Enablers and Barriers to Circular Business in Europe

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This entry is adapted from the peer-reviewed paper 10.3390/su132413670

Circular economy goals have made their way towards the very heart of EU policy, promising the delivery of both economic and environmental goals, but key to their achievement is the active involvement and participation of businesses.

circular economy business models barriers

1. Barriers and Enablers to Circular Economy Business Models

In recent years, there has been a surge in scholarly interest in the barriers, drivers, and enablers for the implementation of innovation oriented towards the CE. Among the most recent studies, a framework consisting of seven main categories of drivers and barriers (supply chain, institutional, economic, environmental, social, technological, or informational) has been proposed ^[1]. In their analysis, the authors highlight the relevance of context as an important factor affecting the possibility of applying a circular model. Another study tackling similar questions ^[2] classifies barriers to circular models based on a meta-analysis of cases, including organisational, market, technological, behavioural, and institutional factors. The barriers tend to be influenced by business model changes, disruptive qualities, and innovation types.

Diverse studies approach the question of barriers and enablers from different perspectives. For instance, internal barriers and external barriers may be distinguished ^[3]. These different obstacles were identified to different degrees in four different types of CEBMs implemented by 31 Dutch companies. A total of 13 motivational drivers and 39 barriers were clustered into those pertaining to internal/external environments, and in turn related to one or more stakeholders, namely organisation, supplier, government, consumer, and society ^[4]. In a study focusing on the meso-perspective (eco-industrial parks, environmental, sustainable and green supply chains, and closed-loop supply chains), eight key drivers were identified, namely resource efficiency gains (that increase competitiveness), new value streams through utilisation of by-products and waste, avoiding regulative costs of environmental pollution and waste, brand reputation and the right to operate in global markets, improved brand reputation with consumers, increased business resilience, and reduced risk ^[5]. The authors further classify barriers as financial, technological, societal, informational, and institutional. Studies on specific industries and products include those on textile and apparel activities ^[6], plastic ^[7], mining ^[8], end-of-life management of PV panels and BESS ^[9], among others.

2. SMEs and Pioneers

Within this field of enquiry, an emergent sub-field which is particularly pertinent to this study is that which focuses on the barriers and enablers that apply to small and medium enterprises (SMEs) ^[10]. Although SMEs are not necessarily start-ups, in practice most start-ups begin as SMEs ^[11]. The literature here offers some useful insights for inquiry characterised as it is by two types of studies, namely those based on case studies and small surveys (typically limited to a specific country, sector, or region), and those which rely on statistical analyses with data drawn from large-scale surveys. An example of the former is the pioneering work on European SMEs, which finds that the main barriers to implementing CE strategies are the absence of funding and the lack of support from clients and suppliers ^[12]. Major enablers include having a ‘circular mindset’, the availability of regional networks, and the benefits of having a ‘green’ image. In the same vein, improving brand image and reducing costs were mentioned as drivers while the lack of public support was identified as one important obstacle to SMEs ^[10]. In another recent study ^[13], the lack of knowledge, the uncertainty of new business models, the lack of strategic view, and the legal framework were found as common barriers addressed by consultancy firms in circular projects aimed at SMEs. An example of a large-scale survey is the Flash Eurobarometer 441, conducted in 2016 on more than 10,000 SMEs across the EU-28. Studies employing this data (e.g., ^[14]^[15]^[16]) emphasize the importance of both contextual factors (such as the institutional framework in which the firms operate) and of firm characteristics (such as size, turnover, and sector). A distinction has also been made between insurmountable barriers and those which can be overcome with time ^[17].

Studies on innovation and entrepreneurship for sustainability also shed light on the question of differences between incumbents versus pioneers. Pioneering business models operating in niche areas are often characterised by having a well-differentiated value proposition, with sustainability as a key element. They tend to target specific segments through specialised channels. Their financial model is often conditioned by high costs due to small scale. The challenges they face relate to the need to find loyal customers who appreciate their value proposition, the need to focus efforts on developing the relationship with customers and distribution, and the quest to make enough profit for the initiative to consolidate in the market ^[18]. On the other hand, incumbents wishing to innovate their business models for sustainability tend to face the challenges of effectively combining sustainability aspects in their key product features, of increasing efficiency in their value creation and distribution activities, as well as of reducing the costs of sustainable products ^[18]. Incumbents may also be more reluctant to innovate due to the novelty and uncertainty of the CE paradigm. This emerges from a study using multiple cases in the servitisation of mobility. While start-ups tend to work with, and adapt to, the most radical technologies available to create and implement an innovative business model, conventional companies tend to be initially reluctant and only adopt new technologies once they become routinised ^[19]. There also seems to be a difference in the way these two types of businesses deal with the institutional framework and innovation ^[20]. A case study on circular innovation in the fashion industry shows that incumbents are characterised by rigidity when it comes to resources and legacy within established paradigms. They tend to proceed cautiously, experimenting with small-scale green initiatives ^[21]. Interestingly, incumbent companies tend to copy the success of niche entrepreneurs ^[22].

3. Synthesis and Gaps

In synthesis, there is growing evidence (including case studies, comprehensive regional surveys, and reviews of the literature itself) on the factors that can hinder and enable the development of circular business models and innovation. Different criteria have been used to investigate and classify the factors by type of business model, by internal/external factors, by level (product, value chain, territory), by agents involved, and by size/type/sector of enterprise. While relevant insights may be drawn from the literature on SMEs and that on sustainability, none of the studies on enablers and barriers to the CE have specifically focused on the distinctions between BC and GC enterprises.

References

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Ángeles Pereira

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1. Barriers and Enablers to Circular Economy Business Models

2. SMEs and Pioneers

3. Synthesis and Gaps

References