#2021-001
Transformation towards sustainable development goals:
Role of innovation ecosystems for inclusive, disruptive advancesin five Asian case studies
Michiko Iizuka and Gerald Hane

Published 5 January 2021

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UNU-MERIT Working Papers
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Transformation towards Sustainable Development Goals: Role of innovation
ecosystems for inclusive, disruptive advances in five Asian case studies
Michiko Iizuka, Professor, National Graduate Institute for Policy Studies (GRIPS)
e-mail: mi-iizuka@grips.ac.jp
Gerald Hane, Visiting Scholar, National Graduate Institute for Policy Studies (GRIPS)
Abstract
The transformation of sociotechnical systems is considered necessary for achieving the
Sustainable Development Goals(SDGs). However, this transformation process is inhibited byinstitutional inertia of the public sector, vested interests of the private sector, routine habits ofindividuals, and increased complexity of globalised activities. While policies to stimulate thetransition exist, these policies and pathways are still considered insufficient. Meanwhile, there
are many individual private initiatives taking place to advance the societal agenda. Althoughthese are still isolated actions of new actors, they have the potential to become broader
movements bringing disruptive advances through innovation. This study explores the potential
of innovation ecosystem to understand the emerging private sector initiatives to meet social
agenda through innovations that are disruptive and inclusive. Four types of businesses are
examined: venture capital, an incubator, venture start-ups, and a social impact fund. A common
feature underlying these cases are the creation of tailored innovation ecosystems that effectively
utilises complementary assets. Currently these activities are self-generated without muchgovernment support. However, by aligning with public policy impact can be accelerated
towards achieving the SDGs. Examining cases as ‘signals’ provide hints for how policy can beformulated to scaled-up and transform currently isolated private initiatives.
Keywords: Innovation Ecosystems, SDGs, Emerging business, Complementary assets,
Transformative change, Asia
JEL CODEO35 Social innovation, O38 Government policy; M13 New firms and start-ups
1. Introduction
In 2015, United Nations member states adopted the 2030 Agenda for Sustainable Development,
which outlined Sustainable Development Goals (SDGs). Under these targets, nations aim tocreate new pathways toward sustainable development while leaving no one behind. Science,technology, and innovation (STI) are expected to play critical roles in this process and to initiate
transformation (TWI2050, 2020; Schot and Steinmuller, 2018). However, existing studies
indicate that current policy instruments are insufficient for achieving the magnitude oftransformation needed in the expected timeframe. While policy-led transformation is limited inits efficacy, many private initiatives are already taking place in meeting the societal challenges

1through innovation that is both disruptive and inclusive1. These initiatives employ emerging
technologies by devising new business models and leveraging the complementarities ofinnovation ecosystems. Innovation ecosystem is an idea referenced in business management
and innovation policy literature to express the loosely structured groups of actors to jointly act
to generate focal value. (Adner, 2016).

This paper proposes that innovation ecosystems led by the private sector can be complementary
to policy efforts to achieve the SDGs. In emerging economies, functioning ecosystems areoften lacking. The private sector can bring innovative models to fill these ecosystem gaps andadvance businesses with a significant and sustainable impact on society. The ways in whichbusinesses have extended value networks through complementarities is important not just for
creating value but also for capturing innovations (Teece, 2018). The role of government, in thiscontext, is to create conducive environments for disruptive business activities with social
purpose so that they can become the drivers of change. This paper references selected cases ofsuccessful private initiatives employing disruptive, inclusive innovation for societal impact.
Their success facing new, blue ocean customers in emerging economies can help to understandeffective means to stimulate such activities via policy.

Section 2 of this paper reviews the literature to formulate the conceptual framework. Section 3
explains the conceptual framework. Section 4 refers to the result of case studies. Section 5offers discussion and conclusions and sets outs the limitations and future research challenges.

2. Review of related concepts
2.1 Transformational innovation and its challenges for SDGs

1

Disruptive and inclusive innovation is explored more in detail in Iizuka and Hane(2020).

2

The transformation is considered inevitable for achieving the SDGs (TWI2050, 2020; Schotand Steinmeuller, 2018; UNCTAD, 2014). While recognised as essential, initiatingtransformation is difficult owing to path dependency constituted of institutional inertia byincumbent actors with vested interests and consumers and users with habits and routines (Scott,2015). These inhibiting factors, at distinctive levels, result in maintaining the system in its statusquo. In addition, the globalisation of economic and social activities that has occurred in past
decades has created intricate webs of activities, making transformation a complex process. In
particular, such process obliges the Global North and the South to collaborate to deal with
global agenda (Schot and Steinmeuller, 2018).

Several studies have pointed out that existing policies are insufficient to initiate transformation.
These studies have claimed that while some policies can positively encourage change (e.g.,
feed-in tariffs and carbon taxes), very few actively destroy the existing systems to facilitatetransitions (Kern et al., 2017; Kivimaa and Kern, 2016; Rogge and Reichardt, 2016; Turnheim
and Geels, 2012; Weber and Rohracher, 2012). This means that unless there are substantiallyadvantageous (i.e. simple, low cost, superior, and universal) alternatives offered to individuals
and society at large, transformation is difficult to take place (Franken, 2017). Indeed, existing
policy instruments, such as subsidies for eco-products and public procurement for large
infrastructure, aim at encouraging change from the demand side. However, these public
initiatives have had limited results so far due to transformative failure that consists of failure
to: identify the future trajectory (directionality), articulate demands (demand articulation),
coordinate beyond conventional boundaries (policy coordination); and self-evaluate and correct(reflexivity) (Weber and Rochracher, 2012). This makes it imperative to collaborate closelywith private (or non-public) actors to offer distinctively new innovative solutions—disruption—to change potential users’ behavior with inclusive outcomes. In addition, there are3increasing numbers of businesses and private initiatives that place societal purpose as one of
their core objectives.

For instance, the following aspects have emerged independent of government interventions:
1) Emerging business actors aiming to solve societal problems2. E.g. social entrepreneurs,
start-ups, and VC firms seeking social returns in addition to economic returns;
2) New types of financial resources focused on returns beyond pecuniary value. E.g. ESG(Environment, Social and Governance) finances, impact investment, and crowdfunding
for social causes;
3) Open knowledge appropriation tools and mechanisms that allow sharing for public
purposes. E.g. creative commons licenses, open and free source movement, and copy
left3.
4) Rules, regulation and guidelines beyond existing boundaries of countries, disciplines
and sectors to advance social agendas. E.g. international standards addressing
environment and social and ethical issues, including environmental certification (eco)and social labelling, sustainable and ethical business codes of conduct, such as fair trade4.
5) New governance methods allow experimentation for positive transformation 5 . E.g.
regulatory sandboxes, regulatory pacing (Marchant et al., 2011), agile governance(WEF, 2019), use of virtual reality simulations for participatory or open policy making,crowdsourced policy making, public-private data sharing, open science.
6) New business models enabled by emerging (mostly digital) technology. E.g. peer-topeer sharing service models, customised and decentralised small lot production(makerspaces & fablabs), decentralised (off grid) power generation, financial inclusion
using mobile phones (e.g., M-Pesa and Go-pay) with accompanying e-commerce
services.
Above are isolated dots of actions but these are gradually transforming the core principles of
how private actors behave. For instance, the UN’s Principles of Responsible Investment (PRI)
that defines social and environmental factors as important areas for consideration in investment
decisions is now changing the idea of responsibility of trustees, which have traditionally obliged
them to focus only on financial return. Similarly, the dominant role of the government in

2

For instance, Zebras Unite, numbers of prescriber for PRI (Principle of responsible investment), emergence of concept of shared values(Porter and Kreme 2011), valuing stakeholders than shareholders statement by Business Roundtable in 2019.
https://www.businessroundtable.org/business-roundtable-redefines-the-purpose-of-a-corporation-to-promote-an-economy-that-serves-allamericans
3Copyleft, distinguished from copyright, is the practice of offering people the right to freely distribute copies and modified versions of awork with the stipulation that the same rights be preserved in derivative works created later.
4

Includes Corporate Social Responsibility (CSR), Principle of Responsible Investment (PRI, 2009), Triple Bottom line (1994), Creating

Shared Value (CSV) (Porter and Kremer, 2011, 2016) among others.
5

In some countries, regulatory sandbox is introduced as government policy but here, it is mentioned as generic terminology.

4selecting ‘the right’ technology, products and services prior to commercialisation for the benefitof citizen is also at stake. Increasingly citizens are taking part in expressing their needs and are
involved in governing STI policies. Governments have also started adapting agile forms ofregulatory formulation introducing experiments such as regulatory sandboxes. The above‘signals’ indicates that, in a short space of time, these isolated efforts are being connected tomanifest transformation in paving the road toward SDGs (Schot and Steinmueller, 2018). The
transformation may occur more rapidly in the Global South than the Global North owing to thepotential benefits of overwriting the inhibiting factors, namely, regulation, institutional inertia,
vested interests, and habits being far greater than the potential risk.

The key to the transformation is not just to focus on generating new knowledge, but also on
generating positive externalities via collaboration with external actors (Prahalad and Mashelkar,2010). Here, the innovation ecosystems and complementary assets are considered to play an
instrumental role (Teece, 1986; Gawer and Cusumano, 2014). These may also address thechallenges identified in the framework of national innovation systems (Chaminade et al, 2018).

In this study, particular attention was given to initiatives that were both inclusive in their
engagement of all societal levels as well as disruptive, with greater possibility for acceleratingtransformation. By inclusive, we are guided by the work of Mashelkar and Pandit (2019) who
uses the operational concept of ASSURED innovation. The seven elements of ASSURED
innovation are 1) affordable, 2) scalable, 3) sustainable, 4) universal, 5) rapid, 6) excellent, and
7) distinctive. These characteristics are critical for creating products and services that can solve
societal problems and will be accessible to a large population.

5

Regarding disruptive innovation, we consider this to be forms a new market and value networkthat generates disruption and eventually replaces existing markets, firms, products, andalliances (Bower and Christensen, 1995; Markides, 2006). The disruption is generated as theoutcome of innovation or subsequent generation of value chains and customers adapting to the
new context (Bower and Christensen, 1995, Christensen et al., 2006)

2.2 Transition of Science, Technology and Innovation (STI) policy

It has been widely accepted that STI policy had gone through three frames (Schot andSteinmeuller, 2018). The first framing (1950s-1980) viewed science and technology in thelinear formation following the economic growth model (Kuznetz, 1973) that focused on theimportance of R&D and science-based industry to sustain improvement in factor productivity
for prosperity. The second framing (1980s-2010) emerged with the realisation that attention toscience and technology alone was not sufficient for economic growth and upgrading
productivity and commercialisation. In the second framing, the systems of innovation became
the critical frameworks for policy (Freeman, 1988; Nelson, 1991; Lundvall, 1992). These pay
attention to innovation that can also take place without science and technology (ST) in which
the firms play the central role in generating and transforming the codified and intangible
knowledge (Cohen and Levinthal 1989; von Hippel, 1994; David 1975, Gibbons et al, 1994;
Nonaka and Takeuchi, 1995). In fact, this realisation made important contributions to theunderstanding of the catching up process, especially through learning and incremental
improvements, in many developing countries (Lundvall, 2009; Lee and Lim, 2001; Kim, 1998;
Lee and Malerba, 2020; Klein and Rosenburg, 1986). Here the policies that facilitatescollaboration of firms to generate knowledge, such as university-industry collaboration(Etzkowitz and Leydesdorff, 1997) as well as open innovation (Chesbrough, 2003) are

6

considered effective in generating innovation. The innovation systems is considered as theuseful focusing device in coordinating interaction between the stakeholders (resolving
coordination failure).

The third frame (2010s-) is said to deal with transformative change, coming from theunderstanding that a sustainable future is not possible just by the extending current trajectories
but requires fundamental transformation in existing socio-technical systems (Schot andSteinmeuller, 2018). This calls for overcoming transformative failure (Weber and Rochracher,2012). The innovation systems still serve as the focusing device for policy formulation but
complementary frameworks become necessary as networks go beyond the conventionalboundary of country and sector due to globalisation of firm activities, diffusion of digitaltechnology and accompanying disruptive businesses models. This view coincides with theclaims that suggest the limitation of national innovation systems in dealing with globalisation6,
disruptive change and social disparity (Chaminade et al, 2018; Iizuka, 2015; Lundvall, 2009).

Several frameworks are already being explored to deal with transformation. There are functionsof the innovation systems (Berkgek et al, 2008; Hekkert, et al, 2007) and the multilevel
perspective (MLP) or sociotechnical transitions approach (Geels, 2002, Geels and Schot, 2007;
Ripand Kepm, 1998). Both provide deep insight to the policy formulation when specific focus
are determined; however, these approaches, by spotlighting the subject of study, have dangerof omitting the potential actors or activities present elsewhere that may serve critical linchpin
to new areas of activities via complementarities. This suggest the need for understanding on
more open and loosely structured framework that allows more adaptive networks following theargument of complementary asset (Adner, 2006; Teece, 1986).

6

For globalization, the attempts were already made with NIS and GVC (Pietrobelli and Rabellotti, 2009) among others)72.3 Innovation ecosystems and the potential to address core enabling factors

Innovation ecosystems are defined as “the alignment structure of a multilateral set of particularsthat need to interact in order for a focal value perspective to materialize” (Adner, 2016: 40).
This offers more open and loosely structured setups among actors in generating transformative
impact (Chesbrough and DiMinin, 2014; Christensen et al., 2019). Innovation ecosystems are
currently used in management study to identify the firm strategies to enhance competitiveness.
Boundaries are more loosely drawn due to enhanced modularity and platform capabilities withthe advancement of digital technology (Adner, 2016; Gawer and Cusumano, 2014; Jacobides
et al., 2018). Furthermore, the setup also facilitates complementarity to be generated in a shortertime span. For ecosystems to successfully execute their missions, they require shared values,
and the sustainable flow of financial resources among participants is critical. Hence, key
elements of a successful ecosystem appear more like a package (e.g., business model) ofadaptive modules rather than a production chain for products and services. In such context,
technologies are only half of the story, because disruptions require complementary assets to
deploy and diffuse innovations to potential users.

This involves innovative business models to ensure: the flow of finance, development of humancapacity, provision of agile and adaptable physical and legal infrastructure to ensure access tothe market for both producers and users (Marchant et al., 2011; Shapiro and Glicksman, 2002),
partnerships with stakeholders that provide services and inputs (Gawer and Cusumano, 2014),
and engagement of leading/strategic intermediaries or coordinating entities (Adner and Kapoor,
2010; Gawer and Cusumano, 2008, 2014; Iansiti and Levien, 2004; Jacobides et al., 2018).
These factors determine how networks are shaped, actors are aligned, the flow of knowledge is8

open or closed, governance (rules of the law) is exercised, and values are shared (Gawer andCusumano, 2014). For innovation ecosystem to thrive and be resilient, it is important that thedesign includes value capture in complementarity assets (Teece, 1986, 2019). The value
capture is an important concept for leveraging mutually beneficial relationships among
stakeholders involved.

2.4 Types of technologies, complementarities, and innovation ecosystems
To illustrate the importance of innovation ecosystem with regards to transformational change
three stages of technologies, emerging, enabling and general-purpose technology are compared(see Table 1).
Table 1: Types of technology
Novelty
Impacts
Impactoftechnology
Observed change
Complementarity

Emerging Technology
Radical technology

Enabling Technology
Drive radical change in use

Uncertain andambiguous
Coherence/ConvergenceRelatively fast growthin useExplore methods of use

Enhance user capability
Applicability to diverse
field
Rapid development ofsubsequent technology
Complement for broader
impacts

General Purpose Technology
Affect broad socio-economic
areas
Change extant economic andsocial structure
Creates many spillover effects
Societal transformation
Complementary fortransformative change andacceleration

Source: Iizuka and Hane, 2020.

Emerging technology is often considered as the driving force in materialising the 4th industrial
revolution. It is defined as “radically novel and relatively fast-growing technology characterisedby a certain degree of coherence persisting over time and with the potential to exert a
considerable impact on the socio-economic domains.” (Rotolo et al., 2015: 1828, emphasis
added). The definition indicates that the impact of “emerging technology” lies in the future. In
contrast, GPT and enabling technology exert impacts in real time through diffusion andmaterialising complementarities (Carlaw and Lipsey, 2002).

9

Teece (2018) argues that “technological complementarity occurs when the value of an
innovation depends on altering the nature of one or more existing technologies and/or on
creating new ones. It applies when the full benefit (or even any benefit) of the innovation cannot
be achieved until some other, complementary technology has been created or re-engineered.
The complements can be related vertically, horizontally, or laterally” (Teece, 2018: 1374). In
other words, complementarity influences the degree and magnitude of impacts. For thetechnology to have broader impacts, disrupt and make transformation, it requires
complementary parts. For instance, if the complementary parts are being affordable, scalable,
sustainable, universal to attract a critical mass of users, it would consequently amplify theoverall impacts of the technology. The digital technology, such as mobile phone, facilitates theconnection among different complemental parts, eventually enhancing ability of each user in
the network.

The comparison of impacts as per technology types illustrates the importance ofcomplementarity and ecosystems that transform the mere ‘potential’ of disruptive change into
actual impacts through involving broader actors and reaching out non-users. Thus, emerging
technology is an important element to be considered in transformation but the magnitude of its
impact is determined by the complementarities they can exercise in the innovation ecosystems.

3. Conceptual framework, research questions, methodology and selected cases
This study aims to understand how innovation ecosystem play important role towards meeting
SDGs taking inductive approach by looking at the disruptive private activities. The underlying
assumption is that promotion of disruptive business will advance transformation from thebottom up, ultimately speeding up the achievement of SDGs. For any firm, choosing a10

disruptive and inclusive path is taking a risky option. Hence the research pays attention to how
innovation ecosystems are shaped in such process of challenging social agendas. Understandingof how innovation ecosystem is formulated can serve effective policy measures in assistingtransformation process.
Transformation
Strategic Alliance with value
chains: Value creation
external partners

Collaboration with newHighConventional Business

Disruptive Businesses withecosystem: Value capture

How dotransformation
take place via
forming
ecosystems?

Entrepreneurs/start ups

Low
Low

Status quo

Degree of uncertainty and risk
Enter into new tech, sector, market

High

Figure 1 How collaboration and risk taking relate to transformation
Source: authors

As this is an exploratory study to find out how emerging firms that address societal challenges
run successful businesses, case study approach is chosen. This method is considered best to
analyse the inner works of certain processes that take place in an exploratory manner(Eisenhardt, 1989; Yin, 2014). The information to understand each case is obtained from bothprimary and secondary sources. The primary sources are interviews with CEOs as well as
information obtained by the authors’ participation in seminars and events. The secondary
sources include books written by the CEOs, magazine articles on the CEOs and firms,
newspaper articles, and website information on firms and their recent activities. (see appendix
for list of interviews).

Five cases are selected that employ technologies and business models in unconventional ways
and generate scalable social impacts. The purpose of comparison is not to focus on theirdifferences but to observe their common enabling factors. The cases are selected based on thefollowing criteria: 1) new type business (disruptive) (Christensen et al., 2006); 2) generate

11inclusive outcomes (Chataway et al., 2014; Heeks et al., 2014); and 3) use technology andinnovation (but not be limited to high technology). (see Table 2).

Table 2 Case overviews7
Name
Activity
HQYear
establish
Activitytake placein

East
Ventures
VenturecapitalIndonesia
Singapore
Japan
2008

Samurai Incubate
Incubation/ Venture
capitalJapan

Aavishkaar
Capital
Impactinvestment
India

Nippon BioFuel
ADM
Start-upIndonesia/

MakuakeJapan/Mozambique

Japan

2009

2001

2013

Japan, Israel, East
Africa, South Africa

India,South
Asia, Southeast
Asia, East andWest Africa

2000*/
2012
Mozambique

CrowdfundingJapan

Source: author. * The company was established in 2000 but operation in Mozambique from 2012 as ADM.

4. Case studies
4.1. Summary of case comparison8
The comparative analysis identified to two common features from the cases examined. First,
all successful cases established innovation ecosystems. This tendency is more salient for those
operating in the environment not conducive to business, such as the Global South. Second, theentities formulate innovation ecosystems by creating networks of complementary activities toenhance their overall impacts.

All the cases established innovation ecosystems that both create and capture value. East
Venture, the venture capital firm in Indonesia, established a venture keiretsu ecosystem tocreate synergies among its invested companies. Samurai Incubate, the incubator of seed venture
capital in Japan that is active in Africa, established an investee value chain ecosystem to create

7

Information comes mainly from interviews listed in the appendix 2.

8Please see the extended description of case in the SciRex Center working paper. Also see table in appendix.

12

a business infrastructure (i.e. postal services, financial transactions, logistics) among invested
start-ups. The pioneering social impact fund, The Avishkaar Group in India, established aninternal financial ecosystem to cater diverse financial needs of customers. Nippon Bio-Fuel(ADM in Portuguese), a Japanese start-up firm active in Mozambique in providing Fintech
services in addition to energy generated from Jetropha and solar, developed an adaptive microinnovation ecosystem. The leading crowdfunding in Japan, Makuake, has a virtual multistakeholder innovation ecosystem that not only raises funds from the crowd but proactively
intermediates actors to make projects successful. Each ecosystem was tailored to bring incomplementary assets that were critical in bringing successful change and impacts. These cases,
though very similar in two aspects, can be separated in two groups: one that strengthen internal
collaborative network to capture risk, while the other is directed at collaboration with external
actors to expand activities to spread the risk and seize opportunities. The term capture riskrefers to the reduction of market risk by facilitating business transactions among companies
within the investor’s portfolio (see Table 3)

Table 3: Summary results of case studies
Name
East Venture

Type of business
Venture capitalSamurai Incubate Venture capital
Aavishkaar Capital Social Impact
Fund
NBF

Venture startup

Makuake

Crowdfunding

Innovation ecosystems

Collaboration

Strategy

Venture keiretsu network to work on joint
Internal
project
Create value chains with invested start ups
Internal
Internal financial institutions to accommodate Internal
diverse financial needs

Capture Risk

Identify potential demand and adaptively
External
expand business
Expanding network with clients and customers External
providing access to market and experiment
new products

Expandopportunity
Expandopportunity

Capture Risk
Capture Risk

Source: authors

4.2 Discussion on each caseThis section summarises the findings of each case in more detail.
13

4.2.1 East Ventures’ Keiretsu eco system
East Ventures, an Indonesian-Japanese venture capital firm, generates collaborative businesslinks among portfolio companies to strengthen early business growth. As venture capital was
new to Indonesia when East Ventures established operations there in 2009, companies had
limited access to technology and trained personnel, poor connections to suppliers and customers,
and little access to start-up or follow-on financing. For example, East Venture launched
Warung Pintar, a smart kiosk business for street vendors. This business draws upon the services
and products of several portfolio companies to improve the street vendors’ operation andincome opportunities in Indonesia. Working with its portfolio firms, East Ventures added
numerous digital services, including digital payment, wifi, displays, security cameras, charging
stations, and accounting and logistics support. East Ventures also assisted in attracting followon investors. This was a model that is being replicated nationally.

East Ventures’ ability to leverage its group for social impact was also well demonstrated in theearly phase of Covid-19 pandemic in Indonesia. The East Ventures group managed to raisefinancing through crowdfunding, generate the Covid-19 testing kits, and deliver them to thepeople, working jointly with the government. East Ventures created its own innovation
ecosystem to gather the needed complementary assets.

4.2.2. Samurai Incubate Africa’s value chain start-ups support
Samurai Incubate, with its genesis as a successful incubator and seed investor in Japan, typicallyengages at the earliest stage of seed company assistance and builds the ecosystem throughhands-on assistance from the incubator. At the earliest stages they engage in business plandevelopment, technology planning, network development and defining customer requirements.
In the case of Africa, Samurai Incubate Africa found it a faster launch strategy to first assist

14emerging venture companies which needed help. To finance start-ups that address social needs
in Africa, Samurai Incubate Africa selected a series of start-ups to form a chain of activities.
This included portfolio of start-ups involved with postal services (MPost), digital payment(Xento), mobile delivery services with motor bikes (Sendy), and e-commerce with distributed
manufacturing (Fashpa). The approach links complementary modules in an ecosystem to maketheir businesses more competitive and resilient. In the absence of existing complementarybusinesses and reflecting shortages of public services, this investment strategy created its own
value chain of activity to support synergic development. Here, digital technologies wereparticularly important to leverage their synergies.

4.2.3 Aavishkaar Capital’s internal impact financing eco system
The Aavishkaar Group is a pioneer social impact fund located in India. Aaviskaar, which means“invention” in Hindi, invests in social entrepreneurs with a vision to bridge the opportunity gap
for the emerging 3 billion. It invests in projects that solve problems which are 1) worth solving;2) affect everyone, not just privileged few; 3) take more than capital to solve; and 4) create
solutions that offer a paradigm shift (Rai, presentation Nov. 2019). By supporting small steps
in rural societies, the Aavishkaar Group has had a large-scale impact on the livelihood of
millions. Beginning in 2002 as a small rural business consulting and seed investment activity,
Avishkaar has grown in a financial conglomerate with the ability to fund all stages of acompany’s development from microloans to equity investments.

The Avishkaar Groupcurrently comprises four organisations. Arohan engages in micro finance and gives credit
lending services to microbusiness with loans ranging US$ 100 to US$ 1500. Ashvi invests insmall to medium companies in India with entrepreneurial intentions, investment range from
US$3000 to US$1.5 million. Aavishkaar Capital places investments ranging from US$500,000
to US$10 million. Intellecap deals with consultation and business advice. Their work goes wellbeyond financing for a project, and includes enhancing the cashless infrastructure, managerial
15capacity building, and fostering better business environments for would-be entrepreneurs.
Aavishkaar capital provides an end-to-end financial ecosystem to promote its invested
businesses. They provide business advice and capital that helps companies to launch, andfurther support those companies to gain market expansion and grow.
4.2.4 NBF’s adaptive micro-innovation ecosystem
Nippon Bio-Fuel (NBF) is a start-up firm that initiated its activity by providing sustainableenergy sources to non-electrified rural villages in Mozambique via jetropha-based biodiesel
combined with solar panels via contract farming. It used village kiosks to manage financialtransactions with farmers and users of energy. Seeing the irregularity of bookkeeping at kiosks,
where the payments for their services are collected, NBF introduced its own cashless payment
system for all the purchases at kiosk (POS card system) with the help of partners, NEC and
JICA. NBF soon discovered that their cash cards became important savings instruments for the
local population. This led to a new business opportunity in micro financing for financial
inclusion. Today NBF is conducting microfinance with full data of farmers’ financialtransactions.

NBF built its own adaptive micro-ecosystem reflexively through meeting the challenges on the
ground and paved new pathways to business opportunities. First, to validate that this idea, NBF
use external project opportunities. After NBF introduced a cashless payment system in kiosks,
it was offered to implement the same model in Mozambique for a project of the Food andAgriculture Organization(FAO) and the World Food Program(WFP). This led to an
experimental project on digital cooperatives in Mozambique financed by WFP. Based on thelearnings and experience, they developed an idea for a platform business, teaming up withadditional ecosystem partners, the Ministry of Agriculture, Forestry and Fisheries of Japan and
the African Business Council and JICA, to establish a central platform for connecting suppliers
16and customers under an E-Agri Platform. (African Business council working group for Africa’s
agriculture, 2019). This imitative is still at the early stage but NBF/ADM is now engaging in aplatform business that has broad impact. This case demonstrates a how NBF/ADM establishedan ecosystem in a highly adaptive manner involving numerous external stakeholders. Oncethey identified the target market niche, they collaborated with external actors to seek thecomplementary asset needed to materialise new areas of activity.

4.2.5 Makuake’s virtual multistakeholder innovation ecosystem
Makuake is a leading crowdfunding firm in Japan. Makuake operates as a crowdfunding
resource but its unique feature is using its internet platform to offer a multi-sided, multistakeholder ecosystem for product acceleration. Their platform connects innovators to early
adopters who will provide feedback on offerings and how the products can be improved. By
increasingly involving former clients as part of its ecosystem, it has expanded the role of market
mediation in its platform. The platform connects a broad set of actors that can provide valuable
services and products to the company’s new clients. It is a test bed and place for iterative
improvement, especially for those that do not have access to market under conventional
business settings such as regional small lot producing suppliers to the large firm or innovative
individuals with a great idea without the possibility of financing. An interesting feature of
Makuake is that its clients can become part of network for the curation of the evolution of a
project. The platform also enables partnerships with individuals or companies that can bringcomplementary skills. Initially Makuake provided a place to showcase products and services
and to provide access to the market for small and medium enterprises (SMEs) in the regions
where they are either restricted to the local market or constrained as suppliers of larger firms.
Recently, regional banks are paying attention to the result of crowdfunding as additional
information for project evaluation for financing projects. Furthermore, the use of Makuake’s

17

service is not limited to start-ups and SMEs but extends to innovators inside of large
corporations seeking to explore new market and customers. This trend is enhancing the spacefor Makuake to maneuver to intermediate.

4.2.6 Summing up on the cases
To sum up the following emerge as common features. First, the cases show that building
networks of actors in an ecosystem are important for business growth and for creating disruptivesocial impacts from bottom up. Ecosystem creation is critical to overcome shortcomings of thegiven physical infrastructure and legal institutions in emerging economies, where operation
takes place. Additionally, in some cases, these constraints can work positively to stimulateconditions to nurture disruption. Second, ecosystem creation is important not only for creating
value but also for capturing value and reducing risks. Third, focusing on social needs,
unarticulated demand of the mass population, can define the purpose and targeted impact of abusiness. By focusing on the core needs of a large population, entities naturally address large
markets. Fourth, in meeting social needs ecosystems generate complementary businesses andactivities, enhancing follow on impacts. Fifth, these examples demonstrate the importance of acreating spaces that allow flexible experimentation with reduced risk using various types ofcollaborative mechanisms.

4.2.7 Some potential challenges identified from the cases: Regulatory institutions
The cases paint overall positive features of loosely structured ecosystem whose potential canbe extended through complementarities with internal or external partners. However, regulatory
boundaries still exists within the national borders and this can restrict innovative activities andimpact company organisation and markets. Aavishkaar in India struggled to gain regulatory
clearance for foreign investment due to domestic ownership thresholds, to enable financing for18their impact fund. In Indonesia, where East Ventures operates, domestic control regulations
were initially applied to e-commerce companies, which forced the most promising earlycompanies to locate their headquarters abroad. Makuake also needed to deal with regulations
prohibiting equity investment via crowd funding until recent liberalisation. In other commonly
regulated sectors such as finance, health, environment, energy, nutrition, safety, etc., adapting
regulations to new innovations is often a significant challenge. NBF first attempted to acquirea financial license in Mozambique to act as bank but this was not granted. It is now operating
as a microfinance company that does not require rules as restrictive as those for a bank (Goda,
2018).

While regulation can hamper activities, it is also the case that a more permissive regulatoryenvironment can be one of the reasons for seeking business launch elsewhere in order toexperiment with new products and services. Drone companies, for example, have been drawn
to African nations due to more permissive flight regulations as well as the need to serve
dispersed and remote populations. It is possible to experiment with new technology andbusiness models prior to implementation in other developed markets that can have more
stringent rules (regulatory arbitration); making the new market a regulatory sandbox9.

5. Discussion and conclusion
To achieve the SDGs, the transformation is needed (TWI2030, 2018, 2019, 2020; Schot andSteinmeuller, 2018). Yet it has become evident that there are still no clear and effective policy
mechanisms to generate needed transformations. Thus, fresh perspectives are needed forinnovations in policy, society, business, and knowledge generation aiming at unifying goals for

9
Regulations affecting drone use, for example, differ between countries and some areas of Africa have become important innovation test
beds for drone business models. Samurai Incubate Africa, for example, invests in digitally-based new businesses in emerging new businessenvironment with few regulatory hurdles. NBF/ADM was able to quickly acquire a microfinance license to operate in Mozambique eventhough the concept was new to the economy.

19

2030. In order to contribute to the discussion of options, this study reviewed several cases of
emerging businesses that are working to advance toward the SDGs in leaps, and that areinclusive of all levels of an economy. We called these examples “Disruptive Inclusive
Innovation (DII) cases”.

Various initiatives that can contribute to needed transformations have been taking place without
much government involvement. These reflect entrepreneurs responding to unmet demands ofcitizens by devising innovative business models to generate broader impact from the bottom up.
Digital advances are helping to open the horizon for disruptive and inclusive businesses toemerge. However, although opportunities and initiatives are present, these are not generatingtransformation fast enough. Policy engagement is also needed.

The cases studied have shown that building an innovation ecosystem is a strategic choice not
only for building resilient businesses but also for achieving an organisation’s social mission
and scaling-up impact. These ecosystems are intended to maximise the value generated fromnetworks, enlarge financial streams, and improve market access via better adaptability to masscustomisation (catering to local diverse needs) that have emerged as a result of meeting
unsatisfied needs for clients by enabling access to the full package of lacking services-- finance,
infrastructure, trusting partners, and technology.

The cases offered perspectives on how private initiatives have met the challenges of generatingsocial impact while coping to survive in not so business conducive environments. The cases
demonstrated that the successful companies created their own innovation ecosystems andsought complementary assets from internal or external collaborators. The very action of
ecosystem creation by emerging businesses signals what was missing in the policy domain.

20

Further research will be needed for designing detailed and effective policy instruments tocomplement this study.

With the cases studies here as a beginning, it is possible to identify potential agenda items for
public policy which can help to create more participatory ecosystem gaps. First, is recognitionin policy that supporting ecosystems at the earliest stages of business development is valuable
to accelerate the impact of innovations as they comprise a system of synergistic incentives,
assets and capabilities. Second is the need for supporting innovative financing. Although impact
funds and BOP accessible funds are increasing, such new financing modes including crowd
funding and microfinances, effective regulations still emerge as a challenge. Policies need topromote fund access rather than stay buried in outdated capital controls, while at the same timeensuring transparency of management. Third, policy should encourage opportunities toexperiment with proof of concepts, prototypes, and market testing through the support ofinnovation and regulatory sandboxes, both physical and virtual. This experimentation of newtechnology and business models would also inform regulatory change for innovation. Fourth,there should be support for capacity building not only for new technology and business models,
but also for innovative (blended) financing, agile governance, and reflexive policy making inorder to enhance the human base for innovative capability. These policy themes would support
the transformation of systems yielding positive impacts. Last, capacity building is critical toprevent social disparity caused by the access to technology.

The above discussions are made based on cases examined. These are limited in number andscope. However, given the shortage of research in this field, it is hoped that this offers a steppingstone for further investigation into this topic.

21

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Appendix
Appendix 1 Ecosystem factors tapped by cases
East Ventures
Activity
Ecosystem
Type

Venture capital
Keiretsu network ofinvesteeSocialChallenges(aims)
mentioned

Support the country’s
growthvia
empowering
local
small to medium
business and building
the local ecosystem

Samurai
Incubate Africa
Venture capital
Value chain ofinvested
seed
ventureSolving societal
problems with theinnovative
applicationoftechnology
andbusiness models

Technology
appliedSynergies
among
different
services
basedon
digitaltechnologies

Digitaltechnology,(Mobile and ICTs)
synergies

Digital financial
synergies

Renewableenergyanddigital money
synergies

Business
Model
Finance

Keiretsu model
VC syndication

Value-chainmodel
VC syndication

Financial valuechain model
External funders/
Impactfund/
microfinanceNetwork
established
Access to
Customers

Within group

Within group

Within group

Leverage portfolio

Leverage portfolio

Investor, internal
networks,
and
scale
up
of
investee

Human
Resources

Leverage returnees

Leveragetraining

Leverage internal
networks

Regulations
or countermeasurestaken

Collective power forchangeRegulatory
sandbox in
new market

Adaptiveandgap filling
Combiningprivateinvestment,
government aid,
and grants
Partnership withdiverse actors
Expandedthroughbroadenedecosystem andplatform
Leverage local
andprovidetrainings
Regulatory
sandbox in the
new market

Outcome of
Ecosystem/
Sources ofresilienceNew
networktoexperimentandexpandtonewbusinesses
withinKeiretsu

Value chains tomutually capture
the synergies toenhancethebusiness as a
whole

VC

the

Aavishkaar
Capital
Impact investment
Internal
impactfinancialecosystem
Solvingsocialchallenges
through creating
broad impacts

NBF/ADM

MakuakeStart up
Adaptive micro
ecosystem

Crowdfunding
Virtualmultistakeholder
ecosystem
Providingmarketchannels and market
experimentation
opportunities all typesof producers/creators
including those inregions
Multi-sided platform
enabling
crowdfunding, market
feedback,andcollaboration
Crowdfunding
andcommunity building
Crowd funding

Internationalpresenceforfinancial
regulatory
management
Accommodate
diverse scale ofneeds for theirservices

Providing BOP
communities
with
equal
access to energy
and a financial
serviceExpanding theirbusinessanddiversifying into
new fields

Partnershipwithdiverse actors
Multi-sided platform
accessLeverage
network

platform

Financial regulation
existed on equity
investment;
regulatory testing
Expandingtheirbusiness and social
impacts, especially for
SMEs in the regions

Source: based on Authors
Appendix 2 List of interviews conducted
Organization

Title

Date of interview

MakuakeCEO, Founder

April 8, 2019

Samurai Incubate

CEO, Founder

April 11, 2019

East Ventures

CEO, Founder

August 5, 2019

Aavishkaar Capital

CEO, FounderNovember 8, 2019

Aavishkaar Capital

AdvisorSeptember, 10, 2020

NBF/ADM

CEO, FounderFebruary 27, 2020

Source: author

26

The UNU‐MERIT WORKING Paper Series
2021-01 Transformation towards sustainale development goals: Role of innovation by

Michiko Iizuka and Gerald Hane