Strategy development in industrial symbiosis business models: Classification of game-changer variables and their strategical impacts

Industrial symbiosis (IS) has gained a strategic position within the development of circular economy. Up-to-date IS literature is highly dispersed (Yu et al. 2014; Zhang et al. 2015) and mostly addresses the IS-enhancing... [ view full abstract ]

Industrial symbiosis (IS) has gained a strategic position within the development of circular economy. Up-to-date IS literature is highly dispersed (Yu et al. 2014; Zhang et al. 2015) and mostly addresses the IS-enhancing factors (e.g., Tudor et al. 2007), policy-making issues (e.g., Jiao and Boons 2014), physical flows analysis (e.g., Yazan et al. 2016) and case studies from different sectors. On the other hand, operating IS-based businesses calls for a clear business strategies that dynamically evolves with respect to the external conditions and individual needs of companies. While environmental and social contributions of IS have promoted it as a key to circular economy, in real-life applications companies still face operational barriers, which in turn, influence their economic benefits. Therefore, companies seek sustainable and resilient business strategies which not only facilitate the initiation of IS but also support its continuity (Fraccascia et al. 2016). IS is a game in which companies need to cooperate not only to create value-added but also to share the additional costs of implementing IS. However, companies tend to play such a game for maximizing individual benefits trying to sustain less costs possible. Exactly in this point, company strategy critically enters the game. Because, wrong strategy might lead to a missed opportunity which means loss of economic, environmental and social contributions.

This paper aims at developing cooperation strategies for companies considering the variables that have a game-changer impact on IS-based business models. The paper distinguishes the IS business models from business-making perspective in two categories: (i) business models based on direct waste use without substitution and (ii) business models based on traditional resource substitution by waste. Both models require a non-traditional and innovative approach different than traditional business-making taking into account game-changer variables.

This paper considers two main types of companies in IS, i.e., waste providers and waste receivers and classifies above-mentioned variables as following: a) presence of binding regulations, b) presence of encouraging subsidies/incentives, c) presence of competitors, d) quantity match between waste supply and demand and e) availability of information about the (potential) partners’ or competitors’ conditions. Company strategies must be adapted to the emerging conditions shaped by these variables to implement healthy and resilient businesses. The empirical context of this paper is based on a real-life case study in which the use of recycled end-of-life tires in the production of thermal energy, cement, and artificial grass is analyzed. A game theoretical approach is adopted which produces more than 20 scenarios leading to more than 50 different benefit-sharing schemes in the format of pay-off matrices. Findings show that some scenarios produce one Nash equilibrium that indicates one best strategy for both players, while some scenarios produce two sub-optimal Nash equilibria that offers two best strategies according to presence of competitors and information availability. In some cases, waste provider needs to pay for supplying waste while other cases showed that waste receiver needs to pay to receive waste. Presence of regulations negatively influences the contracting power while presence of incentives can cause a strategic partner change.