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Three examples of the virtuous economy

Several companies have moved beyond the circular economy by transforming their business model. We take a closer look at three landmark strategies.

1. Repairs to build client loyalty

Some companies are doing the exact opposite of programmed obsolescence and extending the lifespan of their products by improving “repairability”

While legal action was taken against companies such as Epson and Apple, who were accused of purposefully shortening the lifespan of their products to sell the latest models, other companies are doing the opposite. SEB, the world leader in small household appliances, is aiming to extend the lifespan of its products. How? With massive investments in “repairability”. In this age of overconsumption, it’s a risky bet but not completely absurd from a financial standpoint. “Every product that we can repair is a sale that isn’t going to our competition,” said Alain Pautrot, director of after-sales service as quoted in Le Figaro.

Concretely, SEB is designing its new products so that they can be easily repaired. The company is committed to offering replacement parts for 10 years after the products are sold. This “product repairable for 10 years” guarantee applies to all the group’s brands (SEB, Rowenta, Moulinex, Calor, Krups and Tefal) sold in all countries since 2017.

But in order for this model to work, repairs cannot be more expensive than buying a new model. SEB has established a clear price policy: replacement parts cannot be sold for more than half of what a new product would cost. The replacement parts for 40,000 models are stored at a location in Faucogney-et-la- Mer (France) where 1,500 packages are sent out to 60 countries every day. Once the stock is all shipped out, SEB creates parts on demand using 3D printers. For the company, which made 500,000 repairs in 2016, this strategy increases client loyalty and satisfaction.

Other companies have developed similar business models. Caterpillar and Renault have established “re-manufacturing” programmes. The companies recycle used parts and offer to repair clients’ products to like-new condition (with the same guarantees). After collecting 120 unusable motors, Renault was able to rebuild 100 motors in perfect condition that were then sold for less than a new motor.

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2. Leasing, not buying: subscriptions are the future

By selling functionality rather than a product, companies can extend the lifespan of their equipment

Sell light, not light bulbs. It might seem crazy, but it’s a visionary idea. Philips has offered this to its clients. The Dutch company owns the lights and its B2B clients sign a lease that includes the installation, maintenance and removal of the lights when the contract is up. There are many advantages to this model.

Take the National Union of Students (NUS) in the UK, for example. In 2014, the NUS signed a contract with Philips for the 785 lights in its London offices. The union didn’t have to make a hefty payment to install the lights, as the contract included a fixed monthly payment over 15 years. During the 15-year period, if NUS goes over its expected energy usage, Philips compensates the union, which encourages the lighting company to provide the most energy-efficient service possible.

“This type of solution is far more efficient from both an environmental and economic perspective,” said Adrian Deboutière, project manager at the Institut de l’Économie Circulaire. “In the past, turnover for light bulb companies was solely based on sales. So in a way, it was in brands’ best interest to make products with a short lifespan in order to maximise profits. But with this model, margins tend to increase the longer the light bulbs last. Furthermore, Philips is looking to make easily repairable and recyclable products, because this cost is passed on to them when a contract is up.” An advantage for Philips is that the leasing system tends to create loyal clients and results in stable long-term revenue.

This strategy is used in several fields. Michelin, for example, allows its key clients (fleets of trucks and aeroplanes) to pay a subscription by kilometre rather than purchase tyres. Xerox now sells quantities of printed pages rather than printers.

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3. One person’s trash is another’s treasure

In Kalundborg, Denmark, approximately 15 companies are part of the first industrial symbiosis experiment, where companies reuse other companies’ waste. The model is now used around the world.

Kalundborg is a small Danish city on the coast of the North Sea with 50,000 residents. Here, experts from around the world come to see for themselves the first example of eco-friendly industrial symbiosis. It’s not a new phenomenon; it all started in the 1950s. At the time, the Danish government decided to establish large companies in the city since the port remains ice-free all year. The first were an oil refinery (Statoil), a coal-fired power plant (Asnaevaerket), a plaster manufacturing factory (Gyproc) and a pharmaceutical company (Novo Nordisk). In short, it was a boring industrial area, full of smoky chimneys and contradictions.

Gyproc, for example, imported massive amounts of gypsum (a type of rock) from Spain in order to make its plaster panels. At the same time, the coal plant next door was generating large amounts of gypsum – a waste that was very costly to get rid of. Furthermore, Novo Nordisk had a boiler to produce the water vapour it needed for its processes, while the electric power plant was emitting vapour into the atmosphere.

In the 1970s, the four companies came together all of a sudden and began discussing “waste” exchanges. Other companies slowly began joining the group and signed agreements with each other. The yeast mud produced by Novo Nordisk is used to feed pigs at a neighbouring farm; the flying cinders from the coal plant act as raw materials for a cement manufacturer and the sulphur from the oil refinery is used by a sulphuric acid manufacturer. Today, Kalundborg’s symbiosis includes approximately 15 companies that exchange water, energy and materials with the idea that one person’s trash is another’s treasure.

Presented as a prime example, Kalundborg has been a model for several industrial areas. In South Korea, 197 industrial symbiosis projects were carried out between 2005 and 2014. The symbiosis reduced CO2 emissions by 6.48 million tonnes and generated $1.68 million in additional profits by reducing necessary resources, according to a study by the Global Green Growth Institute.

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