The Barriers Faced by SMEs in the Tourism Industry in Adopting Circular Practices

Abstract

This paper aims to explore the barriers faced by SMEs in the tourism sector when adopting circular economy (CE) practices. It focuses on Greek coastal areas, particularly the coastal community of Makry Gialos on the island of Crete, as an example location. To do so, the paper conducts a two-fold literature review discussing (a) barriers faced by SMEs when trying to adopt CE practices, with a particular focus on SMEs in the tourism industry, as well as (b) the Greek legal framework for CE and its implications for SMEs. The literature review is supplemented by comments and quotes gathered through informal conversations with individuals who have worked within Makry Gialos’ tourism industry or collaborated with local businesses in order to gain insight into the issues specifically facing the area. The paper argues that the barriers faced by SMEs in Makry Gialos are primarily financial and stem from a lack of funds, lack of information regarding funding opportunities, and/or inability to submit such applications for funding. The above are also underpinned by a lack of awareness and understanding of the circular economy.

To reference this paper: 

Psatha, E., 2024. The barriers faced by SMEs in the tourism industry in adopting circular practices: The case of Makry-Gialos, Crete. In Towards Circular: Analysis of the coastal areas of Greece, Italy and Spain. Edited by Skupchenko, J.K. Think Tank AlterContacts. Available at: https://www.altercontacts.org/publications/towards-circular-2024/gr-sd-4 

DOI: 10.13140/RG.2.2.17896.48643

Introduction

Tourism is a big and profitable industry, accounting, in 2023, for 9.1 percent of the global GDP (World Travel & Tourism Council, 2024). An integral part of the tourism ecosystem is small and medium-sized enterprises (SMEs). In Europe, for example, SMEs are responsible for approximately 83 percent of the job positions in the tourism industry (Buhalis & Costa, 2006, p. 118). Greece is among those countries for which tourism is a key economic pillar. In 2022, revenue from tourism accounted for 7.1 percent of the country’s GDP (UNWTO, 2024). The industry also accounted for 10 percent of the total job positions in the country (OECD, 2020). Mirroring the above trend, SMEs play an essential role in the Greek context as well, with 57 percent of job positions in the tourism sector offered by SMEs (Buhalis & Costa, 2006, p. 117).

However, despite tourism’s positive impact on the economy, its adverse effects on the environment have also been well documented. Tourism may, among other things, lead to the depletion of natural resources, land degradation (primarily because of increased construction), increased air and water pollution, increased waste, and have a negative impact on an area’s wildlife (Gazta, 2018; Jian, 2003; Simkova & Kasal, 2012; Sunlu, 2003). Again, all the above are present in the Greek context, with the literature suggesting that coastal areas, which tend to be synonymous with tourist activity, are particularly vulnerable to environmental degradation (Sakellariou et al., 2016; Vandarakis et al., 2021). However, given, again, the industry’s profitability and broader economic impact, it is improbable that tourist activities will abruptly cease. Hence, it is crucial for the purposes of environmental preservation as well as social welfare in the local community that alternative tourism practices are introduced and implemented.

An alternative model of production and consumption relevant to the activities of the tourism industry is that of the circular economy (CE). Such an approach features ‘’sharing, leasing, reusing, repairing, refurbishing and recycling existing materials and products as long as possible (European Parliament, 2023). In this way, ‘’the life cycle of products is extended’’ in order to reduce waste to a minimum (European Parliament, 2023). The CE model represents a departure from the orthodox linear economic model, relying on a ‘take-make-consume-throw-away’ rationale powered by cheap and accessible energy and materials (European Parliament, 2023). While, as Khan et al. (2021) note, there has been limited academic discussion on the intersection between tourism and CE, research has indeed shown that the adoption of CE practices results in reduced carbon dioxide emissions, landfill and waste storage, consumption of scarce resources and contributes to environmental restoration (Berg et al., 2018; Mandych et al., 2023; Zemanová, 2023).

Nevertheless, it must be noted that SMEs, whose place is so crucial in the context of the tourism ecosystem, are lagging behind when it comes to adopting circular practices (Khan et al., 2021). In light of the above, this paper aims to explore the challenges SMEs within the tourism ecosystem face when trying to adopt CE practices. Additionally, taking into account the significance of the tourism industry for Greece as well as its impact on the country’s coastal areas, this paper deliberately focuses on such a coastal community, namely that of Makry Gialos village (Greek: Μακρύ Γιαλός) on the southeast coast of the island of Crete. 

Makry Gialos has been selected due to its predominant financial reliance on tourism. To paint a more detailed picture, Makry Gialos is a small coastal community numbering 791 permanent residents and more than 100 tourist accommodation establishments (Airbnb | Makry Gialos – Holiday Rentals & Places to Stay - Greece, 2024; Hellenic Statistical Authority, 2024; Tripadvisor, 2024). It owes its name to the sandy beach of the same name found in the area, which is advertised as ideal for family vacations, being safe for children due to its shallow depth, as well as tranquillity regardless of the strength and direction of the wind (Crete Today, 2017). During the warmer months, the area welcomes tourists, featuring a range of tourist services such as accommodation and tourist shops selling vacation essentials (e.g., maps, beach wear), as well as local products and other souvenirs (Deloitte & Remaco, 2021, p. 25). 

As noted above, limited research has focused on the intersection between tourism and CE, and consequently, even fewer papers exist with a geographical focus on Greece and SMEs. Hence, this paper is to serve as exploratory research, gathering preliminary insights and serving as a blueprint for future research on the barriers and opportunities for SMEs in adopting practices CE within the tourism ecosystem in coastal areas, wherever applicable.

Methods

As alluded to above, this paper will explore the issue of barriers faced by SMEs in the tourism ecosystem when trying to adopt CE practices, with a focus on the example location of Makry Gialos, by conducting a two-fold literature review. The first part of the literature review discusses the barriers faced by SMEs when adopting CE practices, gradually zooming in on literature concerning Greece and SMEs in the tourism industry. The second part is a brief discussion of parts of the Greek legal framework aiming to tackle climate change and how it impacts SMEs. Discussing the legal framework is significant as it allows us to understand what measures, if any, are binding to SMEs and provides insight into the culture of sustainability and the circular economy in Greece. The fourth part of the paper (Discussion) bridges together the two literature reviews, supplementing them with comments acquired via informal conversation with people who have worked within Makry Gialos' tourism industry or have collaborated with local businesses. To clarify, in the context of this paper, such comments and quotes are used to provide insight into the realities of Makry Gialos, given the lack of literature focusing on the area. As a means of qualitative research, informal conversations ''create a greater ease of communication'' and are likely to produce ''more naturalistic data'', mitigating biases as well as guards that are inherent to a more structured interview approach (Alamri, 2019; Swain & King, 2022). It should, however, be noted that the small sample size (discussions with five (5) individuals took place) poses a limitation to the paper regarding the robustness of its conclusions. Again, while indeed the research is exploratory, a larger and more diverse sample size would make the conclusions about Makry Gialos more definitive.

Barriers faced by SMEs when adopting CE practices

To begin with, in discussing barriers faced by SMEs when trying to adopt circular economy practices, Zemanová (2023, p. 288) notes that the adoption of such practices by SMEs is indeed crucial for the overall success of transitioning to a more sustainable economy. Nevertheless, her literature review reveals that when trying to implement CE practice, businesses ‘’have to face challenges such as organizational culture, management resistance, lack of information, unwillingness to take risks, unavailability of business partners for waste processing, high initial costs, lack of funds, uncertain return on investment, insufficient legislation, low awareness of the circular economy and insufficient support by government institutions’’ (Zemanová, 2023, p. 288). It must be noted that Zemanová’s (2023) research is based on a limited sample of articles, which may overlook certain other factors that serve as obstacles and/or other insights relevant to SMEs attempting to adopt CE practices. 

On the other hand, Govindan & Hasanagic (2018, p. 278) shed light on the systemic factors posing as barriers to the adoption of CE practices by SMEs, noting that “among various stakeholders, the governmental perspective has the maximum positive impact on the implementation of the circular economy in supply chains.” Hence, from the perspective of barriers, the lack of government-initiated guidelines and infrastructure is perceived as the main barrier to the adoption of CE practices by the relevant business stakeholders. Additionally, the stakeholder’s concerns are not simply imagined but, in the context of Govindan & Hasanagic’s (2018) research, are correlated within a multi-perspective framework observed by the broader research barriers, further pronouncing the importance of systemic government factors, especially when it comes to dealing with supply chains. 

Govindan & Hasanagic’s (2018) insight concerning the importance of government initiatives is also echoed by Garcés-Ayerbe et al.’s (2019) research in the context, specifically of SMEs in the EU. This is particularly relevant for the purposes of this paper, which also deals with a location within the EU and, therefore, is subject to EU regulations and realities. Garcés-Ayerbe et al.’s (2019) research adds further nuance to the question of barriers by distinguishing between barriers reported by SMEs that have already adopted CE practices and those that have not. The former are more preoccupied with barriers such as administrative processes, government regulations, and lack of human resources, while the latter tend to be put off by financial considerations (e.g., financing and cost-benefit barriers).

Again, when it comes to the EU, the EU itself, as well as think tanks and institutions operating at the intersection of politics and evidence-based insights, despite the limitations of the available literature, seem to have reached a reasonably broad consensus on what the reasons SMEs fail to adopt CE practices. Namely, the barriers faced by SMEs are generally linked to financial considerations, lack of government support and effective legislation, lack of information and awareness by SMEs concerning such practices and financial support programs, administrative difficulties in implementing CE practices, and a lack of technical skills necessary for adopting and implementing them (European Commission Directorate-General for Environment, 2016; Rizos et al., 2015). 

The EU line is echoed by the Greek government, and very limited concrete reports have been produced by Greek municipalities and other local administrative bodies (Ministry for Environment and Energy, 2018). Preliminary evidence nevertheless suggests that the above view is also shared by SME entrepreneurs in Greek coastal areas (Chamber for the Development of Greek Islands, 2017). The contribution by the Chamber for the Development of Greek Islands (2017) emphasizes a hindrance affecting islands in particular, which was not detailed in the above literature. This issue is linked to broader barriers such as financial considerations and lack of government initiatives. Specifically, entrepreneurs are particularly concerned about the challenges arising from insularity. In the simplest of terms, insularity, in this context, can be defined as ‘’disconnection from the mainland’’ (EPSON, 2022). Insularity is essentially responsible for higher transportation costs, reduced accessibility to major markets, lack of specialized personnel, and a partially short peak activity period (tourism only during the warmer months), all of which result, according to the Chamber for the Development of Greek Islands (2017, slide 9), in an 18 percent increase in the expenses of businesses on the islands compared to mainland Greece. Such an increase makes them even more reluctant to switch to CE practices primarily because of the fear of incurring even higher costs. 

Overall, the identified barriers appear to be consistent across all studies discussed above, albeit with some further variation and nuance on the basis of a place’s unique characteristics, such as when it comes to the issue of insularity. Reflecting on the initial limitations of the study by Zemanová (2023, p. 288), which identified a long list of barriers, namely ‘’organizational culture, management resistance, lack of information, unwillingness to take risks, unavailability of business partners for waste processing, high initial costs, lack of funds, uncertain return on investment, insufficient legislation, low awareness of the circular economy and insufficient support by government institutions’’, I conclude that literature appears to have reached a relative consensus with regards to which are the possible barriers SMEs face when it comes to adopting CE practices. In addition, while there is limited research concerning SMEs in the tourism industry specifically, preliminary results suggest that the barriers remain the same, while there is also no apparent reason that would so far lead one to assume otherwise. The significance of these barriers, however, appears to vary in each instance, suggesting that conducting contextual case studies would shed more light on the unique challenges faced by specific groups of SMEs in certain geographical areas.

Greek Legal Framework for CE and its Implications for SMEs

This section briefly discusses some aspects of the Greek legal framework aimed at achieving climate neutrality and adapting to climate change. According to Article 10 of Law 4936/2022, known as the Climate Law, the focus lies on energy conservation, transitioning to renewable energy, promoting electromobility, waste management, and emissions management. Examples of what the above aims may more concretely entail can be found in the following articles. Article 11 prohibits the production of electrical energy from solid fossil fuels starting from December 28, 2028 (Climate Law 4936/2022). Article 12 states that from January 1, 2026, vehicles registered as taxis in the Decentralised Administration of Attica and the Regional Unit of Thessaloniki are to be zero-emission vehicles. A notable exemption to the above is the island municipalities belonging to these regions (Climate Law 4936/2022, A’ 12). Article 14 discusses the installation of electric vehicle parking and charging points, applicable to metropolitan municipalities, large and medium-sized mainland municipalities, municipalities of regional unit capitals, and large and medium-sized island municipalities. Article 17 prohibits the sale and installation of oil-fired boilers from January 1 2025 and onwards. It also states that buildings, excluding tourist accommodations and places of worship, are required to install renewable energy infrastructure able to cover at least 30 percent of their energy needs (Climate Law 4936/2022, A’ 17). Article 20 discusses the reduction of emissions by businesses and private enterprises, mandating a report on their carbon footprint to be submitted by October 31, 2023, to the relevant authorities. It should be noted, however, that SMEs are exempt from this requirement (Climate Law 4936/2022, A’ 20). 

There is also a specific focus on the islands, as Article 21 establishes the strategic plan “GR-eco islands” aimed at transitioning Greek islands towards climate neutrality. This initiative seeks to address the challenges of island insularity by focusing on renewable energy production, integrating energy storage with mainland networks, and promoting CE and sustainable management of local resources (Climate Law 4936/2022, A’ 21). It also entails improving transportation links to and from the islands, as well as fostering entrepreneurship, creating new jobs, and enhancing the tourism sector (Climate Law 4936/2022, A’ 21). The law also discusses financial incentives as well as various penalties concerning noncompliance (see, for example, Article 31). In addition, the responsibility of each individual region is to identify the specific needs and challenges faced by given areas. For example, the Region of Crete (2022) has concluded that actions regarding energy demand (e.g., for cooling in housing, manufacturing, municipal infrastructure, and tourism) need to be applied horizontally. The region’s report also emphasizes the need to provide further incentives for tourist enterprises, in particular for them to move in that direction (Region of Crete, 2022). 

Complementing the above, there is also Law 4819/2021 dealing with waste management. Article 1 of Law 4819/2021 references CE, reading that the goal of this law is to “establish a unified framework for waste management, with an emphasis on prevention, preparation for reuse, and recycling.” Article 8 places responsibility for waste management on those actors labeled as “producers,” defined as those who produce, develop, manufacture, process, sell, or import products. More details about producer responsibility can be found in other articles, such as Article 41, which states that producers may process the waste themselves or assign it to an organization or company, private or public. In addition, Article 36 states that the costs of waste management burden the producer. Article 18 also calls for the establishment of Centres for the Repurposing of Materials under the stewardship of Regional Administration Units (Greek: Ο.Τ.Α.), potentially in collaboration with the local branch of Solid Waste Management Administrations (Greek: ΦοΔΣΑ). Such centers are essentially made so that citizens may easily repair, repurpose, or dispose of materials. Article 26 reaffirms the practice of sorting waste into differently colored bins provided by local municipalities (Law 4819/2021). Article 42 also contextualizes the entire law, stating that it is the country that should have the necessary infrastructure for all types of waste management.

Concerning SMEs, it should be underlined that Climate Law 4936/2022 is not binding to them, focusing instead on big business and other institutions. The rationale seems to be, however, that SMEs are to benefit from the broader systemic changes concerning energy, emissions management, etc. Progress has primarily been made with regard to waste management, where Law 4819/2021 is, in fact, binding and broader systemic issues concerning waste management infrastructure should become possible to tackle. Encouraging also focuses on the islands through the GR-eco islands initiative under Climate Law 4936/2022, which is consistent with the discussion on insularity in the first part of the literature review. Nevertheless, the fact that Climate Law 4936/2022 is not binding is indicative of a lax environmental culture with regard to SMEs. It essentially shows that there is a lack of consistent effort to integrate CE practices and promote ecological culture when it comes to the SME’s day-to-day operations.  

In addition, it must be noted that funding for SMEs is primarily provided through the National Strategic Reference Framework, henceforth ESPA (Greek: ΕΣΠΑ – Εθνικό Στρατηγικό Πλαίσιο Αναφοράς), a collaborative program between nation states and the EU and not any of the above laws (European Commission, 2007). A relevant funding opportunity under the National Strategic Reference Framework 2021-27 is a program aptly called “Green Transition SMEs,” whose primary goal is to boost CE practices and transition to renewable energy (ESPA, 2024).

Discussion

In bridging the two parts of the literature review, it becomes apparent that the adoption of CE practices by SMEs is not a priority of the Greek state, given the non-binding nature of the National Climate Law 4936/2022. Hence, issues such as those highlighted by Zemanová (2023, p. 288) related to “organizational culture, management resistance, lack of information, unwillingness to take risks, unavailability of business partners for waste processing, high initial costs, lack of funds, uncertain return on investment, insufficient legislation, low awareness of the circular economy and insufficient support by government institutions” are likely to persist. Additionally, as already discussed above, it is indicative of a lax environmental culture with regard to SMEs, demonstrating, essentially, a lack of consistent effort to integrate CE practices and promote ecological culture when it comes to the SMEs’ day-to-day operations.  

It must also be noted that the second part of the literature review concerning the legal framework for sustainability and CE in Greece does not cover whether the framework has been adequately implemented. Nevertheless, the fact that there is a legal framework, despite its limitations, is vital for partially mitigating barriers such as those linked to a lack of government-initiated guidelines. Views diverge on whether the legal framework is indeed being implemented and whether SMEs make an effort to adopt CE approaches. 

According to respondent 1, who works in the hospitality sector, “Lots of small businesses have reduced plastic waste. They have cut on plastic straws and cutlery, and many of the small, usually family-owned hotels/rental apartments have switched to solar panels and solar water heaters”. Respondent 1 also added that they are aware of some restaurants that have made their portions smaller in an effort to reduce food waste. They have also noticed more recycling bins and indeed confirm that progress has been made with regard to food waste infrastructure. On the other hand, respondent 2, who also works in the hospitality sector, insists that “not nearly enough changes have been made in order for us to talk about the barriers a small business would face in trying to adopt environmentally sustainable practices.” Both added, however, that the impression their managers give them is that they worry mainly about the costs of transitioning to more environmentally friendly practices or they are unaware of CE altogether. 

Respondent 2 flags a couple of issues: first, a general lack of awareness regarding CE practices and an issue of funding. Is it the case that SMEs are unaware of financial support schemes, or are existing schemes, such as ESPA, not actually helpful to them, or is it entirely something else? To the above, respondent 3, a business consultant who has collaborated in the past with local businesses, adds the following: “My task was to help businesses acquire such funding via ESPA, and of course, there are requirements a business has to meet. Often, they did not have the necessary documents that would allow them to submit an application or simply, because the ESPA funding does not cover the business costs in its entirety, it usually covers around 50 percent of it; many businesses could not actually afford to invest even half of that money”. 

Respondents 4 and 5, who also work within the tourism sector and hold higher administrative positions in SMEs, echo the above sentiment. Respondent 4 commented that SMEs deserve some recognition and credit for their efforts, even if they mainly focus on recycling at the moment. They also added that “sometimes it is very difficult to do something about the green economy simply because we do not actually know what it means or what to do about it.” 

Respondent 5 primarily focuses on the stress local businesses face and actually puts it forward as a barrier to adopting CE practices. According to her, the seasonal aspect of tourism puts great strain on businesses with regard to using the money acquired during summer to survive the winter. The money they earn, she adds, “does not only go back to the business, but it is how my family sustains themselves.” In her conceptualization, stress, while primarily financial, also highlights how overwhelming it can get for SMEs to address such issues while having little to no knowledge of what it entails. 

Therefore, in Makry Gialos, some SMEs have made a conscious effort to adopt CE practices, and the legal shift with Law 4819/2021 concerning waste management has had a positive impact. The barriers that pose a challenge for SMEs in the area, as revealed through the comments made by the individuals who have worked within the tourism industry in the area or collaborated with local businessmen, are the financial costs of transitioning to CE practices. An issue that can be traced to the fact that some businesses cannot apply for funding because they lack even basic funds, do not have the documents necessary for submitting funding applications or are unaware of funding opportunities. At the same time, all of this is underpinned by a general lack of awareness about CE, which is a barrier for SMEs insofar as it removes the conversation of CE from the picture to begin with. 

Agenda and Future Research

With respect to the limitations of the present paper, namely the small sample size, a study utilizing a greater sample size would be necessary to evaluate the consistency of this paper’s conclusion by replicating it. Additionally, taking into account the insights from the first part of the literature review, more context-specific studies would provide valuable insights into challenges that could be purely geographical, cultural, and/or administrative in certain areas. These barriers may uniquely inform the realities faced by SMEs when attempting to adopt CE practices, and understanding them could ultimately facilitate their successful adoption. Another direction for future research and a facet of the topic the paper touched on but could further be explored is the effectiveness of the ESPA financial support programs. In other words, can they meaningfully meet the needs of SMEs within the tourism sector, or are changes required? Again, ESPA is significant insofar as it is the main state source of funding for SMEs.  

Conclusion

In answering the question of what barriers SMEs in Makry Gialos face when it comes to adopting CE practices, the insights yielded by the above discussion are consistent with the barriers revealed in the first part of the literature review. Perhaps most aptly summarised by Zemanová (2023, p. 288), these barriers include “organizational culture, management resistance, lack of information, unwillingness to take risks, unavailability of business partners for waste processing, high initial costs, lack of funds, uncertain return on investment, insufficient legislation, low awareness of the circular economy and insufficient support by government institutions.” In the spirit of that same literature review, which demonstrates that the significance of barriers varies area by area, the comments made by the individuals who have worked within the tourist industry or collaborated with local businesses in Makry Gialos suggest that the barriers faced by SMEs in that given area are primarily financial. They stem, essentially, from a lack of funds as well as difficulty in submitting applications for financial support, and a lack of knowledge regarding sources of funding. The above is also underpinned by a general lack of awareness and understanding regarding circular economy practices more broadly. The latter can be partially explained as, after all, the National Climate Law 4936/2022 is not binding for SMEs. Hence, such awareness has not essentially been communicated in a way that is relevant and or meaningful to SMEs. In light of the other comments made, it must indeed be noted that the legal framework is relatively new, and SMEs have made positive steps towards environmental sustainability, especially in line with the government guidelines (Law 4819/2021) when it comes to waste management.

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