Business models innovations: new partnership networks over a circular economy perspective

Faculty of Business and Economics

Business models innovations: new partnership

networks over a circular economy perspective

Date: January 27th, 2017 Name: Gustavo Azoury Galvão Student Number: 11236205

MSc Business Administration – International Management University of Amsterdam

Statement of Originality

This document is written by Gustavo Azoury Galvão who declares to take full responsibility

for the contents of this document.

I declare that the text and the work presented in this document is original and that no sources

other than those mentioned in the text and its references have been used in creating it.

The Faculty of Economics and Business is responsible solely for the supervision of completion

Table of contents

2.4 – THEORETICAL FRAMEWORK AND RESEARCH QUESTION ... 28

3 – METHODOLOGY ... 32 3.1 – RESEARCH DESIGN ... 32 3.2- CASE SELECTION ... 33 3.3 – DATA COLLECTION... 34 3.4 – DATA ANALYSIS ... 35 4 – RESULTS ... 38 4.1 – NIKE ... 38 4.2 – ADIDAS ... 42 4.3 – H&M ... 44 4.4 – INDITEX ... 47 4.5 – CROSS-CASE ANALYSIS ... 49 5 – DISCUSSION ... 52 6 – CONCLUSION ... 54 7 - LIMITATIONS... 54 8 – FUTURE RESEARCH ... 55 REFERENCES ... 56

List of figures

FIGURE 1: RICOH’S COMET CIRCLE ... 7

FIGURE 2: PARTNERSHIPS ACTIVITIES CATEGORIZATION WORKFLOW ... 21

FIGURE 3: CIRCULAR ECONOMY ACTIVITIES FRAMEWORK ... 28

List of tables

TABLE 2: CODING LOGIC ... 37

TABLE 3: NIKE’S PARTNERSHIPS 2010-2015... 41

TABLE 4: ADIDAS’ PARTNERSHIPS 2010-2015 ... 44

TABLE 5: H&M’S PARTNERSHIPS 2010-2015 ... 46

Abstract

The circular economy is an emerging model that increasingly attracts the attention of the

business community worldwide. Nevertheless, the recent development of the concept demand

further exploration on both theoretical and practical fields so as to support the implementation

of circular practices. Accordingly, this research investigates one of the implications of the

circular economy: the development of partnerships as components for the achievement of

circular business models. The main objective is to analyze how multinational enterprises

(MNEs) engage in partnerships to implement circular practices on their business models. Over

such perspective, this study explores through a multiple-case study the partnership portfolio of

four MNEs within the clothing and footwear industry. Based on the findings, this paper provide

insights on the configuration of partnerships over the different activities of a companies’ value

chain in a circular economy perspective

Keywords: circular economy, business models, partnerships, closed loop, value chain, multinational enterprises

1 – Introduction

The status quo of consumption under the ‘'take, make, use and throw away'’ principle is under

constant pressure due to an economic landscape of volatile and higher price levels in different

markets, combined with the recurrent overuse of non-renewable resources (Lacy & Rutqvist,

2015). The concerns are even higher due to an increasing demand from a more affluent and

consistent growing world’s population. As a result of these factors the reliance on an economy that considers unlimited access to large quantities of natural resources seems to be coming to

an end (European Comission, 2015).

Following this trend the business community realized the need of working over the

development of new economic models, designed and linked with sustainable process at all

levels (Abdelkafi & Täuscher, 2015). From this scenario emerges the business concept of

“Circular Economy” (CE). While there are different definitions of CE so far (Yuan, Bi, & Moriguichi, 2006) this paper will benefit from Haas et al., (2015) statement that it “consists in

the strategy of reducing both input of virgin materials and output of wastes by closing economic

and ecological loops of resource flows”. The ultimate goal is to “develop an industrial system

that is restorative or regenerative by intention and design” (Ellen MacArthur, 2014). In practice

this means that used resources instead of becoming waste for end-of-life recycling shall be

reinserted into the economy during all stages of production (Velis, 2015). . This process can be

observed in the figure below that provides a schematic overview of CE practical

implementation by a manufacturing company, with each circle representing the different

Figure 1: Ricoh’s Comet Circle™

The economics behind the CE reinforce its relevancy and might explain the increased

attention from firms and governments. A report released in 2012 from consulting firm

McKinsey estimates “shifting towards circularity could add $1 trillion to the global economy by 2025 and create 100,000 new employment opportunities”. Furthermore, the European Union (EU) could improve trade balance by £90 billion, create over 150,000 jobs and achieve

expected materials cost savings in the manufacturing sector worth up to $630 billion each year

by 2025 (European Comission, 2015).

Naturally the interest around CE also relates to environmental concerns. Different

governments around the globe are supporting CE initiatives with China assuming a leading role

in this matter. The Chinese government has been supporting CE practices since 2002 aiming

for improvements in “resources and waste problems, energy efficiency and conservation, land

management and soil protection, and integrated water resources management” (Su et al., 2013).

Expectedly, due to its multidimensional and significant impact, the migration from the

current linear economy to a circular model is a complex process. The prevailing business

wide innovation on existing business models (Accenture, 2014). This particularly includes large

multinational enterprises (MNEs) which recognizably have the power to influence markets and

societies (Geels & Schot, 2007) but are also complex organizations with different strategies and

structures (Shah et al., 2012). These companies have global reach supply chains and can lead

the shift from the status quo of a linear economy by adapting their business models towards

circular activities (Perella, 2013). A crucial driver for MNEs to implement circular business

models is the establishment of a network of partnerships along its supply chain which, as

supported by Winkler (2011), “allows the process links between the companies in a supply

chain to close, which facilitates the transformation from a flow economy into a circular

economy”. Therefore, this paper will provide an analysis over MNEs partnerships for the

achievement of circular business models.

This report acknowledges that both business models and partnerships have already been

largely covered by existing literature (Baden-Fuller & Mangematin, 2013; Upward & Jones,

2016; Parmigiani & Santos, 2011; Selsky & Parker, 2005) Moreover, the interdependencies

between both topics have also been investigated with Zott & Amit (2010) supporting

cooperation between stakeholders as a driver for business model innovations. This integration

is further considered by Chesbrough & Schwartz (2007) that present the main objectives

companies seek when engaging in partnerships for business model innovation, including:

increase of profitability, shorten time to market and expansion of market access. The description

of such objectives and its deep alignment with linear economy principles (Gale, 1960) support

the gap this study aims to address. Nonetheless it’s largely availability, existing academic

research has so far basically been considered under the scope of a linear economic system

(George & Bock, 2011; Gutiérrez, Márquez, & Reficco, 2016). Therefore theoretical research

around these topics when under the scope of a circular economic system is extremely limited.

adapt their business models towards a CE perspective. The defined research question that will

guide this investigation is the following:

How do MNEs collaborate with other actors to achieve circular business models? This study addresses the presented research question through a multiple in-depth case

analysis of four large multinational enterprises namely Nike Inc., Hennes & Mauritz (H&M),

Inditex and Adidas AG. The process to select the MNEs was based on four basic premises that

are further detailed on the case selection section of this paper. Moreover the research will be

based on secondary data to be collected from the documentation released by the companies;

more precisely, from the Sustainability Reports released for the period from the year of 2010

until 2015. This timely perspective will allow the construction of a longitudinal analysis over

the development of CE in MNEs.

Such reports shall present with details different CE initiatives in which the five MNEs

are involved. For this paper, the most relevant information will relate to the partnerships such

companies engage to operationalize each initiative. Thus, by evaluating the provided

information this study expects to contribute to the CE literature in two different manners. First,

to analyze and discuss partnerships under the new scope of a circular economic system; what

seems to be an unexplored field so far. This is especially important so practitioners and scholars

can further compare to what extent partnerships differ in the linear and circular economic

systems. Second, at a practical and broader level this research will provide managers with more

detailed information on how MNEs are adapting its business by seeking partnerships for the

implementation of circular models. Access to reliable information has been considered a critical

factor for companies to adopt more sustainable practices (Su et al., 2013). Therefore, the

findings may positively influence new companies to engage in the circular economy.

The research will be structured as follows. The first section chapter consists in a

of this report: business models, partnerships and the circular economy. The review will lead to

the next part of the document, with the identification of a research gap that has not yet been

covered in the current literature. This section will be concluded with a research question. Third,

the scope of the research for the study will be detailed. Finally, the results of the case studies

will be presented supported by a discussion and the conclusion of the research and its

limitations.

2 – Literature Review 2.1 – Business Models

Despite having its first usage in academic literature tracked down to the 1950´s in an

article by Bellman et al., (1957), the term BM has only thrived in the management community

on the late 1990´s. It has gained momentum since then, being a subject of broad and current

interest among scholars (DaSilva & Trkman, 2014; Demil & Lecocq, 2010; Zott, Amit, &

Massa, 2011). However, it can still be considered “a field of research at a very early

stage…with a very fragmented literature” (Wirtz et al., 2016). Even with the lack of consensus, scholars and practitioners converge in some points regarding BM; for example on its relevancy

as a tool for value capture and creation (George & Bock, 2011). Amit & Zott (2001) went

further on this idea by considering value creation as the core reason for BM´s increased

relevance as a conceptual framework for strategic management and entrepreneurship. The same

authors evolved their perception over BMs with a definition, which will be the one applied to

this study, stating “a firm’s business model as a system of interdependent activities that

transcends the focal firm and spans its boundaries…the activity system enables the firm, in

concert with its partners, to create value and also to appropriate a share of that value” (Zott &

of successful BMs, while presenting BMs with a systemic view of activities that is not restricted

to an internal firm perspective but to a market perspective.

Hence, scholars including Wirtz (2011) detected that the achievement of a common

definition was not sufficient for the clear comprehension of BMs; it was also needed to detail

and understand its components. Once again diversity is the norm, with a vast number of

components specifications provided from different scholars (DaSilva & Trkman, 2014). Wirtz

et al., (2016) offer an in-depth analysis of BMs components literature. The article acknowledges

the importance of strategy as a central driver for BMs, complemented with the also currently

addressed components of resources, customers, value proposition and network/partnerships.

Accordingly, Osterwalder & Pigneur´s (2010) with a model named “The Business Model

Canvas” managed to fit these components into a practical tool. The Canvas describes and organizes in blocks nine critical elements that companies should consider when developing its

activities in order to achieve value creation, capture and delivery. Moreover, it encourages

managers to constantly reassess each of the elements and consider changes in the BM

components so as to assure maximum alignment with the firm´s strategy. This process of

revaluation allowed by such modular approach can be an important driver for BM innovation

(Osterwalder, 2004).

BM innovations are considered to be a critical factor for a firm´s long term performance

(Slywotzky, 1999). Nonetheless, they are still “poorly understood” (Buchereret al., 2012) and

need to be distinguished and put beyond the more simplistic achievement of a process

improvement (DaSilva & Trkman, 2014). Gauthier & Gilomen (2015) attend to this concern by

dividing four different types of BM transformations according to it´s intensity, namely: business

model as usual, business model adjustment, business model innovation and business model

redesign. The definition of BM innovation provided by the authors refers to “major BM

propositions and supply chain modifications” and will be used in this paper. Moreover, the literature presents that factors for companies to implement such major BM transformations can

be either internal (e.g. cost of resources) or external (e.g. technology, regulation) to the firm

(Bucherer et al., 2012).

One largely acknowledge external trigger for BM innovation, as highlighted among

others, by Bocken et al., 2014, refers to the rise of societal concerns about the sustainability of

business practices. Lately, a firm´s social and environmental impact has become a strategic

matter for managers that increasingly seek to include more sustainable solutions on business

operations (Adams et al., 2012). This has led companies to engage in major BM transformations

so as to shift from conventional and exclusively profit-seeking models to modified ones that

accounts for the consequences of business practices in the environment. Such initiative was

named business models for sustainability (BMfS). (Schaltegger et al., 2015).

While there is currently disagreement in the literature around the theme whether

economic or environmental purposes should drive value creation on BMfS, an agreement point

is that it shall include and integrated both categories (Abdelkafi & Täuscher, 2015).

Acknowledging this paradigm, a broad view of BMfS will be applied to this paper in line with

Schaltegger et al., (2016) interpretation that a business model for sustainability must “help

describing, analyzing, managing and communicating (i) a company’s sustainable value

proposition to its customers and all other stakeholders, (ii) how it creates and delivers this value,

(iii) and how it captures economic value while maintaining or regenerating natural, social and

economic capital beyond its organizational boundaries”. Scholars and practitioners have

realized that in recent times sustainable value is increasingly being created not by a single

company but by a network of partners and its interactions (Beattie & Smith, 2013). Hence,

(Voelpel et al., 2004) and a critical component for the development of strongly sustainable BMs

(Upward & Jones, 2016).

This trend is also illustrated by the emergence of so called “open business models”

(Chesbrough, 2006). The concept of “open” relates to the surpass of organizational boundaries and its transactions with external actors (Machiba, 2010). In summary, innovation is done

within networks of firms enabling not only the creation but also the capture of value in concert

with external partners to be more efficient (Chesbrough, 2007). Finally, Frankenberger et al.,

(2014) define that “open business models describe the value of integrating ideas, knowledge,

and resources from external partners into the business model of the focal firm”. Conclusevely,

the establishment of a network of partnerships has progressevely been linked to BMs in

management literature. However, as stated by Osterwalder (2004), MNEs currently relate to a

large number of stakeholders (e.g. Customers, suppliers, competitors, NGOs) resulting in a

complex and harder to understand network of partnerships; thus, it´s important to further detail

the subject.

2.2 – Partnerships Networks

Collaboration has progressively been applied as an efficient form of governance in

different countries and industry sectors since the 1980s (Alter & Hage, 1993). Correspondingly,

partnering has been extensively researched in the management literature; nonetheless, due to

its constant evolution there is a continued demand for new studies on the subject (Tuten &

Urban, 2001). This section provides a peripheral review over how management literature

reported this evolution.

Firstly, a firm´s basic motivation to pursue a partnership emerges when managers

evaluate that it´s the most beneficial form of governance to a specific transaction rather than

Benton (1997) provide a short and efficient definition by characterizing partnerships as “the

relationship formed between two independent entities to achieve specific objectives and

benefits… usually created to increase the financial and operational performance of each member”. A simplistic and commonly addressed example occurs at a buyer and supplier level;

when instead of a short-term transaction the parties reach an agreement that involves

commitment over an extended time period “with sharing of information, risks and rewards

between these two parties,” thus, a purchasing partnership is established (Herbig & O′Hara,

1994).

With intensified competition, public pressures and the emergence of global markets

managers were pushed towards finding more efficient ways of partnering; a chosen alternative

was to consider new partners among different sectors (Selsky, 2005) . The so called cross-sector

partnerships involved different actors and are defined by Utting & Zammit, (2009) as

“initiatives where public-interest entities, private sector companies and/or civil society organizations enter into an alliance to achieve a common practical purpose, pool core

competencies, and share risks, responsibilities, resources, costs and benefits”. Consequently, a

whole new portfolio of players joined the partnership agenda with companies not anymore

collaborating only with suppliers but also with NGOs, industry alliances, governments,

education institutions and even competitors (MIT Sloan Management Review, 2014).

Naturally, with more sectors and actors involved the complexity of the partnerships increases,

so as these relationships can differ considerably in scope, length and number of partners

(Parmigiani & Rivera-Santos, 2011). This more contemporary scenario was also analyzed by

different scholars; hence this paper will combine Wassmer et al., (2014), Gray & Stites (2013)

and Dussauge et al., (2000) to briefly detail the three most frequent types of partnerships:

Interfirm partnerships: refers to collaboration between two or multiple firms including suppliers, competitors and costumers in order to access or develop specific resources and

capabilities. This type of collaboration is commonly related to the exploitation of economic

opportunities that are privately and mutually beneficial for the involved companies.

Business – Government partnerships: also commonly addressed with the business term public–private partnership (PPP). This venture consists in the collaboration between firms and

governmental organizations mainly with a political objective such as the adjustment or

development of market policies. It mutually allow governments to benefit from business inputs

and competences for implementing public policies and companies to act over adapting

regulations for the improvement of the business environment.

Business – NGOs partnerships: firm’s partnerships with NGOs are deeply linked to social and environmental issues. Public benefits of this collaborations are usually accounted for

a third party. The main motivations both parties to engage in this type of venture are firstly

brand reputation and secondly to address sustainability issues.

Among others, Selsky & Parker (2005) observed that as opposite from inter-firm

collaborations government and NGOs due to belonging to different sectors usually have distinct

goals when joining a partnership. A consequence of that, according to Parmigiani &

Rivera-Santos (2011), is that this partnerships commonly have as a main objective addressing social or

sustainability instead of business issues. Moreover, a systematic change of companies’ attitudes

towards these types of partnerships has also been noted and named as the “new-way” firms approach business-NGOs and business-government relations (Laasonen et al., 2012). It

indicates a shift from a reactive and obliged proposition to a more proactive and collaborative

approach to partnering with the public and non-profit sectors with a jointly effort in pursue

Partnerships in a circular economy system seems to be aligned with this “new-way” as

MNEs proactively search for collaboration forms across sectors to restructure or redefine their

BMs (Dahan et al., 2010). Additionally, it presents a new factor with the apparence of “unlikely

partners” (Bocken & Allwood, 2012). Consequently, the following section will provide a review on the existent literature covering CE for further evaluation over its influence in forms

of partnerships.

2.3 – Circular Economy

“Transitioning to the circular economy may be the biggest revolution and opportunity for how we organize production and consumption in our global economy in 250 years” (2015).

This statement illustrates the enthusiasm of the business community over the concept of CE.

The non-profit organization Ellen MacArthur Foundation (2013), that has so far assumed a

leading role in promoting CE practices, describes it as an initiative to redesign the entire

value-creating activities over a product life-cycle from a new perspective: that all elements of the

production process can be recovered and complemented by new ones, so to be reused in the

creation of new elements for different purposes. Further, the system seeks to account all

possibilities in order to achieve maximum value creation from materials and resources (energy

and labor included) that have already been purchased and are currently in use. This closed loop

value creation with components that are constantly reinserted along the value-chain in a

non-ending process consists on the foundation of circular business (Esposito et al., 2015). In

summary, as also stated by Esposito et al., (2015), the ultimate goal is to decouple economic

growth from a dependence on natural resources by completely designing out waste over a

perpetuate process of “disassembling, recouping and recovering, reinforcing and finally

The concept, however, was not developed by a single source and the origins of the CE

can be traced back through an extended and diverse theoretical background (Ghisellini, Cialani,

& Ulgiati, 2015). Murray et al., (2015) introduced an in-depth analysis over the history that

preceded the emergence of CE. The authors conducted an investigation over existing literature

that presented a fragmented scenario as scholars disagree on when and where the term “Circular

Economy” actually emerged. Nevertheless, it’s acknowledged that the CE is not an entirely new created model and has been directly influenced by other schools of thought such as

Regenerative Design, Performance Economy, Cradle to Cradle, Industrial Ecology and

Biomimicry (Ellen MacArthur Foundation, 2012). The new factor however is its rapid and

broad adoption as the chosen systematic approach for different major stakeholders’ worldwide to address sustainable economic issues (Lieder & Rashid, 2016). This can be observed through

different initiatives around the globe such as the European Commission Circular Economy

Package, China's government Circular Economy Promotion Law and the CE100 a global

multi-stakeholder platform to accelerate the transition to a circular economy (World Economic

Forum, 2015; European Commission, 2015; Ellen MacArthur Foundation, 2013).

Consequently, the CE became a hot topic in business and what followed was an exponential

growth of management publications regarding the field in the last five years (Lieder & Rashid,

2016).

Nonetheless, this expansion carried along an important geographical factor with a highly

concentration of articles restricted to the analysis of CE implementation on China (Ghisellini,

Cialani, & Ulgiati, 2015). This is especially relevant due to China unique background of a

top-down approach to the CE, where the government has a leading role in the promotion of circular

practices having established it as a national strategy (Naustdalslid, 2014). While recognizing

the importance of governments as key players towards the transition to a circular model

engagement of stakeholders in the CE. Such idea is aligned with the bottom-up approach to the

CE, more commonly applied in the European Union, Japan and the United States (Ghisellini,

Cialani, & Ulgiati, 2015). From this perspective the definition of CE as an “industrial economy

that is restorative or regenerative by intention and design” is the chosen one for this paper.

Lovins et al., (2007) and Roome & Louche (2015) claims that the way MNEs can drive

this change and contribute to a sustainable economic model is through a transformation on their

current BMs. Additionally, Winkler (2011) acknowledges that this shift cannot be effective if

performed by a company alone, meaning that a successful transition towards circular BMs is

only feasible with the integration of external partners (Kortmann & Piller, 2016; Esposito et

al.,, 2016). Despite the importance of stakeholders collaboration to implement the circular

economy, cooperation among companies is still “far from the norm” what represents a practical

challenge for the development of the CE (Accenture, 2016). Moreover, in the theoretical field

the academic debate around CE is still considered to be at early stages (Murray et al., 2015).

Scholars have recognized this gap of information and the peer reviewed journals California

Management Review (2016) and Journal of Industrial Ecology (2016) published special issues

to call for papers addressing CE as while “the concept gains traction and as iteration continues

between vision and implementation, a wide variety of questions need careful exploration”

(Bocken et al., 2016). Two of the topics that require further exploration are related to the

transformation of BMs under a CE scope (Ghisellini et al., 2015) and how partnering with other

stakeholders can influence such BMs transformations (Witjes & Lozano, 2016).

In order to effectively analyze partnerships embedded into a circular economy context,

it’s crucial to categorize what collaboration initiatives are de facto established aiming the implementation of circular business models. The existing CE literature has developed different

categorizations of activities that shall be considered by managers when in pursue of the shift

different practitioners and scholars, this paper will propose new terms for categorization of CE

activities that can be developed through partnerships. This is relevant as current categories are

general and relate to different aspects of CE, the suggested framework however will have an

original and exclusive focus on what partnership activities can be established to achieve

circularity. The table below summarizes the sources that were considered for the

conceptualization of categories.

Source Inputs Brief explanation

(Ellen

MacArthur

Foundation,

2013)

1.Circular product design and

production 2. New business models

3. Global reverse networks

4. Performance enablers

The 4 fundamental blocks for the

achievement of the CE.

(El-Haggar, 2007) 1.Regulation, 2.Reducing 3.Reusing 4.Recycling 5.Recovering 6.Rethinking 7.Renovation.

Named as 7Rs golden rule, this

concept present the basic tools to

achieve maximum utilization of

waste.

(Evans, 2013) 1.Design, manufacture and distribute

2.Usage 3.Maintain/Repair

4.Reuse/Redistribute

5.Refurbish/Remanufacture

6.Product recycling

This toolkit presents the different

opportunities for value creation

within the circular economy.

(Bocken et al.,

2014)

1.Maximise material productivity

and energy efficiency 2. Create

value from ‘waste’ 3.Substitute with renewables and natural

The authors built 8 different

business model archetypes that

companies can implement to

processes 4. Deliver functionality,

rather than ownership 5.Adopt a

stewardship role 6.Encourage

sufficiency 7. Re-purpose the

business for society/environment

8. Develop scale-up solutions

(Lieder &

Rashid, 2016)

1. Legislation and policy 2. Support

infrastructure 3. Social awareness

4. Collaborative business models

5. Product design 6. Supply chain

7. Information and communication

technology (ICT)

Supportive areas for the successful

implementation of CE strategy

applying both top-down and

bottom-up approach.

(Lacy &

Rutqvist, 2015)

1. Circular Supply Chain

2. Recovery & Recycling

3. Product Life Extension

4. Sharing Platform

5. Product as a Service

The five main circular business

models identified in the analysis of

more than 120 companies that are

generating resource productivity

improvements in innovative ways.

(Ghisellini et

al., 2015)

1. Design 2. Reduction 3. Reuse

4. Recycle 5. Reclassification of

materials into: Technical Nutrients

6. Renewable Energy

Basic principles of CE according

to existing literature.

Table1. Sources for categorization

The inputs were interpreted following a workflow as presented on the Figure 2 below. The first

partnerships; basically the ones that refer to initiatives that are totally comprehended within the

firm boundaries with no integration to external actors.

Secondly, the principles were gathered according to similarities in the definitions. At

this stage it’s important that the analysis detected that the inputs provided by the existing literature are many times more generalist on its approach. More precisely, some definitions (e.g.

design, manufacture and distribute) gathered activities realized in different levels of a company

value chain; therefore such inputs had to be included more than once under different stages of

the workflow and further divided in order to be mutually exclusive as detailed on the description

of the categories that follows.

Such approach allowed the configuration of five main categories suited to define partnerships

activities in the CE. Each one of the suggested topics shall embrace different aspects a company

can consider in order to move towards a circular business model. The list below detail the range

and limitations of the respective categories:

1. Business Model Transformation: the shift from a linear to a circular BM is a

crucial step for companies that want to guide its entire business under the CE

principles (Ellen MacArthur, 2014). To be effective in such transformation firms

shall reevaluate current partnerships and seek for new forms of collaborations

(Bocken et al., 2014). Therefore, Business Model Transformation was included as

one of the partnerships categories that are relevant in the CE model.

Moreover, the re-thinking of a BM has influence over all stages of a product

life-cycle (Lieder & Rashid, 2016). As stated by Koortman & Piler (2016) firms “need

to develop competitive and integrated business models that extend the traditional

production function”. Jackson (2009) even further argues that initiatives that only

address part of production are not enough to overcome the environmental impacts

of linear economic models, claiming for more radical approaches that effectively

reduce production and consumption. Hence, this category when addressed carries a

greater sense of commitment of a company towards sustainability and the CE.

Accordingly, most of the definitions provided by the analyzed literature refer to

large scale changes on the way a company conducts its business. Lacy & Rutqvist

(2015) present the “Product as a Service” principle where firms rebuilt theirs

relations with costumers that are seen not anymore as a consumer but as a “user”. When in this new role of a service provider, companies shift the foundations of their

BMs so as to ensure “longevity, reliability and reusability” of manufactured

the business for society/environment” in which firms change their main business focus from achieving maximum economic profit to providing social and

environmental benefits to society. In summary, while it may occur through different

paths, innovative BMs thought in accordance with more sustainable principles are

crucial for the development of the CE (Lieder & Rashid, 2016).

2. Design and Material Innovation: by definition “at its core, a circular economy

aims to ‘design out’ waste. Waste does not exist—products are designed and optimized for a cycle of disassembly and reuse” (Ellen MacArthur Foundation,

2012). Therefore, product design and material components selection are two

mechanisms that shall be taken into consideration at a pre-production stage for the

achievement of a closed loop value chain (Prendeville, et al., 2012).

In the literature such initiatives are commonly addressed by the concept of

Eco-design that embraces the integration of environmental aspects at all stages of the

product development process so as to achieve the lowest possible environmental

impact of a product during its lifecycle (Brezet & Van Hemel, 1997; Dewulf &

Duflou, 2004). Naturally, this increases the complexity of the manufacturing process

by requiring more sophisticated design for products; it is suggested that in such

conditions companies need to achieve greater levels of integration and establish

strategic partnerships along its supply chain (Van der Vaart & Van Donk, 2008;

Wasti et al., 2006). Thus, Design and Material Innovation was also considered into

the categorization of partnerships in the CE.

This category has direct influence in the following ones related to the production

process. The product conception and design guides how sustainable principles will

efficiency, packaging, transportation, durability, reliability, subsequent

disassembly, other functions and performance criteria” (Winkler, 2011)

3. Operation and Process Efficiency: despite design and material innovation

importance, the CE is not restricted to the conception of a product but also refers to

increasing efficiency during its production and delivery activities (Ellen MacArthur

Foundation, 2013). Efficiency in production within a sustainability context has

commonly been linked to the reduce concept presented on the so called 3R basic

principles of sustainability of reduce, reuse and recycle (Ghisellini, Cialani, &

Ulgiati, 2015). Reducing relates to resource use and means “achieving the objectives

set for production and consumption by using minimal raw materials and energy and

by cutting pollution at the very outset of economic activity” (Zhijun & Nailing,

2007).

Further, the term eco-efficiency has added an economic dimension to the

ecological approach provided in the 3R principles by supporting that an efficient

production process should combine minimum environmental impact with maximum

added value (Brezet et al., 2001). Within a CE context however the concept has been

criticized as been aligned to a linear economy due to embracing the principle of only

minimizing the impact of industry in the environment, what would just delay

ecological losses instead of actually avoiding them (McDonough & Braungart,

2002). Consequently, in further study Braungart et al., (2007) introduced

eco-effectiveness as “a positive alternative to traditional eco-efficiency approaches for

the development of healthy and environmentally benign products and product

maintained or improved during production “through subsequent cycles of

production and use”.

Finally, Bocken et al., (2014) has combined both inputs by recognizing that

production efficiency has been sucessfully applied within linear BMs but also that

it can be useful for the achievement of circular systems if supported by appropriate

design and end-of-life strategies. Partnerships have widely been recognized by

scholars and practicioners as tool for increasing efficiency (Lin, 2012; Parmigiani

& Rivera-Santos, 2011). Therefore, Operations and Process Efficiency was also

established as a category.

4. Extended Use and End of Life: the last two elements of the 3R principles of sustainability refers to the reuse and recycle of a product and its components

(Ghisellini, Cialani, & Ulgiati, 2015). Reuse consists in the reallocation of wastes

resulting from one production process as resources for another production process

in the same or in a different industry; while also addressing the need of a product to

be used to its maximum capability with an extended life-cycle. Recycle is the

activity of processing used materials that would other be discarded as waste into

new products (Su et al., 2013). Within the concept Braungart & McDonough (2002)

introduced the importance of “upcycling” where in the end of the recycling process the result is a material with similar or improved value from the one it originated

from; this contrast to “downcycling” in which materials loose value after recovery

(Braungart et al., 2007).

Both principles are crucial for the creation of closed loop value-chains that

design out waste from the production system, therefore being important aspects of

value-chains as consecutive stages in an extended product life cycle concluded by a

circulation phase that “embraces all firm activities from product returns to the

potential recovery of the products’ maximum value via recycling and up-cycling

activities”.

The operationalization of such circular systems however are complex and with

a global reach demanding from managers the coordination of a “long chain of

collection, transportation, and material processing, with the final aim of replacing

primary resources with waste-derived ones” (Velis, 2015). Moreover, for the

feasibility of this circular model, so components can be rearranged and products

reused, it´s necessary to integrate the supply chain of several companies among

different industries through partnerships (Winkler, 2011; Maloni & Benton, 1997).

Thus, Extended Use and End of Life was established as a category in order to

address the post production stage activities of CE.

5. Circularity Enablers: the feasibility of a CE model is not only dependent on

firm-level initiatives; external market factors related to political-economical issues also

need to be taken into account (Sauvé et al., 2016). As described in the Ellen

MacArthur Foundation report “Delivering The Circular Economy - A Toolkit For

Policymakers” (2015) such external factors include: “higher transparency for

material flows, alignment of incentives, and the establishment of industry standards

for better cross-chain and cross-sector collaboration; access to financing and risk

management tools; regulation and infrastructure development; and education, both

to increase general awareness and to create the skill base to drive circular

The latter two aspects of regulation and public awareness are widely explored

and constantly linked by different scholars in the management literature as crucial

for the development of a CE. Zhijun and Nailing (2007) point public participation

as indispensable, suggesting that legislation should among others elements provide

the “content, channels, and means for public participation in the in the establishment of a resource-circulating society”. Accordingly, Yi (2014) supports that the success

of green business in general is influenced by the existing political environment both

due to the need of favorable regulation and social acceptance.

The regulatory environment has largely been recognized as a “top-bottom”

system where governments and public institutions set rules with which other actors

(e.g. firms and NGOs) should reactively comply (Aragón-Correa & Sharma, 2003).

There is, however, an increasing movement in the opposite direction where private

and non-governmental organizations are proactively addressing public issues so as

to improve business and social conditions (Scherer et al., 2013); consequently,

Mathews and Tan (2011) believe that “a similar approach is likely to emerge for the

establishment of the circular economy as well, which will see individual,

profit-driven firms taking greater responsibility and a higher level of initiative in the

process”.

Lastly, Gray and Stites (2013) refer to the regulatory environment as a critical

driver for collaboration partnerships as firms partner with other companies or NGOs

to influence or comply with legitimacy standards. Therefore, MNEs initiatives

towards establishing partnerships to achieve an economic-political environment that

support the feasibility of a CE was considered relevant and defined as a category

Lieder and Rashid (2016) have analyzed that closed-loop systems present a dynamic and

interaction between “business models, product design, supply chains and customers” consisting

in an essential and simultaneous part of manufacturing companies; following such approach

this study introduces the framework below. The model define categories that integrate business

model, manufacturing and supporting activities which can be pursued through partnerships for

companies seeking to implement CE principles.

Figure 3: Circular economy activities framework

The application of the above categories will be further investigated in the case study

section of this report. However the anticipated explanation of each element and the respective

framework provide a valuable and original overview over how partnerships can be structured

in the CE.

2.4 – Theoretical Framework and Research Question

The CE has increasingly been considered by different stakeholders related to the management

community as the new economic model that will guide the business agenda in the near future

(European Comission, 2015; ING Economics Department, 2015; Perella, 2013; Adams et al.,

2012; Lacy & Rutqvist, 2015). However, due to its recent rise further academic research is

influenced by this new system (Ghisellini et al, 2015). This study aims to contribute by

exploring the effects of the CE in the concepts of BMs and partnerships

Companies need to adapt and transform their BMs in order to remain competitive when

confronted in a scenario of major shifts in the business landscape such as the migration from

an “old” to a “new” economy (Voelpel et al., 2004). Zott and Amit argue that, while still in the early stages, investigation of BMs and its components dynamic evolution over time represent a

robust and valuable tool for strategic analysis and the understanding of value capture and

creation. Nevertheless, as suggested by Demil et al., (2015) and Berends et al., (2015) the

process of BM transformation has not received the necessary attention from researchers when

related to firms already established in a market with existing publications offer “conflicting

assumptions and findings”.

This shortage of information is critical due to, as recognized by Chesbrough (2007), the

existence of many barriers for managers seeking to change BMs what requires a clear

comprehension of organizational processes and the elements involved. Accordingly, this study

will clear limit its scope to the influence of one of the BMs transformation elements aiming to

achieve more structured findings. Precisely, as named by Osterwalder (2004), the BM

component of “Partnership Networks” will be explored.

Management scholars have concentrated considerable research efforts in the

understanding of partnerships due to its establishment as a valuable component for companies’

to achieve growth and competitive advantage (Kale & Singh, 2007; Inkpen, 2009). Limitations,

however, can be observed when the topic is analyzed into a CE perspective.

Firstly, collaborations among stakeholders within a circular model refer to a new level

of complexity with integrated systems and constant exchange of knowledge, materials and

resource among stakeholders (Ellen MacArthur, 2014). The so called higher-level

transactional or philanthropic and therefore demand further academic attention (Austin &

Seitanidi, 2012) what supports the need for this in-depth analysis. Simultaneously, firms’

collaborations initiatives when in pursue of sustainable development and environmental goals

also demand for further research for example on determining “why” and “how” companies engage in such activities (Wassmer, Paquin, & Sharma, 2014; Lin, 2012)

The combination of both high-level and sustainability partnerships has its academic

literature basically restricted to the concept of industrial symbiosis, that is considered one of

the founding school of thoughts for the CE (Ellen MacArthur Foundation, 2012). Industrial

symbiosis involves a compact network of diverse relationships that “emphasizes community,

cooperation and coordination among firms, which serves to protect the environmental integrity,

social equity and economic prosperity of the region” (Bansal & McNight, 2009). Despite being

a valuable tool for meso-level analysis the industrial symbiosis carries a regional aspect

restriction (Chertow, 2007; Mirata & Emtairah, 2005) that would limit CE analysis to an

industrial-park level. This is especially relevant as a CE carries along an inherent global

approach to introduce circularity in supply chain with a worldwide reach (Velis, 2015).

In summary, high-level partnerships at a global scale as a way for firms to adapt their

BMs to the CE is a topic with little or none precedents in academic literature. In order to support

the development of an adequate management framework aligned with the appropriate

categorization of partnerships in the CE this paper believes it’s crucial to address the presented

research gap. This study will do so by performing an in-depth analysis over how established

MNEs have so far adapted their BMs with partnerships to achieve circularity. The research

question that will guide this investigation is therefore the following:

This question integrates the three concepts of CE, BMs and partnerships that have been

extensively approached in this paper so far. Supported by the presented academic literature two

propositions can be made over the expected outcomes from the further exploration of the

research question. The arguments from Bocken & Allwood (2012) and Selsky (2005) that

suggests the appearance of “unlikely partners” meaning companies’ entering the CE are looking for new collaboration partners in different industries and segments leads to the first proposition:

Proposition 1: In order to develop a circular business model MNEs will collaborate with new types of partners.

Also, the partnerships within a CE context are expected to be held under a global

perspective with the establishment of global logistics networks (Velis, 2015); however, as

stated by different scholars (Chertow, 2007; Mirata & Emtairah, 2005) the national level seems

also to be relevant for the achievement of circular business models. This geographical factor is

taken into account in the third proposition of this paper:

Proposition 2: Companies engaged in the CE will establish partnerships at a global level.

Lastly, it’s expected that the analysis of the case studies provides insights on to what

extent MNEs are in fact integrating the CE to their business and what are the implications of

such integration (Gauthier & Gilomen, 2015). More specifically, as indicated by Schaltegger et

al., (2016) large corporations are expected to be more reactive and reluctant over transforming

their BMs; however, in a CE business environment such approach is expected to change. This

perspective leads to the second proposition of this study:

Proposition 3: Companies engaged in the CE will establish multiple partnerships among its value chain activities.

The next section will detailed the methodology adopted for this paper to address the

3 – Methodology 3.1 – Research Design

This paper will be conducted as an exploratory research through case study. The guiding

definition of case study in this paper was provided by Simon (2009) as “an in-depth exploration from multiple perspectives of the complexity and uniqueness of a particular project, policy,

institution, program or system in a “real life” context”. From this perspective the decision was

based on some characteristics of case studies that perfectly apply to the conditions that guide

this research paper. Firstly, it’s the most indicated method when the context of the study matters

what is the case due to the CE being a contemporary phenomenon attached to a real-life context

scenario (Yin, 2013). Secondly, it’s suggested when there is still not extensive knowledge

available about the investigated phenomenon (Eisenhardt K. M., 1989) such as happens to this

research due to the restricted availability of academic content over partnerships and BMs

relation to the CE.

A multiple case study approach was chosen due to the necessity of building elements of

comparison what is not possible with a single case study method; more precisely the so called

straightforward comparison between cases will be used so “the contrast between and among

the cases throws the spotlight on an important theoretical feature” (Thomas, 2011). As stated

by the research question of this study, the main goal is to understand what types of partnerships

MNEs engage in a CE so as it’s critical for the analysis to investigate multiple than one case in

order have more robust findings (Eisenhardt & Graebner, 2007). Further, within the multiple

case study definition, this research would be classified as embedded due to the multiple units

3.2- Case Selection

Once determined the design for the research it was crucial to assure that the appropriate cases

were selected for this paper. In the case of this research the criteria needed to identify

companies’ that were globally relevant and in fact involved in partnerships to implement CE principles on their BMs. The selected cases were Nike Inc., Hennes & Mauritz (H&M) and

Adidas AG.

The main reasons for this cases to be considered as appropriate to address the research

were: firstly, the companies should be limited to a single-industry in order to achieve more

stringent findings (Aus & Müller, 2011). Secondly, the industry should be relevant and

applicable to CE principle. This is the case of the clothing and footwear industry that accounts

for USD 1.8 trillion in annual sales globally and is still mainly based in a linear consumption

model with circularities opportunities during all stages of a product life-cycle (Ellen MacArthur

Foundation, 2012). Thirdly, naturally the chosen companies should be committed on applying

CE practices along its supply chains. To assure such commitment the selection was limited to

firms taking part in the “Sustainable Apparel Coalition” (SAC) which consists in the “apparel, footwear and home textile industry’s foremost alliance for sustainable production” (Sustainable Apparel Coalition, 2009). The SAC is a multi-stakeholder initiative including so far 175

members that account for approximately 40% of sales in the global apparel industry (Gunther,

2016). These stakeholders agreed to engage in applying an extensive list of sustainable

initiatives, deeply aligned with CE´s principles. The results can be measured through a

standardized index to all industry participants, so as each player can continuously evaluate and

improve its performance. Finally, among SAC members the next step was to assure the

relevancy of the analyzed companies.

Hence, the Forbes magazine list with the “World’s Biggest Public Companies” ranked according to a combination of sales, profit, assets and market value metrics was consulted. The

chosen five companies are among the top 1000 on the list. All selected firms are publicly traded;

that means that a considerable amount of strategic information is made available by the

companies to the public.

3.3 – Data Collection

This research relies on secondary data provided by the selected companies by means of

sustainability annual reports. This collection method was considered the most effective as such

public traded companies follow strict compliance guidelines for the publication of documents

from regulators.

This principle particularly applies to sustainability reports that with the present

awareness around sustainability (Adams et al., 2012) have increasingly been recognized as a

valuable tool for companies to document its environmental and social initiatives. Specifically,

in the corporate responsibility field the Global Reporting Initiative (known as GRI) is the most

recognized international independent organization to establish standards that companies shall

follow in order to communicate their sustainable development initiatives and impacts.

Accordingly, this paper relies on the principles as defined in the Sustainability Reporting

Guidelines report (Global Reporting Initiative, 2011) that a “sustainability report should

provide a balanced and reasonable representation of the sustainability performance of a

reporting organization. Sustainability reports based on the GRI Reporting Framework disclose

outcomes and results that occurred within the reporting period in the context of the

organization’s commitments, strategy, and management approach.” This broad and standardized scope efficiently attend to the aspirations of this research that requires a reliable

source of information to provide an impartial and detailed view of the selected companies

The time frame defined for the research was limited to the sustainability reports

published from the period of five years comprehended between the years of 2010 and 2015 for

specific reasons. First, due to the fact that 2010 was the year of creation for the mentioned SAC

and the Ellen McArthur Foundation suggesting both a greater commitment for the development

and application of new sustainable practices and an increasing momentum for the adoption of

CE related initiatives by firms. Second, sustainability reports from previous years were

consulted and either companies were not yet evolved in any or in an extremely restricted

number of partnerships to implement circular business models what negatively affects the

relevancy of previous years to this research. Finally, the consideration of a five year time frame

allow the analysis under a longitudinal perspective aligned with the objectives of this study in

evaluating over time to what extent MNEs are integrating circular practices to their business.

3.4 – Data Analysis

This paper has identified three different parent codes based on the presented literature review

as relevant for the study of partnerships within a CE context. Firstly, the type of partner that as

stated among others by Bocken & Allwood (2012) is expected to present differences when in

comparison to a liner economic perspective. Secondly, the activities, as previously detailed by

the framework suggested in this paper, were also included as a parent code. Finally, due to the

different reach of collaborations along firms’ value chains in circular business; alternating from

a regional to a global scope (Chertow, 2007; Mirata & Emtairah, 2005; Velis, 2015) the

geographical component was considered as a major coding theme.

The table below illustrates the outcome and the logic behind the coding process. The

identified codes will support and guide the analysis of the case studies in the following section

Parent Code Code Keyword/Coding Logic Type

of partner

Customer This code refers to partnerships/collaborations

between the company and its current customers.

Supplier This code refers to partnerships/collaborations

between the company and new or existing suppliers.

Competitors This code refers to partnerships/collaborations

between companies that compete in the same market

segment.

Government This code refers to partnerships/collaborations

between companies and local/national governments

or supranational institutions (e.g. EU, UN).

NGOs This code refers to partnerships/collaborations

between companies and non-governmental

organizations.

Educational

institution

This code refers to partnerships/collaborations

between companies and educational institutions (e.g.

universities, graduate schools).

Multiple This code refers to partnerships/collaborations

between companies and a more than one stakeholder.

Others This code refers to partnerships/collaborations

between companies and any institution that is not

Partnership Activity

Business model

transformation

This code is assigned when a company engage in

partnerships to apply relevant changes on its BM in

order to migrate from to a circular business model.

Design and material

innovation

This code is assigned when a company engage in

partnerships to design products and have access to

materials that make the achievement of a closed loop

value chain feasible.

Operations and

process efficiency

This code is assigned when a company engage in

partnerships to increase production efficiency in

order to reduce resource use.

Products extended

use and end of life

This code is assigned when a company engage in

partnerships to: extend the life-cycle of a product,

reallocate wastes from one production process as

resources for another production process or to

process used materials into new products.

Circularity enablers This code is assigned when a company engage in

partnerships to address external market factors

related to political-economical issues that have

influence over the implementation of circular the CE

Geographical Scope

Local/National This code is assigned when a company engage in

partnerships within its country of operation.

Regional This code is assigned when a company engage in

international partnerships but within a regional

Global This code is assigned when a company engage in

international partnerships at a global market level.

Table2. Coding logic

4 – Results

This section provides a concise description of both a within and cross analysis of each of the

cases including Nike, H&M, Inditex and Adidas. Firstly, this paper provides a general overview

over each company’s sustainability strategies for the period from 2010 until 2015. Secondly, the single company initiatives established in pursue of implementing CE practices are

investigated separately. Thirdly, joint partnerships that included more than one of the selected

cases are gathered and also detailed. Lastly, the cross case analysis compare differences and

similarities among the companies so as to support the discussion and conclusion of this study.

The analysis included over fifty partnerships towards more sustainable business among

the four selected MNEs that were currently active between the five years’ time frame. Thus,

assuring a sample of at least ten different initiatives for each company.

4.1 – Nike

Nike, Inc., is an American multinational and largely recognized world leader in the sector of

athletic footwear, apparel, equipment and accessories. Since the year of 2010 the company has

focused on sustainability issues having established sustainable goals along the firm’s value

chain in the areas of water efficiency, carbon emissions, sourcing, products and waste.

One of the pillars of such commitment to sustainability is the migration to the CE as

detailed in Nike’s strategic plan for the 2020 fiscal year: “we envision a transition from linear to circular business models and a world that demands closed-loop products – designed with

such goals defining it as critical factor for the delivery of Nike’s long term strategy. (NIKE,

Inc., 2015, p. 78)

Accordingly this study has analyzed the main partnerships established by Nike aiming

to close its production loop. A total of twelve collaboration initiatives between the firm and

external partners that can be related to the CE were observed; thus, providing insights over the

type, activities and geographical scope of Nike’s partnerships strategy as follows.

Type of partner: the companies’ approach to the CE is aligned with the expectation of collaboration with previously unrelated partners. Nike presented partnerships with usual actors

such as suppliers, governments and universities but with players that were not doing business

with the company before. The company also introduced through the re-use a show program a

collaboration with customers that can drop-off shoes in one of the Nike’s stores in the United

States. Moreover, also engaged in innovative partnerships with new sectors such as the Launch

project with NASA the U.S. Agency for International Development and the U.S. Department

of State for the development of technological innovations that can transform the firm BM

towards closing the loop in the apparel industry.

This project reinforces one important characteristic that can be observed in Nike’s

partnership portfolio that is the presence of multi-stakeholder initiatives for the implementation

of CE practices. The collaborations include competitors, other firms, NGOs, suppliers and

governments and are commonly related to sustainability issues in the production process that

have an increased environmental impact (e.g. CO2 emissions, water usage). A relevant

consequence from such multiple collaborations is that after committing with the goals

established in such initiatives, the company seems to engage in new partnerships to achieve

these objectives. For example, after joining the “Zero Discharge of Hazardous Chemicals” and the “CEO Water Mandate” initiatives towards reducing the discharge of resources the firm