[Podcast] Transition from linear economy to circular economy: Barriers and suggestions for Vietnam
13 September, 2024
Keywords: sustainable development, circular economy, sustainable finance, sustainable governance, UEH SFI
Humans have passed the limits of planetary tolerance because of overproduction and consumption over a long period of time. Climate change has become the biggest risk that humans are facing (WEF, 2024). In that context, sustainable development is no longer a choice; in fact, it is mostly mandatory in most countries around the globe. To achieve the goal of sustainable development, circular economy has emerged as an important tool (Cagno et al. 2023; Knable et al. 2022), delivering superior environmental performance through efficiency of energy and resource use as well as waste reduction (Dey et al., 2022). However, to move from a linear economic model to a circular economic model, it requires the participation of all groups in society and each group needs to overcome specific challenges. In accordance with identifying barriers and summarizing findings from related research, this article by the Institute of Sustainable Finance and the Sustainability Project Committee of University of Economics Ho Chi Minh City (UEH) has put forward some provided suggestions to promote the transition towards a circular economy model for the context of Vietnam, a country with up to 98% of small and medium enterprises.
Circular economy and actors’ roles
The transition from a linear economy to a circular economy can be visualized through the following diagram:

Therefore, circular economy is not simply ‘recycling’; in fact, it has a broader connotation with a system of “repetitive circles” (See Figure 1c). For that ‘looping’ system to operate smoothly, it requires the participation and the contributions of all subject groups in one society. In which, the state plays a leading and guiding role. Through taxes and public spending, as well as regulations and other policies (including communication and education), the state can influence and regulate the production behavior of businesses and public consumption. They aim to realize sustainable development goals. For example, through reasonable taxes and fees combined with communication and education, the state can make consumers consider, rethink, reduce or even refuse to consume certain products and services. (R0, R1, R2). With reuse, repair, refurbishment, remanufacturing, repurposing, recycling, energy recovery (R3 to R9), the business sector will play a key role as this sector’s activities are closely linked to the production and the supply value chain. At this point, sustainable design becomes a very important stage, which includes product structural design, selection of raw materials, input accessories, and the most appropriate production technology to achieve sustainability. In other words, sustainable design refers to bringing sustainability into the entire product life cycle, to achieve an optimal balance between the three goals of economy, society and environment. The designer will support the product’s ability to last as long as possible by taking into account reuse, repair and refurbishability of the product, and improving the recyclability of materials. For each step in the life cycle, the designer will try to reduce inputs listed as energy, water and materials/supplies as well as the amount of emissions and waste that the process produces. Especially for SMEs, the “design” function contributes the most to the successful application of the circular economy (Dey et al., 2022). In this situation, the ‘guiding’ role of the state emerges very clearly. Tax and fee policies, budget spending, and policies to promote technological innovation and research and development need to be built in a way that both creates pressure and creates incentives and conditions to motivate businesses towards practicing sustainable business.
In this context, the fact that businesses apply circular economy models is not only an action to adapt to the Government’s strategy and policies but also helps businesses position their brands and enhance their competitiveness capabilities and the ability to withstand external changes. By applying circular models, businesses can reduce production costs, optimize resource use, and create added value from recycling and reusing materials. Circular economy also opens up new opportunities in developing products, services and markets. As consumers become increasingly interested in sustainable products, businesses that adopt a circular model will have a superior competitive advantage. Innovation means to applying technology and to include changing thinking and ways of doing business. This requires business leaders to have foresight, understand market trends and be willing to invest in sustainable solutions.
In addition to the above three groups of actors, impact investors, civil society and educational units play a significant role in the transformation of the economic model.
Barriers needed to be overcome
Dace et al. (2024) pointed out 6 groups of barriers to the transition from a linear economic model to a circular economic model, as follows:
- Cultural barriers: are related to consumption habits and traditions, consumer awareness and knowledge; lack of in-depth knowledge, skills and expertise in bio-based manufacturing; culture of business administration and management according to the old-fashioned way. This barrier is even greater when there is a lack of motivation to change consumer behavior, manufacturer behavior and lack of cooperation from the relevant parties.
- Technical barriers: are related to technology development, innovation and adoption, infrastructure capacity, raw material quality and quantity, raw material composition as well as digitalization and automation.
- Economic barriers: are related to the company’s incurred costs, profits, competitiveness, ability to access capital and investment, as well as the barriers related to market share, demand and price of the product. Economic barriers and technical barriers are closely related to each other.
- Environmental barriers: are related to the environmental performance of products and processes as well as environmental impact assessment, especially the lack of data on environmental impacts causing difficulties for all actors involved in decision-making for sustainability goals.
- Governance barriers: are related to policies, regulations, policy objectives and incentives as well as standards, standardization procedures and certification processes. In particular, in terms of the governmental level, the lack of policies to support transition, the lack of consistency and clarity on complex policies and procedures are the prominent points noted in this group of barriers.
- Structural barriers: highlights the lack of cooperation of value chain stakeholders (including information exchange) and the lack of systematic circularity initiatives.
To be illustrated in further details, regarding small and medium-sized enterprises, the research by Takacs et al. (2022) indicated that, in addition to barriers outside the company (technology, market, law, society and consumers), other barriers outside the company (technology, market, law, society and consumers) are to be listed. These very specific six (06) groups of internal barriers that prevent small and medium-sized enterprises from participating in realizing a circular economy consist of: fear of risk, unwillingness to step out of the inherent safety zone; short-term orientation; dominant economic thinking; unwillingness to engage in trade-offs because of the lack of necessary guidance on how to make optimal trade-offs; lack of resources and lack of knowledge – especially the knowledge regarding the concepts and the opportunities of the circular economy is in a serious lack situation (Ormazabal et al., 2018; Rizos et al., 2015).
Suggestions for Vietnam
In accordance with the World Bank (2020, 2022), Vietnam is one of the five countries mostly and severely affected by climate change. Calculations illustrate that: (i) Vietnam will lose 10 billion USD in 2020, equivalent to 3.2% of GDP because of the impact of climate change; (ii) Without appropriate adaptation and mitigation measures, it is estimated that climate change will cost Vietnam approximately 12% to 14.5% of GDP per year by 2050; (iii) 1 million people could be caused to fall into extreme poverty by 2030; (iv) Each year, approximately 316,000 workers lose their jobs because of the effects of river and coastal floods; (v) Without effective adaptation measures, between 6 and 12 million people could be affected by coastal flooding by 2070 -2100, depending on global emissions pathways.
Therefore, the Government’s policy of converting from a traditional economy to a circular economy (Decision 687/QD-TTg dated June 7, 2022) is absolutely welcome. However, with the characteristics of small and medium enterprises accounting for 98% of the number of businesses (General Statistics Office, 2017), focusing on removing barriers associated with the characteristics of small and medium enterprises will be a way to promote the transition to a circular economy model for the Vietnamese context. Specifically as follows:
*Promoting the leadership and guiding role of the State
It is necessary to integrate and to specify circular economy development goals in all relevant policies and laws to ensure consistency and synchronization. This suggestion is intended to address the barrier of ‘lack of consistency and clarity in complex policies and procedures’ recorded from published studies. In addition, it is necessary to include content on circular economy in planning, action plans, and implementation roadmaps related to businesses, especially small and medium-sized enterprises, with the purpose of ensuring the role of businesses is promoted as an important contributor to the transformation.
In particular, with the situation of “limited awareness of circular economy, lack of capital and technology, and old-fashioned management and operations” of small and medium-sized enterprises in Vietnam, the State needs to have policies that do provide effective and practical support to raise awareness of circular economy, to enhance knowledge, skills and expertise in bio-based production, to increase access to capital and technological innovation, to strengthen corporate governance towards sustainability.
To implement the above recommendations, the research by Maitre-Ekern & Dalhammar (2019) demonstrates that policymakers should learn from scientific evidence as well as practical experience to make amendments towards their views and vision to suit the era of sustainable development. Because the public sector itself lacks the knowledge and management experience to achieve sustainable development goals. For example, high carbon credit pricing can achieve the goal of reducing emissions; on the other hand, it can increase costs and reduce the competitiveness of businesses, especially businesses operating in areas sensitive to greenhouse gas emissions, disturbing the goals of income redistribution and the ability of low-income people to access environmentally friendly products, causing inflationary pressure and possibly increased unemployment. Therefore, the application of research models to estimate a reasonable carbon price to achieve sustainable development goals is essential. The same is for other budget spending policies and activities, especially policies and spending activities to implement support programs.
The role of the State is also very important in building mechanisms and creating conditions to remove structural barriers, in order to increase the cooperation of stakeholders in the value chain (including information exchange) and to encourage systemic circularity initiatives. This aspect emphasizes the role of the State in creating and maintaining the framework for businesses to always develop innovation (Ellen MacArthur Foundation, 2013). In addition, with the cultural barrier of “convenience-oriented consumption”, besides the policies related to price mechanisms listed as taxes, fees, and subsidies, the State needs to establish early education policies to change awareness and development of responsible consumption culture. As buyers, users and disposers of used products, consumers play an important role in the circular economy. Increasing the proportion of people who consume responsibly, once again, forces manufacturing businesses to be more responsible.
The above proposals highlight a completely important relationship among State – Universities – Enterprises, which is the Hybrid model of the Triple Helix model. The Triple Helix concept of innovation systems holds that a consensus space among business-government-university is needed to pool their capacities to achieve enhanced economic and social development in the system scale. From this foundation, full consensus among the three Triple Helix regions can both promote the adoption of circular economy in individual sectors and help achieve systemic changes on a large scale (Anttonen et al.,2018). In this model, the input for the State’s policy-making activities comes from businesses and universities. Businesses need to point out barriers in administrative procedures, to propose appropriate cooperation mechanisms, and policies in order to support business development, taxes, and investment as a foundation for the State to build and to improve the environment regarding business schools, investment and support for businesses. The State also needs to proactively place orders from universities to provide training, research and consulting services with the purpose of ensuring human resources for sustainable development for both the public and private sectors. It is recommended that the State development strategies and policies have a scientific basis in accordance with the data. The main output products are policies and legal documents adopted and promulgated by the State, with legal validity. These policies become the legal foundation, affecting the operations of businesses and universities. Government policymaking is the first step to create a favorable environment for the transition to a circular economy model. In addition, the connection between universities and businesses will greatly support businesses in the transformation process. Universities are of particular importance in creating and putting new knowledge into practice, turning it into innovations, patents and new forms of organization and business (Ranga, M.; Etzkowitz, H.2013) can create the system-level transformation needed for the circular economy to become a reality (Ghisellini et al., 2016, Murray et al., 2017, Winans et al., 2017). Therefore, universities have an active role, instead of simply being a source of knowledge for other fields to use and develop (Ranga, M.; Etzkowitz, H.2013). Therefore, strengthening the relationship among State – Universities – Enterprises through the Triple Helix model is an essential highlight to move from a linear economy to a circular economy in the Vietnamese context.
*Businesses realizing circular economy through transformation from traditional business models to sustainable business models
Studies have affirmed that the most popular way for small and medium-sized enterprises to realize a circular economy is to convert from a linear business model to a sustainable business model (Frankenberger et al., 2021; Geissdoerfer et al., 2020; Rizos et al., 2016; Santa Maria et al., 2021; Ünal et al., 2018). For a successful transformation, small and medium-sized enterprises, in addition to state support, must make their own efforts to overcome their own internal barriers.
First of all, taking advantage of high flexibility and agility in the market, adapting quickly and competing well in niche markets (Jenkins, 2006; Koirala, 2018), each small and medium-sized enterprise must consider itself a an open system that continuously creates interactions between its internal and external environments, incorporates feedback, and explores and exploits opportunities through adaptation, innovation and strategic improvement ( Madu & Kuei, 2012) to overcome internal and external barriers. This will help businesses innovate, align company values with the ecological environment, and adapt while being minimizing risks. In particular, a correct understanding of the circular economy will help small and medium-sized enterprise managers identify both opportunities and challenges. From this foundation, it is to adjust management perspectives and thinking, to seek and to test circular solutions, to adjust marketing strategies and accounting standards so as to achieve the most optimal integrated value.
In accordance with these targets, small and medium-sized enterprises need to have a comprehensive view of their production and business activities to exploit the full potential of applying circular economy in both production and supply chains. From designing the product so that it can be repaired, maintained, recycled and more to choosing raw materials, raw material suppliers, transportation methods nad more all require the integration of all related factors with the purpose of achieving the profit goals but in accordance with consumer expectations, complying with environmental and social regulations for which the host country and other relevant partner countries are aiming. There has been much evidence that SMEs applying circular economy principles in their production and supply chains will help them achieve higher revenue and business growth in the long term (Dey et al., 2020a). Additionally, raw material and supplier selection, reducing the risk of raw material price fluctuations, supply chain collaboration, lean practices, energy saving measures, third-party logistics, reuse and recycling can be cost-effective (Lee, 2008; Kumar et al., 2019). For small and medium-sized enterprises that are satellites of a global production and supply ecosystem, switching to a sustainable business model will help businesses receive more orders from large corporations. (Dey et al., 2015; Ho et al., 2010; Scott et al., 2015). However, SMEs, currently, need to train their workforce to perform all functions of a closed supply chain in accordance with the principles of reduce, reuse and recycle, all of which can promote favorable conditions for the application of circular economy principles.
The following step, to overcome the barriers of lack of capital and technology, is that small and medium-sized enterprises can use investment solutions in cross-company circular ecosystems. In this way, SMEs move from a competitive model to a collaborative model to work together to solve systemic barriers. Stead & Stead (2013) argue that this is the perfect way to jointly develop and to promote innovation across company boundaries while establishing a shared vision of sustainable change.
Recap
Sustainable development requires the cooperation of diverse actors in society, requiring cross-sectoral and inter-sectoral linkages; in which, circular economy is considered the key to achieving the goal. In this Vietnamese context, the solutions to make the transition from a linear economy to a circular economy should focus on promoting the transition to sustainable business models of small and medium-sized enterprises. In particular, State – University – Enterprise relationship in accordance with the Triple Helix model is a crucial highlight.
This is an article by the Sustainable Finance Institute of the University of Economics Ho Chi Minh City (UEH SFI) – the first educational organization in Vietnam to conduct consulting, training and research activities on sustainability management, sustainable finance and related fields. Up to the current time, the Institute has achieved various successes in all three areas: training, research and consulting. In particular, the Institute’s Master’s Degree program in Corporate Sustainability and Environmental Management increasingly attracts a large number of candidates and is highly appreciated by students and employers. The Institute has actively participated in international forums, establishing partnerships with prestigious universities around the world, providing consulting and technology transfer services for international organizations listed as the International Finance Corporation/World Bank (IFC/WB), Frankfurt School of Finance & Management, the University Network for Strengthening Macro-financial Resilience to Climate and Environmental Change, Global Green Growth Institute (GGGI). The Institute became one of the five founding members of Eurocham’s Sustainable Finance Committee. Concurrently, with the goal of spreading knowledge and leading in the field of sustainable management and sustainable finance in Vietnam, the Institute focuses on providing: (i) short-term training courses specializing in finance sustainability, impact investing, financial risk management related to climate change, sustainable business strategy, sustainable development reporting and so on; (ii) consulting services suitable to the requirements of each business, the government and the local authorities on sustainable management
This article is part of a Series of articles spreading research and applied knowledge from UEH with the “Research Contribution For All – Research For The Community” message, UEH respectfully invites dear readers to look forward to the upcoming newsletter UEH Research Insights.
News and photos: UEH Sustainable Finance Institute, Sustainability Project Committee
Voice: Thanh Kieu

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