Building Circular Economy Business Models to Enhance Manufacturing Competitiveness - Key Factors: Promoting Recycled Material Use and Transition to CE Commerce

Overview

This is a proposal by Jiro Furuki and Tetsuya Nomoto of Mitsubishi Research Institute on the necessity for Japan's manufacturing industry to urgently transition to circular economy business models from the perspectives of resource security and international competitiveness, along with specific measures for realization. ## Key Points ### 1. Background Making Circular Economy (CE) Transition Urgent - **CE (Circular Economy) Definition**: An economic system that efficiently circulates resources to create a sustainable society while maximizing added value - **Effects**: In addition to effective resource utilization and waste reduction, positive effects on Carbon Neutrality (CN) and Nature Positive (NP) - **Challenges**: Economic rationality barriers such as higher procurement and usage costs for recycled materials compared to virgin materials, and risks of CE commerce reducing new product sales ### 2. Turning Point: Four Reasons Why CE Transition Has Economic Rationality 1. **Resource Security Necessity** - Increasing resource disparity and geopolitical risks - Need to increase the proportion of domestic circular resource utilization for stable supply assurance 2. **International Regulations and Global Company Requirements** - EU-led circular economy regulations - Global brands like Apple mandating recycled material use - High hurdles for Japanese companies' parts supply 3. **Threat to Revenue Models Due to Easy Technology Imitation** - Improved reverse engineering accuracy through digital twins and AI analysis - Expansion of irregular markets by third parties - Difficulty in securing revenue in legitimate aftermarkets 4. **Global Market Expansion of Remanufacturing and Refurbishment** - Europe and America: High value-added remanufacturing and refurbishment - Emerging countries: Low-cost remanufacturing and refurbishment - Declining competitiveness of traditional "product sell-and-forget" business models ### 3. Four Principles and Key Points for CE Acceleration 1. **Regenerate**: Resource utilization with reduced environmental impact (renewable resource use, harmful substance elimination) 2. **Narrow**: Reduction of resource usage (Reduce) 3. **Close**: Using recycled materials to substitute virgin materials 4. **Slow**: Long-term resource use (repair, parts exchange, secondary product trading) **Important Point**: ③Close and ④Slow are key. Practice at connection points linking arterial and venous industries is insufficient ### 4. Approach Transformation for Expanding Recycled Material Use **From Traditional Venous Industry-Initiated to Arterial Industry-Initiated** - **Limitations of Venous Industry-Initiated**: - Flow of waste visualization → value creation → internalization into economy - Large corporate burden without revenue generation - Unclear reuse destinations making business unsustainable - **New Arterial Industry-Initiated Approach**: 1. Internalizing potential costs (including disposal costs, carbon costs, and resource procurement risks in business decisions) 2. Value creation of recycled materials (realizing trading where demand and supply conditions match) 3. Visualization of traded resources (guaranteeing and proving quality and origin) ### 5. CE Commerce Possibilities - **Effects**: Realizing ②Narrow and ④Slow - **Business Models**: Reuse, remanufacturing, refurbishment, etc. - **Benefits**: - Increased long-term revenue through value provision across entire product lifecycle - Reduced resource procurement risks and carbon costs through circular use of recycled materials - **Realization Methods**: IoT product operation monitoring, software function expansion, modular parts exchange, etc. ### 6. Future Outlook - Ecosystems integrating resource circulation and customer relationships will become the next growth driver for manufacturing - The existence of manufacturing businesses that emphasize long-term business growth and social responsibility will be the driving force for sustainable society - Now that the tide has turned, it's time to take that first step This proposal clearly indicates that Japan's manufacturing industry should actively promote CE transition from an economic rationality perspective to maintain and enhance international competitiveness.