Circular economy: How developing countries can thrive with fewer new products

Evolving legislation and business strategy across the world are transforming the manufacturing industry. Governments increasingly enforce circular economy regulations that mandate product durability, recyclability and producer responsibility.

This shift reflects a view among manufacturers that the circular economy offers better value, recurring revenue and resilience against raw material volatility.

In recent decades, emerging economies such as Vietnam, Bangladesh and Mexico have emerged as key manufacturing hubs in global supply chains.

Vietnam attracts significant foreign investment, with 2023 exports of around $355 billion, primarily to developed markets. This model, leveraging lower labour costs, strategic locations and favourable trade policies, has fueled growth and job creation, creating dependency on ongoing global demand.

As the global economy transitions from linear production to circular value creation, developing countries are facing a fundamental shift in how value is generated, captured and delivered.

This transformation will reshape existing industrial models, impacting employment, exports, competitiveness, infrastructure and skills. Understanding these implications is crucial for countries seeking to remain competitive and capitalize on new growth opportunities in a circular economy.

Industries reliant on manufacturing new products may experience job displacement as demand shifts toward reused and refurbished goods. For instance, Bangladesh’s apparel sector, which constitutes approximately 85% of its exports, could see reduced employment opportunities if consumers increasingly opt for second-hand clothing.

Countries that rely on exporting raw materials or newly manufactured goods may experience decreased revenue as industries increasingly adopt circular practices.

For instance, nations exporting metals could see demand reduce due to more recycling. Similarly, countries that depend on manufacturing and exporting new products may see fewer sales if refurbished, remanufactured or repaired items become preferred by consumers and businesses.

Nations that heavily invest in electronics and textiles, for instance, may lose competitiveness if they do not practice circularity. Studies indicate that circularity has a positive impact on aggregate value-added and employment, suggesting that proactive adaptation can yield economic benefits.

Transitioning to circularity requires infrastructure investment, including recycling facilities and refurbishment centres. Developing countries may need to restructure supply chains, presenting challenges and opportunities for sustainability, innovation and efficiency.

A shift to circular practices needs a workforce skilled in repair, refurbishment and recycling. Investing in education and training programmes is crucial for equipping workers with the necessary skills, facilitating a smoother transition and minimizing labour market disruptions.

Despite potential disruptions, the shift towards circularity presents economic opportunities for developing countries strategically positioned within global supply chains. These nations can become pivotal in global circular value chains by leveraging their manufacturing expertise, lower labour costs and strategic geographical locations.

Repairing products to extend their lifespan is a foundational aspect of circularity. For many products, such as electronics, appliances and vehicles, timely repairs are crucial, often requiring local proximity. However, developing countries can strategically engage in specific repair scenarios.

Developing countries near major consumer markets have opportunities to establish regional repair centres. Eastern European countries are already successfully repairing products for Western Europe, benefiting from proximity and cost efficiencies.

Similarly, Malaysia, Vietnam or Thailand can act as near-shore repair hubs for the Asian markets. By capitalizing on existing trade routes, lower labour costs and available manufacturing expertise, developing countries can attract investments in regional repair infrastructure, skills development and quality control systems.

The rise of product-as-a-service models – where manufacturers lease rather than sell products – makes remote repairs more viable by reducing the need for immediate fixes. Manufacturers collect batches of products for periodic repair at centralized, cost-effective facilities.

Vietnam, for example, could host repair hubs for leased appliances and electronics across Asia, optimizing logistics and ensuring steady revenue.

Refurbishment (restoring products for resale) and remanufacturing (returning components or whole products “as-new”) are growing as businesses adopt circular strategies. The global refurbished electronics market is sizable, with hubs like Nigeria’s Ikeja Computer Village poised for dominance. Countries with strong manufacturing should position themselves as refurbishment centres, capturing multiple revenue cycles.

Remanufacturing, especially in automotive and industrial machinery, offers high returns through disassembly, restoration and quality assurance. For instance, Mexico, India, and Vietnam can attract multinationals with skilled labour, infrastructure and logistics, driving investment and economic growth.

Developing countries can serve as global refurbishment hubs. European firms, for example, could collect trade-ins, refurbish them in Vietnam and resell them, creating a circular value stream that boosts employment and revenue.

The recovery and reuse of product parts where the whole units no longer work is also a viable circular economy activity for developing countries.

Reselling parts from discarded equipment reduces manufacturing costs. Markets such as Nhat Tao in Ho Chi Minh City show the profitability of informal component harvesting. Scaling these activities can improve economic resilience through better affordability and reliability.

Components, such as retired electric vehicle (EV) batteries, can also find second lives in alternative applications, such as stationary energy storage solutions. Countries with established battery assembly capabilities could repurpose EV battery packs from developed regions, creating affordable local energy solutions.

Recycling is the final stage of the circular economy, reclaiming valuable materials from end-of-life products. Developing countries can transition from hazardous informal recycling to advanced facilities, efficiently extracting resources such as gold and copper from e-waste.

Nations with strong mining industries, like Chile and Peru, could pivot to “urban mining,” sustainably processing global e-waste while maintaining resource-supply roles. Formal recycling sectors create jobs across collection, sorting and processing while integrating informal workers into safer, structured networks – an approach successfully implemented in India and Mexico.

By establishing strong governance and high standards, developing nations can position themselves as global recycling hubs, attracting international partnerships for specialized waste processing.

These opportunities highlight how developing countries can thrive in the global shift to a circular economy. By proactively positioning themselves in the repair, refurbishment, remanufacturing, repurposing and recycling sectors, they can evolve from only producing new goods to providing critical circular economy services globally.

This shift drives sustainable economic growth, strengthens industrial resilience and enhances their global standing in a rapidly evolving global business environment.