Does circular economy entrepreneurship drive technical capabilities for circular economy performance? The moderating role of environmental dynamism

Abstract

Purpose Drawing on the resource-based view (RBV) and the dynamic capabilities view (DCV), this study investigates how circular economy entrepreneurship (CEE) drives technical capabilities (TC) in achieving greater circular economy (CE) performance for small and medium-sized enterprises (SMEs) under the moderating influence of environmental dynamism. SMEs, facing resource constraints, need to promote CE due to growing stakeholder pressures. Thus, the authors recommend that SMEs via CEE can identify CE opportunities and then develop specific TC to exploit opportunities in the business environment to achieve CE performance. However, in doing so SMEs should pay attention to the varying degrees of environmental dynamism.Design/methodology/approach The RBV and DCV are used as a theoretical lens to investigate the direct and moderation effects between CEE, TC, CE performance and environmental dynamism tested via partial least square structural equation modeling (PLS-SEM) using survey data from 152 managers of SMEs in Nepal.Findings The study results show that CEE directly has a positive and significant effect on the development of TC and CE performance. Similarly, the development of TC drives SMEs to achieve improved CE performance, as evidenced by the positive and significant effect. Interestingly, the results suggest that environmental dynamism significantly improves the relationship between TC and CE performance, but this effect is strongest at high levels of environmental dynamism rather than at low and moderate levels. Additionally, the findings reveal that while environmental dynamism has a positive effect on the relationship between CEE and TC, this effect is insignificant.Originality/value Based on the arguments of the RBV and the DCV, this study explores how environmental dynamism can reduce and amplify SMEs' ability to use CEE to develop TC and improve CEP. First, this study integrates the circular economy and entrepreneurship domains to suggest essential CEP and TC benefits for SMEs via CEE. Second, this study suggests that at low levels of environmental dynamism, CEE has less effect on the SMEs’ development of TC, compared to high levels. Third, this study is conducted in the novel institutional context of Nepal, providing insights regarding how SMEs' CE entrepreneurship impacts TC and CEP.