Small Manufacturers Can't Afford the Circular Economy Transition They're Being Mandated to Make

More than 90% of the world's businesses are small and medium-sized enterprises (SMEs), and countries' Net Zero targets will never be met unless SMEs decarbonize and adopt circular economy practices. But the transition from linear manufacturing (extract, make, use, dispose) to circular manufacturing (design for reuse, remanufacture, recycle) requires upfront investments in new technology, infrastructure, and workforce training that most SMEs cannot afford or justify. Regulatory mandates — particularly the EU's Circular Economy Action Plan, Ecodesign for Sustainable Products Regulation, and Extended Producer Responsibility schemes — are increasingly requiring circular practices, but without providing the tools, standards, or financial support structures that SMEs need to comply. The result is a growing gap between what policy demands and what the manufacturing base can deliver.

Manufacturing accounts for approximately 21% of global greenhouse gas emissions and consumes roughly 54% of the world's energy sources. SMEs collectively represent a larger share of industrial emissions than large corporations in most countries, but receive far less attention in climate policy. The circular economy is estimated to represent a $4.5 trillion economic opportunity by 2030, but the benefits accrue primarily to large firms with resources to redesign products, build reverse logistics networks, and develop secondary material markets. SMEs risk being left behind — unable to comply with new regulations, locked out of circular supply chains, and unable to access the markets and financing needed for transition. In developing regions, systemic informality compounds the challenge: manufacturers operating outside formal regulatory frameworks have no pathway to circular practices even if they wanted one.

Industry 4.0 technologies — IoT, AI, blockchain, and big data analytics — are frequently cited as enablers of circular economy transition, offering real-time monitoring of material flows, predictive maintenance, and supply chain traceability. But these technologies require digital literacy, IT infrastructure, and capital investment that most SMEs lack. Government subsidy programs exist but are typically designed for large enterprises and require application processes that SMEs' lean administrative teams cannot navigate. Industry consortia and circular economy "hubs" have been established in the EU, but participation is dominated by large firms. Secondary material markets remain underdeveloped: the market value of many industrial residues is so low that the cost of collection, testing, and certification exceeds the sale price. Circular business models (product-as-a-service, leasing, take-back programs) work well for high-value products but break down for the low-margin, high-volume components that most SME manufacturers produce.

A breakthrough likely requires two complementary advances: (1) affordable, modular digital tools specifically designed for SME-scale operations that enable circular practices without requiring enterprise-level IT infrastructure — think "circular economy in a box" platforms that handle material tracking, design-for-disassembly guidance, and regulatory compliance reporting; and (2) regional circular economy ecosystems that aggregate SME waste streams, creating sufficient volume for secondary material markets to function. Industrial symbiosis networks — where one company's waste becomes another's feedstock — have proven effective at regional scale (Kalundborg, Denmark is the canonical example) but remain rare because they require coordination infrastructure that no single SME can build alone.

A student team could map the material flows of 5–10 SME manufacturers in a specific industrial district, identifying waste streams that could serve as feedstocks for other local manufacturers. The team would design an industrial symbiosis network and model the economic viability of the exchanges, including collection, testing, and transportation costs. This is feasible through site visits, interviews, and publicly available waste composition data. Alternatively, a team could prototype a low-cost material tracking system using QR codes or RFID tags that a small manufacturer could deploy without IT expertise, testing it on a real production line. Skills in industrial engineering, supply chain management, and systems design would be most relevant.