Decoding Massive Modular Ecosystems: A New Blueprint for Digital Global Industries

The World Bank's paper introduces "Massive Modular Ecosystems" as a new framework to understand complex, digitally-driven global industries where modular and non-modular governance structures coexist. Using the smartphone industry as a case study, it reveals how layered innovation, geographic specialization, and interconnected sub-ecosystems shape modern industrial dynamics.

In a groundbreaking study jointly produced by the World Bank’s Development Research Group, the University of Oxford Saïd Business School, MIT’s Industrial Performance Center, and Union College, the complex architecture of today’s digital economy is meticulously unpacked through the lens of what the authors term “Massive Modular Ecosystems” (MMEs). In their paper, Massive Modular Ecosystems: A Framework for Understanding Complex Industries in the Digital Age, researchers Eric Thun, Daria Taglioni, Timothy J. Sturgeon, and Mark P. Dallas argue that traditional models of global value chains can no longer capture the intricacies of modern industries shaped by digitization, modularity, and global interdependencies. They propose a comprehensive analytical framework that reflects the reality of industries where multiple governance structures operate simultaneously across a web of interconnected sub-ecosystems.

What Are Massive Modular Ecosystems?

The concept of MMEs describes a network of interdependent, yet autonomous sub-ecosystems that together produce complex products and services, coordinated primarily through open interface standards. These ecosystems are not linear, but rather layered and nested across multiple domains, technical, organizational, and geographic. Drawing on and extending global value chain (GVC) governance theory, modularity and standards literature, and business ecosystem models, the framework identifies six distinct governance structures ranging from firm hierarchies to market linkages, including asymmetric relationships common in platform ecosystems. The innovation of this model lies in its ability to identify and interpret hybrid governance configurations and overlapping layers of control, design, and value creation.

While GVC theory focuses on vertical integration and modularity, the literature on technical decomposition neither sufficiently addresses the indirect or cross-layer linkages that define digital industries. Business ecosystem theory, although better at recognizing multilateral collaboration, often overlooks how institutional frictions or geographic clustering affect firm strategy and innovation. MMEs bridge these gaps by illustrating how modular and non-modular governance coexist, and by spotlighting the “sea of modularity” within which more concentrated or tightly coordinated pockets operate.

Smartphones: A Model of Modern Complexity

To operationalize this theory, the authors delve into a detailed case study of the global mobile phone industry. Smartphones are chosen not just for their complexity, but also because they exemplify the integration of multiple subsystems application processors, memory, displays, operating systems, and app ecosystems into a single product. Each of these subsystems corresponds to its own sub-ecosystem, governed by different rules and actors. At the system design level, platforms such as CAD and EDA software dominate, functioning as modular ecosystems with standard-based interfaces. App stores like Google Play and Apple’s App Store are also modular platforms, featuring asymmetric complementarity where app developers (complementors) rely on platform sponsors for access to users.

On the hardware side, we see divergent governance: memory and displays are typically internalized in hierarchical firms like Samsung, while contract manufacturing is often governed through modular value chains. Some actors, like Apple, strategically combine governance types, internalizing key functions such as operating system and chip design, while maintaining captive relationships with assemblers like Foxconn. This diversity highlights the non-linear, multi-actor nature of MMEs where firms navigate multiple roles and coordination forms simultaneously.

Distributed Innovation and Strategic Interplay

Between 2009 and 2020, smartphones evolved dramatically. Processing speeds tripled, memory expanded exponentially, and new capabilities like AI, optical zoom, and wireless charging emerged, all within stable device sizes. This explosion of innovation was driven by a combination of distributed and recombinant innovation. Engineers in sub-ecosystems worked independently to enhance subsystem performance, while system designers recombined these advancements using modular design platforms. Standards, some open and others proprietary, ensured interoperability and enabled scale. Yet modularity also introduced risks. In lower-end markets, commodification pressures intensified, eroding margins and increasing competition.

Importantly, market outcomes reflected governance types. Platform sponsors like ARM and Google dominated their niches due to strong network effects, while complements such as mobile apps remained fragmented. The study also underscores that despite these concentrations, no single firm dominates the MME as a whole. Instead, control is dispersed across layers and sub-ecosystems, creating a dynamic competitive environment marked by both collaboration and contestation.

Geographies of Power and Risk

The geography of MMEs adds another layer of complexity. High-capability activities such as semiconductor manufacturing, chip design, and display production are geographically concentrated, primarily in the U.S., South Korea, and Taiwan, China. These clusters reflect not just firm dominance, but also institutional and infrastructural ecosystems that reinforce local specialization. Meanwhile, the global diffusion of mobile phone brands has led to rising influence from China, especially among low- and mid-range producers like Transsion. However, this geographic spread in final assembly contrasts with the continued concentration in high-value subsystems, exposing the ecosystem to significant geopolitical and supply chain risks.

The analysis reveals that modular value chains provide some resilience through substitutability, but in critical areas like memory or foundries, switching costs and technical dependencies remain prohibitively high. Thus, policies aimed at achieving technological self-sufficiency, such as those seen in China or the U.S., face daunting economic and logistical challenges. Attempts to decouple from MMEs could isolate domestic firms from innovation networks and standard-setting processes that define global competitiveness.

Implications for Strategy and Policy

For strategic managers, the study illustrates the importance of balancing modular and non-modular approaches. Modular governance allows for scalability and distributed innovation, while internalization and relational governance protect against commodification. Success in an MME demands agility, knowing when to build, when to buy, and when to collaborate. The paper also elevates the role of standards as both a strategic asset and a collective good. Engaging in standard-setting not only shapes industry trajectories but can lock competitors into one’s technological orbit.

For policymakers, the message is sobering. In an interconnected world where innovation is layered, path-dependent, and geographically specialized, efforts to reshape MMEs through isolationist or unilateral policies are fraught with risk. Instead, fostering participation in global innovation ecosystems and supporting modular, standards-based engagement may offer a more viable path. Ultimately, MMEs are not just industrial configurations, they are socioeconomic megastructures that demand a new era of cross-border collaboration and strategic insight.