Manufacturing SMEs Leveraging a Progressive Model for Circular Economy Capability Development to Catalyse Sustainable Commitment

Abstract

This study theorizes the developmental process of circular economy (CE) capabilities in manufacturing small- and medium-sized enterprises (SMEs), with a particular emphasis on aligning these efforts with the pursuit of net-zero targets. Drawing on dynamic capability theory (DCT) and employing a comparative longitudinal case study approach, we propose a progressive, three-stage model that encompasses cognitive realignment, structural reconfiguration and institutionalized evolution. Our findings reveal that, rather than representing linear or static transitions, each stage constitutes a dynamic, iterative process through which SMEs continuously adapt and refine their CE capabilities in response to changing environmental, market and regulatory demands. Furthermore, the findings demonstrate a strong alignment with the core dimensions of DCT, sensing, seizing and transforming, offering a robust theoretical lens to understand how SMEs systematically develop and operationalize CE capabilities to support their net-zero ambitions. This integration provides new insights into the interplay between dynamic capabilities and sustainability, advancing both theoretical and practical understanding of CE capability development within the manufacturing sector.