Circular Economy Barriers For MSMEs

Circular Economy Barriers For MSMEs

The adoption of a circular economy by MSMEs is very important but there are many barriers and challenges. Particularly in Indonesia, MSMEs have contributed to 97% of all economic activity. This shows how big the role of MSMEs is for the advancement or decline of the economy in Indonesia. Therefore, the application of a circular economy in Indonesia by MSMEs will have a major effect on changing the Indonesian economy to become bigger, fairer, and more sustainable.

Barriers to the Transition Towards a Circular Economy

Unfortunately, to realize the business ecosystem is not easy. Many studies reveal the challenges that must be overcome by MSMEs in order to implement a circular economy. These circular economy barriers are divided into two, namely internal barriers and external barriers. Internal barriers mean barriers that come from within the company or organization. Meanwhile, external barriers mean barriers that come from outside the company or organization.

Internal Barriers for SME

  • Risk aversion

The unwillingness to change is an internal factor that can hinder companies from implementing a circular economy. They do it because they want to avoid risk and financial loss. If they have succeeded in running their business, they will try to maintain their old ways. They view the circular economy idea with skepticism and don’t want to take any chances.

  • Short-term orientation

Companies will be hampered when focusing on short term goals. They will think about how the circular economy can provide benefits as soon as possible. Even though the main goal of the circular economy is to build sustainability. Sustainability is built from long-term planning that requires a long process. Therefore, their attitude to think about short-term business planning is in contrast to the circular economy.

  • Economically dominated thinking

Every company is highly oriented towards financial gain. It is very difficult for them to add or shift their orientation to the environment or socially. This will become a barrier for the implementation of a circular economy that is oriented towards a balance of the three. Therefore, efforts are needed to understand the circular economy so that company employees and managers have environmental and social awareness.

  • Unwillingness to engage in trade-offs

Companies that want to implement a circular economy must make sacrifices. This raises dilemmas and conflicts that not all companies can deal with. For example, a company’s investment in waste management machinery may require such a long payback period that the company cannot tolerate this trade-off. For this reason, it is necessary to have a risk assessment so that the company can make decisions wisely.

  • Shortage of resources

Limited resources can hinder companies from implementing a circular economy. The resources they are used to for their old business will not be easy to transition to a circular economy. Resources here include, among others, the material they use, financial resources, and human resources. This will limit them from carrying out to developing solution, applying research, or creating innovation.

  • Lack of knowledge

Finally, companies will difficult in their transition to a circular economy if they do not understand the concepts, principles and benefits of a circular economy. Without insight, it is also difficult for companies to collaborate and interact with other industries that have the potential for collaboration. In addition, without knowledge, it will be difficult for companies to understand the characteristics and management of waste and pollution from their company’s products. In essence, a lack of knowledge will hinder companies from carrying out various circular economy actions.

External Barriers for MSME

  • Technological barriers

Technological barriers can occur so that the circular economy is very difficult and difficult to implement. The reasons for this technological barrier are quite diverse. First, bottlenecks can occur when the technology developed to solve a problem is immature. Second, the linear economy, which currently still uses old technology, will reduce the potential of the circular economy. Third, technology must be aligned with product design (source, processing, to recycling process) so creating appropriate technology is very challenging.

  • Market barriers

The current market does not allow for the creation of a healthy circular economy ecosystem. First, this is because there is no clear and systematic market transparency so that companies can make products from available materials as they please. Second, currently not all countries also have a circular economy role model that can be used as a reference for other companies. Besides that, a product based on circular economy or something like that usually has a higher selling value so it is not more affordable for the community. Fourth, greenwashing occurs so that people can be skeptical of truly sustainable products. Fifth, various supply chain stakeholders have not worked together to create a circular economy.

  • Legislative barriers

Circular economy barriers from the government can have a major negative impact on the transition to a circular economy. This is because the government has broad powers through policies in regulating and standardizing the implementation of a circular economy. Unfortunately, the government often does not support policies that support the circular economy. They also have not carried out standardization so that MSMEs are not encouraged to implement a circular economy. In addition, the lack of a sustainable government vision will reduce public interest in the circular economy.

  • Society and consumer barriers

Communities as consumers can hinder the implementation of circular economy. Some of their attitudes are unsupportive and apathetic, such as choosing cheap products, the habit of throwing garbage, or the desire to follow trends without thinking about the impact. Their awareness of the environment is still minimal, which makes them not interested in sustainable products, so that they become the last challenge for MSMEs.

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