Introduction 

Increasing resource scarcity, environmental degradation and the mounting pressures of climate change, the traditional linear economic model has become unsustainable. The circular economy offers a viable alternative by redesigning production and consumption systems to extend product lifecycles, retain material value and eliminate waste.

At the same time, open innovation has emerged as a powerful framework through which firms deliberately combine internal capabilities with external ideas and technologies to accelerate and enhance their innovation efforts. Its three modes inbound (bringing external knowledge in), outbound (sharing internal knowledge externally) and coupled (bilateral co‑creation) enable organisations to draw on a broader pool of expertise and resources.

The convergence of these two paradigms, circular economy and open innovation, creates significant opportunities for companies to develop resilient, sustainable business models. By collaborating across value chains, firms can recover and repurpose end‑of‑life materials, reduce greenhouse‑gas emissions and achieve economic, competitive and reputational gains. This article explores how open innovation mechanisms can drive the transition to a circular economy. 

Key Concepts

This section explores key concepts of open innovation and the circular economy. The open innovation ecosystem comprises intellectual property management, open innovation culture and governance, inbound innovation, outbound innovation, coupled innovation, open innovation intermediaries, and corporate innovation hubs. Each of these is elaborated on in the table below.

Circular economy is defined as an economic model designed to enhance resource efficiency through the 6R  hierarchy: reduction, repair, refurbishment, reuse, recycling, and remanufacturing of materials. They maintain that its core objective is to curtail waste generation both during production and following product use. Moreover, scholars emphasise that the circular economy seeks to promote regenerative practices by transforming end‑of‑life materials into valuable inputs, thereby extending the useful life of products and components and diminishing dependence on finite resources

Case studies 

Stakeholders engaging in open innovation often demonstrate their commitment through collaborative efforts across value chains, where businesses actively share knowledge, ideas, and technologies with new and diverse partners to drive forward disruptive and sustainable innovations. By adopting inbound innovation strategies, organisations can tap into the expertise and insights of external stakeholders to support initiatives like extending product lifecycles, recovering valuable resources, and co-developing circular economy models. These models may include industrial symbiosis, reverse logistics, product-as-a-service, sharing economy platforms, and leasing arrangements.

  • Resource recovery 

Through cross‑industry partnerships and industrial symbiosis, firms can uncover novel applications for waste streams and forge truly circular supply chains. By collaborating with external stakeholders to trade or sell materials and by‑products that would otherwise be discarded, companies can turn one organisation’s “waste” into another’s valuable input. Such resource sharing not only broadens each partner’s capacity to pursue sustainability and innovation initiatives but also reduces production costs: by pooling surplus materials and equipment, collaborators gain access to essential resources at below‑market rates.

A notable example can be Tata Steel which exemplifies industrial innovation and resource recovery through its annual “Mind Over Matter” challenges, which invite engineering students from premier institutes and external collaborators to co‑develop cutting‑edge solutions. Applying the circular economy’s 4‑R framework—Reduce, Recover, Recycle, Reuse, Tata Steel manages approximately 15 MTPA of by‑products by converting blast furnace slag into cement, replacing up to 70 percent of ordinary Portland cement, and deploying LD slag in road construction, brick production, and clinker manufacturing. Additionally, magnetic separation techniques reclaim valuable metals for reuse in steelmaking. These initiatives have not only generated over ₹900 crores in revenue from enhanced metallic recovery but have also significantly reduced environmental impacts by curbing raw‐material extraction.

Similarly Recykal, a Digital Deposit Refund System in Kedarnath is collaborating with local administration, government, and multiple stakeholders for technology-enabled waste management. Whose objective is to conduct traceable reverse logistics through digital DRS for plastic waste collection and recycling. A QR code tracking system for complete product lifecycle visibility, mobile reverse vending machines (mRVMs) for instant refunds via UPI and integration of collection centers with authorised recyclers have been implemented. With this framework, 25-30 metric tonnes of plastic waste collected during 2022 Char Dham Yatra; 52% success rate in bottle collection have been achieved. 

These cases demonstrate collaborative innovation through partnerships, technology sharing, and multi-stakeholder approaches, the main essence of Open innovation.

  • Resource Recovery, Reverse Logistics, and Product- Life Extension Strategies

Reverse logistics approaches are undertaken to support the collection and transportation of waste items like plastic, metal and electronics. For example the returned items can be refurbished, remanufactured and used further and resold. These ensure returning, repairing, restoring and recycling the materials for a designated facility.

The leading global firms Nike, Adidas partnered with Parley for the Oceans, an environmental organisation, as well as with material innovators and recycling experts, to address a growing consumer demand for eco-friendly and sustainable footwear, without compromising on performance or quality. This collaboration is aimed at developing shoes made from recycled ocean plastics, thereby contributing to a circular product lifecycle. As a result, the company’s Parley line of shoes, which was/ is made from ocean plastics, has quickly become a global success, with millions of pairs sold since its launch. 

In India, TCI Supply Chain Solutions collaborated with a leading apparel brand and launched a 37,000 sq ft reverse‑logistics hub in Manesar to process peak‑season returns faster, protect resale value, and enhance customer loyalty while cutting waste. By applying predictive analytics to historical sales and returns data, TCI right‑sized its workforce and workspace to match anticipated volumes. The facility’s modular layout—featuring dedicated inspection, cleaning, repair, and repackaging zones—works in concert with a real‑time WMS and barcode‑driven quality checks to restore items to “like‑new” condition. Seamless API integrations with e‑commerce platforms automate return authorisations and keep customers informed at every step. As a result, average return processing times fell from 7 to 2 days, restoration rates rose from 60 % to 92 %, customer satisfaction scores increased from 3.8 to 4.6 out of 5, and inventory write‑offs dropped by 35 %, saving an estimated 120 tonnes of CO₂ annually.

The NGOs can collaborate with businesses to reduce the waste in the economy. Like Goonj’s partnership with various textile firms to collect textile waste. Businesses can collaborate with the research institution, NGOs to develop open innovation solutions that reduce waste.  For instance, Indian Oil Corporation fosters a sustainable future through open innovation and circular economy principles. It launched Sustain-a-thon , an innovation challenge that invites startups, academic institutions, and industry professionals to co-create solutions for environmental challenges.  The company’s key sustainable approaches include PET Bottle Recycling for Uniforms, where IOCL has successfully recycled over 8 million PET bottles into uniforms for company staff, fuel station attendants, and delivery partners. The garments, manufactured in partnership with textile recyclers, demonstrate large-scale upcycling and support India’s vision of reducing plastic waste. 

A strong example of a circular economy in action can be seen when companies adopt open innovation strategies to implement waste-to-resource technologies, advancing their progress toward a zero-waste future. In the automotive sector, several manufacturers are actively recovering valuable materials from vehicles that have reached the end of their lifecycle. One such initiative involves Renault, one of Europe’s leading car manufacturers, partnering with environmental services provider Veolia and chemical company Solvay to create a closed-loop system for producing recycled automotive components. Through this collaboration, the company extracts metals, plastics, and other reusable materials from disposed vehicles. These recovered materials are then reintegrated into Renault’s production of new vehicles, supporting a more sustainable and resource-efficient manufacturing process. Renault’s Flins facility in France has emerged as a key site in Europe for vehicle dismantling and material recovery, positioning it as a central player in advancing circular economy goals within the automotive industry.

  • Product as Service/ Sharing Economics and Leasing Systems 

This economic model emphasises that consumers can access and use products without the need to purchase them outright. Instead, they benefit from the functionality and performance of the product throughout its usage period. Businesses adopting such models—often similar to leasing—typically offer additional value-added services such as maintenance, upgrades, and user support. Since ownership remains with the provider, there is a strong incentive to design products that are durable, efficient, and require minimal upkeep. Ideally, these products are developed with sustainability in mind, incorporating features like modular design, lightweight materials, and components that are easy to disassemble and recycle, thereby supporting longer product lifespans and reducing environmental impact

In India, Furlenco, a pioneer in the Furniture-as-a-Service space, operates on a circular economy model aimed at reducing waste and extending product life cycles through refurbishment and reuse. Its objective is to make furniture consumption more sustainable by shifting from ownership to access via a monthly subscription model, offering customers up to 15 items for ₹4,999/month under its “UNLMTD” plan. The process involves collaborative platform development through Furlenco X, enabling other furniture brands to list their inventory, along with partnerships with financial institutions and tech firms to enhance digital and service infrastructure. Each furniture piece is refurbished and repurposed for up to six cycles, minimising waste and conserving resources. Complemented by services like delivery, assembly, maintenance, and relocation, Furlenco’s circular approach has resulted in a 200 crore rupees annual recurring revenue (ARR) in FY23, a 70–75% reduction in water usage through recycling technologies, and a subscriber base of over 500,000 across 15 Indian cities.

Other sustainable business models aligned with circular economy principles include those based on product-service systems. These models typically operate on payment structures such as subscriptions, leases, or pay-per-use arrangements. In such setups, customers ranging from individuals to institutions, businesses, and NGOs are charged based on the duration of service usage or the volume of products consumed. Similar to previously discussed product-service systems, these models promote a shift from traditional ownership toward access-based consumption, encouraging more sustainable and resource-efficient practices.

AARK World Pvt. Ltd, the parent company of fashion rental platform Rent It Bae, acquired its competitor Flyrobe in a strategic cash-and-stock transaction valued at ₹60 crore (approximately $8.4 million). This move highlights the convergence of Product-as-a-Service (PaaS)  and sharing economy models in the fashion industry, where consumers prioritise access over ownership. Both Rent It Bae and Flyrobe operate on a rental-based model, offering customers access to high-end fashion without the need to purchase. This aligns with the PaaS model, where users pay for the experience or service of a product here, designer wear rather than the product itself. By subscribing to these services, users gain temporary access to premium clothing and accessories, contributing to a circular and sustainable economic model.  The shared use of clothing ensures multiple lifecycles for each item, reducing waste and overconsumption. These platforms effectively turn fashion into a shared service, echoing core principles of the sharing economy, where resources are utilised collaboratively.  This business model enables customers to personalise their wardrobe experience affordably, offering access to luxury without ownership. At the same time, it promotes sustainability by extending the lifecycle of fashion products. It’s a clear example of how technology, open innovation, and circular economy principles can come together to disrupt traditional retail models.

This sharing economy approach reduces unnecessary investments in new equipment, minimises waste, and improves resource efficiencies across multiple sectors.

Way Forward

The co-creation of open innovations plays a crucial role in enhancing the financial performance of businesses and their collaborating partners, particularly when applied within closed-loop systems and sharing economy models. These collaborative approaches not only help minimise negative externalities such as waste and pollution, but also contribute to the long-term sustainability of the planet. By fostering joint innovation among companies, individuals, and a broad range of stakeholders, open innovation facilitates the creation of sustainable solutions while simultaneously driving business value.

However, the implementation of such models is not without challenges. Initiatives like resource sharing, recovery of waste and by-products, and industrial symbiosis demand strong, trust-based partnerships. Organisations must overcome operational, structural, and strategic hurdles as they transition from traditional, linear approaches to open innovation systems that prioritise resource efficiency and waste reduction The integration of co-creation within open innovation is gaining increasing recognition in academic and industry circles as a powerful mechanism for driving the circular economy. A variety of theoretical frameworks such as stakeholder theory, social exchange theory, the relational view, dynamic capabilities, and the resource-based view (RBV) highlight the importance of building collaborative relationships to share knowledge, technologies, and capabilities. Such partnerships not only bolster a firm’s legitimacy and environmental credentials, but also enhance their capacity to adapt and innovate in response to shifting sustainability imperatives. Importantly, these alliances yield benefits that go beyond profit generation, enabling mutual value creation and producing shared sustainability outcomes.

Furthermore, the sociotechnical transition theory emphasises the importance of incremental, systemic change and cross-sector collaboration in driving long-term sustainability goals. As firms pivot from linear business models to circular ones, the ability to leverage external expertise, form robust stakeholder networks, and co-create impactful innovations becomes vital. In essence, these theoretical perspectives offer a robust conceptual foundation for future research and practical applications. They can guide organisations in understanding how, why, and when open innovation strategies can be effectively utilised to develop resilient, circular, and inclusive business ecosystems.