Exploring synergies between industry 4.0 and circular economy for sustainable performance in manufacturing

Abstract

This study develops and validates a capability-driven framework linking Industry 4.0 (I4.0), Circular Economy (CE) practices, and Sustainable Performance (SP) in manufacturing sector of an emerging economy. Drawing on the Resource-Based View (RBV) and Dynamic Capabilities View (DCV), the study theorizes I4.0 as a meta-capability that operationalizes CE principles through digital transformation and resource reconfiguration. It also introduces Operational Performance (SP-O) as a fourth and capability-based dimension of the traditional Triple Bottom Line, thereby transforming sustainability from a static outcome into an evolving organizational capability. Data collected from 328 manufacturing firms were analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM). The results reveal that I4.0 and CE are mutually reinforcing and jointly enhance SP through the mediating role of SP-O. Furthermore, Ethical Leadership (EL) strengthens the I4.0–SP link but weakens the CE–SP link, while Green Knowledge Sharing (GKS) shows no significant moderating effect. These findings advance sustainability theory by proposing a Dynamic Capability of Sustainability (DCS) perspective, in which technological, operational, and behavioral mechanisms interact to create adaptive and context-sensitive sustainability pathways. The study contributes to theory by redefining how sustainability is conceptualized, assessed, and executed, and to practice by offering a holistic roadmap for aligning digital transformation, circular strategies, and leadership in pursuit of sustainable competitiveness.