A transition to a circular economy with increased competitiveness for companies will require new, innovative business models. At the same time such a transition will encounter both obstacles and driving forces.

REES company Inrego

The driving forces are related to improved control of material flows, ensuring access to critical components, the opportunity to create a niche market and increased profitability. Other aspects are public procurement processes currently in progress that give priority to circular products, and greater access for companies to a profitable post-sales market. Strategic partnerships will also become more important.

The obstacles are related to low prices for virgin raw materials, the high cost of labour, lock-in effects and – not least – the need for companies to invest not only in infrastructure, but also in management systems and expertise. Some of these factors result in companies perceiving high commercial risks when making the transition to a circular economy.

“Business models are often complex, and in-depth studies close enough to companies to make the results useful require considerable time. And businesses are reluctant to talk openly about their business models since they are often confidential,” says Andrius Plepys, researcher at the International Institute for Industrial Environmental Economics in Lund and leader of the work into business models for a circular economy.

“We encouraged the companies participating in REES to describe their research needs with respect to business models, and they made many interesting suggestions. We have now formulated several of these in a manner that makes them suitable for master’s degree projects,” says Andrius Plepys.

The research group has subsequently taken on several master’s students to help with collecting material and examining case studies. Five master’s theses have been produced in collaboration with Volvo Group, investigating several aspects of functional sales. Master’s projects on functional sales have also been carried out together with companies outside of the REES sphere, such as IKEA, interested in exploring the potential for renting or leasing its furniture, or Swedish municipalities exploring the feasibility to procure lighting as a function intstead of illumination products.

The doctoral students working in the project chose to focus on industry related to IT products and have mainly been in contact with the companies Inrego and Godsinlösen, which are remanufacturing used IT products.

“In this research we focus in depth on the so-called “gap-exploiters” business model typology for remanufacturing and extending the lifetime of It products. An article to be published in a leading scientific journal is in the pipeline”, says Andrius Plepys.

Large database

The group has also build up a large database of companies that work in a circular manner.

“We are now identifying the structure and the designs of the business models that these companies use, to determine which are the most common and which appear to be the most successful for particular products.”

Doctoral students Julia Nussholz and Katherine Whalen have also worked with an analytical framework to describe and categorise the many archetypes of circular business models. They chose to start with a previously existing framework and modify it to be able to map the roles of all companies involved in shaping a circular business offering.

“We are now testing whether the modified version gives a better picture when describing and analysing multi-actor based circular business models, and we expect the results soon,” says Andrius Plepys.

Seven master´s degree projects

No less than seven master’s degree projects are currently in progress looking in depth at the second-hand market in Lund, being led by Carl Dalhammar, IIIEE. These projects deal with such topics as the products for which demand is highest, the materials that are involved, the possible designs for a labelling system, procurement by the municipality of remanufactured and reused items, the benefits of the second-hand market to society, and the problems that may arise.

“The theses will be submitted before the summer and the results will help the doctoral students in their future work,” concludes Andrius Plepys. Initial difficulties have now been overcome and the project has made considerable progress.