Perspective Chapter: Business Ecosystems – A Structure to Commercialize Value Chain of Rural Economies in Developing Areas

Abstract

In this chapter, we begin with the motivating question: How can firms in rural areas be organized to foster development and transformation by commercializing their activities? In developing countries, the business environment in rural areas has limited amenities and infrastructure. Firms in such areas have limited capabilities to solely commercialize their activities. To create value and capture a sizable value from activities, firms should redefine their Industry Architecture (IA): who does what, and who gets what? And change their business model from transactional to collaborative or ecosystem. The chapter informs stakeholders in rural development on significant steps and measures to be taken to structure a viable and commercial business ecosystem. Also, the theoretical contribution to fostering rural development and transformation by changing the Industry Architecture, Value Chain, and Business Ecosystems is remarkable. The chapter concludes by proposing firms work together to gain an architectural advantage: Maximizing the complementarity and mobility of assets.

1. Introduction

Rural development concerns geographical areas where primary production occurs and populations are found in varying densities. These areas are characterized by various agricultural activities: Primary and secondary processing, marketing, and services that serve rural and urban populations [1, 2]. About 80% of the world’s population reside in rural areas. Their livelihood depends solely on farming: agriculture commands a sizable share of contribution in employment and national income [1, 2, 3, 4]. Although the population in most developing areas is found in varying densities, different studies [4, 5, 6, 7] show that the rural population is concentrated in four regions: Asia (72.2%); Africa, mostly in the Sub-Saharan and Southern Sahara (12.3%); Eastern Europe (6.4%); and Latin America and the Caribbean (9.1%). This population distribution indicates that rural areas and hence rural populations are dominant in Asia and Africa. Therefore, fostering rural development and transformation cannot be ignored because rural areas are occupied by the majority of the world’s population.

The World Bank reports that in countries for which poverty data are available, the incidence of poverty in rural areas is 60% higher than in urban areas [4, 8, 9]. Also, empirical studies show that rural poverty has increased in line with the rise in national poverty [4, 10]. For example, herders remain poor as they practice noncommercial herding; farmers remain poor as they practice subsistence farming; the population living in areas with vast mineral resources, and those who depend on forest resources are not showing any significant difference [8, 9, 10, 11, 12]. This situation exists because firms [people] working in rural areas failed to capture a sizable value from their value chain activities: The inability of rural firms to commercialize their activities [11, 12]. Other reasons include a low rate of technology adoption, nonsupportive infrastructure, and poor linkages within the value chain [2, 5, 7]. This situation cannot be left unattended. It needs collaborative efforts to overcome the challenges and foster social well-being in rural societies.

To foster sustainable development and social transformation, rural population [firms] should be able to [commercialize] gain economic benefits from their activities. The priority should be set to promote the value chains of rural economies, create employment opportunities, and improve their livelihood. But, this cannot be done by a single firm and in a single setting. It requires firms to coevolve capabilities around an innovation: they work cooperatively and competitively to create value for customers and capture a sizable value from their activities [12, 13, 14, 15]. Therefore, it is important to analyze innovative approaches through which rural economic activities can be commercialized: rural firms should be able to create value and capture a sizable value from their activities. They should increase productivity and competitiveness in all the economic sectors including farming, livestock, forestry, fishing, and mining subsectors.

Following this introduction, the rest of the chapter is organized as follows: first, it presents the literature on rural development, industrial architecture, and business ecosystems. Thereafter, we present the commercialization structure of the value chain of rural activities in developing areas through the business ecosystems. Finally, we offer the conclusion of the chapter.

2. Rural areas of developing countries

Rural areas and consequently rural development have been defined differently in different contexts. Rural areas, also known as the bottom of the pyramid, are the geographical areas with people who subsist on less than 1500 USD per year [15, 16]. It is a geographical location with less than 150 inhabitants per square kilometer and where primary production like farming, mining, and fishing takes place [1, 3, 17]. Therefore, rural areas are physical locations with less than 150 residents per square kilometer, and the production of commodities is the main economic activity.

Besides, rural areas have markets that have unique characteristics which attract investment and provide opportunities for growth and development. Rural markets are potentially large both by size and population [15, 16], have higher growth rates compared to urban markets [17, 18], and are less competitive [15, 16, 17, 18, 19, 20, 21]. Also, rural markets provide opportunities for innovation as different models and technologies can be tested/piloted here [20, 21, 22, 23]. For example, the population of Tanzania is about 61 million people with a growth rate of 2.5%. Africa has about 1.5 billion people. These characteristics/features present an excellent opportunity for firms to grow and commercialize their activities. Therefore, firms in rural areas should take advantage of such opportunities to foster rural development and transformation.

Furthermore, since agriculture is a major rural economic activity, it presents an opportunity for development as it has strong linkages with the nonfarm sector through agro-processing, value addition, and trade. Agriculture is characterized by activities related to primary processing, marketing, and services that serve rural and urban populations [3, 7, 17]. But, this opportunity is not fully utilized: For example, most crops as well as forest products (both timber and nontimber forest resources) are marketed in raw form with little or no value addition [6, 7, 17]. Also, rural markets are yet to be explored and are currently served by the unorganized sector that is often inefficient and controlled by local middlemen [24, 25, 26]. The dilemma, however, has been the inability of rural firms to capture these markets: the inability to convert the unorganized/unstructured and fragmented rural markets into organized markets [15, 26]. Therefore, the firms in rural areas should strategically change their existing industrial architecture: they should restructure their inefficient [noncommercial] model of doing business into a more efficient [commercial] structure or architecture.

3. The industry architecture

The Industry Architecture (IA) concept was introduced in the field of business management as a strategy for firms to create and capture value [27, 28]. The IA was proposed to describe two things: first, it describes the division of labor, i.e., who does what to create value? How labor is organized in the value chain of a particular industry to create value? Second, it describes the division of revenue, i.e., who gets what from value capture? How is revenue shared among participating firms within an industry? [27, 28, 29, 30]. Incidentally, the IA emphasizes who is benefiting from the economic activity by describing the division of revenue among participating actors in the value chain. Firms in rural areas are not getting a sizable share of the existing value chain of rural economies. As a result, rural people remain poor as they are not benefiting from the activities. Therefore, transforming rural areas requires reforming the value chain of rural economies: building an architecture that creates competitive advantages for rural firms to capture a sizable value from their economic activities.

In addition, the IA defines the strategic constructs through which firms can work together to create value for customers and capture value for participating firms in the particular industry [28, 30]. The IA concept considers how architecture shapes capabilities and how different types of capabilities fit together to define the structure of firms and industries alike [30, 31]. Firms collaborate to receive complimentary products and components in a value network [32] or an ecosystem [15, 33], i.e., the combination of the value chain and complimentary products [34, 35]. Nevertheless, the IA for most rural activities is not well defined, and participating firms are not well coordinated. They mostly operate through unstructured and disorganized channels [24, 26, 36]. Therefore, rural firms need to structure their activities to define their division of labor for value creation and sharing of profit for value capture.

Furthermore, the existing business environment is increasingly complex and volatile. Technology changes very fast, consumer behavior is more complicated, and economic conditions are increasingly threatening. As a result, competition is tense, and firms compete to capture more value by fighting each other in the value-creating system: firms with higher competitive advantage try to increase [take a large share] their slice of the pie by reducing someone else’s slice [36, 37]. For example, in the beekeeping industry, honey traders try to increase their slice of the honey business at the expense of beekeepers [12, 15]. Also, in most agro-products, traders increase their slice at the expense of producers who are farmers. The same is observed in herders and forest activities. This business relationship incited the behavior of producers to become opportunistic and play the market [24]. For example, in most primary production value chains, customers switch suppliers if they can negotiate better deals. Similarly, primary producers circumvent their customers when they get a better offer from someone else [5, 6, 12]. This business behavior is not sustainable and cannot transform the value chain of rural economies because it limits the ability of firms to share complementary assets, skills, and capabilities.

Moreover, firms in the value chain of rural economies have the sidestep behavior because they are speciously coordinated: their channels are disorganized and value-creating systems are unstructured [26, 36]. As a result, the IA of rural economies has disjointed and commercially weak firms/actors. Also, actors have neither trust nor assurance when they trade among themselves or with other actors in similar industries. Additionally, their business relationship is transactional-based [12, 38], and value appropriation is competitive: firms’ ability to capture value depends on their bargaining abilities [36, 37, 38]. This value appropriation model increases the competition among firms in the industry: rural actors capture lesser value because they have relatively low bargaining power. Scholars [31, 32, 33, 34, 35, 36, 37, 39, 40] argued that firms that are facing such challenges have to team up with firms with complementary assets and capabilities to create more value and capture a sizable value for all participating or teaming firms. Therefore, the IA of primary industries in rural areas should change from transactional to collaborative: firms in a particular industry should be aligned, coordinated, and organized to share the roles, activities, and capabilities—changing the IA through the ecosystem approach.

4. The business ecosystem

In a business setting, firms should not be viewed as members of a single industry but as members of a business “ecological unit” [14, 37]. This ecological unit also called a Business Ecosystem (BE) is a community of interdependent firms [13, 14, 41] with different capabilities working together to deliver a focal value to customers [15, 31, 34]. It is a relationship where the set of interacting firms depends on each other’s activities and resources to create value for customers and capture value from the activity [42, 43]. Therefore, a Business Ecosystem is a business relationship where firms with different skills and capabilities collaboratively create a focal value and proportionately share revenue acquired from their activities. A well-organized and operative BE is built around a good structured Industry Architecture.

Unlike the natural ecosystem that evolves by the work of nature, BE evolves by organizing interacting firms around the lead firm or an orchestrator. And the success of the BE depends on the innovation, technological capabilities, and governance of the ecosystem [41, 42, 43, 44, 45, 46, 47]. The lead firm should define the focal value proposition, structure the value-creating system and hence IA, and govern the ecosystem. Participating firms should clearly understand their roles and activities so that they can align their investments and strategies to provide inputs and complimentary products. For example, in the Avocado business, different markets like the European Union (EU), and the Middle East, have different specifications and requirements regarding the size, type, nature, and foreign contents used to grow the fruit. To present the Avocado product to the market, all partaking firms should first understand these specifications and requirements [value proposition]. Then, they should collaboratively work together to achieve the same. Firms that prepare Avocado seedlings should know the exact specie/type of Avocado tree which can produce the specified and required product. Farmers should plant and grow the same and should do that under the required conditions: they should comply with fertilizers, pesticides, and the like. Also, traders and exporters should adhere to these specifications and requirements. Regulating bodies and certifying agents should understand the same. In the end, the Avocado product which is presented in the EU market, for example, should be confined to the specifications and requirements, otherwise, the product will be rejected and the whole value chain and ecosystem will fall out.

Furthermore, for BE to occur, the focal firm should have a strong influence over the coevolutionary processes: it should have complementary skills, assets, and capabilities to convince and influence the value chain. Participating firms should be willing and ready to collaborate to present the value proposition to their target customers or market [42, 46]. Therefore, the lead firm (e.g., a cooperative) influences other firms (e.g., producers, and traders) within the industry, and the firms (e.g., producers) influence each other during the evolution of the ecosystem. Most important for firms in business ecosystems are the capabilities to coevolve around innovation sustainably [12, 31, 46]. For example, in the beekeeping industry, the trader can influence other firms like suppliers of raw materials, and beekeepers to deliver quality honey to the market. Also, honey producers can influence each other to deliver quality honey to processors or aggregators in the value-creating system. Similarly, in the Avocado industry [value chain], the lead firms should define the specifications and requirements of the fruit in the target market. Then, participating firms—from suppliers of seedlings to traders—should be structured in an ecosystem-as-structure [42, 43] to meet the stipulated specification and requirements.

To access potential markets, sustainable production of adequate or commercial quantity and quality—conformity to specifications and requirements—is important. Looking into the structural relationship between rural economies, and the existing IA, it is palpable that rural firms alone cannot access potential markets [11, 27]. Similarly, firms with capabilities to reach potential markets cannot solely create value and produce commercial quantities [5, 19, 34]. Therefore, firms should collaborate to produce commercial value, access potential markets, and capture a sizable value for participating firms from the activities. This can efficiently be done through an ecosystem structure.

The ecosystem-as-structure approach suggests a complementary tactic to reflect interdependent value creation starting with value proposition [42, 43]. After defining the value proposition, the ecosystem seeks to identify the set of actors that need to interact for value to be realized [42, 47]. Therefore, to commercialize the value chain of rural economies, the approach is indispensable for several reasons. First, organizing the ecosystem offers a more actionable perspective on interdependence [33, 48]. Second, it focuses on configurations of activities—who does what as defined by value creation [28, 29, 30, 36]. Furthermore, it defines the model through which value is created, delivered, and captured from the value chain—the architecture of the business model [31, 49, 50]. Consequently, the ecosystem-as-structure approach focuses on the value chain as the architecture for value creation, and the Business Model as the architecture through which value is created and captured through the orchestrator [42, 50]. And the BE is the alignment structure of the set of business partners/actors with varying degrees of multilateral, nongeneric complementarities that need to interact for a focal value proposition to materialize [37, 47, 51]. Thus, the ecosystem-as-structure creates value through a collaborative value chain and capture value through the BM of the lead firm.

4.1 Business ecosystem: the architecture to create value

Firms in the existing business environment trade not in isolation but interactively, in an ecosystem [14, 52]. Presenting value propositions to customers requires multiple firms to collaboratively undertake some commercial activities of standard-setting and market cocreation. The orchestrator innovates, defines standards, and chooses elements of the value chain to be internalized. Then, it attracts other firms to join the ecosystem. Lastly, it takes responsibility for guiding the coevolution of the system and maintaining competitiveness against rival ecosystems [48, 53, 54]. Therefore, the success of the ecosystem depends on the governance ability of the lead firm.

Management scholars argue that the ecosystem’s capability to create value hangs on a set of factors. They include activities, position, actors, and links [42, 55]; complementarities, efficiency, lock-in, and novelty [32, 50, 56]; complementarities, convenience, enabling, and efficiency [57]. Other factors are complementarity, and mobility of assets that describe the blueprint for how value is created through the collaboration of multiple actors [30, 36]. It is important to note that these factors of the BE that foster value creation and the boundaries of the ecosystem are not mutually exclusive, they depend on the type and scope of the industry.

Nevertheless, based on the understanding of the ecosystem-as-structure, I argue that an efficient BE should produce a value proposition through an architecture in which every participating firm (actors) occupies a particular space (position) and performs some activities that add value to inputs before passing them to the next actor in the chain (links) such that the value proposition is efficiently delivered to customers. These value-creating elements are described as:

4.1.1 Value proposition

The value proposition is the first element that an ecosystem should define because the rest of the elements or factors will be decided based on the value proposition. Value proposition is the bundle of products and services which are desired by customers, and customers are willing to consume [50, 58]. Conversely, the value proposition is a bundle of products and services that the ecosystem aspires to deliver to customers. If the value proposition is not well defined and understood in the ecosystem, the IA and value chain activities will not be clearly defined. Consequently, the business ecosystem will not operate sustainably. For example, if the quality of maize to be delivered to customers is not well defined, seed suppliers will not precisely supply the required seeds, farmers will not be able to meet the requirement, and the rest of the activities in the value chain will not be effective and efficient. Also, participating firms in the value chain cannot be well identified and value activities cannot be well defined.

4.1.2 Activities (key activities)

After defining the value proposition, the next challenge facing the ecosystem is to understand the set of activities required to deliver a particular value. Key activities specify a set of discrete actions, the most important and novel actions, that should be performed to deliver the value proposition. Osterwalder and Pigneur [58] argue that key activities are potential actions to be performed to create a product or service, manage channels, maintain customer relationships, and earn revenue. Every actor in an ecosystem should do some activities which add value to the received materials before passing them to another actor.

In the agriculture industry, key activities to create value and appropriate a sizable amount of value from the activity include production (actions to be performed from the acquisition of raw materials, farming, and harvesting), processing, and trading. Other activities include transportation, aggregation, storage, packaging, and channel management. These activities are not sequential as they depend on the nature of the product, the state in which the product is sold, and the market served. It is, however, important to note that a single actor may undertake multiple activities. Conversely, multiple actors may undertake a single activity. For example, in the cereal industry, agro-processors can also take on farming or production activities; in the beekeeping industry, all actors can take on honey trading activities. Therefore, the orchestrator should understand the value chain and hence define the key activities required to create and deliver value to target customers (Box 1).

Box 1.

Example of key activities to be performed in the beekeeping business ecosystem.

Input supply: Every activity in the beekeeping value chain needs some input. For example, beehives, bee suits, and harvesting tools are important inputs in production. Machines, packaging containers, and labels are important inputs in processing and packaging. Therefore, suppliers like artisans and firms that can import beekeeping gears should supply quality and standard inputs. If low-quality inputs will be supplied, the whole ecosystem will be less productive, and the focal value proposition will not be realized. For example, rural beekeepers who use either local hives are less productive because these hives limit beekeepers to take on some hive management activities like inspection, colony division, and comb selection during harvesting.

To commercialize the beekeeping activity, beekeepers have to access and use commercial inputs. But, they have limited financial resources to acquire commercial hives. Therefore, firms with capabilities should play the facilitation role to facilitate possible interactions and transactions between the trading parties. For example, under a special agreement, the orchestrator can pay for beehives and lend to beekeepers. Alternatively, the orchestrator can supply beehives and other beekeeping inputs to beekeepers on agreed payment modalities.

Furthermore, honey refining and honey creaming machines are among the most important machines for honey processing. But these machines are neither made locally nor available to local beekeepers. Therefore, firms with capabilities or orchestrators have to buy the machines. Conversely, the orchestrator can enter into shared benefits business agreements with suppliers. For example, in a “business contract” to supply packaging materials, the supplier is assured of the market and the orchestrator is assured of supplies at a “negotiated” price.

Production and harvesting: After acquiring input supplies, the next activity in the beekeeping ecosystem is production. This should be the core activity of producers, the beekeepers, in an ecosystem. Beekeepers should perform all the activities necessary for the production of quality honey. Other firms/actors in the ecosystem should support beekeepers to improve production, reduce harvesting and postharvesting losses, and quality of products. This can be achieved by supporting producers with access to improved technologies, quality tools and equipment, and knowledge and skills.

To maintain the quality of products, producers should store their produces in appropriate containers soon after harvesting. Then, the containers should be transported to the village centers or collection points/centers where the produces can be stored, aggregated, and prepared for processing. Lead firms should distribute containers to the beekeeper before harvesting.

Aggregation: It is important to understand that most firms in rural areas produce for domestic consumption. Their sales hail from excess. Accordingly, it is hard to acquire commercial quantities from these activities. The implication here is that they cannot access profitable markets, and their bargaining power is low because they cannot have a quantity advantage to bargain. Therefore, producers should collaborate to aggregate their products to gain a competitive advantage. They can do so through collection points/centers. So, the importance of the collection point here is to aggregate produce before they are sent to the processing point/center. In this regard, the most important aspect here is the improved productivity and bulking of honey. Producers should be linked to each other and to the collection point such that they are part of the facility. Also, other actors in the ecosystem should be linked to the collection point.

Processing: After harvesting and collecting honey, the processing is the next activity in the beekeeping value chain. Honey is a food product, and most customers want to consume safe, clean, and healthy products. Possessing a hygienic processing facility adds more value to beekeeping products. Therefore, value is created by working in a clean and well-established environment, i.e., through hygienic processing—refining, aggregation, blending, and packaging. This process is important because it produces a standardized honey product—clear honey with similar features like color, aroma, and taste. In this regard, the orchestrator should have a decent and well established, and retooled processing facility. The most important issue in this activity is honey refining, blending, and packaging. Also, the activity should focus to reduce postharvest losses, increase productivity, and product quality, and ensure hygiene.

Trading: Channel management is the last activity that the ecosystem actors should focus on to efficiently reach the target market. Value is created by efficient channel management: Making products available to customers in potential and profitable markets. In developing areas, the urban market is the most potential and profitable market segment as it has customers with relatively higher incomes. Therefore, reaching this market should be the main focus of the beekeeping ecosystem. The role of the orchestrator, in this case, should be to properly coordinate both direct and indirect channels; interact with different channel members like honey traders, retail shops, and supermarkets to efficiently reach target markets.

The effectiveness of the ecosystem will depend on the ability of the lead firm to define the value proposition, arrange this set of activities, and attract other firms to cocreate value and capture value from their activities.

4.1.3 Actors (key partnerships)

Actors or key partners in the value chain are organizations, economic entities, or firms that perform key activities to create and deliver value to customers. These are firms without which value propositions cannot be created and delivered to the target market [42, 58]. Participating actors define the network of partners and value chain participants that makes the business ecosystem work. The selection of the right partners is quintessential [34]. The value-creating system should have a defined set of actors who intend to jointly present an agreed value as their common goal. The partners should have the capabilities, skills, and competencies to perform a specific role in an ecosystem to ensure efficient and effective value creation [51, 58]. For example, depending on the defined set of activities and the value chain, potential actors in the agriculture industry include suppliers of agricultural inputs and materials, producers or farmers, processors, and finally consumers. Other potential actors who support the value chain include aggregators, traders, transporters, researchers, and regulators.

For example, in the beekeeping industry, the categories of core actors to be considered in its value-creating system include suppliers, the producer group, the orchestrator, honey traders, and customers. Suppliers in the beekeeping ecosystem include carpenters, tailors, and private firms that supply beekeeping inputs like beehives, bee suits, buckets, and packaging materials. Producer groups include beekeepers, honey hunters, and their associations. The ecosystem orchestrator can be the cooperative, the private company, or both the cooperative and private companies (i.e., the hybrid orchestrator model). To protect the interest of the producers and at the same time to ensure efficient governance of the ecosystem, the hybrid orchestration model should be adopted: the producer’s cooperative and the private company work together through the produce collection center. Other actors in the beekeeping ecosystem are honey traders and customers. Honey traders are middlemen in the distribution channel. They include supermarkets, retail shops, exporters, and honey vendors. And customers in the beekeeping ecosystem include individual households, hotels and restaurants, tourists, and local brewers in both rural and urban markets.

Furthermore, since agriculture is a capital-intensive activity, rural people cannot afford to invest. It requires the intervention of business development organizations. These are an organization that supports the growth, expansion, and operations of a particular value chain. They include institutions for research, finance, and trade. Other are Government and Non-Government Organizations, International and development projects. These actors are important as they provide skills and assets which could not be easily accessed by some firms in the value chain. For example, development projects can support the value chain by building collection centers, influencing policies, bringing new technologies, and building capacity.

4.1.4 Positions

The position element is among the factors which can create a competitive advantage for both firms and ecosystems. Positions postulate where the activities are located across the value-creating system [42, 48], and where the actors are located in a value chain. For example, in agricultural activities in which commercialization competencies are grounded on quantity, aggregation becomes an important activity, hence it should come after harvesting. Crops like coffee, cashew nuts, and some cereals require an organization where the aggregation is centralized for farmers to gain bargaining power and trading advantages.

Positions determine who should perform what activities or who does what? And who hands off to whom in the value chain. Also, value creation, delivery, and profits are affected by the structural position of firms [28, 30]. Therefore, the positioning element defines the way an ecosystem can be structured through a business model and value chain [32, 50]. This element is equally important in the commercialization of the value chain of rural economies as it defines the flow of activities such that participating actors accomplish value-creating activities in areas of their competence and capabilities.

The commercialization of value chain activities of rural economies in developing areas should position actors with processing and trading abilities closer to producers and traders. Most products have the challenge to reach profitable markets because they can neither be brought to the market on time nor reach a commercial volume. Therefore, producers who are mostly poor rural farmers should be positioned closer to suppliers and business development organizations. Producers should be supplied with commercial inputs, skills, and technology to produce the required value proposition. Processing and aggregation are critical activities in the commercialization of the value chain of rural economies: processing adds value to primary produces, and aggregation increases competitive advantages in negotiation and pricing. Therefore, actors with capabilities to undertake processing activity should be in a position to advantage of firms/actors who do not have such facilities. It is suggested that such firms should take the orchestration position.

4.1.5 Complementarities

Complementarity refers to the combined returns from the combination of two or more assets, with some combinations resulting in higher value creation than other combinations [30, 36]. Complementarity advantages emerge in setups where bundling multiple products provides greater value than offering the same set of goods separately [46, 56]. For example, in the agriculture industry, complementarity is achieved by combining assets, infrastructure, and capabilities needed to support successful production, processing, and marketing activities. Effectiveness and efficiency can be achieved by improving productivity and reducing waste and postharvest loss. In the beekeeping industry, production efficiency can be achieved by improving colony productivity, preventing absconding, and improving occupancy rates. Also, proper honey extraction, handling, processing, and prevent postharvest losses. Similarly, in the cereal industry, productivity can be achieved by plating improved seeds, increasing productivity per acre or hectare, and properly harvesting and storage. Also, reduced farm waste and postharvest losses result from improper harvesting, storage, and product handling.

The presence of each of these value drivers enhances the value-creation potential of a business ecosystem in the value chain of rural economies, the agriculture industry in particular. Adner [42] argues that the interdependence of value drivers can enhance the effectiveness of any single value driver. The business ecosystem in the agriculture industry should be efficiently orchestrated so that the ecosystem actors, producers, in particular, can effectively and efficiently create, and deliver focal value to the desired target markets.

4.2 Business ecosystem: the architecture to the appropriate value

From the theoretical foundation of the BE, value appropriation is as important as value creation, such that it helps to make the ecosystem sustainable. In an ecosystem, value creation is aided by the presence of complementarities and interdependencies between actors [29, 33], whose activity output contributes to the orchestrator’s user value proposition. Capturing value from strategy becomes more complex as firms consider vibrant interactions of a multilayered ecosystem. The competition between ecosystems tends to produce winner-take-all outcomes when there are large demand or supply-side scale economies, internal costs, and no benefit from specialization. Also, competition between ecosystems leads to an openness that results from each ecosystem trying to recruit more actors; the greater the openness, the less opportunity for the supplier to capture value directly. A good value capture strategy is to court well-known brands/partners who can bring large blocks of customers to the platform. The selection and implementation of smart value-capturing strategies and spillovers are likely very significant.

Furthermore, the ability of the orchestrator and ecosystem actors to capture value from the activity rests on several factors [31, 46]. First, the orchestrator can capture value by designing a business model and controlling the necessary complementary assets and technologies to internalize more of the spillovers [43, 50]. Second, the value proposition, enabling technology, and regulatory framework should be clear at the outset, such that they do not constrain value capture [59]. The importance of each activity depends on the key activities of a particular value chain.

In the agriculture industry, enabling technologies are important not only in production and processing activities but also in data management. The orchestrator needs to manage data about farmers, farms and farming inputs/supplies, pests, and diseases, harvesting trends and crop production, and markets and customers. All this information is important for the actors in the beekeeping ecosystem to work effectively. For example, if the information about farmers is not well documented, it will be difficult for the orchestrator to estimate the production volume, time for harvesting, and traceability. Furthermore, enabling technologies are intermediate inputs in the value chain, the orchestrator should be able to design and implement a strong business model that is capable of capturing value for all participating firms in an ecosystem: Ecosystems make sense when participating firms can generate more profits. And lastly, the orchestrator has a weak bargaining position when he lacks the relevant assets and capabilities to attract other actors and poses a credible threat that it will exclusively develop and commercialize the value proposition. In this regard, the actors in the business ecosystem can capture value through the orchestrator’s business model: the orchestrator organizes and coordinates the actors, and activities, and efficiently delivers the value proposition to the market.

If a business ecosystem should be built around the orchestrator, then promoting collective relativity and combining the activities of different firms to bring the value proposition to the market constitute a problem. It is urging that value propositions that rely on changes in ecosystem structure directly raise the question of what elements need to be (re) aligned: who will take the role of the orchestrator? Who will accept the role of follower? What will be the key roles? Who [how] will finance the ecosystem? What rivalries need to be managed within and across ecosystems? Zott and Amit [60] provide a strategic direction to answer these questions: The ecosystem concept creates, delivers, and captures value through the value chain and business model of the lead firm.

4.2.1 The value chains

The value chain concept was developed and introduced to business management by Michael Porter [17, 61]. The term “value chain” signifies a sequence of actions that provide value to customers [39, 62]. It is the set of activities that are required to acquire raw material, go through different phases of production to create a value proposition, deliver that value to consumers, and dispose of [61, 62, 63, 64]. It is a vertical alliance or strategic network between independent business organizations, i.e., linking different firms within a supply chain operating to deliver value to target customers. A value chain is differentiated from a supply chain by the additional value that different interconnected firms add on to a product from raw material acquisition to final disposal after use. For example, in Figure 1, a series of activities are indicated in the beekeeping value chain from inputs’ acquisition to consumption and disposal. The activities are grouped depending on the functional level in the business ecosystems. Actors need to be aligned in the value chain depending on their capabilities to perform a specific bundle of activities at a particular functional level.

Figure 1.

The interconnectivity of ecosystem actors in the beekeeping industry in Tanzania.

Moreover, Porter presented the value chain analysis as a model for the identification and measurement of those activities comprising a firm’s value chain [55, 62]. He argues that [61] “gaining and sustaining competitive advantage depends on understanding not only a firm’s value chain but how the firm fits in the overall value system” (p.34). As a result, a value chain represents a set of activities that different firms operating in a specific industry perform to deliver a product to the market: different firms link, connect, or work together to deliver value to customers. Each link in the value chain involves a source input, a process of value addition, and selling the material to the next link in the chain: each step adds value to the product and normally generates more revenue than the previous step [28, 53, 54, 55]. Accordingly, a value chain creates value by a value system or value-creating system and not by a single firm. For example, producers cannot create value alone, they have to strategically link with other actors like processors and traders so that they can deliver value to consumers. The value capture comes in the form of revenues when customers are willing to pay above the costs associated with the value creation.

In the value system, every single firm occupies a particular position within the value chain structure and adds value to the “inputs” before passing them to the next actor [57, 63]. What is important here is not only the position that the firm holds in the value chain but also the capabilities [31, 65] to carry out activities to add value [58, 62]: the firm has to perform some activities to add value before passing it to the next actor. Value creation is not just adding value step after step but the configuration of the roles—redefining the value-adding activities—and relationships among actors of the IA-value-creating system. Furthermore, the position that a firm occupies in the value-creating system can play a role in capturing value compared to other firms as a result of “position advantage” [65]. The position advantage can be due to the size, or capabilities, brands, standards, and access to distribution channels or customers.

4.2.2 The business models

Business Models have emerged as an important means of commercializing businesses. It is argued to provide the framework for a firm to create and capture value out of economic activities and innovative ideas or technological development [59, 66]. An innovative idea does not represent any value until it is commercialized via a business model. Similarly, technological development has no value, unless it is commercialized [67]. Therefore, business models have been considered as a focus on innovation and are acknowledged as important drivers of commercialization without which value created from innovation cannot be captured [65, 66, 67, 68, 69, 70]. Rural economies are no exception. Their innovation, technological development, and value chain activities require a business model to be commercial.

Moreover, scholars argue that the business model is central to the value chain framework [34, 55]. It is an architecture for how a firm creates and delivers value to customers and the mechanisms employed to capture a share of that value [69, 70, 71, 72]. In an industry which has several actors operating in different value-creating systems, the business models can be interdependent because they affect each other [60]. For example, the business model of the farmer affects that of the processor because the latter is the customer of the former in the farmers’ model, while the former is the supplier of the latter in the processors’ model. Similarly, in the beekeeping industry, beekeepers have their business model and the orchestrator has that too. The two business models are interdependent because the business model of the beekeeper affects or influences the business model of the orchestrator [44, 67]. For example, if beekeepers are not producing quality honey, the orchestrator cannot offer quality honey as well. If the orchestrator is not capturing enough value from the activity, beekeepers cannot get good prices and therefore capture lesser value. The orchestrator has to provide more benefits like a negotiated price that is slightly higher than the market price [5, 12]. But the orchestrator can only do this if the ecosystem is profitable.

To commercialize the value chain of rural economies, the business ecosystem should be organized through the business model of an orchestrator. The business model canvas is used to describe important elements of the orchestrators’ business model [58]. Other actors/firms in the value chain and business ecosystem should align their business model to the orchestrators’ model. In this chapter, the beekeeping industry is used as a case. Therefore, the business model of the beekeeping ecosystem can be structured as suggested here below:

4.2.2.1 Customer segment

The most profitable market is the urban market because it has customers with relatively higher incomes than those in rural markets. In some cases, target markets could be agro-processing industries like those producing animal feeds and processed foodstuffs. The orchestrator should define the customer segment that the ecosystem will focus on and serve.

4.2.2.2 Value proposition

Most urban customers use honey as a foodstuff and for medicinal purposes. Some customers like women and beauty salons use honey for beauty purposes, facial and skin makeup in particular. Therefore, customers want honey that can deliver the expected nutritional, medicinal, or beauty benefits. In this regard, the value propositions are the promise to perform the expected benefits.

Branding is also an important value proposition in the beekeeping industry. Value is created by adding some features and attributes like labels, seals, and nice-looking packaging containers. Customers are also willing to pay more for branded honey because they perceive it to be of higher quality than honey that is not branded and well packed. The products could be differentiated from the branding point of view: the neatness of containers, labels, names, and logos, and sealing on containers. Therefore, the value proposition is the customers’ perception of quality due to the neatness and appeal of the product because well-branded products influence customers’ willingness to pay more for the product.

4.2.2.3 Channels

The Channel element focuses on two important issues: the communication mix and distribution. Regarding the communication mix, the orchestrator should use the most effective and affordable means like social media to communicate and promote their products. In most developing areas like Tanzania, WhatsApp, Instagram, and Facebook are the most used social mediums because people from different areas and orientations can be linked to different WhatsApp groups and friends, hence improving their coverage.

Regarding the distribution channel, it is important to use a mix of both direct and indirect channels. In the case of direct channels, honey traders reach their customers through both points of sale- and drop-sale models. Regarding the point-of-sale model, honey traders use exhibitions, trade fairs, and their selling points, mostly at home or close to the production areas. Regarding the drop-sale model, the honey trader does own delivery to customers who ask for the service. In the case of customers whom they have reached through social networks, and not in the same region or nearby area, have to pay an additional cost to cover the delivery or transport costs. In the case of indirect channels, middlemen are used in distributing honey to the market. Given the trust and infrastructure challenges in developing areas, customers prefer direct channels, and some customers look for the convenience and availability of the products. In this regard, product availability, proper branding, and convenient selling are important.

4.2.2.4 Customer relationships

Businesses in rural areas are mostly transactional based and hence have limited Customer Relationships. However, to create value and capture a sizable amount of value from their activities, the orchestrator can establish different types of customer relationships like personal assistance and self-service.

In the beekeeping industry, for example, personal assistance relationship is built when traders interact with customers at the traders’ point of sale, exhibitions, trade fairs, and direct delivery. Also, they interact with customers through social media. During the interaction, traders help their customers, explaining to them the health benefits of honey, and how to use honey for different purposes, and therefore assist them during the sales process and after the purchase. The creation of online or social network communities mostly through WhatsApp groups is found to be the most effective way of managing the relationship between traders and customers. For example, a customer can send a picture of a received bottle of honey to show some defects, ask for clarification, and express satisfaction or dissatisfaction with the honey they bought. Also, traders can explain, and post pictures, short video clips, and you-tube links to their social network accounts. This builds trust and confidence and hence strengthens the relationships. The self-service customer relationships are established mostly through self-service shops, mostly supermarket channels.

4.2.2.5 Revenue streams

To commercialize value chains or rural economies, the orchestrator should define well to all actors in an ecosystem as to how they are going to make revenue from the activity. Mode of payment is always critical to rural people because they mostly depend on their activities for day-to-day living. Therefore, the cash-on-delivery model is the most preferred and efficient way to manage the ecosystem.

4.2.2.6 Key resources

The orchestrator in the beekeeping industry requires a processing room, honey storage rooms, a “re-tooled” honey-selling point, and store; storage tanks, and different honey processing and packaging machines. Other physical resources include packaging materials like containers, seals, and labels. Also, since they use the social network as a key channel, they require smartphones and internet connectivity as additional resources for channel management purposes. Human capital, technology, and financial resources are equally important. From raw material acquisition to consumption and disposal, different technologies are required. For example, the technology for production, harvesting, processing, and packaging. An orchestrator needs to organize participating actors based on their resources and activities capabilities.

4.2.2.7 Key activities

In the beekeeping industry, traders perform different activities depending on their honey sources. For honey traders who collect both semi-refined and combed honey, their key activities include aggregation, processing, packaging, storage, and selling. But, honey traders who collect honey from processors either do packaging, storage, and selling; or they only do labeling, storage, and selling. However, production, harvesting, aggregation, transportation, processing, and channel management are important activities for all honey traders.

4.2.2.8 Key partnerships

Most value chain activities in rural areas have transactional-based business relationships, and actors operate solely in their value chain. The short-term buyer-supplier business relationships between traders and producers or processors do exist. It is therefore important for the orchestrator to establish some forms of partnerships with different actors in the ecosystem and even among actors in the ecosystem. Key Partnerships play an important role in performing key activities and providing key resources to which a sole actor cannot have access.

4.2.2.9 Cost structure

Agriculture is a cost-intensive activity as it requires huge investments in technology, machines and equipment, infrastructure, and research and development. Defining key cost elements like the cost of activities, resources, and partnerships is important. In the established business ecosystems, the orchestrator should define the cost structure of the activities to be performed and present the value proposition. Similarly, it should define costs to acquire key resources to create value and capture a sizable value from the activity.

To summarize, the value is created through the existing business models of most firms in the beekeeping industry through activities such as the production of quality honey, honey creaming or de-crystallization, packaging or branding, and product availability to customers. So, firms and actors like beekeepers who cannot perform the activities cannot create enough value as well. Beekeepers have no finances, skills, or technology to invest in production, so that they can produce quality products, and also in processing so that they can refine, blend, and de-crystallize their honey. Lastly, beekeepers have no decent brands and their route to market does not reach the potential urban markets. As a result, beekeepers fail to create value in production, processing, and trading, also they fail to capture a sizable part of the created value. Conversely, honey traders who are doing the honey refining, packaging in different pack sizes, branding, and selling, create more value than beekeepers and also capture more value than other participants. Therefore, product performance, product accessibility, and customization are the value-creation attributes of most beekeeping firms for their customers. Similarly, value appropriation depends on the value-added activities performed by the respective firms, and the position it holds in the value chain as shown in Figure 1. Beekeepers who have limited skills and resources to perform core value-adding activities like refining, packaging, and channel management capture lesser value than processors and honey traders who do. Also, beekeepers have positioned themselves far from the customer, urban customers, in particular, capture less value than honey traders who can access and are closer to the customer segment.

The agriculture industry in Tanzania has a transactional business relationship. Producers work solely or in small associations registered as Community-Based Organizations. Their channel leads directly to consumers in local rural markets or to aggregators who are mostly traders’ agents. This IA bounds the value creation potential of the industry because most producers are poor to access productive inputs and assets. Also, the architecture limits the producers’ ability to capture enough value because they have limited bargaining abilities and they cannot access profitable urban markets. If producers want to create additional value in the existing value-creating system, the existing IA has to be changed through an ecosystem approach. In the business ecosystem, firms with different assets and capabilities team up to create value. The orchestrator should first define the value proposition that is required in the market or the value proposition which they want to present to the focal market segment. For example, as regards cereal ecosystems like paddy, maize, wheat, and millet, the orchestrator should understand the quality (specifications and requirements) of cereals required in the market. Similarly, legume ecosystems like beans, peas, and lentils should define the value proposition such that the whole value chain does not miss the target. After defining the value proposition, the second step is to map the set of activities required to create, produce, and deliver that value proposition. Then, one seeks and identifies the set of actors that need to interact for the focal value proposition to come about. The ecosystem’s success often depends on the complementarity and positions of firms that perform interdependent activities. To commercialize the value chain of rural activities in developing areas, the value chain and the business model should be used to structure the business ecosystem. The value chain is used to restructure the respective industries through which other actors will be aligned to deliver value propositions. Similarly, the orchestrator’s business model is used to structure the industry through which other actors in the industry will be aligned to the appropriate value in the ecosystem.

5. Conclusion

Firms in rural areas operate solely or in locally managed communities. The value chains of rural economies are dominated by firms with limited complementary skills and assets. They have limited skills, scope, and capabilities to access potential and profitable markets, and they have less bargaining power and hence cannot compete in the market. Consequently, rural firms, which are mostly primary producers, remain subsistence and noncommercial because they cannot create value for customers and capture a sizable value from the activity. To create an adequate value for the target market, firms should jointly be structured to cocreate a focal value and fairly share the captured value from the activity, i.e., change the business relationships from transactional to collaborative or ecosystem.

Changing this business relationship and its IA: changing from a transactional to an ecosystem relationship does not happen spontaneously. It requires a determined mind change, commitment, and long-term planning. Also, aligning and collaborating producers with other potential actors with different assets and competencies. This architecture improves producers’ ability to create and deliver adequate value as they can access assets and technologies which they lacked before as well as complementary assets to improve productivity. For example, farmers can access production inputs like quality seeds, fertilizers, and pesticides, which are important for improving production. Also, the architecture improves producers’ ability to capture more value as they can access potential and profitable markets. Collaborative channel management lowers competition as traders sell the same brand and serve the same customer segment: the orchestrator brands the product during the processing stage and passes it to ecosystem traders in the distribution channel. In this regard, changing the IA through an ecosystem or collaborative approach increases the size of the pie and offers the possibility for all industry actors in the ecosystem to increase revenues and profitability. Producers like farmers, herders, and beekeepers improve their value-creation and value capture abilities through new business opportunities that could not have been seized without the ecosystem approach.

Acknowledgments

I acknowledge the material and review support from the staff of the School of Business, Mzumbe University. There is no financial acknowledgment for the completion of this chapter.

Conflict of interest

The author declares no competing interest, i.e., conflict of interest in this work.

Notes/thanks/other declarations

Special thanks to Ms. Gloria Samson Kakulu for being patient and reminding me to complete this work. Also, thanks to my children: Joyce Bhigaya, Anna Ulukundo, Niwemugizi John, Neema Delight, and Ilakoze Maria for being patient during the time they missed my presence and fatherly care. Asanteni Sana.