The circular business models of third-party loop operators: An activity-based view on performing activities internally or externally

Abstract

Third-party loop operators play an important role in the circular economy (CE) by closing the resource loops for other firms. These third-party loop operators face a key business model decision: whether to perform CE activities in-house or externally. We adopt the activity-based view (ABV) as a theoretical lens to divide the CE into five activities: collection, sorting, pre-processing, transformation, and integration. By analysing 79 third-party loop operators using Qualitative Comparative Analysis (QCA), we found that these activities are performed in two bundles. When third-party loop operators perform the collection activity in-house, they are likely to perform the sorting activity in-house as well. The remaining activities (pre-processing, transformation, and integration) are also performed together, either in-house or externally. Furthermore, we identify some boundary conditions that affect why these activity bundles are performed in-house or externally. When supply concentration is high, third-party loop operators tend to perform collection and sorting in-house because access to highly concentrated sources can result in a competitive advantage. When the uncertainty about waste condition is low, third-party loop operators can develop efficient pre-processing, transformation, and integration activities in-house. Activity gaps emerge when no actor in the market can carry out the activity. In this case, third-party loop operators fill the gap by carrying out the activity internally.