The major challenges that companies have to overcome when moving towards a circular economy business model.
Have you heard about the breaking of temperature records, the record of plastic pollution, or the increasing incidence of the latest COVID variant?
Like many of us, I wonder what we can do to change.
As the world’s population grows and demand for natural resources expands at an accelerating rate, supplies are declining, and the planet is warning us about our current paradigm’s limitations of our linear model.
What can we do?
Change and transformation are the keywords.
But change is not easy.
We need to understand, increase awareness and join our efforts to disrupt the current model and move towards a “humanity model.”
YES, we all have the power to change and contribute to this transformation, even in small steps. We must start somewhere.
If you don’t start somewhere, you’re going to go nowhere. — Bob Marley
Did you know that more than 1.3 billion tons of trash are produced globally every year?
That’s right; massive amounts of waste are realistically impossible to process or recycle properly.
- Dr. Jeremy Wilkinson, the author of the British Antarctic Survey, suggests that no place in the world is immune to ubiquitous microplastics polluting the surfaces.
- Another study found that 83% of tap water samples from over 150 countries contain plastic fibers.
- In addition, a report from the Ellen MacArthur Foundation shows that by 2050, there could be more plastic in the ocean than fish.
It’s wise always to remain informed about facts and figures to reflect and reposition ourselves.
But it is not enough.
Beyond figures, the human population faces immense ecological changes due to ocean plastic pollution, climate change, pandemic, and geopolitical tensions.
We must now extract unsustainable quantities of natural resources to keep up with the increasing need because we can’t store all of the waste we create.
According to the OECD (Organization for Economic Cooperation and Development), 50% of greenhouse gas emissions are caused by materials’ acquisition, transportation, processing, production, usage, and disposal.
We can all agree this is not sustainable.
We are facing a global ecological crisis. So how did we get here?
Looking back in time: an overview
Most of our global economy is linearly designed; we take, make, and waste instead of keeping the loop circular.
In short, we are using the wrong business model.
With the rapid industrialization of developing countries combined with the global population set to exceed 9.5 billion people by 2050, the middle class is exploding.
As a result, millions of people want to buy billions of stuff.
But do we need to buy more stuff?
Although it is considered a human development victory, the environmental threat is grave. And unfortunately, the threat will remain suspended in the air unless businesses reinvent their business models to follow a new model, “circular economy.”
For example, a clothing brand can lessen its environmental footprint by using non-toxic dyes and recycling cloth scraps. But, they must also beat the current “fast fashion” business model by incorporating new reuse, rental, and resale strategies. Besides benefiting the customers, it positively impacts the planet by cutting down the cloth waste.
However, it’s easier said than done.
There are multiple struggles ahead; here are some of the significant challenges companies have to overcome when moving towards a circular economy business model.
Let’s take a look at twelve of the most pressing ones.
1. Lack of Awareness and Understanding
One of the biggest challenges companies face when moving to a circular economy is a lack of awareness and understanding of what it entails.
Many people in positions of power within businesses are still unfamiliar with the concept, which makes it challenging to implement change.
2. Lack of Leadership Support
Without strong leadership support, it’s challenging to get other departments within a company on board with making the shift to a circular economy.
Management must be fully on board and understand the benefits of making the change to overcome the obstacles.
3. Lack of Framework and Standards
A lack of global framework and standards around what a circular economy looks like makes it difficult for companies to know where to start when transitioning.
This can lead to confusion and wasted time and resources as businesses try to figure out what works best for them.
4. Meeting Consumer Expectations
Living without trash is appealing, but it’s difficult for customers to modify their lifestyles.
Single-use plastic goods and packaging have become the norm after years of our grandma’s no-waste approach. Consequently, today’s growth in plastic usage has increased 20 times compared to that 50 years ago.
Expecting consumers to change how they operate and the types of products they buy are far-fetched. Even though better options are available, we are accustomed to consuming ecologically harmful goods.
As a result, the first significant problem is to persuade consumers to abandon common conveniences such as plastic bottles and bags. People tend to resist anything that causes even the slightest amount of friction or annoyance.
Besides continuously striving for self-comfort, there is also the matter of reputation and vanity.
People frequently ask, “How will others perceive me or even think about me?” As a result, humans are naturally drawn to join and affiliate with specific groups.
The products they buy are a strong indicator of who they are and whom they want to be associated with.
5. Supporting Regulations
Lack of supporting regulations and laws unintentionally incentivize wasteful behavior among consumers and companies.
For example, the expiration date label is required by law to protect consumers in the food and beverage sectors. However, the expiration date does not account for the difference in how food is stored.
Let’s take the date label on eggs as an example. The expiration date may be labeled for pantry storage, but the eggs will last longer when refrigerated. Expiry dates do not mean that the food is no longer edible — it’s just an indicator of no more extended meeting manufacturer’s quality standards when in reality, it is still safe to eat.
Fortunately, a consortium of companies has agreed to fix this lack of support by rules and regulations.
6. Organization Barriers
It’s difficult for individuals and businesses to restructure their model.
Reinvention is always costly and risky, with resistance among managers ruling out the expected benefits as they count the advantages of the existing business model.
Therefore, a complete switch to a new business model not only negates new contracts but takes time, energy, and a lot of willpower to carry through.
7. Considering the Upfront Investment
Upfront investment costs and recycled materials are more expensive in a circular business model than linear models.
In addition, there are numerous obstacles to overcome in a circular business face, requiring more than skills and resources.
For example, many negative externalities tied to the traditional economy, like air pollution, remain unpriced. As a result, non-circular products are cheaper than their circular counterparts.
Higher labor and operational costs are other factors making circular business models expensive.
More workforce is required to reuse second-hand products their components and to recycle them. Furthermore, the demand for recycled goods is too low, adding to the cost.
As a result, circular economy firms must spend money discovering viable plastics, collecting them, classifying them, and recycling the materials as part of their business transactions.
8. Risk of Cannibalization
There is plenty of risk of cannibalization; that is, reduction in sales volume, sales revenue, or market share due to introducing a new product.
Similar to the fashion vulnerability hindering the production of long-lasting, high-quality products, cannibalization is another factor to consider due to the transition to the circular economy.
9. Keeping Mutual Benefits For All Stakeholders
Another challenge to weigh is ensuring mutual benefits among all stakeholders necessary for collaboration.
So it is because misaligned profit-sharing along the supply chain effectively hinders the circular business model adoption.
10. Trust Issues
Establishing trust, of course, is also essential when moving towards a circular economy for your organization.
This is done by sharing data and product information via collaboration in the value chain. Many companies, however, are reluctant to do so.
Many companies looking to switch to circular business models are not ready because they cannot justify their investments.
In addition, the prospect of insufficient profit or cost-saving makes them reluctant to leap.
12. Lack of knowledge
Conclusively, a significant challenge for businesses is the lacking of blueprints to follow towards the reinvention of a circular business model.
Although there are successful first-movers, there is still a prominent gap in the total understanding of the circular economy.
So, what’s the solution?
There are several outstanding challenges in reinventing a new circular business model.
However, with the right approach and determination, these can be overcome. By recognizing and addressing the issues above, companies can shift to a more sustainable way of doing business.
Meeting the requirements of a truly circular economy is not an easy path.
When attempting to fulfill the criteria, firms that are entirely ready and well-intentioned encounter difficulties. Getting positively demotivated to move forward, they face setbacks.
However, organizations may be successful if they have a thorough plan and problems addressed head-on.
To overcome the obstacles, one cannot rely exclusively on any categories to do it all. The most viable solution is collaboration. Collaboration is one factor that rings loud and clear in circular economy circles that make or break the economic transition.
Do you have what it takes?
What other challenges can you bring to the table?
Download free “8 Reasons to Adopt Circular Economy” In this eBook; you will get an inside overview of the circular economy principles and its outstanding benefits.
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