Circular Economy Transition: The Role of Industry 4.0, Open Innovation, and Firm's Absorptive Capacity in Manufacturing Firms
Abstract
ABSTRACT This study is to examine the resources and capabilities that facilitate the circular economy practices (CIECs) in manufacturing firms in Malaysia. It explores the impact of Industry 4.0 (IR4.0) on CIEC and examines the role of open innovation (OPIN) and firms' absorptive capacity (FACA). The data were collected from 231 managers at multi‐levels from large‐scale manufacturing firms across 10 different sectors in Malaysia. Our findings from PLS‐SEM and necessary condition analysis (NCA) reveal significant relationships between IR4.0, firms' absorptive capacity, and CIECs. The significant mediation of firms' absorptive capacity is found between IR4.0 and the circular economy. Besides, our empirical results indicate a negative moderating effect of OPIN between IR4.0 and CIEC. The NCA shows that all factors are necessary for circular economy implementation. These findings provide implications for managers and policymakers. This study extends the strategic management concept to sustainability by contributing to an incremental understanding of the natural resource–based view (NRBV) by proposing a framework for the integration of sustainable development approaches in firms.