Understanding circular economy adoption by SMEs: a case study on organizational legitimacy and Industry 4.0
| DOI | https://doi.org/10.1108/IMDS-04-2022-0266 |
| Published date | 08 September 2022 |
| Date | 08 September 2022 |
| Pages | 1157-1177 |
| Subject Matter | Information & knowledge management,Information systems,Data management systems,Knowledge management,Knowledge sharing,Management science & operations,Supply chain management,Supply chain information systems,Logistics,Quality management/systems |
| Author | Leven J. Zheng,Yuanyuan Anna Wang,Hsuan-Yu Lin,Wei Liu |
Understanding circular economy
adoption by SMEs: a case study on
organizational legitimacy and
Industry 4.0
Leven J. Zheng
Lee Shau Kee School of Business and Administration,
Hong Kong Metropolitan University, Kowloon, Hong Kong
Yuanyuan Anna Wang
Department of Public Health and Preventive Medicine, FMNHS, Monash University,
Melbourne, Australia and
Suzhou Industrial Park Monash Research Institute of Science and Technology,
Suzhou, China
Hsuan-Yu Lin
Nottingham University Business School China,
University of Nottingham–Ningbo China, Ningbo, China, and
Wei Liu
Business School, Qingdao University, Qingdao, China
Abstract
Purpose –This paper explores how Industry 4.0 facilitates small and medium-sized enterprises (SMEs) in
emerging markets to gain and maintain organizational legitimacy from the government and market and
capture value from circular economy (CE) adoption in their businesses.
Design/methodology/approach –Theauthors conduct an in-depth, multistakeholder case study in an SME
in China’s hazardous waste recycling and re-utilization industry and apply a qualitative analysis.
Findings –The findings show that Industry 4.0 could facilitate SMEs to gain organizational legitimacy
through two mechanisms, namely conforming and transcending. Conforming results in baseline-level
outcomes to obtain legitimacy while transcending leads to ecosystem value-cocreation, which goes beyond
government expectations and reinforces SMEs’legitimacy.
Originality/value –The authors validated the enabling role of Industry 4.0 in CE adoption in SMEs and have
generated legitimation processes and strategies that facilitate SMEs to capture value from CE adoption.
Keywords Case study, Industry 4.0, Circular economy, Hazardous waste, SMEs, Organizational legitimacy
Paper type Case study
Introduction
Circular economy (CE) refers to a paradigm shift from the traditional linear lifecycle to four
loops of recovery, respectively reducing, repairing, remanufacturing, and recycling (Urbinati
et al., 2017;Fern
andez and Kek€
ale, 2005). In addition to its wide depicted environmental
benefits, as a new economic model, CE may create new business opportunities for SMEs in
emerging markets, such as reducing material costs (Rizos et al., 2016) and extending product
life (Agyemang et al., 2019;Geng and Dooberstein, 2008). However, since SMEs are typically
characterized as the liability of newness and smallness (
€
Uberbacher, 2014), they face
difficulties in gaining organizational legitimacy (Suchman, 1995) to enter into CE business
(e.g. the highly regulated industry of hazardous waste recycling and re-utilization), especially
when competing with large corporations with a strong reputation and muscular financial
Circular
economy
adoption
by SMEs
1157
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/0263-5577.htm
Received 30 April 2022
Revised 8 August 2022
Accepted 23 August 2022
Industrial Management & Data
Systems
Vol. 123 No. 4, 2023
pp. 1157-1177
© Emerald Publishing Limited
0263-5577
DOI 10.1108/IMDS-04-2022-0266
strength. Although the legitimation process and strategies have been widely investigated in
the extant literature (Earl and Michailova, 2021;Doh et al., 2012;Suchman, 1995;Parsons,
1960), in particular in emerging markets, the majority of them focus on MNEs and large
corporations. Limited research investigates how small and medium-sized enterprises (SMEs)
gain organizational legitimacy and capitalize from CE adoption. Legitimacy deals with the
acceptance of SMEs’CE adoption by various stakeholders, including regulators, customers,
and industry partners. The CE approach is demanding because it deals with innovativeness,
exposes to both internal and external challenges, and needs to persuade different institutions,
organizations, and policymakers (Zhu et al., 2022). Therefore, obtaining the organization’s
activities politically and socially approved is vital for SMEs’survival chances when adopting
the CE approach for their business.
In recent years, the infusion of Industry 4.0 into remanufacturing, recycling, and reusing
resources seems to facilitate organizations adopting the CE approach in their businesses
worldwide (Rosa et al., 2019). There has been abundant conceptual and empirical research
indicating how Industry 4.0 could facilitate the adoption of innovative circular business
models, resource-efficient intra-and inter-organizational processes, and delivering products
and services adhering to CE objectives (Chauhan et al., 2022;Schuh et al., 2014;Fisher et al.,
2017). Although these studies provide evidence on the enabling role of Industry 4.0 in
achieving CE objectives, there is a paucity of empirical research crystalizing how Industry 4.0
could facilitate SMEs in emerging markets to profit from CE adoption in practice (Malik et al.,
2022), especially from a legitimacy perspective.
As the most common type of corporations and growth engines of countries’economic and
social development, SMEs perform a crucial role in achieving CE objectives, especially in
emergingmarkets (Soriano and Dobon, 2009;Jamali et al., 2009). However,as noted by Zhu et al.
(2022), the literature has discussed at length how CE is implemented in large corporations and
developed economies such as in Western Europe, including Domenech and Bahn-Walkowiak
(2019),andRobaina et al. (2020), which has achieved productive research outcomes. CE adoption
by SMEs in an emerging market context has received scant attention in the extant literature. To
address this gap, this study considers the issue of organizational legitimacy for SMEs emerging
from adopting CE in their businesses, with a particular focus on how SMEs obtain and maintain
legitimacy from the government and the market. We aim to understand the differential features
of Technologies 4.0 and their contributions to supporting SMEs to gain legitimacy on CE
adoption. Accordingly, we formed the research question shown below:
RQ. How does industry 4.0 facilitate SMEs in emerging markets to secure organizational
legitimacy and capture value from CE adoption?
We organize the rest of this paper as follows. First, we conceptualize the topic by reviewing
the literature on CE adoption from different research streams, focusing on the enabling role of
Industry 4.0. Then we present the rationale for choosing organizational legitimacy as the
theoretical perspective to study CE adoption by SMEs. Third, we describe the industry
background of our case company and offer details regarding our data collection and analysis.
This is followed by a discussion of our findings and conceptual contributions. Fourth, we
offer concluding remarks by indicating limitations and an agenda for future research.
Conceptual basis
CE adoption by SMEs in emerging markets
The CE approach provides routes to a more sustainable business via activities retaining the
value of materials and products already in circulation for longer hence decreasing the
extraction of raw materials from nature and the accumulation of waste in landfills (Chauhan
et al., 2022). In addition to environmental benefits, the concept of CE brings vast business
opportunities that could result in financial benefits valued at V1.8 trillion by 2030 in Europe
IMDS
123,4
1158
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