Summary:
- In many growth economies, missing infrastructure, not just lack of capital, prevents entrepreneurs from scaling, as the systems needed to deliver products and services do not yet exist.
- To succeed, entrepreneurs must become ecosystem innovators, building not only their products or services, but also the supply chains, distribution networks, and financial systems required to reach nonconsumers.
- Supporting these ecosystem-building companies is critical, as they create sustainable infrastructure, unlock nonconsumption, and enable broader economic participation.
In many growth economies, entrepreneurs don’t just face capital constraints, they also face missing infrastructure. Infrastructure here is defined as the most efficient mechanism through which a society stores or distributes value, including both hard and soft systems. Hard infrastructure includes roads, electricity, and logistics networks. Soft infrastructure includes supply chains, distribution channels, financing systems, and trusted intermediaries.
Without these systems, micro, small, and medium enterprises (MSMEs) with viable products will still struggle to reach customers, operate efficiently, and scale. In such environments, innovation requires more than launching a product. It often requires building the entire system that makes the product possible.
When it doesn’t exist, it has to be built
In high income countries, companies typically rely on existing ecosystem infrastructure such as suppliers, logistics providers, financing institutions, and distribution networks. In many growth economies, however, these systems are fragmented or nonexistent.
As a result, entrepreneurs typically build supply chains, develop distribution networks, train workers, and even create financing mechanisms themselves. Doing so dramatically expands the scope of their businesses, and it also makes scale possible.
This type of innovation can be described as ecosystem innovation.
Ecosystem innovators build not only a product or service, but also the surrounding infrastructure required for that product to reach and serve nonconsumers. In doing so, they aren’t only building a company, they are helping develop the broader economic ecosystem around them.
History shows that ecosystem innovation is often a necessary stage in early market development.
For example, in the late nineteenth century, Andrew Carnegie set out to make steel affordable for a rapidly industrializing US. But the supporting ecosystem for large-scale steel production was still underdeveloped. To solve this, Carnegie didn’t rely on external suppliers, he built them. His company owned iron ore mines, coal fields, railroads, and shipping lines, tightly integrating each stage of production and transportation. Carnegie didn’t just produce steel, he built the infrastructure system that made large-scale, low-cost steel production possible.
Similarly, in the mid-2000s, Safaricom’s M-Pesa set out to provide financial services to millions of Kenyans who lacked access to traditional banking. But the financial infrastructure required to support this such as bank branches, payment networks, and trusted intermediaries, was largely absent. To overcome this, M-Pesa built a vast agent network, enabling users to deposit and withdraw cash locally, and created a simple, mobile-based system for transferring money. M-Pesa didn’t just offer a payments service, it built the distribution and trust infrastructure that made digital finance accessible to millions of new users.
The theory behind ecosystem innovation
Clayoton Christensen’s Modularity Theory helps explain why ecosystem innovation is often necessary in the early stages of market development.
A system’s architecture determines its components and defines how they must interact to achieve the desired outcome. The points where components interact are known as interfaces.
When interfaces are predictable and standardized, firms can rely on modular systems in which different organizations specialize in different components. But when interfaces are unpredictable or poorly defined, modular systems break down.
In such environments, companies must rely on interdependent architectures, where multiple components of the system are developed and coordinated together by the same organization.
No company operates with a business model that is entirely modular or entirely interdependent. Most organizations operate somewhere in between. But in growth economies, where infrastructure is often incomplete or unreliable, integrating across unpredictable interfaces becomes the norm.
Modularity can only emerge when interfaces are specifiable, verifiable, and predictable. When infrastructure is weak or missing, these conditions are difficult to achieve.
This is why entrepreneurs in these contexts often rely on interdependence: integrating production, distribution, financing, training, and service within a single organization. By tightly coordinating these elements, firms can improve reliability and performance even when the surrounding ecosystem is weak.
In other words, when infrastructure does not yet exist, innovators often have to build it.
Why this matters
Many development strategies assume that the infrastructure required for entrepreneurship already exists. Even when policymakers recognize infrastructure gaps, investments often focus on building isolated projects rather than supporting the companies that are actively constructing ecosystems through their business models.
Yet MSMEs operating in these environments are often the ones best positioned to sustainably build this infrastructure. When entrepreneurs develop the systems they need to operate, whether that’s distribution networks, logistics platforms, or financing mechanisms, they do so because real demand already exists. This makes the resulting infrastructure far more sustainable than stand-alone development projects.
Supporting entrepreneurs therefore means more than funding individual products or services. It means supporting companies through the building of distribution networks, logistics platforms, training systems, financial rails, and coordinated supply chains.
These ecosystem innovations reduce costs, increase reliability, unlock nonconsumption, and enable thousands of smaller businesses to participate in growing markets. When infrastructure becomes a bottleneck, the most transformative innovators are often the ones who build the ecosystem itself.
