Introduction
Circular Economy comprises a systematic approach that is designed to benefit economic development and is designed to benefit businesses, society, and environment as a whole. Circular economy is highly sustainable which involves designing products that have an everlasting lifecycle and that can be reused and remanufactured. This study focuses on a brief concept of circular economy and barriers faced by businesses who want to adopt a circular economy. The study also revolves around the companies that have successfully managed to adopt a circular economy and steps taken by these companies to adopt a circular economy and majorly contributing to a sustainable environment.
Overview of Circular Economy
Figure 1: Circular Economy
(Source: Ellenmacarthurfoundation.org, 2020)
The concept of circular economy is procuring high attention and is a wider path in terms of sustainable development. According to the most prevalent definition by Ellen MacArthur, Circular Economy is an economic model that aims to redefine growth and focusing on providing positive benefits to society (Ellenmacarthurfoundation.org, 2020). This involves decoupling economic activity from consumption of finite resources and intriguing waste out of the system. This also aims to keep products and materials at their topmost value and utility and promotes a distinguishing factor between technological and biological cycles. The scope of circular economy is widespread and many anticipated developments have been a part of it in 2019. In order to protect biodiversity, UN’s Sustainable Development Goals (SDGs) presented the adoption of circular economy into existing global political and environmental agendas in 2019 and aligning circular economy in existing policies.
The government and many companies are focusing to implement strategic ways of circular economy in 2020. Examples of such developments are adoption of “Close the Loop”, a global and online shopping platform that provides products in durable containers that can be reused multiple times by famous brands such as Tide, Pantene, and Colgate. Considering the advantages of a circular economy which are reducing potential pressure on the environment, boosting economic growth, encouraging innovation, increasing competitiveness, and creating jobs (Researchgate.net, 2020). On the contrary, it also accounts for several drawbacks which are recycling plastics too many times makes them brittle. Another drawback is that some materials have a limited life cycle which cannot be recycled and the demands of circular products are still low. This is prohibiting companies especially the SME’s who have a low budget to adopt CE for the fear of higher loss and lower profits.
Discuss the barriers for businesses who want to transition to the CE by citing examples
Figure 2: Barriers to Circular Economy
(Source: Researchgate.net, 2020)
Individual Barriers
Consumer/user behaviour and attitude
The adoption of a circular economy is directly proportional to consumer behavior and attitude as consumer engagement is necessary to guide businesses towards purchases that are more environmentally friendly (Researchgate.net, 2020). The price-quality ratio is one factor that prohibits consumers from buying recycled products and is the main barrier to consumer engagement in circular economy. Consumers tend to pay more for better quality products that are durable and this is often persuaded by low prices of recycled products. Another barrier is the lack of comfort and trust for adoption of new trends and technology. The innovative factor is impossible to ignore when circular economy is in process.
Public Awareness
The increase in recycled waste has subsequently reduced the impacts of global warming and acidification. The lack of public awareness is a major barrier and how circular economy can has an influence over economic growth and development. Research conducted showed only 16.70% of people interviewed has an idea about circular economy and 47% of people have heard about it (R2piproject.eu, 2020). These people have claimed lack of awareness from both the government and companies practicing CE. The initiative for public awareness needs to be adopted by the government addressing its impact and advantages in cost-cutting and higher economic scale.
Organizational Barriers
Organization structure and culture
The implementation of circular economy has a tendency to change overall structure and culture of the organization. The adoption of circular economy depicts the involvement of a hierarchical system which might reduce flexibility and increase innovation. This impacts on employee’s involvement and disagreement in ongoing structure (Kirchherr et al. 2018). Limited attention to the end of life cycle in current product design and lack of quality in recycling materials are a few disadvantages that affect the sales of company leading to generation of lower revenue. The cultural barriers such as lack of customer awareness and interest in recycled materials affect the overall culture of company. This forms a hesitant company culture that hypes the concept of circular economy. This is also difficult for organizations that have lesser departments as the process of circular economy is quite complex to be handled by a single department.
Lack of information
The lack of information and use resources about benefits of circular economy in many companies globally is a limitation for not adopting a circular economy by many companies. The long-term benefits are often ignored by companies which will benefit them in terms of financial gain and contributing to a sustainable environment. A recent study showed the disagreement of 70% of small scale enterprises globally to adopt a sustainable approach in its business operations (Manninenet al. 2018). Among which 40% of the companies are unaware of its concept and 20% of the disagreement arises due to financial issues.
Resources and capabilities
Insufficient and shortage of required resources is the main barrier while imposement of circular economy (Geissdoerferet al. 2018). The SMEs have limited resources and finance which marks the insufficiency in raw materials while recycling products. The lack of training of employees is another barrier as workers lack the capability and knowledge of process. This barrier is high in case of SME’s who lack the finance of training and raw materials costs.
Supply-demand network
The demand-supply network is the system that lays emphasis to act on real-time demand of customers to satisfy their needs. There are two values of demand-supply network in terms of circular economy (Ariyani and Daryanto, 2018). The first is lack of awareness of customers/public about circular economy depicts a lower demand for the recycled products. This prohibits many companies especially the small scale enterprises to adopt the privilege of circular economy as these companies have lower efficiency to deal with factors of risk. This also results in lower sales and less revenue generation. Another aspect of this is increasing awareness among customers but less adoption of circular economy in companies also tends to lower the slope of demand-supply network.
Weak business incentives
Contingency planning and change in business direction with the implementation of circular economy results in weak business incentives for employees. The incentives programs are meant to motivate employees and attract customers. If circular economy is adopted then many companies at start will not experience a decline in revenue due to lack of awareness and threat of quality among consumers. This will result in low encouragement through special benefits that will have a negative impact on the motivation of employees. This will lead to lower production and a decline in quality and a negative impact on revenue.
Technology
In order to implement circular economy in business premises generate a high need to adopt technology as without technology, company will lack behind in competitive advantage. The automation of technology on a regular basis draws advantages as well as disadvantages for smaller firms with limited funds (Manninen et al. 2018). The method involved in circular economy will require potential automation in technology to cope up with running market. The lack of advancement in technology leads to poor infrastructure and delays in production. This leads to a lack of ability to deliver high quality manufactured products. The lack of data is another barrier in a circular economy.
Lack of cooperation in Value chain
A step by step business model that helps to convert a product or service from an idea into reality is termed a value chain. It is important for a company as it increases the efficiency of business and possesses capability to deliver high-value products at lower costs. The adoption of circular economy in the business often results in a communication gap and poor incentives by companies as a business are getting declined revenue. This lowers the interest of employees and results in a lack of cooperation in value chain. The dissatisfaction of employees means low awareness of products by consumers.
Value and finance
The lack of integration of sustainability thought department is a definite barrier to circular economy as the perspective towards sustainability needs to change with a change in finance structure. The companies adopting circular economy practices high value and are less considered about physical products that are raw materials. This leads to wastage of inventory and bearing of higher cost by companies which are later compromised when producing recycled products. This will lead to a decline in value of product even when prices are low.
Integration between organizational functions
This factor focuses on the distribution of tasks and responsibilities in the organization as sustainability needs to be practiced in all functions of the company. It is difficult for a Small scale enterprise to incorporate circular economy due to its size and scope. Circular economy is a complex process that demands the involvement of many departments in the organization and lack of integrity makes it even more difficult. This also created a barrier of less interaction between the departments and the lack of efficient stakeholders needed for developing solutions.
Contextual Barriers
Lack of government support
The economy revolves around government circulation and government plays an important role in building up these sustainable strategies. Several policy obstacles such as taxation, subsidies, and strict regulations concerning the use of secondary raw materials and an integrated recycling structure persist in the economy. As SME’s cannot afford over the budget technologies for a sustainable environment, lack of government support for these organizations prevents them to adopt these sustainable means.
Enforceability of legislation and unavailability of a standardized system
The enforcement of circular economy forces companies to evaluate both national and local policy. The poor waste management legislation, an increase in the cost of landfills, high disposable costs, and strict rules are some of the negative impacts of legislation that prohibits the companies to shift towards a circular economy. The lack of a strict legislative framework by the government often influences small scale enterprises to adopt and integrate green solutions (Govindan and Hasanagic, 2018). The unavailability of CPG industry results in low recycling rates and unavailability of other standardized systems.
Supply chain
The uncertainty of return flow in terms of quantity, quality, time, and place of returns decreases the probability of achieving a high scale economy in recycling logistics and innovativeness. Therefore, low collection rates limit the production of renovation in products and informal collection such as illegal waste recovery has potential to increase uncertainty. Since these products are made at higher overhead costs, an efficient supply chain is needed for their movement and formal collection is required. The lack of these efficiencies in services of supply chain marks a barrier to adopt a circular economy.
Give examples of businesses that have managed to successfully move to the CE
The shift from a linear economy to circular economy is a difficult phase for companies considering the barriers and several factors of risk. Several examples of businesses who have successfully moved to a circular economy:
Plastipack Ltd. based in UK is a manufacturer of PET bottles and containers owns UK’s largest PET processing plant which is CleanTech. The company operates with main objective to ensure sustainability and being eco-conscious in all its operations. The small scale enterprise Splosh is involved in selling of home and personal care products directly to customers. This company is committed to zero waste and successfully implies a circular economy in its operations (Zink and Geyer, 2017). Orangebox is another company based in UK, is a leading manufacturer of office furniture with sustainability at its core. Mobike, headquartered in Shanghai is the world’s largest shared bike operator who manages more than seven million bikes on 160 cities globally.
These countries have successfully adopted a circular economy keeping in mind the need for a sustainable environment and are major contributors to reduce the impact of global warming and several other economic issues.
Analysing the steps taken by companies to move to the CE
Earth’s natural resources are diminishing at an increasing rate and the need to adopt sustainable means is at its peak. Many global companies have realized the impact of their business on the environment and have successfully shifted their business operations to greener solutions and promote a circular economy. These companies are evaluating certain factors in terms of product design, selection of materials, process of manufacturing, and recycling of end product. The idea of “take, make, dispose” is replaced by “make, use, return”. The achievement of this global vision takes time and collaboration between companies (Pagoropouloset al. 2017). Companies like Plastipack, Orangebox, Slosh, and any other have successfully adopted the concept of circular economy in their business operations by following steps:
Recognizing opportunities
The shift of these companies from linear transition to circular economy is a challenging task and these businesses adopted a strategically plan to conduct market research. This helped the companies to know about future trends, customers tasted and preferences, government regulations in the coming future for creating a sustainable environment (Urbinati et al. 2017). This has helped the companies to reduce the factors of risk by shifting to greener solutions as there are high chances of government strict regulations and legislations for companies to adopt circular economy considering the diminishing health of environment.
Building up strategies
A strategy is a long term action which is particularly designed to achieve a certain goal or a long term business objective. The strategies developed are in a constant state of change and are made at the level of uncertainty. The companies adopted a strategic fit to obtain a sustainable means of production in their operation. These strategies are actions that are made immediately with resources at hand. These companies also evaluated a link/fit between the company and its environment to analyze the threats and opportunities. The companies also implemented a close analysis of PESTLE environment and competitive forces (Bressanelliet al. 2018). These businesses also evaluated the need of stakeholders and identified efficient stakeholders to help them transform into sustainable means.
Help from different authorities
The businesses determined certain authorities to help them in decision making and financial support (Ruggieri et al. 2016). The government is the first and foremost statutory body that often helps the company to settle its businesses by providing financial help and impose of business-friendly legislations. The enterprises also connected to their stakeholders for efficient solutions and for financial support as the implementation of circular economy means heavy financial support to buy technologies.
Identifying target markets
After seeking help from authorities, the companies move on to recognize the target markets where there are high chances of the selling of its products. This process involves the demographic, sex, age, interest, and buying capacity of customers. This also involves the identification of competitiveness, threats, and opportunities prevailing in the target market.
Scan of sector and macro environment
The companies successfully scanned the sector and macro environment with the application of many theories. These involved SWOT, PESTLE, 5 forces, Resource Audit and VRIO. These theories helped the companies to know about external environment in detail and, therefore, helped them build a strategic plan.
Figure 3: Industry Life Cycle
(Source: Influenced by Korhonen et al. 2018)
Scan of microenvironment
The companies adopted the RBV (Resource Based View) of the internal environment to interface the strategy. The Resources and Capabilities matrix is applied to determine the company’s ability to outrun its competitors. The identification of resources is done on the basis of tangible and intangible resources (Korhonenet al. 2018). The organizational capabilities are processed on the basis of leadership styles, skills of employees, and routines. Value Chain activities are recognized that adds sufficient value in the transformation of resources and inputs to recycle a product. This resource-based view helped these companies to improve by 30-45% considering the micro factors and 20% due to external factors.
Business models
The business model created by companies combine physical products, services, and use of software to create an everlasting experience for consumers. For instance, Uber offers their rides as a sustainable service as drivers use their personal cars and customers use their personal devices to book the ride (Prieto‐Sandoval et al. 2018). The shared rides help to lessen meaningless fuel consumption and reduce carbon emissions.
Use of digitalized supply chain and production
The companies dived into circular economy by switching to digital ways of supply chains and ways of production in more efficient and eco-friendly ways. For instance, in a manufacturing industry 3D printing effective from initial designs to supply chain, from logistics to distribution, and reduces the materials needed for making a finished product. The implementation of technology in companies has lead to timely production and also made it easy for the company to connect to each consumer.
Growth from consumption
The adoption of these efficient ways is only useful when the end product is used by customers. This step involves encouraging customers to buy recycled products. This can be done by promotion of the products and services through organic means to attract a huge base of customers. The supply of these products should be sufficient to deal with the demands of customers. For instance, Patagonia a UK based company that practices circular economy made a commitment to producing 100 jackets out of plastic bottles which not only attracted the customers but also encouraged the employees to stand as per customer’s demand.
Conclusion
The concept of circular economy is broad and combines the use of greener solutions to contribute to a sustainable environment. The latest advances in technology have helped many multinational companies to make efforts in encouraging CE in their business operations. There are many companies that have successfully adopted the concept of CE by potentially overcoming barriers and resistance to change. However, the use of circular economy accounts for several disadvantages which can be overcome with proper awareness and support from legal authorities. The above report analyses the importance of implementing CE to increase the economic scale.
References
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Researchgate.net, (2020). About companies adopting the concept of circular economy.Available at:https://www.researchgate.net/publication/335846027_Circular_economy_in_companies_an_analysis_of_selected_indicators_from_a_managerial_perspective[Accessed on: 15 November 2020]
Researchgate.net, (2020). About consumers reaction towards circular economy. Available at:https://www.researchgate.net/publication/337085214_Consumers_in_the_circular_economy[Accessed on: 15 November 2020]
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