From Resource Circulation to Circular Value: The Circular Economy Transformation of Japanese Companies (Three-Part Series) Part 1: Recycling Rates Alone Are Not Enough to Win: The Next Competitive Dimension of "Circular Value" Facing Japanese Companies | Insights

The circular economy has become a management issue that goes beyond waste reduction and improving recycling rates, prompting companies to reconsider their competitiveness and business models. Many companies have focused on collection and resource recycling from the perspective of how to circulate resources. However, that alone is no longer sufficient. Against the backdrop of resource constraints, decarbonization, economic security, and growing regulatory and disclosure requirements, particularly in Europe, a new competitive dimension is emerging: how to preserve the value remaining in products, components, materials, and even the functions obtained by customers, and how to connect that value to business profitability.

This three-part series examines how Japanese companies can leverage the strengths cultivated through quality management, maintenance, collection, and recycling practices under Japan's 3R policies to drive business transformation in the era of the circular economy.

Part 1 reviews the achievements of Japan's 3R policies and corporate practices and discusses how the competitive focus is shifting from the "volume of circulation" to "circular value."

Part 2 reinterprets the R-Ladder not as an environmental classification, but as a framework for corporate strategy, and considers which "R" can provide revenue opportunities for Japanese companies.

Part 3 examines Rethink not merely as servitization, but as a management transformation that reconnects design, sales, maintenance, collection, data, and key performance indicators (KPIs), and organizes the key issues for implementation.

About the Author

Akinori Yusa

Individual Contributor

1. The Foundation of Resource Circulation Built by Japan's 3R Policies

The foundation of resource circulation built by Japan through its 3R policies serves as the starting point for this discussion. It also highlights how accumulated capabilities can become strengths in the future circular economy and where a shift in thinking will be required.

Resource circulation initiatives in Japan have been promoted for many years based on 3R policies (Reduce, Reuse, Recycle). Efforts to prevent waste generation, collect used products and packaging, and establish systems for resource recovery and recycling have matured both as social institutions and as corporate practices.

The development of systems and practices for collection and resource recycling across a wide range of fields, including home appliances, automobiles, packaging, and office equipment, represents a major achievement of Japan's resource circulation policies. In addition to institutional frameworks such as the Home Appliance Recycling Law, the Small Home Appliance Recycling Law, and the Containers and Packaging Recycling Law, the social foundations supporting these systems have also been established through waste sorting by consumers and municipalities, the development of corporate collection routes, and advances in processing technologies.

From a corporate perspective, Japanese companies have accumulated extensive experience in quality management, durability, maintenance services, parts supply, the collection of used products, and material recycling. Particularly in manufacturing, design philosophies that enable products to be used over longer periods, service networks that respond to failures, and inspection and management systems that ensure product quality have become embedded in business operations.

These capabilities can become valuable assets in the era of the circular economy. The circular economy extends beyond the introduction of a new environmental concept. It requires systems that maintain value, enable reuse, and return products to the market throughout the entire product lifecycle. The capabilities in quality, maintenance, collection, and resource recycling cultivated by Japanese companies provide the foundation for such systems.

However, simply extending the achievements of past 3R policies will not be sufficient. While Japan's 3R policies have played a significant role in building the foundation for resource circulation, the challenge ahead is not only to increase collection and recycling volumes, but also to determine how to assess and monetize the value that remains. The objective is not merely to collect products and return them to material form. Rather, the critical question is how much value can be retained in a higher-value state before reaching that stage. The answer will influence both corporate profitability and resource efficiency. Achieving this requires a perspective that transforms accumulated experience and capabilities into the next source of competitive advantage.

2. Why the "Volume of Circulation" Alone Has Become Insufficient

The reasons why indicators based solely on "volume," such as recycling rates and collection volumes, are no longer sufficient to capture circulation can be understood through four major trends.

In traditional resource circulation, volume-based indicators such as recycling rates, collection rates, waste reduction volumes, and resource recycling volumes have been regarded as important measures for reducing waste and making effective use of resources. As a result, through 3R policies and various recycling systems, mechanisms for collecting and recycling resources have become firmly established in Japanese society.

However, current discussions surrounding the circular economy are moving beyond simply "collecting resources and recycling them." Behind this shift are four trends: changing societal demands, developments in Japan's policy direction, the formation of international rules, and changes in the corporate competitive environment (Figure 1).

First, amid increasing resource constraints, decarbonization requirements, and geopolitical risks, companies are being required to continue using limited resources while maintaining them in higher-value states. Recovering resources as materials only at the disposal stage may not be sufficient to address challenges such as reducing procurement risks, lowering greenhouse gas emissions, and extending product lifespans.

Second, within Japan's policy context, the circular economy is no longer viewed solely as an issue of waste management and resource recycling. It is increasingly linked to addressing resource constraints, strengthening industrial competitiveness, and enhancing the self-reliance and resilience of domestic resource circulation systems. As reflected in the Fifth Fundamental Plan for Establishing a Sound Material-Cycle Society, the Growth-Oriented Resource Autonomy Economic Strategy, and the Circular Economy Action Plan approved by the Cabinet in April 2026, the emphasis is shifting toward viewing circulation as an economic activity and growth strategy.

Third, internationally, companies are increasingly being held accountable for the entire product lifecycle. As demonstrated by Europe's Ecodesign for Sustainable Products Regulation (ESPR) and Digital Product Passport (DPP), understanding and disclosing what materials products contain, and how they are used, repaired, collected, reused, and recycled, is becoming a condition for business transactions.

Fourth, from a corporate strategy perspective, recycling all collected products as materials without distinction may cause companies to miss business opportunities. If reusable components or refurbishable products are reduced to material form, component value, product value, and customer touchpoints are lost. Going forward, companies will be expected to determine which types of value should be preserved after collection and how that value can be monetized again.

These four trends all point in the same direction. In other words, they reflect a movement toward redefining circulation not as an extension of waste management but as a management issue focused on how value can be preserved.

Therefore, in the future circular economy, the important question will not only be "how much was collected and recycled" but also "which value was preserved, at what stage, and to what extent." This does not mean that recycling is becoming less important. Rather, from the perspectives of society, policy, international rules, and corporate competition alike, companies are increasingly expected not only to circulate resources but also to do so without diminishing their value.

3. Understanding the Circular Economy Through Residual Value

The following framework views the object of circulation through three layers of residual value.

As the competitive focus shifts from "volume" to "value," companies must first reconsider what they regard as the object being circulated. To connect the circular economy to business transformation, it is not sufficient to view the object of circulation solely as materials. This is because a product lifecycle contains multiple forms of value, including materials, components, products, functions, and customer touchpoints. The circular economy is often explained through frameworks such as the R-Ladder, which indicate priorities for keeping products and resources in circulation while maintaining their value at the highest possible level. From the perspective of business transformation, however, it is easier to identify actions for generating revenue by reframing the discussion through three layers of residual value: material value, product value, and functional value. Distinguishing these layers makes it possible to visualize where value is being lost within a company's products and to identify priorities for action (Figure 2).

The first is material value. This refers to the value of materials such as metals, resins, glass, and paper contained in used products and components. Recycling and the use of recycled materials are initiatives aimed at recovering and reusing material value. As resource constraints and procurement risks increase, securing material value remains important.

The second is product value. This refers to the value held by products and components when their form, performance, quality, and reliability are maintained. Repair, reuse, refurbishment, and remanufacturing are initiatives aimed at preserving product value and component value. If products and components can be kept in a condition that allows them to be used again, rather than being reduced to materials, greater economic value can be retained. For example, in the office equipment sector, including copiers and printers, remanufacturing recovered equipment through disassembly, cleaning, and parts replacement, and resupplying it with quality guarantees equivalent to new products, has become a viable business both in Japan and internationally.

The third is functional value. This refers to the value derived from the functions and outcomes customers obtain from products. In business models that continuously provide functions such as operational capabilities, mobility, uptime, and processing capacity rather than selling the product itself, companies can continue providing value while maintaining visibility into ownership and usage conditions. Product as a Service (PaaS), uptime guarantees, and outcome-based business models are examples built around functional value. In the industrial equipment sector, for example, models that charge based on equipment operating hours or processing volumes are becoming increasingly common. Providers can optimize maintenance and collection through operational data. By retaining ownership, products can be reliably collected after use and more easily circulated into the next cycle of product value and material value. Designing around functional value also helps support higher-level circulation loops from a collection perspective.

Viewing circulation through these three layers highlights the difference between recycling-centered resource circulation and the circular economy as a form of business transformation. Recycling primarily recovers material value. Repair, reuse, refurbishment, and remanufacturing preserve product value at a higher level. PaaS and function-based business models continuously provide and monetize functional value for customers.

Importantly, this is not a simple hierarchy in which one type of value is always superior to another. The value that should be preserved depends on product characteristics, customer relationships, collection feasibility, maintenance capabilities, and data acquisition capabilities. Some products are distributed in large volumes and require material recovery. Others can preserve product value through component replacement and refurbishment. Products that maintain ongoing customer touchpoints and enable visibility into usage conditions may also have the potential to evolve into revenue models centered on functional value.

For example, for high-volume consumer goods, maximizing material value through reliable collection and the supply of high-quality recycled materials may be the most practical strategy. By contrast, for products such as office equipment and industrial machinery, where customer touchpoints continue through maintenance activities, circulation loops that preserve product value and functional value are more likely to generate higher returns. Even within the same concept of circulation, the target layer of value differs depending on product characteristics.

Viewed in this way, the residual value perspective becomes the starting point for companies considering their own strategies. Which value can be preserved? Where is value being lost? How can preserved value be converted into customer value and revenue? By asking these questions, the circular economy shifts its position from an environmental initiative to a business strategy (Figure 3).

4. The Next Competitive Dimension for Japanese Companies: Toward Value-Preserving Circulation

The strengths Japanese companies have cultivated in quality, durability, maintenance, collection, and recycling are valuable assets for increasing circular value. The ability to create high-quality products underpins longer product lifecycles, reuse, and remanufacturing. Maintenance services and component supply systems provide the foundation for preserving product value, while experience in collection and recycling serves as the entry point for bringing used products back into the business.

However, these strengths do not automatically translate into competitiveness. Under traditional sell-through business models, information on product usage after sale, repair histories, and post-collection conditions is often not sufficiently understood. Unless collected products are appropriately directed to reuse, refurbishment, remanufacturing, or recycling according to their quality and residual value, their value cannot be fully utilized.

Furthermore, when internal performance indicators and organizational structures are designed primarily around the sale of new products, activities such as repair, reuse, remanufacturing, and resale tend to be treated as peripheral operations rather than growth opportunities. In structures where selling one more new product is rewarded while efforts to keep a product in use for a longer period are not, businesses that preserve circular value struggle to grow. Therefore, to connect the circular economy to business transformation, these activities must be reconsidered not merely as environmental measures or after-sales services, but as revenue opportunities that create value throughout the entire lifecycle.

In this sense, the future competitive dimension will shift toward how companies can build value-preserving circulation. This does not reject recycling. Rather, it involves expanding existing foundations into circulation loops that preserve higher levels of value.

This way of thinking elevates the circular economy from an environmental response to a management strategy. Companies are not required to pursue all circulation methods equally. Instead, they must determine which value they can preserve, in which circulation loops they can achieve competitive advantage, and at which stages they can monetize value.

The starting point is to visualize at which layer shown in Figure 2 a company's products are losing value. To achieve this, product information from the point of sale through usage, maintenance, and collection must be digitally connected so that residual value can be visualized at the individual-product level. Companies must then embed into their organizations decision criteria for directing products to reuse, refurbishment, remanufacturing, or recycling, together with metrics that evaluate value preservation itself.

ABeam Consulting views DPP not merely as a tool for regulatory compliance, but as a management infrastructure for visualizing and monetizing the residual value of materials, products, and functions. Through support for information disclosure, ABeam Consulting helps Japanese companies transform the strengths they have cultivated in quality, maintenance, and collection into circular value.

Part 2 introduces the R-Ladder as a framework for considering these questions. The R-Ladder is not merely a classification of environmental measures. It can be used as a strategic framework for determining which value to preserve and which revenue structures to compete with. How can Japanese companies leverage their strengths in quality, maintenance, collection, and resource recovery through each "R," and how can those strengths be connected to business opportunities? Those choices will determine competitiveness in the era of the circular economy.

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