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Circular Economy in Practice: Barriers, Challenges, and Strategic

Implications

Hafizah Hammad Ahmad Khan

; Noorlailahusna Mohd Yusof

; Azyyati Anuar

; Azlyn Ahmad

Zawawi

; Raveenthiran Vivekanantharasa

Faculty of Business and Management, Universiti Teknologi MARA, Kampus Sungai Petani, Merbok,

Kedah, Malaysia

Faculty of Administrative Science and Policy Studies, Universiti Teknologi MARA, Kampus Sungai

Petani, Merbok, Kedah, Malaysia

Faculty of Education, The Open University of Sri Lanka, Sri Lanka

*Corresponding Author

DOI:

https://dx.doi.org/10.47772/IJRISS.2025.910000083

Received: 02 October 2025; Accepted: 10 October 2025; Published: 05 October 2025

ABSTRACT

The circular economy has emerged as a transformative model for achieving sustainable development by

decoupling economic growth from resource consumption. However, its practical implementation remains

constrained by multiple and interrelated barriers. This study conducts a narrative review to synthesize current

knowledge on the barriers, challenges, and strategic implications of circular economy implementation. The

analysis reveals six dominant and interdependent themes: institutional and regulatory limitations, economic and

financial constraints, technological and infrastructural readiness, organizational and collaborative capabilities,

consumer and behavioral dynamics, and business model and design for circularity. The study contributes by

integrating fragmented insights into a comprehensive conceptual understanding that highlights the systemic

nature of these barriers. Strategically, the review underscores the need for coherent policies, financial

mechanisms, technological innovation, and behavioral change to accelerate adoption. Future research directions

are proposed to explore policy synergies, digital enablers, cross-country comparisons, and the long-term

performance of circular business models.

Keywords: Circular Economy, Barriers, Challenges, Sustainability. Narrative Review

INTRODUCTION

The concept of a circular economy has emerged as a central paradigm in the pursuit of sustainable development,

offering a transformative alternative to the traditional linear model of “take–make–dispose.” By promoting

resource efficiency and minimizing waste, circular economy seeks to decouple economic growth from the

depletion of natural resources, fostering an economy that thrives on regeneration and closed-loop systems. In

recent years, the circular economy model has gained traction among scholars, policymakers, and industry

practitioners as a strategy to achieve environmental sustainability while sustaining economic competitiveness.

However, despite its growing relevance, the implementation of circular economy principles remains fraught with

barriers, challenges, and strategic complexities that vary across industries and regions.

Barriers to adopting a circular economy are complex and often stem from a limited understanding of its concepts

and economic potential. Many companies still find it challenging to recognize the systemic value of circular

strategies, viewing them mainly as environmental obligations rather than as catalysts for innovation and

efficiency. As Risteska and Gveroski (2022) highlight, transitioning to a circular economy can offer numerous

benefits, such as reducing environmental impacts and enhancing competitiveness, yet misinterpretations of its

value proposition frequently delay implementation. This issue is further exacerbated by a general lack of

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awareness and education among key stakeholders, which restricts behavioral change and impedes the spread of

circular practices (Gonella et al., 2024). Additionally, Kapoor et al. (2021) argues that incorporating biological

and ecological frameworks into the circular economy can enhance resource efficiency and resilience, but such

integration is often neglected when organizations prioritize short-term financial gains over long-term

sustainability goals.

Technological readiness adds another layer of complexity to the shift towards a circular economy. Although the

progress of Industry 4.0 technologies such as automation, digitalization, and smart manufacturing provides tools

to facilitate circular processes, their implementation requires substantial financial investment and a fundamental

change in organizational culture. Awan et al. (2021) emphasize that these technologies can help address major

obstacles in adopting a circular economy, yet companies often lack clear strategic frameworks to guide the

transformation. In developing regions, these challenges are even more pronounced. Khan and Mihaisi (2023)

note that small and medium-sized enterprises (SMEs) in resource-limited settings face restricted access to

technology, finance, and knowledge, which exacerbates inequality and limits their involvement in circular

transitions.

At the strategic level, transitioning successfully from linear to circular systems demands more than just

incremental operational changes; it requires a comprehensive organizational transformation. As Scholtysik et al.

(2023) point out, designing circular business models involves reconfiguring value chains, processes, and

stakeholder relationships to align economic goals with environmental sustainability. Government intervention

and regulatory frameworks are also crucial enablers. Tashtamirov (2023) emphasizes that policy coherence and

institutional support are essential for accelerating the adoption of circular economies at regional and national

levels, particularly through fiscal incentives and governance mechanisms that promote sustainable practices.

Additionally, consumer engagement and stakeholder collaboration are vital in fostering an ecosystem conducive

to circularity (Camacho-Otero et al., 2020). Aligning business models with circular economy principles not only

boosts operational efficiency but also enhances resilience by reducing reliance on virgin resources and stabilizing

supply chains (Fraccascia et al., 2019).

From an economic standpoint, transitioning to a circular economy offers significant potential for reducing costs

and creating value. By minimizing waste disposal and raw material procurement expenses, companies can

achieve both environmental and financial benefits. Empirical evidence indicates that circular economy practices

open up new revenue opportunities and provide social benefits through inclusive financial systems and

community engagement (Idrus et al., 2024). Fraccascia et al. (2019) further argue that successful circular

economy models drive innovation, enhance competitiveness, and spur economic growth, making their

integration into business strategy essential for long-term sustainability. However, the shift toward circularity is

a complex endeavor that requires collaboration, adaptability, and a shared commitment among businesses,

governments, and consumers to overcome ongoing challenges and fully realize the potential of sustainable

economic development.

The aim of this paper is to synthesize the existing literature on the key barriers, challenges, and strategic

implications of implementing circular economy principles across various industries. By integrating insights from

a range of empirical and conceptual studies, this paper seeks to deepen the understanding of the systemic factors

influencing circular economy implementation and to identify strategic pathways for enhancing its adoption.

The structure of this paper is organized as follows. The next section reviews the literature on the circular

economy, while Section 3 details the methodology. Section 4 presents and discusses the main findings, and

finally, Section 5 concludes the paper by summarizing key insights and highlighting future research directions.

LITERATURE REVIEW

The growing body of research on the circular economy underscores both its transformative potential and the

persistent barriers that hinder its practical implementation. Across industries and regions, the transition toward

a circular economy is hampered by a mix of institutional, economic, technological, and behavioral challenges

that hinder firms and societies from moving beyond linear production and consumption models. A widely

acknowledged barrier is the lack of collaboration and stakeholder coordination across value chains. Studies

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reveal that fragmented supply chains, isolated decision-making, and insufficient cooperation among actors limit

the development of circular strategies. In the construction industry, for instance, the absence of cross-sectoral

partnerships and the complexity of procurement processes undermine material recovery and reuse initiatives.

Similarly, coordination issues in the toy industry illustrate how a lack of stakeholder alignment can stall progress

(Joshi & Khandekar, 2025; Durdyev et al., 2025). Weak collaboration also affects eco-industrial park

governance, where limited commitment from participating firms and unclear performance targets restricts

resource exchange and the creation of industrial symbiosis (Nguyen & Le, 2025).

Economic and financial constraints further limit the widespread adoption of circular economy practices. Many

organizations face uncertainty about the profitability of circular models due to high initial investment costs,

limited access to finance, and unclear market demand for secondary materials. Research indicates that firms

often encounter additional costs related to recycling, transportation, and product take-back systems, especially

in the built environment where linear public procurement practices prevail (Griffiths et al., 2025). In developing

economies, the financial gap is even more pronounced as SMEs struggle to secure long-term funding for

innovation and infrastructure upgrades (Bourdin et al., 2025). This lack of economic viability discourages

experimentation with new business models and reinforces reliance on traditional, resource-intensive operations

(Rizos et al., 2016).

Governmental and regulatory frameworks also play a decisive role in shaping the pace of circular economy

transitions. The absence of coherent policy direction, weak enforcement mechanisms, and inconsistent

regulations across agencies often lead to institutional uncertainty. In emerging and developing economies such

as Morocco, Kazakhstan, and Malaysia, these inconsistencies undermine the ability of firms to invest in long-

term circular solutions (Bourdin et al., 2025). Sector-specific studies, such as those on the fashion industry and

waste management systems in Brazil, indicate that regulatory pressure without supportive incentives can

generate compliance burdens rather than foster innovation (Abdelmeguid et al., 2024; Souza Piao et al., 2024).

Similarly, in the Gulf Cooperation Council region, the lack of standardized policies and green procurement

mechanisms has slowed market creation for circular products and services (Zighan et al., 2025).

Technological readiness and infrastructure continue to be key factors in the successful implementation of a

circular economy. The integration of digital technologies, such as automation, data analytics, and blockchain,

presents opportunities to improve traceability, product lifecycle management, and resource optimization.

However, these technologies also introduce new challenges. Research on digital manufacturing highlights

concerns about data security, information privacy, and system interoperability, which cause firms to hesitate in

adopting advanced technological tools (Bag et al., 2022). In many developing regions, inadequate waste

management infrastructure, limited access to digital tools, and a lack of technical expertise further hinder firms

from leveraging technological innovations (Pittri et al., 2025). Despite these challenges, researchers have pointed

out that digital solutions like blockchain and smart contracts can foster trust and transparency in supply chains,

laying the groundwork for circular business models to thrive (Kumar & Chopra, 2022).

Cultural and behavioral barriers also play a significant role in shaping circular economy transitions. Entrenched

consumer habits, resistance to change within organizations, and a general lack of awareness about the

environmental and economic benefits of circular practices limit participation in reuse, recycling, and

remanufacturing programs. Research conducted in the Gulf Cooperation Council region found that social norms

and organizational inertia prevent the adoption of sustainable consumption patterns (Zighan et al., 2025). Similar

challenges were observed in Vietnam's eco-industrial parks, where low managerial commitment and insufficient

community engagement limited long-term success despite supportive infrastructure (Nguyen & Le, 2025). These

findings indicate that behavioral change must accompany policy and technological interventions for circular

economy initiatives to be effective and sustainable.

While barriers are well documented, the literature also highlights several strategic implications and responses

that can expedite the adoption of a circular economy. Policy development and enforcement are among the most

crucial levers, as governments can influence market conditions through incentives, standards, and public

procurement that favor circular practices (Durdyev et al., 2025; Bourdin et al., 2025). Collaborative governance

structures that unite firms, consumers, and public institutions are also essential in overcoming fragmentation and

fostering innovation (Souza Piao et al., 2024). Technological advancements, when supported by adequate

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capacity building and infrastructure development, can significantly enhance the efficiency and scalability of

circular systems (Bag et al., 2022; Pittri et al., 2025). Equally important is cultivating market and consumer

awareness, as changing consumption preferences and encouraging participation in return and reuse systems

strengthen the demand base for circular products and services (Rizos et al., 2016).

Beyond addressing barriers, several studies emphasize the environmental, economic, and social benefits that a

circular economy can deliver when properly implemented. Shifting to circular production systems reduces

material consumption, minimizes waste, and fosters resource regeneration, thereby contributing to

environmental sustainability (Ma et al., 2021; Hynni et al., 2025). Economically, circular business models boost

competitiveness, drive innovation, and create employment opportunities throughout supply chains (Holly et al.,

2023; Laubinger et al., 2020). On the social front, circular practices enhances inclusion and community resilience

by creating new types of work and integrating social enterprises into sustainable value chains (Van Opstal et al.,

2024). Collectively, these benefits demonstrate that adopting a circular economy is not just an environmental

necessity but also a strategic catalyst for long-term social and economic development.

In conclusion, the literature depicts the implementation of the circular economy as a complex process shaped by

collaboration gaps, financial and institutional constraints, technological limitations, and behavioral inertia.

Despite these challenges, the accumulated evidence indicates that targeted interventions, such as coherent policy

design, technological innovation, stakeholder engagement, and public awareness initiatives, can significantly

propel the transition toward a circular and sustainable economy.

METHODOLOGY

This study employs a narrative review methodology to synthesize existing knowledge on the barriers, challenges,

and strategic implications of implementing the circular economy across various sectors and contexts. The

narrative review approach was selected for its ability to provide a comprehensive and interpretive examination

of diverse findings, integrating conceptual, empirical, and theoretical insights from the existing literature.

Articles were retrieved from the Scopus database, chosen for its extensive coverage of peer-reviewed and high-

impact scholarly publications. The search strategy utilized the keywords “circular economy” AND “barrier” OR

“challenges” OR “implication” to ensure the inclusion of studies that explicitly address implementation issues

and strategic considerations within the circular economy framework. The selected studies were analyzed to

identify recurring patterns, emerging themes, and cross-sectoral linkages that collectively contribute to

understanding the systemic factors influencing circular economy adoption.

FINDINGS AND DISCUSSION

An analysis of the top thirty most-cited peer-reviewed journal articles reported in Table 1 reveals six interrelated

thematic dimensions that collectively shape the barriers, challenges, and strategic implications of implementing

the circular economy: institutional and regulatory conditions, economic and financial constraints, technological

and infrastructural readiness, organizational and collaborative capabilities, consumer and behavioral dynamics,

and business model and design for circularity. These themes consistently emerge across the literature, indicating

that transitions to a circular economy are not hindered by a single factor but rather by a complex web of

interrelated conditions spanning policy, markets, technology, and society.

Table 1: Summary of Key Themes

Theme

Representative Studies

Key Findings

Strategic Implications

Institutional and

Regulatory

Conditions

Kirchherr et al. (2018); De

Jesus & Mendonça

(2018); Adams et al.

(2017)

Fragmented regulations and

inconsistent policies

generate uncertainty and

discourage investment.

Develop coherent and

harmonized regulatory

frameworks, integrate

circular criteria into public

procurement.

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Economic and

Financial

Constraints

Rizos et al. (2016);

Govindan & Hasanagic

(2018); Adams et al.

(2017)

High initial costs, limited

financing access, and

uncertain market demand

impede adoption.

Introduce fiscal incentives,

circular investment funds,

and risk-sharing

mechanisms.

Technological and

Infrastructural

Readiness

Kirchherr et al. (2018);

Bag et al. (2022);

Govindan & Hasanagic

(2018)

Technological immaturity

and inadequate recycling

infrastructure constrain

implementation.

Invest in digital

infrastructure, capacity

building, and technological

innovation for traceability

and recovery.

Organizational and

Collaborative

Capabilities

Rizos et al. (2016); De

Jesus & Mendonça (2018)

Weak inter-firm

coordination and limited

knowledge sharing hinder

systemic change.

Promote collaborative

platforms, industrial

symbiosis networks, and

multi-stakeholder

governance.

Consumer and

Behavioral

Dynamics

Kirchherr et al. (2018); De

Jesus & Mendonça

(2018); Govindan &

Hasanagic (2018)

Low awareness and risk

aversion among consumers

and managers slow circular

adoption.

Conduct education

campaigns, promote eco-

labeling, and foster

sustainability-oriented

cultures.

Business Model

and Design for

Circularity

Rizos et al. (2016); Adams

et al. (2017); Kirchherr et

al. (2018)

Lack of design-for-

circularity and limited

service-based innovation

restrict value retention.

Embed circularity at the

design stage and shift

toward performance-based

and service-oriented

models.

The primary and most prevalent theme identified in the literature pertains to institutional and regulatory

conditions. Kirchherr et al. (2018) and De Jesus and Mendonça (2018) argue that fragmented policies, weak

enforcement mechanisms, and the absence of harmonized standards contribute to institutional uncertainty that

deters long-term investments in circular initiatives. Adams et al. (2017) emphasize that linear-oriented

procurement rules and unclear waste classification laws further impede circularity in the construction sector.

These studies collectively underscore the importance of coherent regulatory frameworks, fiscal incentives, and

regionally coordinated strategies that can provide consistent signals to firms and investors.

The second theme, economic and financial constraints, is often identified as a fundamental obstacle to

implementing a circular economy. Rizos et al. (2016) emphasize that SMEs face challenges such as limited

access to finance, high transaction costs, and uncertain profitability linked to circular business models. Similarly,

Govindan and Hasanagic (2018) point out that the high capital intensity and unpredictable demand for secondary

materials discourage firms from adopting reuse or remanufacturing strategies. Adams et al. (2017) further

observe that additional insurance and certification costs in construction diminish the viability of circular

practices. The literature indicates that targeted fiscal policies, public-private financing mechanisms, and green

investment funds can be crucial in overcoming these financial hurdles.

A third significant theme revolves around technological and infrastructural readiness. Numerous scholars

highlight that the technological infrastructure essential for the circular economy, including traceability systems,

digital manufacturing, and reverse logistics, remains underdeveloped (Kirchherr et al., 2018; Govindan &

Hasanagic, 2018). Adams et al. (2017) point out that recycling and material recovery infrastructures are still

inadequate in many countries, while Bag et al. (2022) emphasize that concerns related to data security and

interoperability impede the widespread adoption of digital technologies in circular systems. These findings

underscore the necessity for integrated digital solutions, capacity-building initiatives, and infrastructural

investment to fortify the technological foundation of circular transitions.

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The fourth theme pertains to organizational and collaborative capabilities. Rizos et al. (2016) and Kirchherr et

al. (2018) highlight limited coordination across supply chains and inadequate information sharing as significant

barriers to effective circular practices. De Jesus and Mendonça (2018) argue that weak institutional connections

and the lack of collaborative governance models hinder the expansion of circular business ecosystems. To

address these structural shortcomings, establishing cross-sectoral partnerships, developing collaborative

platforms, and building shared knowledge repositories are often suggested as effective strategies.

The fifth theme, consumer and behavioral dynamics, highlights the socio-cultural aspect of transitions to a

circular economy. According to Kirchherr et al. (2018), public awareness is still low, with consumers often

viewing recycled or refurbished products as inferior. Similarly, De Jesus and Mendonça (2018) and Govindan

and Hasanagic (2018) note that managerial risk aversion and a lack of a sustainability-oriented corporate culture

hinder organizational change. This behavioral inertia slows the adoption of circular practices on both the

consumption and production sides. The literature suggests that educational campaigns, eco-labeling, and

consumer engagement programs could boost participation in circular initiatives.

Finally, business model and design for circularity represents a cross-cutting theme that connects operational

strategy with systemic transformation. Scholars emphasize that durability, modularity, and design for

disassembly are crucial in enabling resource recovery and extending product lifecycles (Kirchherr et al., 2018;

Adams et al., 2017). Rizos et al. (2016) demonstrate that firms that integrate circular design with service-based

business models achieve higher resilience and value retention. Such findings point to the strategic imperative of

embedding circularity at the design stage, supported by data-driven monitoring and performance metrics that

capture the economic and environmental value of circular practices.

Ultimately, the business model and design for circularity serve as a unifying theme that bridges operational

strategy with systemic transformation. Scholars highlight the importance of durability, modularity, and design

for disassembly in facilitating resource recovery and prolonging product lifecycles (Kirchherr et al., 2018;

Adams et al., 2017). Rizos et al. (2016) illustrate that companies integrating circular design with service-based

business models achieve greater resilience and value retention. These findings underscore the strategic necessity

of embedding circularity at the design stage, bolstered by data-driven monitoring and performance metrics that

capture the economic and environmental benefits of circular practices.

Across these six themes, a clear pattern emerges: institutional and financial uncertainty intensifies technological

and behavioral inertia, while limited collaboration and inadequate design integration further hinder progress. In

contrast, coordinated efforts that blend policy coherence, financial incentives, digital innovation, and stakeholder

engagement are shown to accelerate adoption. The convergence of evidence from highly cited works such as

Kirchherr et al. (2018), Govindan and Hasanagic (2018), Rizos et al. (2016), and De Jesus and Mendonça (2018)

supports the argument that circular economy transitions require systemic rather than incremental transformation,

anchored in collaboration, innovation, and shared accountability among governments, industries, and consumers.

CONCLUSION AND FUTURE RESEARCH DIRECTIONS

This conceptual review reveals that implementing the circular economy is a complex, multi-dimensional process

that goes beyond environmental concerns to include institutional, financial, technological, behavioral, and

organizational dynamics. By examining insights from the thirty most-cited peer-reviewed studies, this paper

concludes that the barriers to adopting a circular economy are deeply interconnected and systemic in nature.

The evidence indicates that fragmented policy frameworks, inconsistent regulatory enforcement, and inadequate

institutional coordination continue to impede the effectiveness of circular initiatives (Kirchherr et al., 2018; De

Jesus & Mendonça, 2018). Financial barriers, such as high investment costs, along with technological limitations

like underdeveloped recycling infrastructure and limited digital integration, further exacerbate these challenges

(Rizos et al., 2016; Govindan & Hasanagic, 2018; Bag et al., 2022). Additionally, organizational inertia and the

absence of collaborative mechanisms remain significant obstacles (Rizos et al., 2016). Moreover, behavioral

resistance among consumers and managers, driven by low awareness and risk aversion, restricts the demand for

circular products and services (Kirchherr et al., 2018). Despite these challenges, the review finds a strong

consensus in the literature that adopting a circular economy can promote long-term sustainability when supported

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by coherent policies, targeted incentives, and cross-sectoral collaboration.

Based on the insights from this review, several future research directions are suggested. Firstly, empirical studies

should investigate how combinations of policy instruments, such as green public procurement, fiscal incentives,

and extended producer responsibility, interact to accelerate circular adoption across various sectors. Secondly,

future research should explore the role of digital technologies, including blockchain, artificial intelligence, and

Internet of Things applications, in enhancing traceability, transparency, and collaboration within circular value

chains. Thirdly, comparative analyses between developed and developing countries could reveal context-specific

enablers and constraints, thereby informing more inclusive transition pathways. Fourthly, greater attention

should be paid to behavioral and cultural dimensions, particularly how consumer values, education, and

organizational culture influence the success of circular initiatives. Finally, longitudinal and mixed-method

studies are necessary to evaluate the long-term performance and resilience of circular business models and to

understand how they evolve under changing environmental, economic, and regulatory conditions.

ACKNOWLEDGEMENT

The authors would like to express their sincere gratitude to the Kedah State Research Committee, UiTM Kedah

Branch, for the funding provided under the Tabung Penyelidikan Am. This support was crucial in facilitating

the research and ensuring the successful publication of this article.

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