The organizational model of enterprises is currently undergoing significant transformation as the traditional model operating with a hierarchical supply chain is gradually being replaced by an enterprise ecosystem, comprising independent businesses and organizations that closely collaborate to deliver seamless solutions through their individual products or services.
Nowadays, ecosystems are often associated with digital giants like Apple, Android, and Google. However, ecosystems exist across various other industries, such as automobile manufacturing and seafood processing. What’s undeniable is that digital technology has significantly accelerated the creation and expansion of business ecosystems. As these ecosystems transcend traditional industry boundaries, major players in established sectors are finding themselves under pressure from tech companies and platforms that were once considered non-competitors.
2 common types of ecosystems today
Business ecosystems are challenging traditional thinking about strategy. The boundaries between companies are dissolving as the value created by ecosystems is shared among many businesses within them. In 2019, three of Vietnam’s largest enterprises—Masan Group, Techcombank, and VinGroup—joined forces to establish One Mount Group, with the ambition of creating Vietnam’s largest technology ecosystem. This ecosystem aims to provide comprehensive solutions and services spanning the entire value chain, from financial services and distribution to real estate and retail.
Business ecosystems bring three key benefits to their members: leveraging capabilities they do not possess internally, rapid scaling, and flexibility and resilience during periods of volatility. In this article, we will focus on two common types of business ecosystems today: Solution Ecosystems and Platform Ecosystems.
Solution ecosystems aim to create and/or deliver products or services by coordinating with multiple businesses along the value chain. Every step of the production process can be planned and calculated, and at every point along the value chain, buyers, producers, and sellers are clearly defined. Typically, a solution ecosystem has a core company that coordinates activities among the businesses while also participating as a link within the value chain. For members thriving in this ecosystem, the ultimate shared goal is profitability. This type of ecosystem has existed for a long time, predating the Internet and even the concept of a “business ecosystem.” A prominent example of a solution ecosystem is the aviation industry, where companies are responsible for specific areas within the value chain. For instance, Vietnam Airlines handles cargo and passenger transport, Skypec manages aircraft refueling, and VAECO specializes in aircraft maintenance and repair.
Figure 1: Vietnam Airlines’ Solution Ecosystem (Incomplete)
In addition, platform ecosystems have emerged strongly in the digital economy era. These ecosystems typically connect market participants, both sellers and buyers, through digital platforms. Many businesses are building platform ecosystems such as eBay, Airbnb, YouTube, or Uber to facilitate buying, selling, communication, or simply watching videos, all happening simultaneously on a single platform. A large number of major companies today are developing their own platform ecosystems. Among the seven largest companies by market capitalization, five operate platform ecosystems (Apple, Microsoft, Google, Amazon, Facebook).
Building a business ecosystem in Vietnam
Strengths and weaknesses of each ecosystem model
Business ecosystem models within the same region have existed for a long time, primarily in the form of solution ecosystems, aimed at facilitating transactions for buyers in a convenient and efficient manner. Studies have shown that businesses within these ecosystems are often deeply and closely connected due to their shared aspirations for regional development, as well as similar experiences with the business environment and working styles. In Vietnam, businesses commonly establish links through ecosystem models, particularly in agriculture and production sectors. For instance, Minh Phu Seafood Corporation has successfully developed a solution ecosystem in the southern region of Vietnam by establishing businesses in the production and trade of shrimp products while also collaborating with other enterprises and producers within the supply chain.
In addition, the Covid-19 pandemic profoundly impacted the operations and revenue streams of businesses due to supply chain disruptions and limited market access. In this context, many enterprises have accelerated the development of domestic material sources and goods consumption, expanded local ecosystems, and strengthened partnerships with both existing and new domestic partners to improve operational efficiency and prevent supply chain disruptions.
However, building effective ecosystems in Vietnam is no simple task, especially as the trend of creating local ecosystems has led many businesses to follow blindly, increasing the risk of failure. Most ecosystems fail in their early stages due to strategic errors in the initial design of the business ecosystem or the inability to adapt the ecosystem’s design to changes in technology or market conditions. A typical example is the failure of B2B platforms for trading construction materials, agricultural products, and similar goods, developed by traditional businesses emulating B2C platform models like Amazon, eBay, or Taobao. The primary reason for their failure lies in the fact that most buyers are accustomed to transacting directly with individual suppliers within this system. The new B2B platforms provided little additional value to these transactions and instead shifted value from suppliers to buyers due to increased transparency and competition. This reduced the motivation for suppliers to participate in the platforms, ultimately leading to their collapse.
Some Recommendations for businesses
In today’s volatile business environment, FPT Digital suggests that Vietnamese enterprises should not view ecosystems merely as a temporary solution to unite and navigate through the Covid-19 era, but also as a long-term organizational strategy to enhance the value they bring to Vietnam.
To achieve this, businesses need to ask themselves three critical questions:
- Does the business need to build or join an ecosystem?
- How should the ecosystem be designed?
- How can the ecosystem be operated effectively?
Is there a need for a business ecosystem?
The answer depends on the business environment and the products or services the enterprise provides. Ecosystems are particularly suited to dynamic, rapidly changing business environments where highly modular products require collaboration among multiple businesses within the industry to meet demand. A product or service demonstrates high modularity when its components can be easily, flexibly, and cost-effectively combined. For example, manufacturing individual phone components such as screens, chips, and batteries has low modularity due to the high degree of specialization required. However, assembling a phone from components supplied by different providers demonstrates high modularity, making it well-suited for an ecosystem model.
Similarly, for the Vietnamese market, businesses need to evaluate their products and the business environment. If a company’s products fall into the low-modularity category, the business may consider joining larger ecosystems where its products serve as a component within the broader ecosystem.
Ecosystem Design
Designing an ecosystem that aligns with the products and services of participating businesses while remaining adaptable to market changes is no easy task. This challenge is one of the reasons why 85% of ecosystems fail. Should businesses choose a solution ecosystem, a platform ecosystem, or a combination of both? Which companies should be part of the ecosystem? Where will the ecosystem’s primary revenue streams come from? These are critical questions that businesses within the ecosystem must address during the design process.
Most companies aspire to take on the role of coordinator within an ecosystem due to concerns about being replaced, losing direct access to customers, or becoming dependent on another coordinating business. To assume the coordinator role in an ecosystem, a company must be regarded as strong, reputable, capable, and central to the ecosystem’s operations. Meanwhile, many businesses that participate as members within ecosystems benefit significantly due to lower investment requirements. They can join multiple ecosystems simultaneously, allowing them to achieve outstanding profit growth.
For traditional businesses in Vietnam, it is possible to choose to participate in an existing ecosystem, especially ecosystems operated by technology businesses, thanks to which traditional businesses can take advantage of technology platforms, connect with a large number of customers without requiring a large level of investment from the beginning.
The choice between joining or building an ecosystem, and selecting a solution ecosystem or a platform ecosystem, depends on each business’s model and product offerings. However, businesses should prioritize choosing or building digital ecosystems or ecosystems that leverage digital technologies, as these are not only advantageous during the pandemic but are also projected to generate revenues of up to $23 billion by 2025 (1).
Ecosystem Operation
Unlike simple collaboration models, ecosystems are characterized by their suitability for industries requiring high levels of close cooperation between businesses. As a result, even when the ecosystem design is meticulously planned and well-structured, many ecosystems still fail when operating in reality.
One of the initial risks is that businesses participate in multiple competing ecosystems simultaneously due to low entry barriers. For example, a restaurant might join both ShopeeFood and GrabFood ecosystems. This creates significant challenges and increases costs in maintaining and operating the ecosystem.
Another risk in ecosystem operations, especially for platform ecosystems, arises when buyers and sellers within the ecosystem start working directly with each other after being initially connected through the platform, bypassing the platform entirely.
The final barrier to building a strong ecosystem is complacency. A prime example is Microsoft’s Internet Explorer, which was considered to have won the browser war after capturing nearly 95% of the market share in 2004 (2). With no significant competitors, Microsoft stopped investing in further browser and ecosystem development, creating opportunities for Firefox and Chrome to enter and eventually dominate the market. In addition to understanding potential risks during operation, businesses must ensure the establishment of effective operational mechanisms, maintain commitments to participants, and continuously evolve and adapt to changing environmental conditions.
Business ecosystems can be considered essential for the future growth of the economy. However, for an ecosystem to succeed, businesses must thoroughly understand the strengths and weaknesses of this model and invest significant effort and time in designing and operating the ecosystem. Like a natural ecosystem, a business ecosystem must evolve, adapt, and respond to changes in the external business environment. In practice, the flexibility of an ecosystem is the key differentiator between failure and success, regardless of whether a business adopts a solution ecosystem or a platform ecosystem model.
Reference sources
