Circularity is no longer optional
Circular economy (CE) has established itself as more than a mere environmental aspiration. For European manufacturing small and medium sized enterprises (SMEs), the concept is ever more closely tied to resource efficiency, competitiveness, customer expectations and regulatory requirements. (1) paved CE as a route towards more sustainable, low-carbon, resource-efficient and competitive economies. Additionally, (2) presented how customer- and policymaker-originating requirement pressures bear direct impact on these SMEs’ strategic choices when their environmental and circular practices are concerned.
Hence, manufacturing SMEs no longer need to ponder whether the issue of circularity matters. CE is progressively becoming embedded in the operating environment in which companies compete, supply larger actors and respond to regulatory and market expectations. The more pertinent question is how prepared they are to understand what is expected of them and turn those expectations into actual business practice.
From linear to circular
CE calls out the traditional and stagnated linear logic of “take–make–use–dispose” by seeking to retain products, components, materials and their value within economic activity for longer. Through this model, resource inputs, waste, emissions and energy losses are reduced by slowing, closing and narrowing material and energy loops. Practical approaches and means to an end include longer-lasting product design, maintenance, repair, reuse, refurbishment, remanufacturing and recycling (3). Yes, the emphasis is on the common prefix “re”, in case you did not notice it. However, (4) also remind to put emphasis and pay attention to repeated resource use, preservation of product and material utility and value, reduced waste, and lower dependence on virgin resource extraction and processing.
The fundamentals can also be found from economic logic. Improved resource efficiency and closed material loops can cut down material costs, mitigate exposure to virgin-material supply and price risks and conjure opportunities for competitive advantage and new markets (5). Thus, circularity annexes environmental objectives to an economic principle of retaining resources and their value for longer instead of continuously replacing them through new resource consumption. Straightforward enough as an idea, right? However, considerably more demanding once brought inside an actual manufacturing company.
Circularity means the whole shebang
For manufacturing SMEs, putting the principles into practice means the whole shebang. (2) studied CE implementation through six interconnected fields of action: design, procurement, production, distribution, use and recovery. In the real world, this moves circularity directly into decisions concerning materials and suppliers, production processes, resource and energy use, logistics, product lifecycle management and what happens to products and materials after their initial use.
From product design to business models
Product design itself is truly of importance, since choices made at this stage resonate through material consumption, product longevity and what can subsequently be repaired, reused or recovered. Additionally, (6) identify material traceability, product and process transparency, circular product design, digitalisation, supplier databases and traceability systems among the strategies and resources relevant to manufacturing SMEs’ CE practices implementation. Their findings also bring forward the need for appropriate machinery, technologies, communication infrastructure and competence across company and supply-chain activities.
This transition can and most certainly will reach its grasp to business models as well. Leaving linear practices in the rear-view mirror may require manufacturing SMEs to re-adapt production processes, develop new knowledge and capabilities and commit tangible and intangible resources, including investment in R&D and technologies – to put money where their mouth is (1). Furthermore, going all in on circular principles reportedly requires systemic changes to existing business models and corresponding financial, organisational and managerial resources (7).
Pressure from data, compliance and value chain
Circularity is also increasingly an information and compliance issue. The EU Digital Product Passport (DPP) is designed to provide standardised lifecycle information concerning, among other things, product origin, materials, repairability, environmental performance, reuse and recycling. Where and whenever DPP requirements apply, economic operators must gather the product information required under relevant EU legislation. This implies that the practical CE equation progressively also includes matters of product data, traceability and regulatory compliance nature (8,9).
Ultimately, manufacturing SMEs do not make these changes independently, left on their own devices to pick and choose. Their room to manoeuvre is crammed full of influence from suppliers, customers and wider supply-chain arrangements. In other words, customer requirements can directly affect product specifications, procurement and circular design choices, whereas successful implementation can depend on the participation of other actors throughout the value chain. This leaves circularity as a company- and value-chain-wide implementation task, bringing us directly to the million-dollar question of whether these SMEs possess, or can even possess, the knowledge, capabilities, time and resources to pull it off.
When circularity hits the wall
In this – willingness, capability and capacity – “you gotta keep ’em separated”. A manufacturing SME may be ready and willing to advance its circular practices, but alas, lack the means to do so. Is it any wonder, since a myriad of company-internal barriers among SMEs have been identified for example by academia: risk aversion, short-term orientation, economically dominated thinking, unwillingness to engage in trade-offs, shortage of resources and lack of knowledge (4). These interact with external barriers originating from technology, markets, legislation, society and consumers rather than operating neatly in isolation. Furthermore, (10) divided CE adoption barriers into knowledge and skills, technological, cultural, financial, strategic, governmental and regulatory, and market-related dimensions.
The hard currency of implementation
Money, time and people remain hard currency in this equation. Circular practices can demand heavy upfront investment whereas the fruits of their labour may materialise only much later. This is a raw deal for many manufacturing SMEs walking on a tightrope with limited resources and short planning horizons. Alongside capital requirements come indirect costs in time and human resources (5). Additionally, scarce resources, shortage of time and short-term orientation can send CE tumbling down the list of SME priorities, especially if sufficient profitability from the required investments is nowhere to be seen (11). Hence, reluctance to act and follow should not automatically be read as unwillingness to comply or as being a rebel without a cause. When equipped with the lack of capacity or confidence, the leap into the great beyond can be a tall order.
Knowledge versus the regulatory jungle
Knowledge, and the level of it, easily complicates matters further – throws a monkey wrench in the mix. SMEs may lack technical know-how, qualified expertise and workable, reliable channels for exchanging information. As a result, uncertainty grows stronger when practical examples and experience remain flimsy and weak (5). Conversely, knowledge spillovers and a stronger institutional environment would increase the likelihood of the adoption of CE practices by these SMEs (12). It is not a question of whether information exists. However, the dilemma is whether relevant knowledge reaches the company in a shape and form it can actually use.
And here the regulatory jungle starts to take its toll. Monitoring and reporting environmental information can create an administrative cross to bear that manufacturing SMEs struggle to endure and afford. Sometimes external expertise must be summoned. In addition, various reporting formats, frustrating bureaucracy and fuzzy legal frameworks can thicken the veil of confusion even further (5). SMEs entering wider value chains may most certainly be in dire need of practical, technical and legal support, instead of having truckloads of information piled on them to decipher alone. Rather an uncomfortable question arises: what exactly are we asking SMEs to become informed about?
The policy maze
Now, we are going to flip it. The complexity does not disappear if we move from manufacturing SMEs to the system which produces and enforces the requirements. Au contraire. EU circular economy policy is not built around one tidy piece of legislation. It is a rich dish served through a growing mix of cross-sectoral and sector-specific regulations and policies. There are, for example, instruments ranging from the Ecodesign and REACH frameworks and the Circular Economy Action Plan to sector-specific regulations concerning batteries and end-of-life vehicles (13). One can safely argue that EU CE policies remain fragmented, inconsistent and lacking in cohesion.
The problem is not merely the sheer number of rules. Circularity regulations cut across different stages of product lifecycles. Consequently, individual policy instruments can interact, reinforce one another or even produce unintended effects elsewhere in the system. Clearly there is a need for coherent policy mixes rather than isolated measures. Consistency is needed to avoid contradictions. Coherence again is needed to create positive interactions between instruments and across different policy and administrative levels (14). Designing, implementing and evaluating such mixes is, however, a considerably more difficult task than wheeling and dealing with individual policy instruments. Hence, surviving the policy maze is not just a battle for the manufacturing SMEs. Complexity is baked into the policy task itself.
No-one masters the whole maze
Enter the stern policymakers. The plot thickens now. The paradox becomes interesting without pointing fingers at anyone. Policymaking does not rely on a single decision-maker mastering the entire CE landscape – no man is an island, not even a circular one. Policy learning is a wild ride of a process involving relationships between policy-makers and networks of knowledge-based experts, alongside a broader policy community consisting of public and private actors (15). Furthermore, expertise becomes of incalculable value where technically complex issues are concerned. Policy actors can always fall back on external expertise. However, successful policy development may require teams combining different knowledge and skills from various fields (16). There is strength in numbers.
In other words, CE policy itself is built through highly distributed knowledge. Legal, technical, industrial, environmental and political expertise resides with different actors, and the pieces must somehow fall into place. That is not incompetence. Nor is it poor planning or lousy execution. It is the crooked face of reality when governing a broad and interconnected field. But it makes one wonder though. If policymakers themselves must rely on an army of specialists to make sense of the whole, expecting an individual manufacturing SME to independently navigate that same dark jungle means facing an uphill battle in hail and high wind.
So, how do we make sure that these two sides actually meet? Now there is a riddle, wrapped in a mystery, inside an enigma that even Winston Churchill would recognise.
From requirements to readiness
So, where does this all leave us? Up in the creek without a paddle? Being part of those always trying to ice-skate uphill? Houston, we have a problem. Manufacturing SMEs cannot sidestep circularity, neither can they reasonably be expected to master an ever-expanding policy maze alone. Simultaneously, policymakers themselves operate within a system where the required knowledge is spread across legislation, sectors, specialists and institutions – just to mention a few. Both sides are wrestling with complexity, just from very different positions.
Perhaps the real challenge is not simply producing more information, but making the right knowledge accessible, understandable and actionable. Who translates regulatory requirements into company-specific implications? Who keeps that knowledge current? How can SMEs’ voice on what is technically, financially and practically feasible reach the policymakers’ ears before requirements reach their factory floors? And are both sides really willing to listen, learn and adjust?
Ultimately, circularity needs more than regulations, good intentions and sweet sugar-coated promises. It needs knowledge, capabilities, resources and willingness to build the bridge between the realms of policy ambition and practical implementation. The question left hanging is whether the current system enables that construction – or makes the chasm between them uncrossable.
Related project: DesignMod
- DesignMod – Sustainable Modular Production Environment (Kestävä modulaarinen tuotantoympäristö)
- Duration: 1 April 2025–31 March 2027
- Lead: Vaasa University of Applied Sciences (VAMK)
- Partners: Centria University of Applied Sciences and Novia University of Applied Sciences
- Funding: Co-funded by the European Union
- Budget: 212 174€
- Focus: Circular product development, modular production environments, experimentation and circular business models for SMEs.
