Participation of SMEs in the transition to a Circular Economy
The Circular Economy (CE) is gaining followers worldwide, within all levels of society. To the date, the conversation has mainly brought together international organizations, national governments and large companies, but, little by little, SMEs are showing more interest and greater understanding regarding the benefits that CE can bring to their businesses: cost savings of materials, creating a competitive advantage and opening paths for new markets.
By Linnet Solway, Director of the Technology Transfer and Circular Economy Area of Eurochile.
In Chile, Micro, Small and Medium Enterprises (SMEs) represent more than 98% of the business network. This is also the reality in Europe and in most countries of the world. With this, it seems reasonable to me to declare that SMEs make up the backbone of local, national and global economies.
On the other hand, the Circular Economy (CE) – this paradigm shift that means rethinking products, processes and business models to eliminate the concept of waste and maintain the value of materials for as long as possible – is gaining followers worldwide, within all levels of society. To date, the conversation has mainly brought together international organizations, national governments and large companies, but, little by little, SMEs are showing more interest and greater understanding regarding the benefits that CE can bring to their businesses: cost savings of materials, creating a competitive advantage and opening paths for new markets.
This awareness has been occurring for a few years in European SMEs (according to a study by Bassia and Dias (2019), 73.2% of the SMEs surveyed (out of a sample of 10,000 European SMEs) started or were in the process undertaking at least one EC activity in the last three years, and increasingly in Chilean SMEs. However, the implementation of advanced CE strategies within SMEs is slow, mainly due to their more limited organizational, technological and financial capacities, less access to (pre) financing for circular solutions (Rizos et al., 2016) and a lack of qualified human capital (Cantú Garza et al., 2021). In Chile, a survey of companies (not limited to SMEs) -in the framework of the construction of the national CE Roadmap- on the barriers to the implementation of CE in the business sector, shows that the greatest barrier identified is cultural and, secondly, a market barrier.
To overcome these barriers, a series of measures are being implemented, accompanying or even advancing regulatory changes. In the European Union, together with the instruments available through the Research and Innovation Framework Programs, the previous Horizon 2020 and the current Horizon Europe, the European Commission has been developing since 2017 a programme entitled “Promoting the circular economy among SMEs in Europe” which seeks to promote and support the adoption of CE in SMEs in Europe. In Chile, CORFO has introduced a variety of instruments with a focus on CE, allowing SMEs to develop and / or implement new or improved circular processes, products or services. Eurochile has also been contributing, together with European and Chilean partners, in closing information gaps, developing contacts and access to financing for SMEs, through a variety of initiatives such as conferences, brokerage events, support in project execution, and the creation of a Circular Economy Working Group.
However, in my opinion, there is a lack of a key actor that can drive this transition in an important way, acting directly on the market: I am referring to large companies. To really accelerate the process of CE adoption by SMEs, one of the main drivers is the demand for more circular products and services. While we, as citizens, can influence supply to some extent, large companies, by placing themselves in a leading position in the supply and value chains of each industry, can impact entire business ecosystems.
To take advantage of this opportunity, we need large companies to become aware of the driving role they can play, which goes beyond the implementation of CE strategies in their internal processes. The transition to a CE must be carried out in a collaborative and inclusive way, and for this it is critical that actors with the ability to guide the market work together with their network of collaborators and suppliers, to identify the needs of all stakeholders in this transition and co-build a common strategy towards CE.
What can SMEs offer? Those with an environmental and innovation culture, having greater flexibility than large companies, can respond quickly to the market to offer new solutions, products and services. In this sense, the CE offers a new scenario where pioneering SMEs, who assume an informed risk regarding the adoption and implementation of circularity strategies, have the opportunity to achieve leadership and profits in the medium and long term. In this process, they will have to break down a series of obstacles that in turn will open the way for other SMEs that want to follow in their footsteps.
Finally, SMEs can not only benefit from implementing CE within their operations and business models, reducing their costs by implementing more efficient processes, but they also have the potential to participate, and even lead the transition to a CE at the local level and national.
It only remains to ask what is missing for large companies to assume that leadership, and how can we help them in that process?