Navigating the Circular Transition: The Pivotal Role of Dynamic Capabilities in Enabling Circular Business Models and Firm Performance

A significant shift towards sustainability and environmental responsibility is currently occurring in the global economic landscape. This change was facilitated by a better understanding of the limitations and constraints of the linear economic model. The inadequacy of the linear model necessitates the transition towards a circular business model (CBM) that minimizes waste and enhances resource longevity. The main purpose of this study is to understand the factors leading to CBM adoption and to further explore its impact on a firm’s performance. The proposed framework was tested and empirically verified using the partial least squares structural equation modeling (PLS-SEM) technique on data collected from 300 manufacturing firms. The findings show that circular infrastructure is the most important antecedent of CBM adoption, followed by resource optimization. Furthermore, the moderating effect of dynamic capabilities has also been confirmed for CBM adoption and firm performance. The findings of this study contribute to expanding the extant knowledge corpus and provide strategic guidance for firms seeking a transition towards circularity principles and sustainable business model innovations. Adopting a circular business model will help firms improve their financial performance, gain a competitive edge, and build long-term resilience in the face of environmental and market uncertainties.