Trialoog editor
Small and medium-sized enterprises (SMEs) dominate the business landscape in Europe and globally. A new doctoral thesis defended at TalTech Department of Business Administration by Tarlan Ahmadov argues that unless their role in the circular economy is understood and supported, sustainability will remain a niche project rather than a mainstream reality.
His research shows how SMEs can manage complexity, overcome systemic barriers, and seize opportunities to embed circular practices.
Ahmadov decided to focus on SMEs because of their economic and social importance. They represent the vast majority of businesses, generate employment, drive innovation, and influence both industries and policy developments. Despite this, discussions about the circular economy have largely highlighted multinationals and global brands. Ahmadov considered this imbalance a serious gap.
“The circular economy narrative has historically been dominated by big brands and multinationals, while the unique reality and potential of SMEs remain under-explored,“ he states. Unless we understand their specific challenges and support their transition, circularity will remain a niche rather than a norm.
SMEs often want to adopt resource-efficient and sustainable practices but face unique constraints. Funding is hard to access, expertise is often missing, and supply chain power lies elsewhere. Ahmadov sought to bring these realities to the forefront and to show that the transition depends on interconnected factors at organisational, industrial, and policy level. His dissertation highlighted how these levels either align to create momentum or remain misaligned, leaving SMEs stuck.
Managing complexity
At the core of the study was the idea of complexity management. Ahmadov described it as navigating a web of interconnected influences – inside and outside the business – while keeping sight of strategic goals. For SMEs, it means handling technology upgrades, evolving customer expectations, regulatory requirements, and resource limitations all at once. Unlike large corporations, they cannot assign these tasks to specialist teams; changes must be integrated into everyday operations.
“Complexity management isn’t just about paperwork or processes; it’s about building adaptive strategies, engaging your team, and learning as you go,” Ahmadov stressed.
His research showed that SMEs who manage complexity proactively stand out. They test new approaches on a small scale, learn from setbacks, and adapt quickly when plans fail. Leadership is crucial: if managers see circularity as an investment, resources are allocated, and staff are encouraged to innovate. In contrast, where leadership is reactive or sceptical, external support rarely delivers lasting change. Culture that rewards collaboration and experimentation accelerates the transition, while rigid, risk-averse environments hold it back.
“The circular economy narrative has historically been dominated by big brands and multinationals, while the unique reality and potential of SMEs remain under-explored.”
Tarlan Ahmadov focused on small and medium-sized enterprises due to their significant economic and social weight. SMEs create jobs, develop new solutions, and influence policy and industry trends. Photo: Private collection
Barriers and uneven progress
SMEs encounter a combination of structural and practical barriers. Many lack access to clear, sector-specific information about how circularity applies to daily operations. Financing is a persistent bottleneck: investments for retooling, trying new business models, or training staff are often unattainable without more relevant and accessible funding instruments.
Regulation can also act as a moving target. Frequent changes, complex requirements, and heavy reporting obligations create burdens for firms with minimal administrative capacity. Supply chain power imbalances exacerbate the problem, as SMEs are often unable to push larger suppliers or customers toward circular practices. Internally, resistance to change remains a reality: if managers or employees see sustainability as irrelevant or risky, transformation is unlikely to succeed.
Ahmadov’s findings revealed that internal commitment often outweighs external pressures. Managers and staff champions can be more decisive than laws or market signals. Sectors also move at different speeds. Metals manufacturing, for example, is more advanced because recycling infrastructure and economic incentives are already in place. Internationally oriented SMEs adapt faster due to exposure to global compliance rules and customer demands. By contrast, chemicals and electronics face higher barriers due to complex product designs and fragmented supply chains.
Collaboration is essential. Strong supply chain relationships can enable co-investment in recycling equipment, shared logistics, or take-back schemes. Industry clusters and associations provide platforms for problem-solving, knowledge exchange, and advocacy. Ahmadov noted: “The way SMEs engage with partners up and down the value chain can make or break their circular ambitions.”
“The way SMEs engage with partners up and down the value chain can make or break their circular ambitions.”
The opportunities of the circular economy are born on digital platforms, but without flexible financing solutions, many ideas remain stuck in Excel spreadsheets. Photo: Pexels
Opportunities and the way forward
While the challenges are substantial, Ahmadov underlined that the next decade offers real opportunities. Digital transformation will create new models such as platforms for waste and resource exchange or services based on access rather than ownership. Circular practices can unlock revenue streams in recycling and remanufacturing. Policy shifts, including stricter producer responsibility and green procurement, are likely to reward early movers with stronger market positions.
Finance, however, remains the decisive lever. Traditional lenders often demand collateral or short-term returns that do not match the payback periods of circular investments. Ahmadov pointed out that this creates a catch-22: SMEs must demonstrate impact to access funding, but need funding to get started. He highlights instruments such as government-backed loan guarantees, targeted innovation grants, simplified green bonds, and crowdfunding adapted to SMEs as critical tools to break this cycle.
His recommendation to SME leaders is clear: build internal circular economy orientation. Educate staff about why circularity matters, involve them in shaping solutions, and run small-scale pilots that show tangible benefits. “Don’t wait for perfect conditions – use your agility as a small business to turn circularity into resilience and competitive advantage,” he concluded.
“Don’t wait for perfect conditions – use your agility as a small business to turn circularity into resilience and competitive advantage.”
