Micro, small and medium enterprises (MSMEs) in the ASEAN region are encountering significant barriers in implementing circular economy (CE) practices mainly due to limited technical assistance and inadequate training, according to a new study.
The report, published by the ASEAN Secretariat, found that most capacity-building efforts in the region have focused on basic knowledge of CE principles, with insufficient emphasis on detailed technical assistance and practical implementation strategies.
“We need technical advice and technical know-how. Currently, the government offers capacity building in broad terms and general practices relating to CE concepts. But to grow, we need specific programs tailored to specific CE industries,” said one survey respondent.
Asked about the awareness or knowledge gaps that prevent transitioning to CE practices, MSMEs said they require specific and advanced knowledge in the areas of reducing waste and optimizing resources, addressing cost and investment gaps, developing circular business models, and managing sustainable supply chains.
There is clearly a need for more focused policies to support MSMEs adopting CE practices across the region, said the study entitled “Study on MSME Participation in the Circular Economy.”
It continued: “While MSMEs have benefited from government-led capacity-building efforts, particularly in raising awareness, they require more technical support, including mentorship, consultancy, training on transition plans, legal assistance and certification of products and services to accelerate their transition to CE models.”
Due to this lack of knowledge, MSMEs, the backbone of the region’s economy, are facing adjustment difficulties with the global shift from a traditional linear business to a more CE approach, the paper explained.
It further revealed that only 57% of ASEAN MSMEs are familiar with the CE concept as a powerful tool for sustainable development through practices such as environmental protection and responsible consumption and production.
“CE business models not only provide solutions to overcome environmental challenges but also opportunities for MSMEs, such as cutting operating costs through resource efficiency improvements, adopting low-emission energy alternatives and introducing new low-emission products and services, thereby enhancing their competitive edge in the market,” said the study.
Aside from lack of knowledge and awareness, surveyed MSMEs said other significant constraints to embracing sustainable principles include low consumer preference, high cost of transition, regulation barriers, and supply chain complexity.
On consumer behavior, it appeared that consumers still prefer to use disposable and single-use products, are price conscious, and lack awareness of the benefits of green and recycled products.
The research authors noted that in the Philippines, for example, the tingi culture provides accessibility and convenience, but it also generates more waste due to the packaging of small portions.
“Addressing this challenge requires strategic marketing and comprehensive consumer education campaigns to foster a more receptive market for CE-based products,” they said.
The cost of transitioning to CE practices also presents a significant challenge since greening business operations always come with high technology and upfront expenditure costs.
Financial support mechanisms, such as subsidies, tax reliefs and access to low-interest loans and soft financing, could facilitate the adoption of CE practices among MSMEs, said the report.
Meanwhile, regulation barriers are also seen to hinder MSMEs. These include policy roadblocks preventing them from gaining access to land, to virgin and secondary materials, and to financial options, such as rules requiring collateral for loans.
Supply chain complexity, with the emphasis on environmental values throughout the value chain, was likewise cited as a major hindrance to MSMEs’ business processes. The CE approach requires consideration of factors such as traceability and the use of local or recycled materials, which can significantly complicate operations.
“MSMEs aim to source materials and produce products as efficiently as possible, but the additional requirements to ensure sustainability can add complexity to their operations,” said the report.
The study stressed that the transition to CE has become unavoidable with the recognition of the devastating impact of climate change on development and economic growth. It called on the ASEAN community to commit to adopt more CE practices by transforming its production and consumption patterns to achieve a low-carbon economy.
The report said what will help the region to move toward a CE are government incentives that will encourage businesses to redesign their business models more circularly, and crucial infrastructure to improve material efficiency through reuse and recycling at waste facilities.
“Similarly, digitalisation, such as big data management and artificial intelligence, will play a role in helping optimise resource use and waste management and enable material traceability through digital platforms and apps,” the paper added.
