The Road to Circularity: An Introduction to Circular Economy for MSMEs
The search for a conduit between the often-opposed concepts of business industry and sustainability has gained attention in recent years, as the world faces environmental degradation and climate change caused by the massive production of goods, which leads to waste in landfills and oceans. As a solution to bridge the gap between business and sustainability in product development, the Circular Economy has been gaining popularity as a trend in discussions about sustainability and business. It aims to minimize waste by transforming business models to create long-lasting products that do not simply end up in landfills after their initial usage.
Presented as an ideal business model for this generation, the circular economy is still being advocated in countries like the Philippines, where businesses are in the process of transitioning to circular economy models (Eva, 2024). This paper provides a beginner’s guide that evaluates the environmental and economic impacts of the circular economy while examining the opportunities to the full adoption of Micro, Small, and Medium Enterprises (MSMEs) in the country. Additionally, it highlights examples of businesses in the Philippines that practice circular economy principles, offering a guide for existing and future entrepreneurs to jumpstart their businesses into circularity and eventually transition to circular economy practices.
First, it is important to provide an operational definition of Circular Economy to set the foundation for understanding the need for a better alternative to the existing business models practiced by the majority of businesses today. According to the United States Environmental Protection Agency (2021), the circular economy essentially means that raw materials and finished products in businesses should remain in circulation as much as possible. This implies that economic activities in the production of a particular product should be oriented towards longevity to eliminate or reduce waste. To highlight the urgency of transforming our economies to a circular model, Stander Group (2024) suggests comparing linear and circular economies. The group points out that the traditional model of today’s economies follows a linear structure, in which raw materials are extracted from the environment, transformed into products that people buy and use, and eventually discarded as waste. This model is problematic because it encourages consumerism and a throwaway culture, leading to significant ecological footprints and long-term consequences. In contrast, the circular economy aims to circulate the economy and production processes by designing the production, distribution, and consumption of goods with the goal of creating products that are recyclable, reducible, and reusable—ultimately promoting sustainability. See Figure 1 Linear Economy vs Circular economy to visualize the main differences of the two.
Figure 1. Difference between Linear and Circular Economy (Stander Group, 2024)
Unfortunately, in the context of the Philippines, a linear economy has been both evident and dominant in the market. According to a news article by The Philippine Star, the Philippines ranks as the third-largest contributor to ocean plastic and has the highest trash collection rates in Southeast Asia (Porcalla, 2018). Arguably, the main reason for this is the country’s ongoing challenge known as the sachet economy. Evergreen Labs (2024) defines the sachet economy as a system where plastic packets of everyday commodities are deeply ingrained in the country’s culture and commerce. Examples of these commodities include individually packaged coffee, drinks contained in small plastic bottles, and sachets of toothpaste and shampoo. Not only do these items lack reuse and recycling value, but they also clog drainage systems or end up being washed into the ocean. The prevalence of the sachet economy is largely rooted in the limited purchasing power of the poor, who cannot afford environmentally friendly, reusable products.
This does not mean that the poor should be blamed for consuming sachets and using plastic packaging, as access to food and essential goods is a basic human right. However, when viewed from a broader perspective, the massive production of plastics primarily stems from corporations and businesses that prioritize profit, while marginalized communities are merely consumers who purchase products based on affordability and necessity.
One example is the packaging of products such as sodas, vinegar, and cooking oil, which were traditionally sold in glass bottles. Over time, manufacturers shifted to plastic packaging, prioritizing cost-efficiency and convenience. Benosa (2020) from the Break Free From Plastic Organization argues that purchasing sachets is not inherently problematic, as consumers are simply buying based on their immediate needs—effectively minimizing waste from the outset. She further contends that the narrative pushed by large plastic producers—that the sachet culture is “pro-poor”—is misleading, as these companies are ultimately driven by profit rather than genuine concern for low-income consumers.
The World Bank’s market study on the Philippines’ Plastic Circularity Opportunities and Barriers highlights the potential to move away from the sachet economy, which significantly contributes to environmental pollution. Unsustainable plastic production and consumption, coupled with inadequate solid waste management, remain major obstacles to achieving a circular economy. However, recognizing the urgent need for this transition is crucial for long-term sustainability. Furthermore, the private sector can play a pivotal role in driving this shift toward a more circular and sustainable economy (World Bank Group, 2021).
Regarding the initiatives and entry points of the private sector in the circular economy, MSMEs play a crucial role in the Philippine business landscape. According to a Senate of the Philippines (2012) report, as of 2010, there were 777,687 business enterprises in the country, with MSMEs accounting for 99.6%—representing at least 774,664 business establishments. This underscores the significant potential of MSMEs as a starting point for transitioning to a circular economy.
In the latest Philippine MSME statistics report by the Department of Trade and Industry (2023), the top two sectors are Wholesale and Retail Trade and Accommodation and Food Service Activities. Given that these industries form a substantial part of the Philippine economy, integrating circularity into their business models is essential for driving sustainable economic transformation.
Circulating retail industries involve resale, repair, and recycling. Therefore, modifying the existing business model is necessary to shift away from the traditional linear economy, where products ultimately end up as waste. The NRF Center for Retail Sustainability and Deloitte (2024) provided an action guide for retail industries, outlining four key steps to initiate this transition.
The first step is to understand the fundamentals of retail circularity. The guide highlights that many customers are already familiar with the circular economy, presenting an opportunity for retailers to integrate concepts such as repairability, recyclability, and resale into their products.
The second step is to identify the most suitable circular business model for the industry. This involves assessing product categories, price points, and residual value to determine whether items can be resold, repaired, recycled, refilled, or rented. In the tech industry, devices can be resold or traded. For apparel, durability and repairability can be emphasized. Meanwhile, for single-use plastic products, recycling models can be explored, including biodegradable alternatives or improved repairability options.
The third step is to build the business case for the chosen circular model(s). Transitioning to a circular economy does not necessarily mean financial loss. Instead, it can lead to cost reductions in raw materials, waste disposal, and capital expenses, ultimately enhancing operational efficiency. Businesses that embed circular principles can drive revenue growth through product and service innovation, customer acquisition, and potential price premiums. Additionally, the guide stresses the importance of considering non-financial benefits, such as sustainability commitments and brand reputation.
Finally, the fourth step is to mobilize internally to operationalize the circular model. Engaging all team members in the transition fosters support and encourages new ways of thinking about business operations and values. A pilot program can be launched to test the modified business and product model, allowing businesses to assess performance and uncover further opportunities within the circular economy.
Figure 2. Bambuhay Products from their Official Website. (Screenshot taken from bambuhay.ph)
In the local context, a notable example of a Philippine environmentally friendly business that has successfully adopted the principles of the circular economy, as highlighted by the Association of Southeast Asian Nations (ASEAN), is Premium Bamboo Products by Bambuhay. In an article published by Hourn (2024), Secretary-General of ASEAN, he emphasized that Bambuhay’s products, including plantable toothbrushes, reusable straws, and bamboo tumblers, serve as a remarkable example of how MSMEs can join the circular economy movement to prepare the region for a sustainable future. This innovation demonstrates the development of competitive products that are not only environmentally friendly but also promote advocacy by appealing to socially conscious consumers, creating demand and ensuring long-term success.
Going back to the top MSME sectors in the country, the Accommodation and Food Services industry ranks second after retail. In fact, some food businesses and consumers have already been practicing sustainability. Many restaurants and food establishments no longer use plastic utensils and packaging, opting instead for banana leaves, coconut or palm leaves, and biodegradable food containers. Additionally, many customers now bring their own reusable plastic or glass containers.
Without realizing it, these small changes already serve as an entry point to the circular economy. Some restaurants and coffee shops in the Philippines even incentivize consumers with discounts for bringing reusable food containers. Leftover food waste is often repurposed—fed to animals or transformed into new products. However, while these efforts are steps in the right direction, they remain insufficient under the principles of a circular economy. The Philippines still ranks among the top three waste-producing countries in the region. Non-food waste, particularly plastic containers and bags, remains a major barrier to circularity in the food industry.
Figure 3. A photo of a landfill in Rizal province, captured by Frans Yakit.
The Sustainable Restaurant Association (2024) has provided a practical guide for integrating circularity into food businesses, focusing on non-food waste. As always, the first step is understanding the purpose of circularity and identifying existing materials and practices that can be repurposed, reused, or shared within business operations. The association outlines practical strategies in key areas such as packaging, transportation, equipment, energy and water use, and space utilization.
- Packaging: Food businesses should buy in bulk and use refills whenever possible. Prioritizing reusable packaging and eliminating single-use straws can significantly reduce plastic waste.
- Transportation: Switching to electric vehicles and bicycles for local deliveries is a more sustainable alternative. This is particularly viable in the Philippines, where e-vehicles with large storage capacity and bicycles are widely available and cost-effective.
- Equipment & Furnishings: Businesses can purchase refurbished kitchen equipment and furniture, repair items whenever possible, and recycle or donate those that can no longer be used.
- Energy & Water Efficiency: Investing in energy-efficient appliances not only benefits the environment but also saves businesses money in the long run. Training staff to adopt conservation practices, such as switching off unused equipment and implementing water-saving policies, further reduces resource consumption.
- Space Utilization: Renting out restaurant spaces for local events, particularly on non-operating days, maximizes profitability and supports local community activities.
Findings from the same group indicate that embracing circularity has helped businesses save money by moving away from the single-use mentality, lowering energy costs, and ensuring compliance with both current and future environmental regulations. Furthermore, sustainable business models have proven to attract more customers, as consumers are increasingly drawn to eco-friendly establishments.
The principles of circularity in both the retail and food industries emphasize one crucial point: starting small is okay, as long as the goal is to transition progressively. Transforming MSMEs to adopt a circular economy model still presents challenges, particularly for smaller businesses that lack the financial and technical resources that larger corporations have. However, sustainability should not be the sole responsibility of small businesses, consumers also play a role by choosing products that minimize environmental harm.
Ultimately, one thing is certain: change is possible. Even the smallest modifications to business models in pursuit of sustainability can have lasting, positive impacts for the present and future generations.
References
Benosa, S. (2020, July 14). Did Filipino “Tingi” Culture Pave the Way for Plastic Sachets in the Philippines? | Break Free From Plastic. https://www.breakfreefromplastic.org/2020/07/14/did-filipino-tingi-culture-pave-the-way-for-plastic-sachets-in-the-philippines/
Department of Trade and Industry. (2023). MSME Statistics. Department of Trade and Industry Philippines. https://www.dti.gov.ph/resources/msme-statistics/
Eva, E. A. (2024, December 1). DoST pushes circular economy to address plastic pollution. BusinessWorld Online. https://www.bworldonline.com/the-nation/2024/12/01/638449/dost-pushes-circular-economy-to-address-plastic-pollution/
Evergreen Labs. (2024, April). What is a Sachet Economy? https://www.evergreenlabs.org/post/what-is-a-sachet-economy
Hourn, K. K. (2024). Empowering ASEAN MSMEs to Embrace Circular Economy. https://asean.org/wp-content/uploads/2024/11/Op-Ed-MSMEs-Embrace-Circular-Economy_230622_FINAL_.pdf
National Retail Federation & Deloitte. (2024). Retail Circularity: An Action Guide for Retailers. Center for Retail Sustainability. Retrieved from https://www2.deloitte.com/content/dam/Deloitte/us/Documents/consumer-business/retail-circularity-an-action-guide-for-ret
Porcalla, D. (2018). Philippines 3rd largest contributor to ocean plastic. Philstar.Com. https://www.philstar.com/headlines/2018/06/15/1824813/philippines-3rd-largest-contributor-ocean-plastic
Santander. (2024, March 13). Linear and circular economies: What are they and what’s the difference? https://www.santander.com/en/stories/linear-and-circular-economies-what-are-they-and-whats-the-difference
Senate of the Philippines. (2012). The MSME Sector at a Glance. Senate Report, March 2012. Retrieved from https://web.senate.gov.ph/publications/AG%202012-03%20-%20MSME.pdf
Sustainable Restaurant Association. (2024, February 14). Start a Reuse Revolution: How to Embrace Circularity in Your Restaurant. https://thesra.org/news-insights/insights/start-a-reuse-revolution-how-to-embrace-circularity-in-your-restaurant/
United States Environmental Protection Agency, O. (2021, November 3). What is a Circular Economy? [Overviews and Factsheets]. https://www.epa.gov/circulareconomy/what-circular-economy
World Bank Group. (2021). Market Study for the Philippines: Plastics Circularity Opportunities and Barriers. East Asia and Pacific Region Marine Plastics Series. © World Bank, Washington, DC. http://hdl.handle.net/10986/35295
Jay Tolentino is a junior Social Work student at the UP College of Social Work and Community Development with a keen interest in the informal economy, its development paradigms, and sustainability. He is currently a student assistant at the UP Institute for Small-Scale Industries (UP ISSI) Director’s Office, where he contributes analytical pieces and business features on micro, small, and medium enterprises (MSMEs) in the Philippines. His insights in this article are his own and do not reflect the official stance of the Institute, as he is one of UP ISSI’s guest writers engaged in its publication initiatives.