Moore’s theory inspired firms with the importance of co-evolution, highlighting cross-industry activity and blurring industry boundaries (Moore 1996).

After Moore’s paper, about 350 academic papers have been published in the last 20 years. So far the main contributions of business ecosystem literatures were from five bodies of knowledge, including strategic management, organisation and network studies, operations management, digital industry and, most recently, innovation management. These academic disciplines have taken business ecosystem as a unique lens through which to review their established boundaries and to identify emerging issues. It is obvious that many disciplines have realised that the new concept not only brings an attractive metaphor but also opens a much wider territory for exploration.

However, the research and related theories specifically targeting business ecosystems and their behaviours are still very rare, especially lack of systematic observation and analysis (Peltoniemi & Vuori 2004). In the academic world there seems to be still no consensus towards recognising the business ecosystem as an emerging research arena that can be fundamentally helpful to business and management.

Currently the industrial challenges from many emerging industries such as the Internet, mobile computing, renewable energy and 3D printing, as well as the digital economies with uncertain product and complex collaboration, have highlighted the importance of business ecosystem utilisation. This phenomenon indicates a good opportunity to study the business ecosystem more deeply.

Business ecosystem of course can be an excellent metaphor to help the imagination of the business environment, targeting its latent resources, leveraging a better position strategically and forming a unique value-creation network more effectively.

However, it is much more critical for academics to realise the business ecosystem as an emerging and essential body of knowledge and a rich research arena. Therefore it is worth thoroughly exploring and understanding the attributes and behaviours of business ecosystems.

1.3   Aims and characteristics of the book: explorations of the system and methodology

This book seeks to explore the basic characteristics of business ecosystems and to capture some practical experiences to nurture an ecosystem for business transformation. In order to comprehensively study business ecosystems, a systematic investigation has been conducted to build the theories relevant to the business ecosystem’s concerns.

During globalisation, the manufacturing industry has been fundamentally transformed from the traditional, single-site factory- or firm-based system into multiple levels of networks, including intra-firm (international manufacturing) networks, inter-firm (supply chain, industry cluster, business) relationships, as well as the international and inter-firm (international alliance, global manufacturing virtual network, open innovation) networks (Shi & Gregory 2001). The globalised transformations also change the business ecosystems. Evolutionarily the business ecosystem can also be recognised as a further extension of globalisation and transformation. It is a critical part of studying business ecosystem to deeply understand the transformation process, especially to capture the journey of emerging industry along its whole life cycle.

By learning from the research background, the main research objectives are to understand the business ecosystem as a whole, and to specifically:

1)identify key constructive elements of a business ecosystem

2)explore the evolutionary path of a business ecosystem

3)summarise typical patterns of a business ecosystem with adaptive strategies

4)develop a firm-based business ecosystem nurturing process

1.4   Structure of the book chapters: a research journey

As shown in Figure 1.1, this book consists of three main parts and 12 chapters.

Chapter 1 introduces the background and an overview of the book.

Following the research journey, the main body of the book is comprised of three sections between the introduction and the conclusion:

•Part I: Background Exploration of Business Ecosystems: In this section, industrial, practical and academic literature reviews have been conducted to discover research gaps and to inform the research framework and process. It lays down a theoretical foundation and sets up research directions on business ecosystem theories.

•Part II: Case Observation of Business Ecosystems: This section, consisting of three chapters, gives detailed industrial stories from three typical industrial companies: ARM, Intel and MTK. In each main case study there are also three sub-cases to inform understanding of the business ecosystem nurturing.

•Part III: Theory Construction of Business Ecosystems: This section includes four chapters dedicated to four key research findings and their discussions on business ecosystem theories: first, the life-cycle phases are developed to describe the ecosystem’s growth; second, constructive elements are identified based on the ‘structure–infrastructure’ model; third, the different configuration patterns are defined according to the selected dimensions; and, finally, the firm-based business ecosystem nurturing process was conceptualised and developed for further verification.

The final chapter is the conclusion which encapsulates all the content of this book as well as offering suggestions for future research directions.

Figure 1.1   Section and chapter structure of the book

Part I

Background Exploration of Business Ecosystem

Part I focuses on the reason why business ecosystem research is required from both the industrial and academic perspectives. This part also develops the research questions and methodology to prepare the further exploration of the business ecosystem theories,

Chapter 2 Industrial Challenges

Chapter 3 Literature Review

Chapter 4 Research Methods

2

Industrial Challenges

2.1 Introduction

By studying exploratory cases in the mobile computing industry, this chapte...