The study, titled “Circular Economy Innovation and SME Competitiveness in Emerging Economies,” suggests that environmental sustainability does not have to be treated solely as an additional business cost. When implemented through practical innovation, circular economy principles can become a business strategy for improving efficiency, creating added value, and strengthening SMEs' positions in increasingly competitive markets.
Circular Economy Offers an Alternative for SMEs
The conventional economic model generally follows a linear pattern: resources are extracted, transformed into products, and discarded after use. Known as the linear economy, this approach can generate substantial waste and place pressure on natural resources. A circular economy seeks to retain the value of products and materials for as long as possible through reuse, repair, recycling, and waste reduction.
For SMEs, this approach can be applied across a wide range of business activities. Food producers, for example, can reduce production waste and optimize the use of raw materials. Craft businesses can reuse leftover materials to create new products. Manufacturing companies can improve production processes to use materials and energy more efficiently.
These practices can potentially reduce waste while opening opportunities to develop higher-value products. In competitive markets, the ability to deliver quality products while using fewer resources can become an important business advantage.
However, adopting a circular economy is not always straightforward. SMEs in emerging economies often face limited capital, inadequate technology, gaps in managerial knowledge, and shortages of skilled workers. As a result, the transition toward more sustainable business operations depends not only on innovative ideas but also on the ability to manage organizational change.
Survey of 150 SME Participants
Asri Thalib used a quantitative research approach to examine the relationships between circular economy innovation, sustainable management practices, and SME competitiveness. The study involved 150 respondents from manufacturing and service-related businesses, including food processing, manufacturing, retail, handicrafts, and services.
Data were collected through a structured questionnaire using a five-point rating scale. Participants were SME owners or managers whose businesses had operated for at least three years and who understood innovation practices and sustainable business management.
The data were analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM), a statistical method used to examine relationships among concepts measured through multiple indicators.
The research assessed three main areas. First, circular economy innovation included resource efficiency, waste reduction, material reuse, and improvements in production processes. Second, sustainable management practices covered sustainability planning, management commitment, resource management, organizational engagement, and the integration of sustainability principles into business decisions. Third, SME competitiveness included cost efficiency, customer value, product innovation, and market performance.
Circular Economy Innovation Has a Positive Effect on Competitiveness
The analysis found that circular economy innovation had a positive and statistically significant effect on SME competitiveness. The reported path coefficient was 0.410, with a p-value below 0.001.
This result indicates that, within the research model, stronger circular economy innovation was associated with higher SME competitiveness. The finding supports the view that resource efficiency and business process innovation can play an important role in helping enterprises compete.
The study also found that circular economy innovation had a positive and significant effect on sustainable management practices, with a path coefficient of 0.635 and a p-value below 0.001. This suggests that adopting circular innovation is associated with management practices that place greater emphasis on sustainability.
In addition, sustainable management practices had a positive and statistically significant effect on SME competitiveness, with a coefficient of 0.406 and a p-value below 0.001. Both innovation and sustainable management practices therefore showed positive relationships with business competitiveness when examined as direct effects in the model.
However, the study produced an important finding regarding the relationship between these two factors. Sustainable management practices did not significantly strengthen the effect of circular economy innovation on competitiveness. The interaction test produced a coefficient of -0.089 and a p-value of 0.256, indicating that the result was not statistically significant.
This means that sustainable management practices can contribute directly to competitiveness, but their presence does not automatically increase the competitive impact of circular economy innovation. The study discusses limited capital, technology, knowledge, and organizational readiness as potential challenges that may prevent SMEs from fully integrating innovation with sustainable management systems.
Sustainable Management Must Work Alongside Innovation
The findings offer several practical implications for SME owners and managers. One important lesson is that businesses should develop innovations suited to their actual needs and resources rather than adopting sustainability practices simply because they are becoming popular.
SMEs can begin by identifying which parts of their operations generate the most waste or consume resources inefficiently. They can then explore material reuse, production waste reduction, product redesign, or process improvements that reduce resource consumption.
The next step is to strengthen management practices. Business owners can establish waste-reduction targets, monitor production costs, involve employees in process improvements, and consider environmental impacts when making business decisions.
These measures can help SMEs connect innovation with everyday operational needs. Their implementation, however, should take into account initial costs, technology availability, market demand, and realistic economic benefits.
For governments and organizations supporting SMEs, the study also highlights the importance of providing more than basic awareness campaigns about circular economy principles. Training in environmentally friendly innovation, managerial assistance, access to technology, and appropriate financing may help businesses implement changes gradually.
Support programs should also reflect the characteristics of different enterprises. Food-processing businesses, for example, face different operational needs from handicraft producers or manufacturing companies. Tailored assistance based on actual business challenges may therefore be more relevant than a uniform approach.
Understanding the Findings and Their Limitations
The study provides empirical evidence on the relationships between circular economy innovation, sustainable management practices, and SME competitiveness. Nevertheless, its findings should be interpreted in light of the research limitations.
The data were collected through a survey conducted during one observation period and relied on respondents' answers. Consequently, the study does not provide a detailed account of how SME performance changes over time or establish that circular economy innovation is the sole cause of improved competitiveness.
Although the article addresses SMEs in emerging economies, the reported sample consisted of 150 respondents across several business sectors. The findings should not automatically be considered representative of all SMEs in every emerging economy.
Future research could involve more regions and industries, use longitudinal observations, and combine surveys with interviews. Other factors, including digital capabilities, government support, technological innovation, and supply chain collaboration, could also be examined to develop a more comprehensive understanding of SME competitiveness.
Overall, Asri Thalib's research highlights circular economy innovation as a potential strategy for strengthening SME competitiveness. More efficient resource use, waste reduction, product innovation, and sustainable business management can help enterprises create economic value while reducing environmental impacts. The next challenge is ensuring that these innovations are supported by adequate managerial capabilities, technology, and financial resources.
Author Profile
Asri Thalib is affiliated with Universitas Khairun Ternate, Indonesia, and is the corresponding author of the study “Circular Economy Innovation and SME Competitiveness in Emerging Economies.” The source manuscript does not provide the author's academic degree or a detailed biography specifying individual areas of expertise.
Research Source
Article title: Circular Economy Innovation and SME Competitiveness in Emerging Economies
Author: Asri Thalib
Journal: International Journal of Management and Business Intelligence (IJMBI)
Publication year: 2026
DOI: https://doi.org/10.59890/ijmbi.v4i5.65
Official journal website: https://journalijmbi.my.id/index.php/ijmbi
ISSN-E: 3025-5589
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