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The Franchise Model:How to Accelerate Circular Economy Implementation in the Recycling SectorE HachemiAlioucheRosenberg International Franchise Center Peter T. Paul College of Business and EconomicsUniversity of New Hampshire10 Garrison AvenueDurham, NH 03824, USAhachemi.aliouche@unh.eduDominique Bonet FernandezIPAG-Business SchoolCRET-LOG, Aix-Marseille Université184 bd Saint-Germain75006 Paris, Franced.bonet@ipag.frPresented at: AnnualConference of the International Society of FranchisingQuito (Ecuador), June 28-30, 2018
I. Introduction • Failure of current economic system: environmental disaster in the making: • One million plastic bottles sold worldwide every minute … and growing • Very small portion recycled: Less than 7% (2016) • Between 5-13 million tons of plastics end up in oceans every year • By 2050, more plastics than fish in the oceans! (Ellen MacArthur Foundation) • The Great Pacific Garbage Patch: 3x size of France! • Need for paradigm shift • Need for new business models that can reconcile economic objectives and environmental preservation • Transforming industrial waste into secondary raw materials for production of recycled products,… (Zhou et. al, 2014) - recycling • However, business model innovation is very challenging • This paper is an exploratory approach to advancing the Circular Economy concept • Basic hypothesis of paper: the franchise business model could accelerate the shift towards the implementation of a Circular Economy Bonet Fernandez, Aliouche – ISoF 2018
II. Circular Economy: Theoretical Framework • Circular Economy: • Emerging concept that emphasizes environmental concerns – reaction to resource depletion and environmental degradation • More environmentally friendly system as opposed to the current linear economic systems based on notion of a planet Earth with infinite reserves of natural resources • Idea of circular material flows as model for the economy first presented in 1966 by Kenneth E. Boulding in “Environmental Quality in a Growing Economy.” • Stahel then made extensive contributions on the macroeconomic benefits of a Circular Economy (Stahel 1976, 1981,1982,2001,; Bonet et al., 2014) Bonet Fernandez, Aliouche – ISoF 2018
II. Circular Economy: Theoretical Framework (2) • Circular Economy (CE) – definition • A Circular Economy is an alternative to a traditional linear economy (make-use-dispose) • It encompasses any activities dealing with the reduction, reuse, and recycling of resources, in a zero waste perspective. • The traditional “linear” economy generates waste • The new “circular” economy reintegrates indefinitely the resources used: consumption-collection-recycling-production-distribution-consumption – steps in this virtuous economic model: Bonet Fernandez, Aliouche – ISoF 2018
II. Circular Economy: Theoretical Framework (3) • Model can also be expanded from: • Reduction – Reuse – Recycle • to an expanded framework: • Regenerate - Share – Optimize – Loop – Virtualize – Exchange (ReSOLVE) • Most sectors of economy could benefit (Table 1) – so significant potential for economic development and entrepreneurial activities. • Every sector is concerned by the “loop” process (recycling) – our main research focus. • Ideally, the CE allows recycling of all materials. However, reality is more complex • Practice of CE is imperfect – necessitating diverse, imperfect solutions… Bonet Fernandez, Aliouche – ISoF 2018
Table 1 : Potential activity sectors for CE Bonet Fernandez, Aliouche – ISoF 2018
III. Circular Economy Experiences:Emmaus/Valdelia Partnership (France) • Valdelia: • French non-profit recycling network created in 2011 • Mission: Collect and recycle old furniture • Emmaus: • International NGO whose main mission is to fight poverty • Partnership Emmaus/Valdelia: Over last 2 years: • 120 tons of furniture (4,000 pieces) reused Bonet Fernandez, Aliouche – ISoF 2018
III. Circular Economy Experiences:Madiba and Nature (Cameroon) • Madiba and Nature: Cameroonian NGO founded by Essome Ismael with vision to reduce plastic waste in aquatic, marine, and urban environments in Cameroon • Transforms plastic bottles into fishing boats • Preserving environment AND helping local fishermen earn a living Bonet Fernandez, Aliouche – ISoF 2018
III. Circular Economy Experiences:Bouzeguene Village (Algeria) • Main issues in villages in Kabylie region in North Algeria: youth unemployment and environmental degradation • Excessive use of plastics – black plastic bags, plastic bottles, etc. everywhere… • …but not in Bouzeguene, a small village about 100 miles Southeast of Algiers – not a single plastic bag, nor plastic bottle or other trash in sight – the streets are clean • Faced with constantly accumulating trash in their village, in 2014 the villagers decided to take matters into their own hands • Simple, efficient, and very low-cost solution: install a simple recycling and composting center Bonet Fernandez, Aliouche – ISoF 2018
III. Circular Economy Experiences:Bouzeguene Village (Algeria) • Bouzeguene Village (Northeast Algeria) Bonet Fernandez, Aliouche – ISoF 2018
III. Circular Economy Experiences:Bouzeguene Village (Algeria) • A village recycling center is composed of: • A small piece of land of about 100 square meters, with simple fence around it • About 10 boxes installed for recyclable materials, and about 6 bins for composting • Villagers sort their trash at home and bring it to the center once or twice per week: • Anything that is recyclable (plastic, glass, metals, etc.) is resold to entrepreneurs • Organic trash (food, etc.) is composted to produce natural fertilizers • Recycling center management: • A village committee manages the recycling center • Village committee hires an unemployed youth from the village to run the center to do the day-to-day work: help with the final sorting, provide recycling guidance, sale of the recycled materials, etc. • Approximate cost to install a recycling center structure: about $5,000-$50,000 • The villagers volunteer their time and resources (land, buckets, wood, etc.) • Center entirely financed by donations from the villagers and the “children of the village”, and the sale of the recycled materials • Already 10 such centers in operation in the area and 23 others planned Bonet Fernandez, Aliouche – ISoF 2018
III. Circular Economy Experiences:Ellen MacArthur Foundation/World Economic Forum • Ellen MacArthur Foundation (Davos, 2017) – The New Plastics Economy: Catalyzing Action • About 70% of plastic packaging can and should be reused or recycled globally • More than 40 industry leaders have endorsed this global action plan • “Transition strategy” for the plastics industry to design better packaging, increase recycling rates, create innovative solutions, etc. • Product refills, replacement of single-use plastic bags, etc: 20% of plastic packaging profitably re-used • Improvements in packaging design and after-use management: 50% of plastic packaging profitably recycled • Remaining 30% would need “fundamental redesign and innovation” • “Initiative could drive systemic change… and unlock a billion dollars business opportunity” (Dominic Waughray – World Economic Forum) Bonet Fernandez, Aliouche – ISoF 2018
IV. Opportunities … and challenges (1) • Though there are commendable efforts to implement CE both in economically developed countries and in developing countries, global impact of these efforts is still marginal. • In 2013, 65 million tons of raw materials were injected into the economy • By 2020, this could grow to 82 million • A circular economy could achieve a net annual savings of material costs ranging from $340bn-$380bn at European level • Manufacturing costs of mobile phones may be halved with some components standardization and more recyclable parts • 100 million tons of ore could be preserved in the steel industry by 2025 (Vincent 2015) • Today, recycling is still only marginal, and limited to some sectors. For example, in France: • Only 1/3 of waste generated is recycled • Only 44% of French people are systematically sorting their waste • Younger people and more urbanized people sort less than older people and more rural people (contrary to popular belief) Bonet Fernandez, Aliouche – ISoF 2018
IV. Opportunities … and challenges (2) • Environmental necessity to manage waste is creating economic and social opportunities to create value and solve social problems. • However, scalability and sustainability of innovative initiatives are serious challenges • Our hypothesis: franchising may be a way to address these challenges Bonet Fernandez, Aliouche – ISoF 2018
V. Franchising: A Business Model for CE Implementation (1) • The failure of CE initiatives to make a significant impact up to now due mainly to the small scale and the challenging sustainability of these efforts. • The franchising model: ideally suited to address the scalability and sustainability challenges of the CE. • It is a proven model that can help create and grow rapidly large numbers of small and medium size enterprises, generate large-scale employment, and produce new wealth Bonet Fernandez, Aliouche – ISoF 2018
V. Franchising: A Business Model for CE Implementation (2) • Two major form of franchising: • Product and trade name franchising: • Soft drinks (Coca-Cola,…), automobiles (Toyota,…), gasoline (Shell,…) • Business format franchising – more involved model • McDonald’s, Accor, Luxotica,… • Now the more dominant model in economically developed countries • Entrepreneurial business can grow: • By building and operating its own units, or • Through franchising: faster growth, requires less resources, mitigates agency problems • Budding entrepreneur can: • Start her/his own business venture as an independent business, or • Join established network as a franchisee • Benefits as franchisee: • “go into business for him/herself but not by him/herself” • Use of established brand • Join proven concept • Technical and managerial support from franchisor, … Bonet Fernandez, Aliouche – ISoF 2018
V. Franchising: A Business Model for CE Implementation (3) • Besides the currently dominant franchise models (product/trade name, and business format), other forms of franchising have also been developed: • Tandem franchising • Microfranchising • Social franchising • Community franchising • Flexible franchising • Quasi-franchising,… Bonet Fernandez, Aliouche – ISoF 2018
VI. Franchising in Circular Economy • In waste and recycling operations, NGOs and other social entrepreneurs play a significant role in R&D phase of a project • Ex: Emmaus/Valdelia (France), Madiba and Nature (Cameroon),… • Once the innovation becomes viable, it can be transferred from the NGO to local social entrepreneurs who may develop it further and expand through an appropriate form of franchising (social franchising, tandem franchising, flexible franchising, etc.). • The appropriate franchising form will depend on the local economic, social, and institutional environment. Bonet Fernandez, Aliouche – ISoF 2018
VII. Case Study: Recycling in Kabylie Villages • Vision: • Move from current independent centers to a franchise system • From independent centers to franchise system: • The most successful recycling center becomes the franchisor • Individual village centers become franchisees • The franchisor develops best-in-class standardized centers and practices, provides training, technical and managerial assistance, quality control, marketing of recycled materials, etc. • Franchisees pay a small fee to the franchisor – who can expand further • Franchise system can expand throughout Algeria – and beyond… Bonet Fernandez, Aliouche – ISoF 2018
VIII. Conclusions • The franchise model has the potential to overcome the scale and sustainability challenges that have slowed the implementation of the Circular Economy: • The franchise model can help accelerate the creation of recycling centers much faster than currently (Algeria case study) • The franchising model can help create and expand sustainably large networks of recycling activities • The franchising model can do it much more efficiently through economies of scale and adoption of best-practices • In addition to helping resolve the scale and sustainability challenges of the Circular Economy, the franchise model helps address another social problem (youth unemployment) • Next steps in this project: explore the practical implementation of a franchise model in the Algeria villages • write case study Bonet Fernandez, Aliouche – ISoF 2018
