Circular Economy in SMEs – The Role of Commitment to Sustainability and Digitalization

Abstract

Small and medium-sized enterprises (SMEs) are a decisive part of the efforts against climate change. However, they are late in terms of sustainability and circular economy (CE). Little is known about the factors that facilitate the implementation of CE practices in SMEs. Due to CE leading to cost savings, new business models or reputation gains, companies can achieve a competitive advantage. To realize this competitive advantage the strategic orientation of a firm is pointed out. Various theoretical papers have shown how CE can be enabled and how it can be inhibited. However, empirical studies that support the existing literature are lacking. The goal of this paper is to investigate the influence of two mechanisms, namely commitment to sustainability (CtS) and digitalization as strategic orientations on CE implementation. Therefore, we conduct a study with a self-developed sample of 754 German SMEs. Using multiple linear regression analyses, the results show that digitalization and CtS positively influence CE implementation in SMEs. Interestingly, the complementary effect of pursuing a dual strategy toward digitalization and sustainability is not significant for CE implementation. Our study contributes to the CE literature by giving a nuanced understanding of various antecedents of CE implementation. This study provides several approaches for managers of SMEs to improve their CE practices. First, digitalization is indeed an effective tool for implementing CE practices. Therefore, practitioners should strengthen their digitalization efforts when considering increased CE implementation. Second, a general focus on sustainability increases the implementation of CE practices. Therefore, practitioners should raise awareness of sustainability throughout the organization. Third, the combined focus on CtS and digitalization needs to be carefully considered. To implement CE, digitalization should be embedded in the sustainability strategy. Due to the liability of smallness, SMEs should seek their resources for digitalization and sustainability commitment not only within but also outside the company boundaries.