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Report n°2: An integrated approach to economic and social contestability in business

A potential market with close proximity to resources...

The firm must ideally be located in the centre of an area where the waste resources are of sufficient size and variety to feed its activity. From the standpoint of procuring an adequate flow of materials, a site close to industrial facilities and an urban centre is definitely preferable. It offers access to different quality resources, which once combined, will enable the recycler to meet the demand of the output markets in terms of quality and quantity. We will therefore characterise the geographic region where a recycling facility is to be developed according to its potential. This is measured based on two dimensions: the overall volume of materials that can be drained towards a recycler and the spectrum of qualities offered by the different flows contributing to the overall volume.

In view of the need to be sited in the centre of a potentially high yield collection area, some sites will be preferable to others. If the recycler has to envisage the possibility of relocating at a later date, he must consider the respective potential of each of the alternative areas. If he cannot have access to a geographical area with the same high potential that he enjoys at present, this will effectively make it less profitable also for a competitor to set up a new facility in the same area. This impossibility may result directly from the scarcity of areas combining the dual aspects of proximity to an industrial area plus an urban centre, which provide the ideal spectrum of qualities of scrap to supply the downstream clients what they expect. As we will see later, the potential of a geographical area as a source of supply is however not the only determinant in the choice of site, any more than in itself it will be an important brake on re-locating. It is this potential in combination with the recycler's ability to encourage his suppliers to make the adequate efforts to collect and sort materials in this given area that will determine in what measure the potential flows of material will be processed into batches effectively delivered by the suppliers. The factor of the proximity of urban type resources however is of particular importance to the recycling operator for another reason: this type of situation makes him vulnerable because the nuisances generally attributed to the crushing of metals (noise nuisances, considerable road traffic, etc.) and processing of shredder residue (noise nuisances and large volumes of dust emitted by the processing tools) are a threat to his social licence to operate. For an established recycler, vigilance and protests by local residents result in minor conflicts that make the threat of more generalizing social contestation more credible. For a newcomer to the scene, the characteristics of an ideal site with respect to the urban resources may go hand-in-hand with a Nimby type reaction that is likely to impede the installation of any new business.

Easy access to the firm's site constitutes an economic advantage in the eyes of the suppliers and recycler alike. The recycling facility must be centrally sited at a communication hub(17) to facilitate the transportation and delivery of materials, whatever the geographical source of the flows (location of the resources) and whatever their nature. For instance, a site accessed by rail and river and situated at the intersection of a variety of roads of different size (providing a fine meshing of the collection area) is a considerable factor of competitiveness for a recycler wanting to obtain a broad spectrum of qualities. Siting with respect to the input market is an asset that may very well make the difference between competing recycling operators. To evaluate the extent of a recycling operator's exposure to a threat to his social licence to operate, one must consider the possibilities available to any operator wanting to find satisfactory sites, then rank them in order and compare then to the site occupied by the historic operator. This step is the same for a newcomer seeking to compete with the historic operator (threat of external economic contestation), for an operator seeking integration on the output market (threat of internal contestation) or for the historic operator himself, if he wishes to re-locate his business elsewhere.

(17) We will return in more detail to access to means of transporting materials and their significant impact in the part of this paper that deals with the trading environment downstream.