What Chinese SMEs can do to strengthen Circular Economy: Best Practices from an Italian business
In the 1990s, the Chinese manufacturing industry was developing dramatically by launching the policy "Reform and opening up", imposing significant pressure on European companies. Under considerable competition, an Italian businesswoman decided to embark on something different. Her name is Susanna Martucci, and she was born in 1958. After graduating in law in 1981, she worked shortly with sales agent coordination in Arnoldo Mondadori Editore and also fine arts sectors in Walt Disney. The commercial experience motivated her to start her own business in 1983. Then, until the difficult operation period due to the prosperous Chinese industry, she realised the importance of changing business strategies. Originating from such willingness, the company Alisea was founded in 1994. It is an office supply chain company producing stationary tools like pencils and notebooks. The operation has been built on circular economy (CE) practices since the beginning when most European businesses still had no concept of CE and were very linear.
A conversation between two university professors inspired Susanna to implement a circular economy when she overheard the discussion about the recycling industry. The opportunity of utilising industrial waste was sensed by Susanna and led to the CE business model running in Alisea for almost 30 years now. With the assistance of the model, the company has been thriving over the years in both economic and environmental performance. In 2016, just nine staff members realised a turnover of over €1 million (Enes Ünal, 2019). Their achievement in developing environmentally friendly products made out of waste was also recognised by the "Impresa Ambiente Award" and "Sette Green Award", supported or organised by The Italian Ministry of Environment and Italy's leading newspapers. Such successful and initial application of the CE business model is inspiring for Small and Medium-sized Enterprises or SMEs, especially for Chinese companies struggling with implementing CE in a business context nowadays.
Why do Chinese SMEs need to learn from other businesses' CE implementation?
According to research, it was pointed out that there is insufficient investigation attention paid to Chinese SMEs in terms of their vital role in economic development (Min, 2021). In 2018, Chinese SMEs accounted for 99.8% of total business in China and provided 79.4% of job opportunities, contributing to 60% of GDP and over 50% of taxes. However, over 80% of SMEs generated environmental pollution and accounted for 60% of national pollution (Ying Luo, 2018). Due to the difficulty in balancing economic and environmental aspects, the average lifespan of a Chinese SME is 2.9 years (Kuo Jui Wu, 2019). Most of them are still adopting the linear model of "take-use-dispose", falling behind the environmental efforts in those large companies in China that implemented CE better. For implementing CE business models in Chinese SMEs, one of their biggest challenges is to design a value creation process integrating with CE practices, which is a balance between economics and environmental protection.
In other words, most SMEs are lost in the CE value they can capture, develop, and deliver to business operations and their customers. Under the world's first CE standard, BS8001:2017, 19 representatives from a mixed group of Chinese SMEs were interviewed. The results showed that practices in the aspect of "Value Optimization" are the most vulnerable (Pesce, 2020). The reason behind this is that the risks of losing advantages of the previous business model have stopped most of them from taking action, despite the opportunities and benefits of proposing CE value being recognised. Such concerns are understandable because "Value Proposition", a catalyst component in a business model, relates to all other dimensions, including competence, networks, and customers (Figure 1). Any change in value needs to be internalised and maintained by the transformation in all business departments, which is challenging for SMEs without technical guidance and financial support.
However, it is hard for government instruction to reach such a fundamental level timely and thoroughly, especially when a top-down policy is more prevalent in China. More diverse and specific schemes can be considered and adopted in this regard, including establishing global collaboration relationships with similar businesses and research agencies. It can be conducive for Chinese SMEs to initiate the CE transformation as soon as possible by taking lessons from the SMEs who succeeded in establishing viable CE value networks like Alisea. Since 1994, this Italian business has evolved from asking for wasted materials door by door to holding a consolidated value network with circularity and vividness. More impressively, their value network features trust, collaboration, and innovation, integrating CE thinking well in daily operations.
The Italian business model: "Small is powerful"
Looking more closely at how Alisea finds the right track, their CE business model can be decomposed into seven dimensions utilising the method from the Danish company GreenBizz, which specialises in helping businesses with green transition (GreenBizz, 2020):
Value Proposition: It refers to any value provided for users, customers, suppliers, and employees, covering products, services, and processes.
Competence: This dimension can be categorised into four aspects: technology, human resource, organisational system, and culture.
Value Chain Function: It consists of a sequence of activities to ensure successful value delivery to users or customers.
Network: It covers the form of physical, digital, and virtual connections like supply chain.
Value formula: How businesses calculate their value in terms of money like cost and price or other metrics.
Customer or user: The individual or entity who benefits from the value proposed, which can happen in business to business (B2B) or business to customer (B2C).
Relationship: The connection between the previous six dimensions decides how the value is created, captured, delivered, received, and consumed across the model.
By such dimension blocks, a more explicit business model structure can be drawn from Alisea, facilitating similar companies globally to learn from and absorb selectively. As illustrated in Figure 1, part of Alisea's CE practices (Enes Ünal, 2019) are fitted into the structure, and their operation characterises the relationship dimension. The most well-known action they have taken is to recycle waste graphite and then turn them into a non-toxic and endurable pencil. Some suppliers provide the waste graphite for free because they already gain benefits by reducing the cost of waste disposal and being involved in CE practices. In pencil manufacturing, molding combines recycled materials without consuming trees, glues, and rubbers. Several patents protect the innovative production process.
Figure 1: Structured CE practices of Alisea
With sufficient knowledge and experience in utilising waste materials, Alisea also devotes itself to facilitating other SMEs' CE activities. For example, a sunshade company was helped to turn scrap materials to produce backpacks and purses. Another collaboration relationship was established with a start-up fashion company, leading to the patent of turning graphite into fabric dye ink. Apart from the guidance in innovation technologies, the instruction from Alisea about how to build a CE brand is also critical in their collaboration.
First, their excellent promotion skills can be detected in the design of both websites and products. As shown in Figure 2, the CE philosophy is disseminated from concise slogans to CE practice-related news. Based on such a virtual and physical network, customers are emotionally and physically involved, strengthening their brand impression and raising CE awareness from the bottom. Moreover, the value of products is emphasised by adding credibility through green certification from third parties, which labels the contribution of energy saving and emission reduction as "Remade in Italy" on their products (Figure 3).
Figure 2: Alisea Promotion (adapted from the website: https://alisea.it/en/)
Figure 3: Certification "Remade in Italy" (from: https://alisea.it/en/#iPartnership)
Precisely, such a mindset is also consistent throughout the organisation and their collaboration relationship. The CEO, employees, suppliers, and clients all share a common vision that something better can be done out of waste, and a more sustainable way is always the best option. The commitment sometimes is even put before financial benefits. The agility in Alisea's CE operation and the accessibility of products for more people are defended by saying no to many political contracts. Once, one of the suppliers insisted on providing the waste for Alisea even though some businesses were willing to buy them. In addition, the CEO is passionate about inspiring people with CE practices by delivering speeches, seminars, and other activities (Susanna Martucci's talk at TEDxVicenza, 2016).
What more can be done in CE implementation by Chinese SMEs?
From the case study of Alisea, it can be learned that they focus on four aspects: managing the waste supply chain, developing green innovation technology, deepening collaboration relationships, and conducting promotional activities. Essentially, their success lies in the persistent creation and reinforcement of CE values smartly. At the initial stage, they proposed the value of waste disposal in exchange for free materials. By doing this, they can focus more investment on researching core technologies, which are then utilised as the foundation for establishing collaboration relationships. In turn, the expansion of collaboration further promoted technology development, like the patent for turning graphite into fabric dye ink. All of these business decisions and operations are based on a long-term CE vision of the CEO, which was more explicitly revealed in her awareness of involving customers in CE practices by promotion.
From the perspective of the business model, Alisea established an effective operational structure and made every dimension connected to produce CE value. Hence, for those struggling Chinese SMEs in CE implementation, the path may be smoothed by listing down business operations following the method (Figure 1). An assessment of the relationship between these dimensions can then be conducted to identify the root cause of the failure or the opportunity to introduce more CE practices. During the process, having an objective analysis is rather critical, so listening to more data is suggested. Furthermore, a comparison with other successful businesses will help find the adopted solutions in their business models.
Of course, modifications based on local conditions are still necessary to improve the effectiveness. It should be noticed that best practices from Italy might not work identically in China by simply copying them. These modifications will vary in businesses, and more specific research is necessary. For instance, different policies related to waste disposal might ask for another management of the waste supply chain in Chinese SMEs. Chinese SMEs tend to have a bigger scale than European SMEs, which implies more efforts in knowledge transfer and organisational commitment to CE practices. Promotion activities may also need some adjustment according to local culture.
Min, Z. S. (2021). Proposing circular economy ecosystem for Chinese SMEs: A systematic review. . International Journal of Environmental Research and Public Health, 18(5), p.2395.
Kuo Jui Wu, Q. C. ( 2019). Sustainable Development Performance for Small and Medium Enterprises Using a Fuzzy Synthetic Method-DEMATEL. . Sustainability.
Enes Ünal, A. U. (2019). Managerial practices for designing circular economy business models: The case of an Italian SME in the office supply industry. Journal of Manufacturing Technology Management, 561-589.
Ying Luo, X. J. (2018). Ranking Chinese SMEs green manufacturing drivers using a novel hybrid multi-criterion decision-making model. Sustainability.
Pesce, M. T. (2020). Circular economy in China: Translating principles into practice. Sustainability, 12(3), p.832.
GreenBizz. (2020). Intro. Retrieved from https://www.greenbizz.eu/intro/
Susanna Martucci’s talk at TEDxVicenza. (2016). Retrieved from https://youtu.be/o4rqdF9svzQ