circular-economy
Business Management

Southeast Asia: Is a "Circular Economy" the key for growth?

In May 2014, the World Economic Forum (WEF) on East Asia took place in the Philippines’ capital, Manila. The Philippines’ President, Benigno "Noynoy" Aquino III and other Southeast Asian heads of state gathered to discuss the economic future of this part of world and how to evolve their status from “developing” countries into stable and prosperous nations. At front and centre stage was the “circular economy”, a system that re-delivers materials to manufacturing value lines and supply chains to be reused again and again, rather than dumping used goods or unused materials into landfills.

You only have to look to Mother Nature to see how a process of continual recycling works wonders as a strategy for sustainable progress. But the challenges faced by Southeast Asia and other developing countries are very different to those in the West and the key difference is availability of resources. That’s where the circular economy comes into play.

As Professor Fu Jun, Executive Dean and Professor at the School of Government, Peking China says, an “unhealthy focus” on GDP as the primary indicator for progress has been the problem. In a roundtable discussion titled “Rethinking Economic Growth” Jun stated:

“Growth is a function of land, labour and capital, it’s a standard growth model. In the model of labour, we have technologies to save labour but not land, and as for capital... the model cannot be sustained.”

And, according to research done by the Ellen MacArthur Foundation, the net savings in material costs of an advanced circular economy is as high as $650 billion per year leading up to 2025. There’s certainly money on the table. The question is; if countries in Southeast Asia capitalise on this opportunity, could they become the world’s next powerful consumer economy, and manage to do so in a sustainable fashion?

It certainly seems possible. In spite of so many underdeveloped countries comprising Southeast Asia, low wage costs, plenty of people needing jobs and a great deal of scope for foreign direct investment (FDI) all add up to some enormous potential.

The challenges of a circular economy

The main issue in establishing an advanced circular economy is monetising longevity. As was discussed in some detail on the BBC documentary series The Men Who Made US Spend, manufacturers have been building obsolescence into products (known as “planned obsolescence”) since as early as 1920s. It’s an essential component of capitalism as we know it because, after all, if consumers didn’t keep on buying laptops cars and smartphones, manufacturers simply couldn’t generate enough profit. Sure, the landfills would be a lot less full, but GDP would suffer and ultimately capitalism as we know it would fail. If Southeast Asia is to catch up with the West, this approach simply isn’t an option.

A more obvious strategy to monetise longevity is to build products in such a way that allows them to be returned to the manufacturer to be broken down at a component level and then resold or reused elsewhere. But that means more cost as WEF member, Peter Lacey explained.

Another method of monetising longevity is already becoming established in the so-called “sharing economy”, a change in consumer preferences that fortuitously serves to facilitate a circular economy becoming an accepted norm. A sharing economy refers to businesses that share, swap or barter goods and/or services among consumers to maximise their utilisation.

The perfect example here is Zipcar which allows people to quickly hire a shared vehicle using nothing but a smartphone. On average, Britain’s cars spend a guilt-inducing 23 hours per day unused. That means there’s around 96% worth of improved asset efficiency potentially up for grabs. With more efficiently utilised products, less resources are necessary to produce unnecessarily excessive quantities and ultimately, more can be accomplished with less.

In an article published by Forbes last year spotlighting another good example of a sharing business, AirBnB, the business stated:

“FORBES estimates the revenue flowing through the share economy directly into people’s wallets will surpass $3.5 billion this year, with growth exceeding 25%. At that rate peer-to-peer sharing is moving from an income boost in a stagnant wage market into a disruptive economic force.”

Add that to the Ellen MacArthur Foundation’s estimate, and that’s the best part of $1 trillion per year available to those willing to break convention.

Will Southeast Asia rise to the challenge?

Another consideration is avoiding the waste of valuable materials in the first place with a well-executed recycling infrastructure. That means municipal action is just as important as manufacturing innovation, so the governments of Southeast Asian countries have the opportunity to play a key role.

In spite of being a developing country, the Philippines is setting a solid example and making serious progress towards a zero waste target in its cities and even in an increasing number of villages. As the necessary technology becomes available, initiatives that monetise recycling are springing up, such as the Fuji Xerox plant in the Chonburi Province of Thailand which dismantles used ICT. Right now, it disassembles over 4,000 tonnes of used printers collected from all over Asia with a 99.6% recovery rate. Necessity breeds creativity and in developing countries where resources are scarce in a more immediate context, action is being taken.

Meanwhile South Korea’s capital, Seoul, has become the self-proclaimed “Sharing City”. There’s a heavy emphasis on both sustainable manufacturing methods and the sharing economy business models that make companies such as Zipcar successful. The Metropolitan government declared the initiative in a bid to encourage decisions made by both businesses and consumers towards improving sustainability. Funding and incubation for relevant start-ups is available and there’s even a website set up to promote awareness of and collaborations with participating businesses.

The initiative comprises of 20 sharing programs and systems designed to make a more flexible infrastructure, simultaneously promoting and enabling sharing-based platforms so that the right materials get to the right manufacturers at the appropriate stages in the cycle rather than anything being wasted.

The government said that they believe it has the potential to “resolve many economic, social, and environmental issues of the city simultaneously by creating new business opportunities, recovering trust-based relationships, and minimising wastage of resources.”

It certainly seems like Southeast Asia is making moves to rise to the challenge.

An alignment of circular economy enablers

The World Economic Forum Project was co-founded by the Ellen MacArthur Foundation specifically to turn the idea of a circular economy from an interesting but largely academic concept to a commonly adopted reality. With Southeast Asia being in such early stages of development, it’s perhaps perfectly positioned to establish the kind of advanced circular economy these organisations strive to implement.

Right now, over 50% of the world’s population resides in urban environments and, according to the WEF, by 2020 that figure will have risen to over 80%. If these estimates turn out to be true, the all-important sharing economy will be made considerably easier to implement and more attractive as a business opportunity.

Google’s driverless car is slated for release around this time as is the widespread adoption for the so-called “Internet of Everything” whereby everyday regular objects are all connected to the internet. It’s easy to extrapolate a vision of Southeast Asian economies catching up with the rest of the world pretty quickly. It may be an optimistic vision, but the evidence is certainly encouraging.

Creativity on the part of entrepreneurs will be a key ingredient because essentially, new business models must be made and integrated both with one another and with older, linear economy businesses and supply chains. But, with solid efforts from many Southeast Asian governments such as South Korea and the Philippines, with Moore's Law increasing the power and availability of hardware in poorer countries and with greater internet adoption giving a world of information to young creative minds all combining with initiatives such as the WEF, it’s possible we could see this part of world not only becoming more prosperous, but for it to be a shining example for the rest of the consumer world to follow.

 

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Mark Mackay

Mark Mackay is a freelance journalist, traveller and entrepreneur working largely in the technology and digital marketing sectors.

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