Unlocking Circular Economy Through Digital Transformation: the Role of Enabling Factors in SMEs

Transitioning from a linear economy to circular economy–based business models can be difficult for small and medium–sized enterprises (SMEs) because of dynamic technological changes and market demands. This transformation is aligned with sustainable development goal 12: responsible production and consumption. In this context, adaptation of digital technologies can be helpful for SMEs to track their resources and energy consumption and optimize logistics and supply chains in new and innovative ways. Also, proper management of these technologies have major implications for organization’s competitiveness. But practices remain limited in SMEs due to lack of technological management and their linkages with other enabling factors to improve competitiveness. Therefore, the present study aims to discuss the enabling factors for digital technologies adaptation in SMEs to facilitate circular economy–based business model and develop a framework. The study utilizes the 183 responses from Indian manufacturing sector using exploratory factor analysis to develop a framework which is further tested by identifying priority order of factors using Bayesian Best–Worst method (B–BWM) approach using a case study. The results indicate that management support and the Internet of Things are the most critical factors for SMEs which facilitates the circular business models and improve market competitiveness, optimize resources and enable product life cycle thinking. Apart from this, study offers managerial implications such as resource efficiency, supply chain visibility, and circular business models, which can guide SMEs to facilitate circular business models and improve competitiveness.