Automotive Remanufacturing in the Circular Economy in Europe: Marketing System Challenges

Circular systems of reuse and recycling may stimulate resource conservation and thereby more sustainable outcomes for marketing systems. Automotive remanufacturing serves as a specific circular marketing system of reuse. However, supply shortages challenge the European remanufacturing marketing system, and current research focuses on micromarketing perspectives in this context. This study addresses this gap by analyzing the system from a macromarketing perspective to better understand reverse channel issues and their relation to the sustainability outcomes of the system. The analysis reveals imperfections in the market that lead to a waste of resources and other environmental impacts. A macro-perspective of the European marketing system for supply and procurement in automotive remanufacturing offers relevant insights, which better explain the observed inefficiencies. The study contributes to a more complete understanding of remanufacturing marketing systems and provides implications for policymakers and for marketers concerned with the design of such systems. Accepted Version for publication in the Journal of Macromarketing (see footer for details) 2 Kalverkamp, Matthias; Raabe, Thorsten, Automotive Remanufacturing in the Circular Economy in Europe: Marketing System Challenges, Journal of Macromarketing (online first) pp. xx-xx. Copyright © 2017(Copyright Holder). Reprinted by permission of SAGE Publications. https://doi.org/10.1177/0276146717739066 Abbreviations DMCA Digital Millennium Copyright Act ELV End-of-Life Vehicle IR Independent Remanufacturer OE Original Equipment OEM Original Equipment Manufacturer Accepted Version for publication in the Journal of Macromarketing (see footer for details) 3 Kalverkamp, Matthias; Raabe, Thorsten, Automotive Remanufacturing in the Circular Economy in Europe: Marketing System Challenges, Journal of Macromarketing (online first) pp. xx-xx. Copyright © 2017(Copyright Holder). Reprinted by permission of SAGE Publications. https://doi.org/10.1177/0276146717739066 Introduction An increasing awareness of environmental impacts (Ferguson and Toktay 2006) and issues related to increasing material demand (UNEP 2013b) motivate industries to consider material supply alternatives and to improve waste management. The release of the ‘circular economy strategy’ of the European Commission (EC 2015a) has further increased awareness of sustainable resource use. Policy interventions aim to reduce the environmental impact of end-of-life products (EU 2000) or to reduce negative outcomes, e.g., regarding the trade of conflict minerals (DoddFrank Act 2010). The EU introduced laws and regulations to build a circular economy, which is an economy that aims to improve resource efficiency by preserving product and material value through circular flows (EC 2015a). Some regulations apply to end-of-life vehicles (ELVs) in particular (EC 2015b; EU 2000, 2008). The EU refers to the model of the waste management hierarchy to outline its preferences with regard to waste treatment (EC 2015a). In relation to products at the end of their lives, the waste management hierarchy focuses on reuse and recycling as preferred strategies over recovery and landfills, respectively. Reuse covers strategies that extend the lifetimes of products or components. Recycling is the process of recovering materials from waste. Here, recovery refers to energy recovery, i.e., waste incineration (EC 2015a). Landfilling is inevitable, but it should be avoided as much as possible (EU 2008). The reuse of end-of-life products is preferable from both economic and environmental perspectives due to previously added value in the form of raw materials, labor, time or energy (Agrawal, Atasu, and van Ittersum 2012; Barnes 1982). Reuse comprises different strategies, for example, the direct reuse of car components as spare parts or as a resource for remanufacturing (Thierry et al. 1995). The remanufacturing of used products regularly conserves more of the preAccepted Version for publication in the Journal of Macromarketing (see footer for details) 4 Kalverkamp, Matthias; Raabe, Thorsten, Automotive Remanufacturing in the Circular Economy in Europe: Marketing System Challenges, Journal of Macromarketing (online first) pp. xx-xx. Copyright © 2017(Copyright Holder). Reprinted by permission of SAGE Publications. https://doi.org/10.1177/0276146717739066 vious added value than material recycling (Östlin, Sundin, and Björkman 2009). The remanufacturing of used products involves a manufacturing process aimed at restoring products to the same specifications as the corresponding new product (APRA Europe 2014). Optimistic estimations of market potential and increasing demand support remanufacturing (APICS 2014; EC 2015a). With a global share of approximately two-thirds of all remanufacturing activities (USITC 2012), automotive remanufacturing is considered an important contributor to sustainable development (EC 2015a). In the EU, remanufacturing falls under the umbrella of circular economy initiatives, and, in the US, remanufacturing was passed into law via the Federal Vehicle Repair Cost Savings Act of 2015. Moreover, China made remanufacturing a national strategy as part of their five-year plans (Tan et al. 2014). The reduction of raw material extraction and the reduction of emissions are sustainabilityrelated challenges in environmental terms, and sustaining regional labor is a challenge in societal terms (ERN 2015b). The sustainability-related economic challenges addressed by remanufacturing are, for example, resource scarcity and the wastage of recoverable added value. The outlined scope of sustainability—as an economic, environmental and societal objective—frames the present study on remanufacturing in Europe. Remanufacturing requires reverse channels that provide even better sorted reverse material flows than material recycling. Marketing challenges in reverse channels and reverse logistics were recognized earlier (as in this journal discussed by Barnes 1982 or Fuller, Allen, and Glaser 1996, inter alia), but they have seemingly been “largely ignored,” as Benton (2015, p. 111) emphasized in a commentary in this journal. Furthermore, while recycling markets and legislation solved some of the reverse channel issues, new issues continue to surface. As Barnes (1982) corAccepted Version for publication in the Journal of Macromarketing (see footer for details) 5 Kalverkamp, Matthias; Raabe, Thorsten, Automotive Remanufacturing in the Circular Economy in Europe: Marketing System Challenges, Journal of Macromarketing (online first) pp. xx-xx. Copyright © 2017(Copyright Holder). Reprinted by permission of SAGE Publications. https://doi.org/10.1177/0276146717739066 rectly predicted, new or changing incentives in the reverse channel system change channel structures and, in turn, may cause new reverse channel issues; the effects of such incentives are not always clear. Ownership issues and the conflicting interests of actors at the end of life challenge the collection and further supply of used products. Interests differ between the end-of-life channels of reuse, recycling and recovery, and they even differ within these channels (e.g., in remanufacturing supply channels). For example, recyclers mainly look for value of the raw materials in used products, while ‘re-users’ look for working products or spare parts, usually regardless of their suitability for remanufacturing. Hence, the value of raw materials is usually lower than the sales value of a used but working component. Remanufacturers, in turn, focus on products or spare parts that will be suitable for their remanufacturing processes. Remanufacturers and OEMs determine the value of used components based on their previously added value. The assessment of this value is case specific; it relates to the saved steps of value creation, though it depends also on the technologies and knowledge required to restore added value. The authors refer to this value as ‘intrinsic value’ following the use of this term by recyclingand remanufacturing-related literature (Reynolds and Pharaoh 2010; Subramoniam et al. 2013). Different actors, objectives, and strategies characterize the strong competition for used products. Automotive remanufacturers generally report supply shortages for components as the central challenge (Weiland 2012). Findings from the distribution channels support a focus on supply issues because research indicates that garages will install more remanufactured components if they are available (Steinhilper 2012). These persistent supply shortages in remanufacturing markets may hinder circular flows of components. The absence of circular flows, in turn, may hinder the preservation of added Accepted Version for publication in the Journal of Macromarketing (see footer for details) 6 Kalverkamp, Matthias; Raabe, Thorsten, Automotive Remanufacturing in the Circular Economy in Europe: Marketing System Challenges, Journal of Macromarketing (online first) pp. xx-xx. Copyright © 2017(Copyright Holder). Reprinted by permission of SAGE Publications. https://doi.org/10.1177/0276146717739066 value and eventually the potential contributions of remanufacturing to sustainability. Therefore, the motivating research questions are as follows: (1) Why do (new) reverse channel issues arise, and how do such issues relate to sustainability outcomes? (2) How can reverse channel-oriented marketing systems prevent negative outcomes and improve their contributions to sustainability? This article will describe and explain the different levels of system aggregation to analyze imperfections in the remanufacturing market and discuss their influence on system outcomes. The article concludes with implications for the remanufacturing marketing system and an outlook on future research. Marketing Systems and New Institutional Economics Despite recognizing shortages in the remanufacturing supply, the literature fails to address the contemporary systemic connections in remanufacturing markets. Therefore, this study aims to address this gap to better understand remanufacturing marketing systems, which are analyzed as economic systems. Such systems consist of institutions and organizations and concern their interactions and potential interdependencies with other systems. This analysis seeks to identify the systemic connections that cause current shortages and the consequent outcomes. Marketing Systems Theory The present study focuses on marketing systems. The study analyzes how relationships and exchanges between groups of actors affect dynamics in the marketing system, such as incentives in the reverse system, which may cause new reverse channel issues. Accordingly, this study addresses the question of how the marketing system should work to support a sustainable circular economy. In general, Hunt emphasized the importance of marketing systems (1976) and later refined his perspective by underlining the role of marketing systems in macromarketing (1981). In Accepted Version for publication in the Journal of Macromarketing (see footer for details) 7 Kalverkamp, Matthias; Raabe, Thorsten, Automotive Remanufacturing in the Circular Economy in Europe: Marketing System Challenges, Journal of Macromarketing (online first) pp. xx-xx. Copyright © 2017(Copyright Holder). Reprinted by permission of SAGE Publications. https://doi.org/10.1177/0276146717739066 2007, Layton presented marketing systems at various levels of aggregation at the core of macromarketing (Layton 2007). He defines the concept of marketing system as follows: “A marketing system is a network of individuals, groups, and/or entities linked directly or indirectly through sequential or shared participation in economic exchange that creates, assembles, transforms, and makes available assortments of products, both tangible and intangible, provided in response to customer demand.” (Layton 2007, p. 230) In his work on marketing systems, Layton outlines four categories on which a marketing system study can focus: environment and boundaries, attributes, components, and outcomes (Layton 2007). Decisions about the selected categories and characteristics depend on the objectives of the marketing system study in particular. The focus on institutions and organizations in the present study emphasizes the relevance of the following characteristics. The environment and boundaries category pertains to aggregation levels, institutional settings, and boundary conditions such as open or closed systems. The attributes category concerns nodes and relationships, linkage characteristics and flows through linkages. Within the system and its subsystems, the components category is especially relevant, particularly the sub-categories of nodes, flows (of goods, financing and information), and transactions. Resource allocation, externalities and market failures are part of the outcomes category (Layton 2007). A marketing system is not necessarily directed toward distribution to the end customer, but it may relate to reverse flows of goods (Layton 2007). Supply is central to remanufacturing because having access to used products is the key to success. Therefore, the present work moves beyond the channels of distribution to consider channels of supply and procurement. Used products, so-called ‘cores,’ are the central resources in this industry. In automotive remanufacturing, a core can be any automotive component considered for remanufacturing. A core is a used component of a car, such as an alternator, transmission, diesel injector, or electronic control unit. The Accepted Version for publication in the Journal of Macromarketing (see footer for details) 8 Kalverkamp, Matthias; Raabe, Thorsten, Automotive Remanufacturing in the Circular Economy in Europe: Marketing System Challenges, Journal of Macromarketing (online first) pp. xx-xx. Copyright © 2017(Copyright Holder). Reprinted by permission of SAGE Publications. https://doi.org/10.1177/0276146717739066 remanufacturing process changes the core into a ‘remanufactured component’ (to avoid confusion with the ‘components of the marketing system,’ the authors use the terms ‘automotive or remanufactured component’). Supply-related challenges are immanent in the circular character of remanufacturing. Supply and distribution channels eventually merge because actors can simultaneously represent suppliers of cores and customers of remanufactured components. The present paper mainly considers “the study of...marketing systems” in terms of Hunt’s three criteria for macromarketing (Hunt 1981, p. 8). In his first criterion, Hunt identifies a “level of aggregation criterion which allows the inclusion of topics like ... the institutional structure of marketing and power relationships in channels of distribution” (Hunt 1981, p. 8). Hunt’s second criterion addresses “the impact and consequences of marketing systems on society” (Hunt 1981, p. 8). Among the impacts are not only economic outcomes but also environmental impacts or quality of life (Layton 2007). In principle, the contributions of reuse and recycling markets to sustainability demonstrate the connection of market system issues and sustainability, for example, the environmental impact of and labor provided by the marketing system of remanufacturing. Hunt’s definition of macromarketing comprises a third criterion, namely, “the impact...of society on marketing systems” (Hunt 1981, p. 8). Despite the admitted significance of societal norms in marketing systems, this perspective is not considered in detail. In terms of the demand for remanufactured components, the final customer’s behavior only has an indirect influence on the marketing system. Regular car owners usually delegate car maintenance to repair shops. Repair shops act as intermediaries between consumers and remanufacturers in the procurement channels. They are experts who advise the final customer on the appropriateness of certain spare parts. Rather than the final customer, repair shops handle the core exchange, thereby initiating Accepted Version for publication in the Journal of Macromarketing (see footer for details) 9 Kalverkamp, Matthias; Raabe, Thorsten, Automotive Remanufacturing in the Circular Economy in Europe: Marketing System Challenges, Journal of Macromarketing (online first) pp. xx-xx. Copyright © 2017(Copyright Holder). Reprinted by permission of SAGE Publications. https://doi.org/10.1177/0276146717739066 the supply for remanufacturing. Therefore, the identified issue of supply shortages seems to not be an immediate effect of low demand by final customers. Hence, this study does not consider the final customer in detail. The first and second of Hunt’s criteria outline the macro characteristics of this study. Furthermore, the study of different levels of marketing system aggregation explicitly allows an examination of microand macromarketing systems to understand how actions at the micro level affect the system at the macro level. The recognition of various system levels represents the linkage between ‘micro’ and ‘macro’ (Layton 2007). Therefore, this study considers the marketing system design and the characteristics of the system’s immanent exchange transactions. Theory Linking Markets and Institutions The study of market efficiency stems from a neoclassical perspective that relies on Pareto efficiency. Neoclassical theory considers the institutional setting to be static and exogenous; it thereby neglects the role that institutions play in transactions. New institutional economics, which developed from critics of neoclassical theory, establish a dynamic perspective on institutions and acknowledge the influence that institutions have on the effectiveness of markets (Richter 2015). Less effective markets do not necessarily fail; for better market outcomes, they instead may need a combination of coordination principles along the market-hierarchy continuum. However, the outcomes of such markets might become socially undesirable which in turn could demand a regulatory response (Harris and Carman 1983). Regarding the outcomes of such markets, Layton and Grossbart (2006) refer to Harris and Carman, who state the following: “By market failure (the reader might prefer to substitute market “imperfections”), we mean those possible instances in which the ideal conditions for a market success do not hold. We do not mean Accepted Version for publication in the Journal of Macromarketing (see footer for details) 10 Kalverkamp, Matthias; Raabe, Thorsten, Automotive Remanufacturing in the Circular Economy in Europe: Marketing System Challenges, Journal of Macromarketing (online first) pp. xx-xx. Copyright © 2017(Copyright Holder). Reprinted by permission of SAGE Publications. https://doi.org/10.1177/0276146717739066 to suggest that in each instance a regulatory response is desirable.” (Harris and Carman 1983, p. 52) The present study refers to market imperfections in the sense of Harris and Carman, i.e., when indicating that institutional settings may cause shortages or undesirable outcomes, admitting that imperfect markets may still provide better outcomes than regulatory responses. New institutional economics consider markets to be a means of coordination. Therefore, market imperfections such as high transaction costs may change the coordination principle from market to non-market types of coordination (Arrow 1969; Williamson 1971). Transaction costs comprise “search and information costs, bargaining and decision costs, and monitoring and enforcement costs” (Dahlman 1979). In addition to transaction costs, new institutional economics include other theories that can be applied to identify the potential causes of market imperfections. Among such causes are the information asymmetries associated with the principal–agent problem and information economics (Akerlof 1970; Stigler 1961; Stiglitz 2002). In addition, the way that property rights are defined and their relation to transaction costs affect the way that markets work (Alchian and Demsetz 1973; Demsetz 1967). In response to these causes of inefficient markets, organizations tend to integrate vertically (Arrow 1969; Williamson 1971). Integration can result in greater power because of, for example, the consequent increase in control over resources (Williamson 1995). The components category of marketing systems indicates the usefulness of “transaction and related costs” in a macromarketing study (Layton 2007, p. 238). New institutional economics provide theories for the analysis of dynamic institutional environments and relations between organizations. New institutional economics thereby support the interpretation of the rather static description of the marketing system and the identification of reasons for particular outcomes at a Accepted Version for publication in the Journal of Macromarketing (see footer for details) 11 Kalverkamp, Matthias; Raabe, Thorsten, Automotive Remanufacturing in the Circular Economy in Europe: Marketing System Challenges, Journal of Macromarketing (online first) pp. xx-xx. Copyright © 2017(Copyright Holder). Reprinted by permission of SAGE Publications. https://doi.org/10.1177/0276146717739066 higher system aggregation level. Due to this dynamic system perspective, this analysis puts emphasis on transaction costs with references to the principal–agent problem, property rights and information economics. These theories from new institutional economics serve as references for the analysis of shortages on the market, which are also referred to as market imperfections. The analysis of market shortages takes on the following concepts to derive marketing and policy implications for the marketing system. Harris and Carman (1983) classify market failures/imperfections in their work on public regulations and marketing activity. For this study, side effects, imperfect competition, and imperfect information are the most relevant types of imperfections among those that they identify. The framework of Harris and Carman and the impact of information problems on the degree of market imperfection help provide a better understanding of the system (Redmond 2014). Further market imperfections may stem from power structures and the competitiveness in the marketing system. Therefore, the discussion considers the concepts of power and the characteristics of relationships in marketing systems (Fligstein and Dauter 2007; Layton 2015). The characteristics of particular relationships can describe the structures of actors that emerge from the analysis (Fligstein and Dauter 2007). Power is a theoretical construct that can contribute to a better understanding of these relationships. In a marketing context, power is a firm’s ability to potentially affect another firm’s behavior (Gaski and Nevin 1985). The perspective on power structures intersects with the resource-advantage theory perspective on competition (Hunt and Arnett 2001; Hunt and Morgan 1996). Firms with a competitive advantage over a resource may also have a more powerful market position and intend to remain in this advantageous position, while rivals with a competitive disadvantage seek to overcome their disadvantageous positions through acquisition or innovation (Hunt 2011; Hunt and Arnett 2001). If Accepted Version for publication in the Journal of Macromarketing (see footer for details) 12 Kalverkamp, Matthias; Raabe, Thorsten, Automotive Remanufacturing in the Circular Economy in Europe: Marketing System Challenges, Journal of Macromarketing (online first) pp. xx-xx. Copyright © 2017(Copyright Holder). Reprinted by permission of SAGE Publications. https://doi.org/10.1177/0276146717739066 such a “disequilibrium-provoking process” of competition exists, it may facilitate innovation and thereby contribute to social welfare (Hunt 1999). The analysis of exchange relationships and related institutional conditions identifies and evaluates the system outcomes. System structures and relationships may result in outcomes such as the system’s assortment or others in the form of positive or negative environmental and societal impacts. With the marketing system analysis, marketing system theory provides a means to study the impacts that groups of actors and their strategies have on a marketing system. Marketing System Analysis The automotive remanufacturing industry regularly raises concerns about the shortage of cores. Researchers have addressed this shortage with operations research on closed-loop supply chains (Guide and van Wassenhove 2008), the relationships in remanufacturing supply chains (Lind, Olsson, and Sundin 2014; Östlin, Sundin, and Björkman 2008), and pricing strategies (Xiong et al. 2014), among other topics. Furthermore, the micro perspective seems predominant in research on remanufacturing (Prahinski and Kocabasoglu 2006). The persistence of supply shortages motivates this marketing system analysis to identify the potential reasons for these shortages that go beyond the micro perspective. This study focuses on procurement channels to analyze the marketing system of automotive remanufacturing in Europe. Therefore, this study refers to the systems theoretical perspective of Meade and Nason (1991) to model and analyze marketing systems as exchange systems. This systems perspective combines a physical systems perspective on material and energy with an economic perspective of exchange. This perspective is thereby consistent with the objectives of macromarketing because this approach supports the identification of performance issues in the system. System outcomes can reveal or indicate such issues. The approach further investigates Accepted Version for publication in the Journal of Macromarketing (see footer for details) 13 Kalverkamp, Matthias; Raabe, Thorsten, Automotive Remanufacturing in the Circular Economy in Europe: Marketing System Challenges, Journal of Macromarketing (online first) pp. xx-xx. Copyright © 2017(Copyright Holder). Reprinted by permission of SAGE Publications. https://doi.org/10.1177/0276146717739066 interactions between organizations within the exchange system and analyzes how design changes can improve the functioning of the system (Meade and Nason 1991). Graphical representations describe the marketing systems under study by showing the relations between nodes of the system and by highlighting relevant channels. The examined relations comprise material, monetary and information flows. The characteristics of the channels, including the power therein and whether the channels establish open or closed systems (Meade and Nason 1991), may indicate the causes of system imperfections. A study of marketing systems requires definitions regarding the level of aggregation, the links to other systems, and the boundaries of the system (Layton 2007). The focal study is located at a medium level of aggregation, as it describes and analyzes the procurement market for automotive remanufacturing as a subsystem of the automotive end-of-life marketing system of reuse and recycling. This analysis requires some lower-level aggregation to specify problems and to highlight the role of some of the nodes. Therefore, the analysis will depict different levels of the system in “varying levels of detail” (Layton 2007, p. 235). Therefore, it will include references to marketing systems at the component level to explain relations, dependencies, and influences with the higher, more aggregated marketing system. At the component level, an analysis of transaction and information costs supports the overall analysis (Layton 2007). First, the boundaries of the system under study are defined by describing the included and excluded nodes, parts, or systems. The definition of the system boundaries will also show the influences of and relations with external marketing systems. Second, the analysis of different aggregated systems and their material, monetary and information flows will provide explanations for shortages. Therefore, this study analyses different perspectives such as power, competition and innovation at the medium and lower levels of system aggregation, as well as outcomes at the Accepted Version for publication in the Journal of Macromarketing (see footer for details) 14 Kalverkamp, Matthias; Raabe, Thorsten, Automotive Remanufacturing in the Circular Economy in Europe: Marketing System Challenges, Journal of Macromarketing (online first) pp. xx-xx. Copyright © 2017(Copyright Holder). Reprinted by permission of SAGE Publications. https://doi.org/10.1177/0276146717739066 highest level of aggregation that result from the actions taken at lower levels. Finally, this approach may lead to implications for policy and industry that move toward a more sustainable market design. Although the examination of cases of particular companies represents a micromarketing perspective, this perspective addresses the evident influence of single firms or groups of firms on the macro system, which supports a more complete analysis and highlights specific links between microand macromarketing. A Mixed-Methods Approach The complex and still blurry system under study justifies an explorative, mixed-methods study approach (Corbin and Strauss 2015). A combination of attendance and observation at trade fairs, interviews and case studies methodically support this approach (Samuel and Peattie 2016). The chosen approach leads to the reconstruction of the marketing system (identifying actors, institutional structures, and transactions). Thereafter, the authors draw on the theoretical framework in accordance with the research objectives to analyze and interpret the marketing system. Fig. 1 provides an overview of the study process. Accepted Version for publication in the Journal of Macromarketing (see footer for details) 15 Kalverkamp, Matthias; Raabe, Thorsten, Automotive Remanufacturing in the Circular Economy in Europe: Marketing System Challenges, Journal of Macromarketing (online first) pp. xx-xx. Copyright © 2017(Copyright Holder). Reprinted by permission of SAGE Publications. https://doi.org/10.1177/0276146717739066 Figure 1: Mixed-methods research approach The reconstruction of the marketing system distinguishes between a higher-level system of reuse and recycling marketing in the EU and the embedded focal system of automotive remanufacturing. The depiction of the higher-level system derives from the initial situation revealed by a scan of quantitative market data, a literature review, and an expert consultation. Concerning the focused European remanufacturing marketing system, little information is publicly available (Weiland 2012). By contrast, in the United States, the US International Trade Commission has Accepted Version for publication in the Journal of Macromarketing (see footer for details) 16 Kalverkamp, Matthias; Raabe, Thorsten, Automotive Remanufacturing in the Circular Economy in Europe: Marketing System Challenges, Journal of Macromarketing (online first) pp. xx-xx. Copyright © 2017(Copyright Holder). Reprinted by permission of SAGE Publications. https://doi.org/10.1177/0276146717739066 issued an investigation of the US remanufacturing market environment (USITC 2012). In terms of the literature, operations research takes a very technical perspective of the issue; in addition, although relationship management research addresses remanufacturing supply chains, both fields typically focus on individual cases and assign specific relationship types to the relationships among actors in the system. In fact, the expert consultation suggested some specific limitations of existing research on reverse channels in remanufacturing. These limitations include the lack of an explanation of the interdependencies between the actors and indicate problems in the system. The identified limitations motivate a system reconstruction through an ‘investigative exploration.’ Market observations and interviews provide mainly qualitative data. These data were collected in June 2015 during ReMaTec, the world’s biggest remanufacturing exhibition, and the World Remanufacturing Summit, which were both held in Amsterdam. The field of the market exploration included the opinions and remarks by company and market experts from all over Europe during presentations and face-to-face discussions. The authors also conducted interviews with industry experts representing different market actors (n = 12) from four Western European countries and one Eastern European country; two of the interviewees represented North American companies that also conduct business in Western Europe. The interviews were semi-structured and documented in the form of minutes taken from memory immediately afterwards. Such interviews took between 15 to 40 minutes, depending on the interviewees’ willingness to discuss selected aspects of the remanufacturing market. Data from the initial situation, i.e., the system overview and step 1 of the research design, together with data from the exploration in step 2 built a system model that developed iteratively through the study of additional data and literature (Fig. 1). Data sources included market studies, Accepted Version for publication in the Journal of Macromarketing (see footer for details) 17 Kalverkamp, Matthias; Raabe, Thorsten, Automotive Remanufacturing in the Circular Economy in Europe: Marketing System Challenges, Journal of Macromarketing (online first) pp. xx-xx. Copyright © 2017(Copyright Holder). Reprinted by permission of SAGE Publications. https://doi.org/10.1177/0276146717739066 policy documents (for example, white papers) and legal documents (for example, laws and regulations). Some references regarding the legal environment or groups of actors concerned countries such as Austria, the UK, and Germany, thereby indicating where phenomena that were relevant to the analyzed system were observed and showing that these references did not favor a particular country. Through data coding and clustering, the market observations from step 2 unveiled three distinct groups of automotive components in remanufacturing. The technical characteristics regarding the degree of implementation of electronics distinguish these three groups. Correspondingly, in the third step, the model of the marketing system was analyzed in detail from the different perspectives of three case studies (Fig. 1). These cases are based on three companies that cover three distinct groups of automotive components: starters and alternators (case A), automatic transmissions and parts (case B), and mechatronics and electronics (case C). The degree of implementation of electronics within these three component types increases from case A to case C, although technological development might limit their distinctiveness. This approach allows for the comparative analysis of different product types in the observed marketing system and may indicate whether corresponding organizational settings exist. The three case studies involved on-site field research (interviews and observations from production and logistics operations) at three companies in two Western European countries between October 2014 and September 2015, and case-specific literature and document studies, where available, were consulted. Interviews within the scope of the case studies were recorded digitally and lasted between 75 and 150 minutes. The case studies focused on aspects such as (a) procurement and distribution channels (suppliers and customers, the incentives used in procurement, the use of and experience with deposits, relationship characteristics, and the commercial relevance of and relationships with Accepted Version for publication in the Journal of Macromarketing (see footer for details) 18 Kalverkamp, Matthias; Raabe, Thorsten, Automotive Remanufacturing in the Circular Economy in Europe: Marketing System Challenges, Journal of Macromarketing (online first) pp. xx-xx. Copyright © 2017(Copyright Holder). Reprinted by permission of SAGE Publications. https://doi.org/10.1177/0276146717739066 core dealers), (b) competitors (who they are, whether they are direct or indirect competitors, and related challenges), and (c) the legal environment (legislation and EU involvement). In addition, general information was collected about the companies (company size, the type of remanufactured components, etc.). These cases provide valuable insights into the procurement marketing system of automotive remanufacturing. Together with earlier findings, these insights are merged into the analysis of the focal system, which is the fourth step in Fig. 1. The cases serve as exemplary micromarketing perspectives to substantiate the system analysis and to explain imperfections in the focal marketing system. Per the explicit request of the interviewees, the expert interviews and the case studies are anonymized. Due to anonymization, some information is intentionally excluded. For example, indicating countries in the context of company type and components would allow those interested to draw conclusions regarding the identity of some companies. Table 1 provides an overview of the case studies and interviews conducted. Accepted Version for publication in the Journal of Macromarketing (see footer for details) 19 Kalverkamp, Matthias; Raabe, Thorsten, Automotive Remanufacturing in the Circular Economy in Europe: Marketing System Challenges, Journal of Macromarketing (online first) pp. xx-xx. Copyright © 2017(Copyright Holder). Reprinted by permission of SAGE Publications. https://doi.org/10.1177/0276146717739066 Table 1: Details on the case studies and interviews conducted Case studies* and interviews Company type Components Interviewee role Dependency Date A* Remanufacturer/wholesaler Starters and alternators (S&A) Managing director Independent Oct. 2014 B* Remanufacturer supplier Transmissions Sales manager Independent Sep. 2015 C* Remanufacturer Electronics/mechatronics COO Independent Sep. 2015 D Core broker n/a Independent June 2015 E “Market expert” n/a Independent June 2015 F Core broker Owner Independent June 2015 G First-tier supplier with remanufacturing S&A (among others) Core broker OE integrated June 2015 H First-tier supplier with remanufacturing Brake systems, steering n/a OE integrated June 2015 I Remanufacturer S&A (among others) Core manager Independent June 2015 J Remanufacturer Founder Independent June 2015 K Remanufacturer S&A Prod. Manager Independent June 2015 L Core broker n/a Independent June 2015 M Core broker n/a Independent June 2015 N Remanufacturer supplier Transmissions Sales Manager Independent June 2015 O Remanufacturer Electronics/mechatronics CEO Independent June 2015 EU Marketing Systems for Automotive Reuse and Recycling The higher aggregation level of the marketing system, here referred to as the ‘end-of-life marketing system,’ comprises the focal marketing system of this analysis: the EU marketing system for automotive remanufacturing. The following two subsections describe both systems. Passenger Car Reuse and Recycling Marketing System In the current end-of-life marketing system for ELVs in Europe, nodes represent discrete markets rather than specific groups or legal entities. This higher system aggregation level is relevant to Accepted Version for publication in the Journal of Macromarketing (see footer for details) 20 Kalverkamp, Matthias; Raabe, Thorsten, Automotive Remanufacturing in the Circular Economy in Europe: Marketing System Challenges, Journal of Macromarketing (online first) pp. xx-xx. Copyright © 2017(Copyright Holder). Reprinted by permission of SAGE Publications. https://doi.org/10.1177/0276146717739066 the focal system due to the important relations between the recycling and reuse markets that affect resources shortages and thereby system outcomes. Fig. 2 provides a system overview. Within the system, the different markets depict a cascade from production down through the aftermarket (use of the product), reuse and recycling. Except for the production phase, which is simplified due to the focus of the study, this cascade follows the waste management hierarchy. Therefore, it eventually involves energy recovery and landfills. For remanufacturing in general, products or parts become available at some point during their product life, regularly during maintenance (the aftermarket), or at the car’s end-of-life (the recycling market). The production and recovery/landfill markets, represented in a gray shade in Fig. 2, are part of the system observations underlining the general circularity and its boundaries. The focal marketing system discussed below concentrates on the reuse market with its relations with actors in aftersales and recycling markets (the dashed box in the middle of Fig. 2). Figure 2: The EU end-of-life marketing system for passenger cars The bold black arrows in Fig. 2 indicate the common material flows, and the thinner black arrows represent additional material flows within the marketing system. Flows represented Accepted Version for publication in the Journal of Macromarketing (see footer for details) 21 Kalverkamp, Matthias; Raabe, Thorsten, Automotive Remanufacturing in the Circular Economy in Europe: Marketing System Challenges, Journal of Macromarketing (online first) pp. xx-xx. Copyright © 2017(Copyright Holder). Reprinted by permission of SAGE Publications. https://doi.org/10.1177/0276146717739066 by bold gray arrows are leaving the EU marketing system and moving toward legal external markets. The dashed gray arrows represent the flows leaving the system and moving toward ostensibly illegal markets. The representation excludes reverse flows from external markets (imports). From both legal and illegal markets, materials can potentially flow back into the system. The arrow stretching from reuse to recycling is a dashed line because it represents a potentially undesirable flow within the system if it contains cores that can be remanufactured. In general, the objective for reuse and recycling markets in directing material flows downward might indicate potential negative outcomes within the marketing system because some of these resources may have been used at the same or higher levels of the cascade. In contrast to the downward flows, the recycling market is also a provider of resources to the reuse market (the ‘upward’ flow from recycling to reuse). The relations in this system also implicate financial and information flows. This observation assumes a relatively closed system, where products and materials are supposed to remain within the system. Due to the institutional setting, the system is subject to exports and imports of materials. Exports can cause negative outcomes in the exporting market, for example, in the form of overcapacities in the recycling infrastructure or a lack of resources for reuse and recycling. Nevertheless, exports and imports are not necessarily negative outcomes. An exported used car can still run for years and provide mobility in other regional markets. If replacing an older car, ceteris paribus, the exported used car may reduce the environmental impact of mobility in the importing country. However, negative outcomes may occur if the local infrastructure cannot ensure environmentally friendly recycling. The EU provides the legal environment for the reuse and recycling of used cars with defined targeted recycling rates that aim to increase the circular flow of materials (EU 2000, 2008). By law, distributors in the EU market are responsible for providing a take-back and dismantling Accepted Version for publication in the Journal of Macromarketing (see footer for details) 22 Kalverkamp, Matthias; Raabe, Thorsten, Automotive Remanufacturing in the Circular Economy in Europe: Marketing System Challenges, Journal of Macromarketing (online first) pp. xx-xx. Copyright © 2017(Copyright Holder). Reprinted by permission of SAGE Publications. https://doi.org/10.1177/0276146717739066 infrastructure for their marketed vehicles free of charge (EU 2000). Distributors regularly realize the take-back through authorized treatment facilities that makes decisions regarding reuse and recycling. Due to the significant differences between de-registered and officially dismantled cars in the EU, a statistical gap of ‘unknown whereabouts’ accounts for approximately 4.6 million cars in 2008 and 3.3 million cars in 2009 (Merz and Mehlhart 2012). Reports from legislative bodies in Europe assume that these statistical gaps indicate the illegal handling of ELVs (Deutscher Bundestag 2015; MVDA 2011; Nationalrat 2013). Illegal handling includes the illegal export of cars, the export of ELVs, which is technically illegal, and unauthorized dismantling (Merz and Mehlhart 2012; MVDA 2011; Schneider et al. 2010). These unknown flows of used vehicles may contribute to the shortage of cores for remanufacturing. Automotive Remanufacturing Marketing System in the EU The automotive remanufacturing marketing system in the EU is the next level down in system aggregation. Currently, the US has the most developed automotive remanufacturing market. The overall market share of remanufactured automotive components in the US is more than double the corresponding market share in the EU (Weiland 2012). In Europe, starters and alternators reach a remanufacturing market share of approximately 80 %, representing the most developed part of the EU remanufacturing market (Weiland 2012). Other components reach a market share of approximately 50 % (APRA Europe n.d.). Overall, the EU automotive remanufacturing market is still less developed than its US counterpart (Weiland 2012). This comparison not only shows the potential of the remanufacturing market but also indicates different developments for