An Empirical Study on Public Sector versus Third Sector Circular Economy-Oriented Innovations
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4.1. Qualitative Data Analysis
Following the thematic analysis [81,82] process described in Section 3.2, we developed initial codes from the 12 interview transcripts. As shown in Table 1, the codes reflect the important motivations, attitudes and practices relating to CE-oriented innovation according to public sector interviewees (P1, P2, …, P7) and third sector interviewees (T1, T2, …, T5). These include, for instance, ‘new project/prototype based on CE’, ‘CE projects should consider financial return’. Initial codes are further analysed and categorised according to their similarities and differences, resulting in the categorisation in terms of ‘cost reduction’, ‘project advancement’, ‘knowledge sharing’, ‘mindset change’, ‘knowledge insufficiency’, ‘funding difficulty’. Eventually, by actively engaging with the categories, discussion, and confirmation among the researchers, two themes were generated: ‘motivation of CE-oriented innovation’ and ‘constraints of CE-oriented innovation’. Table 1 presents the structure of the qualitative data.
Theme One: Motivations of circular economy-oriented innovation.
As shown in Table 1, Theme One concerns the motivations of CE-oriented innovation, which is evident in terms of cost reduction, project advancement, and knowledge sharing.
The interview data demonstrates a positive shift towards developed CE practice due to their participation in the CEIC project. Among the motivations for CE-oriented innovation is cost reduction, interpreted by the interviewees as the reuse, repurpose, and recycle process, which can save material cost-effectively (P1, P4, P5, P6, P7, T5). Such practice is conducted in various aspects, including product design, packaging, transportation, production, supply chain, etc. This shows waste reduction continues to be prioritised in CE-related practice, which can lead to cost savings in the long term [3,8]. Additionally, it is highlighted by the public sector interviewees that there is a general need in the sector to reduce the cost of procurement and transportation whilst transforming towards a CE, which is also promoted by the Welsh Government (P2, P4, P5, P6, P7). The emphasis on procurement has been seen in public-sector-related research, however, from a legal configuration rather than a cost perspective [84]. As the data show,
‘Within the public sector, the biggest priority is financial savings and to some extent, in the past we’ve looked at schemes that can reduce carbon, but they typically come at a cost. Now that is transitioning slightly in that…electric vehicles, now it’s got to the point where you can run electric vehicles far cheaper than you can run internal combustion engine vehicles. So the market is changing. So that’s been very positive.’
P4
Additionally, some participants were passionate about CE-oriented innovation due to their roles as sustainability managers. Some have conducted sustainability related projects before (P1, P3, P7, T3) or wanted to advance new projects (P1, P2, P4, P6, P7, T1, T3, T4, T5). For instance, P1 has already led a project to regenerate 55 acres of land for health board development under green infrastructure, e.g., using land to grow vegetables. P1 obtained Welsh government support for the reuse of hospital beds for charity purposes. Similarly, inspired by tools and knowledge introduced by CEIC, P2 started a commission to encourage health boards to improve the environment via art projects based on reusable, recyclable and repurposed materials. Plans including carbon literacy training programmes have been launched due to participation in CEIC (P2, P3, P6, T3). T1 has designed a new house insulation solution using local Welsh wool, whereas T5’s organisation has developed a sensor prototype to monitor water quality via collaboration with other CEIC members. In doing so, practitioners have delivered new projects that implement circular economy principles, adopt cleaner ways of production, provide sustainable solutions, and enhance local supply chains, demonstrating CE-oriented innovation. The impact of managers on organisational change can be linked to leadership, which can be developed via the engagement of CoP [85]. However, the relationship between leadership and CE innovation is only briefly discussed in the current literature [86].
Moreover, knowledge sharing was highlighted by all interviewees, which provided a foundation for CE-related innovations. This primarily confirms the argument in the literature that a CoP as situated practice serves as a source of knowledge formation [87]. Specifically, as the CE is an evolving concept, participants can benefit from co-defining a common challenge, e.g., decarbonisation, and co-creating a solution together (P2, P4, P5, P6, T2, T3, T4, T5). This means participants not only absorb knowledge from the CoP but also contribute to the CoP by creating new knowledge. Additionally, they learn from other sectors and share best practices (P2, P3, P4, P5, T1, T2, T4). This can also prevent other organisations from making the same mistakes (T1). There is an interest in developing knowledge in a practical way (P5). Such cross-sector and cross-discipline knowledge sharing is under-studied in the CoP literature [7]. Furthermore, participants are actively exploring collaboration opportunities and sharing information via social media even after completing the CEIC programme (P1, P2, P3, P4, P5, P6, P7, T1, T2, T3, T4, T5). As reflected in the interview,
‘It made sense for me to continue to broaden my own personal knowledge of what NET Zero is, what sustainability is, what this idea of a circular economy was, which was pretty new to me in that aspect…when it comes to the circular economy aspects, there was an awful lot I didn’t understand and simply reading material on it wasn’t enough.’
P5
Theme Two: Constraints of circular economy-oriented innovation
As Table 1 indicates, Theme Two concerns the constraints of CE-oriented innovation. Details include mindset change, knowledge insufficiency, and funding difficulty.
Mindset change is urgently needed, according to the interviewees, which applies to both individual and organisational levels. This is because when people work in silos, it is difficult to implement CE principles which require teamwork and collaboration (P1, P2, P3, T3, T5). While current literature on CE-oriented innovation focuses on tools, processes, and techniques, the soft side of innovation management, e.g., mindset changing and systematic thinking, is underexplored [88]. The CE is a relatively new concept to most organisations, and thus, it can be hard for senior management to adopt changes (P2, P4); there can be bureaucratic and ingrained attitudes (P5). Leadership is needed to coordinate a region- or industry-wide resource (T2). Moreover, CE transformation is across departments, and mindsets such as fear of failure hinder innovation attempts (P1, P2, P3, P5, P6, P7, T2, T3). The interview data show,
‘A lot of organisations are very risk adverse. They are wary. And they went to insure with this good governance around things. People are afraid of failure. And I think it’s trying to get people to be bold and to be brave and realize, you know, and I’m sure that there will be things…you know, I’m not afraid to try something new, but then it’s also accepting…you might do something. It might fail. However, that’s OK.’
P1
Whilst knowledge sharing is the main motivation of CE-oriented innovation, the interview data show knowledge insufficiency as a barrier to the implementation of CE principles. This theme has been broadly discussed in the public sector as a resource constraint- a lack of information associated with technology and market environments, which can hinder innovation activities [47,48,49]. Nevertheless, the literature has not addressed innovation limitations due to knowledge insufficiency in terms of the CE. There is, in general, a lack of awareness of CE principles because the concept is ambiguous and not linked to specific departments or daily work contexts (P2, P4, P7, T2, T3, T4, T5). This happens at both individual and organisational levels, as the CE remains a new concept without clear elements or processes to follow. Furthermore, CE-oriented innovation has different meanings to different sectors, and thus there is no standard procedure to follow (P3, T2). For instance, a third-sector interviewee highlights that CE practice can be difficult to transfer,
‘It’s (circular economy) just too large, and it is too wide…a solution that that useful for North Wales is not necessarily going to be applicable for South Wales…as an organization, I don’t think we…we not at a position to define or even understand what circular economy actually means or could mean…for the organisation at the moment it would take some time.’
T2
Funding and investment difficulties are other constraints. One public sector interviewee (P6) highlighted the challenges of investment after the pandemic, suggesting that decarbonisation projects should be combined with a clear revenue plan. Funding limitation is emphasised by the third sector as a major challenge (T2, T3, T4, T5). This is also due to regulations, including charity laws (T4, T5). Some new CE solutions are being implemented, and yet their impact is not widely understood (T1, T5), which makes securing funding support challenging. The data support suggestions in the literature that regulation is a constraint to public sector innovation [40], whilst the data suggests the main challenge to CE innovation in third-sector organisations is funding scarcity [17]. To overcome the challenges, our data suggest that collaborative funding applications could mitigate this barrier:
‘Financial support (is challenging) because often those innovations are quite expensive…it would be useful to map all the initiatives going on in Wales at the moment and all the learning that’s happening, and I know that that’s tricky when there’s different local authorities competing for different funding….but I think a better approach is to sharing learnings and understandings and what’s worked and what hasn’t in order to kind of implement progress more widely across Wales and to not waste time and to not waste resources as well because, you know, we’re….circular economy is all about sharing.’
T3
4.2. Quantitative Data Analysis
As discussed in the preceding qualitative data analysis, the themes related to cost reduction (cost factor), project advancement (market factor), knowledge sharing (knowledge factor), mindset change (knowledge factor), knowledge insufficiency (knowledge factor) and funding difficulty (cost factor) emerged from the qualitative study. In the survey, other potential constraining factors related to regulations were also included in addition to the cost factors, knowledge factors and market factors for more comprehensive coverage, as the literature suggests the importance of regulatory constraints (see, for example, [47,89]). Other constraining factors were also informed by the literature; for example, resource dependency theory posits that organisations are dependent on external resources, and their ability to achieve their goals, such as investments in innovations, is contingent on their financial resources [5,90,91]. As this theory suggests a key role of financial constraints on the capacity of organisations to implement CE-oriented innovations, it points to various cost-related constraining factors such as the availability of finance, direct innovation cost, perceived economic risks, cost of finance also, knowledge-related constraints such as the organisations’ ability to recruit qualified personnel and acquire and utilise information on markets and technology; and market-related factors such as entities’ ability to compete with large institutions, and respond to demand for CE initiatives. The theory proposed by [92] also sheds light on the role of transaction costs on cost-related constraints, such as the availability of finance and other constraints including regulatory factors, as the costs pertaining to coordination and administrative activities within bureaucratic organisations can contribute to higher transaction costs associated with compliance with new CE regulations. These factors are also in line with the absorptive capacity theory, which helps understand an organisation’s ability to recognise, assimilate and apply new knowledge [93]. For instance, ref. [94,95] assert the significant role of absorptive capacity for the cost and knowledge factors. Results were obtained from the analysis of the 153 usable respondents (96 from public sector organisations, 57 from the third sector) in relation to the constraints to CE-oriented innovation activities or those influencing a decision not to innovate.
The results summarised in Table 2 indicate that while the availability of finance is consistently highlighted as the most significant constraint to CE-oriented innovations in both public- and third-sector organisations, it is more of a hindrance in third-sector organisations. This finding is supported by the interview results, which highlight the difficulty in obtaining funding and underline the need for financial support in third-sector organisations (T1, T2, T3, T4, T5). While both public sector and third sector organisations play pivotal roles in driving CE-oriented innovation, the availability of finance emerges as a more significant barrier for the latter. This may be due to third-sector entities often experiencing a lack of financial autonomy enjoyed by public-sector organisations [96,97]. This is in line with resource dependency theory, which points to public sector organisations having direct access to public funds, which enables them to invest in CE initiatives without facing the same financial constraints as third-sector entities, which rely on fundraising and donations. Third-sector organisations, subject to the dynamics of voluntary donations and grant availability, may face greater uncertainties in maintaining consistent financial support for CE-oriented projects.
The funding challenge chimes with research that identifies the financial vulnerability of third-sector organisations as a barrier to CE innovation [98,99]. The study emphasises that these organisations are particularly susceptible to fluctuations in funding, making it challenging to sustain long-term CE initiatives. Public sector organisations, on the other hand, benefit from more stable funding sources, which can provide a secure financial base for CE innovation. Third-sector organisations often rely on a diverse set of funding sources, including philanthropic donations and grants, and yet securing adequate and stable funding for CE projects remains a common challenge. Finance is a more critical barrier for third-sector organisations in CE innovation projects as they often involve collaboration with various stakeholders (businesses, government bodies, and research institutions). Transaction costs, such as negotiation, monitoring, and enforcement, are integral to these collaborations [100]. In accordance with transaction cost theory, public sector organisations, due to their scale and authority, may be better equipped to absorb and manage such costs. Conversely, third-sector organisations, often smaller and less well-funded, struggle to cover these costs, hindering the development and implementation of CE innovation. Since CE innovations require substantial initial investments in research, development, and infrastructure, public sector organisations can absorb the upfront costs more easily. Policymakers should consider these financial challenges when designing support mechanisms to enhance CE innovation in third-sector organisations.
Moreover, the results point to the direct innovation cost and perceived economic risks as greater constraints to third-sector organisations, but while the cost of finance is a substantial constraint to innovation activities in both the public sector and third sector, it is a more constraining cost factor in public sector entities.
The survey result on the direct innovation cost, consistent with the interview data, highlights obtaining funding difficulty (T1, T2, T3, T4, T5) in Table 1, which may be because of the financial constraints faced by third-sector organisations in implementing CE innovations. Research by [101] underscores the importance of the direct costs associated with innovation, such as upfront investment costs, which may place a significant burden on the financial resources of third-sector entities. Again, limited budgets and reliance on donations and grants may hinder the ability of these organisations to allocate sufficient funds to cover the direct costs of CE initiatives. This is also in line with a study by [102], which suggests the direct innovation costs, including research and development expenses or those related to experimentation and new program development, are a crucial challenge in financing innovative projects in the third sector. In contrast, the public sector typically benefits from more stable and diversified funding sources.
Consistent with the importance of financial capabilities highlighted by [34], our findings suggest that public sector organisations may have greater financial capacity to absorb direct innovation costs associated with circular initiatives. This is also corroborated by the absorptive capacity theory, which suggests that public sector entities, with their established structures and professional staff, may possess higher absorptive capacity, enabling them to navigate the complexities of innovation more effectively [95]. The availability of public funds allows these organisations to invest in research, development, and implementation of CE projects without being as heavily constrained by immediate financial considerations. As the financial vulnerability and reliance on external funding sources could make it more challenging for third-sector entities to allocate the necessary resources for innovation, policymakers and funding bodies should consider this cost factor when designing support mechanisms for CE initiatives, ensuring that third-sector organisations receive the necessary support to drive sustainable innovation.
Similarly, results on the more constraining influence of the perceived economic risks in the third sector are due to the greater sensitivity of third-sector organisations to such risks. For example, a study by [103] indicates that organisations, often operating with limited financial resources, are more cautious and risk-averse due to concerns about the economic viability of innovative projects. Perceived economic risks, such as uncertainties about return on investment and financial sustainability, can discourage third-sector organisations from engaging in CE-oriented innovations. This corresponds to our qualitative result on the constraining factor pertaining to financial return considerations (see Table 1). Economic uncertainties associated with innovation projects [104], such as potential revenue fluctuations and the unpredictability of donor support, contribute to the perceived economic risks for these organisations. Conversely, public sector entities perceive lower economic risks associated with CE initiatives, and their ability to absorb and manage risks, given their greater financial stability, can mitigate concerns about economic uncertainties commonly faced by third sector organisations. Policymakers and donors should, therefore, consider this risk factor when supporting CE projects in the third sector, providing mechanisms to alleviate perceived economic risks and encouraging innovation in sustainable practices.
In addition, the cost of finance is a more significant constraint for public sector organisations and can be explained by the financial constraints, budgetary processes, and bureaucratic structures in the public sector that may limit the accessibility of cost-effective finance for circular initiatives. The finding is consistent with cost considerations discussed in [105,106] and suggests that cost of finance, including interest rates and borrowing expenses, can pose substantial constraints to public sector innovations. This is broadly in line with the cost perspective discussed in the qualitative result on cost reduction categories (P1, P4, P5, P6, P7, T5). Public sector organisations often need to navigate complex financial structures, and their reliance on budget allocations and government funding can paradoxically create hurdles in accessing cost-effective finance for CE-oriented innovations. Public sector organisations operating within government budgetary constraints may encounter difficulties in securing affordable finance for innovative projects. The cost of raising external capital, including interest payments on debt, can significantly impact the overall cost of finance for circular initiatives. In contrast, the third sector organisations may have more flexibility in addressing the cost of finance constraints via fundraising through donations and grants and may face fewer constraints related to external financing costs. Policymakers and financial decision-makers in the public sector should hence consider these challenges when designing financial mechanisms to support CE projects, ensuring that affordable financing options are available to drive sustainable innovation in the public sector.
The greater influence of the lack of qualified personnel in the third sector organisations (see Table 3) may be attributed to their limited financial resources, which pose challenges in CE-oriented innovations. Research by [107,108] shows that the competition for skilled professionals in the labour market and the potential inability of third-sector entities to offer competitive salaries and benefits may result in a scarcity of qualified personnel. This shortage of qualified personnel with expertise in environmental sustainability and CE practices may hinder these organisations’ ability to drive innovative projects. The lack of attractive career paths and professional development opportunities in the third sector may exacerbate the challenge of attracting and retaining qualified individuals. In contrast, the public sector may have certain advantages as it often has established structures for talent development and recruitment. The public sector’s ability to offer competitive salaries, comprehensive benefits, and a stable work environment may contribute to a more robust pool of qualified personnel. Therefore, this points to the need for policymakers and leaders in the third sector to consider strategies to enhance talent attraction and retention, such as professional development programs and partnerships with educational institutions, to overcome this barrier and drive sustainable innovation.
Another knowledge factor pertaining to lack of information on markets found to be a more pronounced constraint for the third sector organisations compared to the public sector is due to the resource limitations faced by the third sector that may hinder their ability to invest in market research, limiting their understanding of market dynamics. This is in line with [109,110], which suggests that non-profit organisations may face difficulties in accessing market information due to their unique characteristics. Third-sector organisations may lack the financial resources and market research capabilities that are more prevalent in the private and public sectors. The public sector, with its regulatory and policymaking roles, however, may have access to more extensive market information. Research by [111] suggests that government agencies often collaborate with private sector partners and research institutions, enhancing their ability to gather and utilise market data for CE initiatives. The public sector’s role in overseeing various industries and activities provides it with a broader perspective on market trends and opportunities. Policymakers should, therefore, consider strategies to provide access to market information, fostering collaboration and partnerships that enhance the market intelligence necessary for effective CE initiatives within the third sector.
Resource constraints in third-sector organisations pose hurdles in accessing and assimilating information on emerging technologies [112]. Quantitative results on the lack of information on markets and technology are corroborated by the qualitative data analysis on knowledge insufficiency that highlights the pivotal role of the lack of information associated with technology and market environment as hindrances to CE-oriented innovations (P2, P4, P7, T2, T3, T4, T5). This is consistent with absorptive capacity theory, as the resource constraints and limited technological expertise within these organisations may hinder their capacity to access and assimilate crucial information on emerging technologies relevant to CE initiatives [5]. The non-profit entities may lack the internal capacities and information networks necessary to stay abreast of technological advancements. This lack of information on technology can hinder the effective planning and implementation of CE initiatives within the third sector.
On the other hand, the public sector, with its regulatory and governance roles, may have greater access to technological information. Research by [113] suggests that government agencies often collaborate with research institutions and industry experts to gather information on technological developments. The public sector’s involvement in shaping policies and regulations related to CE practices may also contribute to a more comprehensive understanding of relevant technologies. Policymakers should thus recognise the need to bridge this information gap, including fostering partnerships with research institutions and technology experts to enhance the technological literacy necessary for effective CE initiatives within the third sector.
Regarding the results presented in Table 4 on the market factors, both the market dominance by established businesses and uncertain demand for innovative goods or services appear to be more substantial constraints to CE-oriented innovations in third-sector organisations compared to the public sector. The finding on the former is in line with research by [114], which suggests that third-sector organisations face challenges in competing with established businesses that dominate markets. Non-profit organisations tend to find it difficult to challenge the market power and influence of large corporations, hindering their ability to drive CE innovations. The dominance of established businesses can create barriers to market entry and limit the collaboration opportunities for third-sector entities, which may encounter challenges in influencing established businesses to adopt circular practices due to the hierarchical structures and profit-driven motives of these corporations. In contrast, the public sector, with its regulatory and policymaking roles, has more influence over established businesses. For example, ref. [115] suggests that government agencies can shape market dynamics using regulations and incentives. The public sector’s ability to set standards and requirements for circular practices may mitigate the influence of market-dominant businesses and create a more level playing field for CE initiatives. The financial constraints and limited market power of third-sector entities may limit their ability to compete with large corporations, highlighting the need for policymakers to consider strategies to address this imbalance, including regulatory measures and incentives that encourage third-sector entities to embrace CE practices and create a more inclusive market environment.
Uncertain demand for innovative goods or services in the third sector may be due to the challenges faced by these organisations in gauging and responding to market demand, as they may have limited market research capabilities. Given the resource constraints discussed, non-profit organisations may be more vulnerable to market changes for environmentally sustainable goods or services. This uncertainty may hinder the ability of third-sector organisations to anticipate and respond effectively to demand for CE initiatives [116,117]. Conversely, government agencies can influence demand via regulations and policy interventions and are thus more able to set standards and requirements for circular practices that may create a more predictable market environment for CE innovations. Therefore, policymakers should consider strategies to address this uncertainty, including providing resources for market research and creating policy frameworks that stimulate consistent demand for CE initiatives for the third sector. This suggests the need for policymakers to recognise the unique challenges faced by third-sector organisations and work collaboratively to provide stability to the demand for circular initiatives and encourage the adoption of CE-oriented innovations in the third sector.
As regards the other potential constraints, the results reported in Table 5 indicate that both UK and EU regulations, as well as Brexit, have more substantial constraining influences on public sector organisations. While both public and third-sector entities are subject to regulatory frameworks, the literature suggests that the public sector may face more significant challenges due to its size, bureaucracy, and the complexities of implementing innovative practices aligned with CE goals [118,119,120]. This is supported by the qualitative evidence on the essential role of bureaucracy and the requirement for leadership pertaining to the mindset change aspect (P2, P4, P5, T2). The bureaucratic nature of the public sector can lead to slower decision-making and implementation processes in response to changing regulations related to CE initiatives. The uncertainties introduced by Brexit can impact the institutional environment within which public sector organisations operate, potentially hindering their ability to adapt to CE-oriented innovations, while third sector organisations, often characterised by more flexibility and a flatter organisational structure, may find it easier to adapt to regulatory changes swiftly [121].
In agreement with the theory that provides insights into how transaction costs influence organisational behaviour, public sector organisations, being larger and more complex, may face higher transaction costs associated with compliance with new CE regulations. The administrative burdens, coordination challenges, and potential resistance to change within bureaucratic structures can contribute to elevated transaction costs [122]. Whilst third sector organisations, often funded using a mix of donations, grants, and fundraising, may have more flexibility in reallocating resources to align with regulatory requirements, public sector entities, subject to political considerations, may face challenges in reallocating resources to comply with new CE regulations. The need for budgetary approvals, bureaucratic procedures, and political negotiations can slow down the process of allocating resources for circular-oriented innovations. The public sector may thus face higher transaction costs associated with realigning policies, procedures, and relationships in response to Brexit. Hence, policymakers need to be cognizant of the specific challenges faced by the public sector in adapting to regulatory changes and consider strategies to streamline processes, reduce bureaucratic hurdles, and provide support to facilitate the effective implementation of CE initiatives in the public sector.
To further examine the statistical significance of the differences between the public sector and third sector organisations, we also performed Mann–Whitney tests and the statistical significance was determined based on a 95% level of confidence (see Table 6).
The test results displayed in Table 6 indicate that the difference between the public sector and the third sector was statistically significant in the case of the constraints associated with the availability of finance (cost factor) and the lack of information on technology (knowledge factor). The comparison between the public sector and third-sector organisations, however, showed no statistically significant differences between the sectors in the case of other constraining factors. This, therefore, further substantiates the earlier findings that while the constraint arising from the availability of finance is of paramount importance in both the public sector and the third sector, there are indeed significant differences between the two sectors, and the third sector (38.6%) experienced this cost factor to a much greater extent than the public sector (29.20%). Similarly, the constraint associated with the lack of information on technology has a considerable influence on the innovation activities of the third sector (12.30%) compared to the public sector (2.10%).
Our finding regarding the higher importance of the availability of finance as a constraint to the innovation activities (or influencing a decision not to innovate) of third sector organisations might be due to the nature of third sector organisations, many of which tend to be non-profit or co-operative organisations, a structural setting that often restricts access to a broader range of financial capital (for instance, equity capital). Additionally, this finding could be attributed to the lack of fixed operating assets in third-sector organisations, which tend to limit their access to debt financing [123,124]. Another statistically significant finding regarding the higher degree of importance of the lack of information on technology as a constraint to third sector organisations’ innovation activities is likely due to the lack of time and funding for such organisations to learn/acquire new, more efficient technology or make greater use of information pertaining to technology as they tend to be mostly small voluntary organisations with limited resources. This finding is in line with the results reported by the Institute for Voluntary Action Research and the Centre for Acceleration of Social Technology [125], which suggests that the technological constraint is particularly pronounced in small charities because of the lack of time to research and test different approaches and the lack of funding to invest in technology.
Based on the findings, a summary of the answer to the research question is provided in Table 7 below.
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