Circular economy adoption by European small and medium-sized enterprises: influence on firm performance

Rosa, Bruna Oliveira; Paula, Fábio de Oliveira

doi:10.7819/rbgn.v25i3.4232

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Article • Rev. Bras. Gest. Neg. 25 (3) • Jul-Sep 2023 • https://doi.org/10.7819/rbgn.v25i3.4232 copy

Circular economy adoption by European small and medium-sized enterprises: influence on firm performance

Authorship SCIMAGO INSTITUTIONS RANKINGS

Abstract

Purpose

This study aims to analyze the elements that influence the adoption of circular economy (CE) activities by European small and medium enterprises (SMEs) and how these activities affect firm performance, following a multi-level approach.

Theoretical framework

To improve essential transformations, CE implementation must take place simultaneously in the micro, meso, and macro systems (multi-level approach); this is necessary to help underscore the holistic, systemic change that the CE requires. Furthermore, it is hard for SMEs to visualize the economic benefits, as the implementation of CE practices often involves making additional investments that SMEs may not consider profitable.

Design/methodology/approach

We developed seven hypotheses and a theoretical model based on the literature review to answer the research question. The model and hypotheses were tested using the path analysis method, applying the model to a sample of 4,550 European SMEs. Our empirical analysis uses data from the Flash Eurobarometer 441 (European SMEs and the Circular Economy) and the 2016 EUROSTAT database.

Findings

The results support the idea that the financial impact of adopting a CE is positive and is affected by the level of national economic and environmental performance.

Practical & social implications of research

By connecting the emergence of the CE to the national context, our study highlights the importance of considering macro-level factors when analyzing the impact of CE adoption on firm performance. Public direct investment policies, especially in countries with higher economic performance rates where firms operate at a higher level of competitiveness, can improve firm performance indicators and make CE adoption more attractive.

Originality/value

Studies on the exploration of the CE have a predominance of qualitative research with a single case; however, as the CE is a practice-oriented paradigm, the use of a quantitative methodology has become crucial to research articles in this field. This paper develops frameworks and metrics for assessing the CE at the country, industry, and firm levels using a quantitative methodology.

Keywords:
Circular economy; firm performance; SMEs; multi-level

	Non-adopters	Planners	Potential adopters	Adopters	Total
CE adoption	18.5%	5.5%	20.2%	55.8%	100%
Number of employees
1 to 9 employees	13.7%	3.7%	11.7%	32.4%	61.6%
10 to 49 employees	3.6%	1.3%	5.2%	14.2%	24.3%
50 to 250 employees	1.3%	0.5%	3.2%	9.0%	14.1%
Date firm established
After Jan 1^st 2015	0.3%	0.2%	0.3%	0.6%	1.3%
From Jan 1^st 2010 to Jan 1^st 2015	3.0%	0.8%	2.7%	7.3%	13.8%
Before Jan 1^st 2010	15.3%	4.6%	17.1%	47.8%	84.8%
Sector
Manufacturing (NACE category C)	1.4%	0.7%	3.2%	8.5%	14.0%
Retail	5.8%	1.6%	6.6%	18.4%	32.5%
Services	9.1%	2.2%	6.8%	20.6%	38.8%
Industry (NACE categories B/D/E/F)	2.2%	1.0%	3.5%	8.1%	14.8%
Consumer type
B2C	3.5%	1.3%	3.2%	10.5%	18.5%
B2B	9.5%	2.1%	8.7%	21.7%	42.0%
Both	5.6%	2.2%	8.2%	23.5%	39.6%
Lack of technical skills
Not mentioned	11.6%	2.1%	13.4%	36.6%	63.7%
Have some lack	6.9%	3.5%	6.7%	19.1%	36.3%
R&D investments
Less than 5%	16.1%	4.3%	15.5%	43.2%	79.2%
From 5% to 9.9%	0.9%	0.4%	2.3%	5.3%	9.0%
From 10% to 14.9%	0.6%	0.4%	0.9%	3.2%	5.2%
From 15% to 19.9%	0.0%	0.1%	0.4%	1.4%	2.0%
20% or more	0.9%	0.2%	1.1%	2.5%	4.7%
Financial capacity
Need for financing	12.7%	4.0%	8.1%	21.2%	46.0%
No need for financing	5.8%	1.6%	12.1%	34.6%	54.0%

Number of activities adopted	% Activities
One type of CE-related activity	40.7%
Two types of CE-related activities	28.9%
Three types of CE-related activities	17.3%
Four types of CE-related activities	10.2%
Five types of CE-related activities	2.9%

		1	2	3	4	5	6	7	8	9	10	11	12	13	14	15
1	Firm performance	1	0.109**	-0.027	-0.031*	-0.029	-0.070**	-0.061**	0.014	0.335**	0.316**	0.204**	0.082**	-0.057**	0.041**	-0.072**
2	CE adoption		1	0.056**	-0.054**	-0.237**	-0.066**	-0.046**	0.006	0.179**	0.145**	0.013	0.039**	-0.060**	0.060**	0.139**
3	R&D investments			1	0.054**	0.017	-0.035*	-0.039**	-0.011	-0.031*	-0.017	0.004	-0.036*	0.032*	0.020	-0.014
4	Lack of technical skills				1	0.148**	-0.027	-0.027	-0.014	-0.049**	-0.061**	-0.010	-0.010	0.017	0.034*	0.034*
5	Financial capacity					1	0.044**	0.049**	-0.002	-0.091**	-0.087**	0.010	0.005	-0.002	-0.045**	0.008
6	CE*GDP						1	0.928**	0.443**	-0.077**	-0.082**	-0.050**	0.043**	0.004	-0.038*	-0.013
7	CE*HDI							1	0.469**	-0.082**	-0.072^ p < 0.01 (2-tailed); *p < 0.05 (2-tailed).	-0.034^*	0.046**	-0.003	-0.053**	-0.012
8	CE*CMU								1	-0.053**	-0.037*	0.144**	0.024	-0.018	0.007	0.016
9	GDP									1	0.917**	0.400**	-0.011	0.085**	0.037*	-0.067**
10	HDI										1	0.439**	-0.017	0.091**	0.047**	-0.065**
11	CMU											1	0.003	0.028	0.041**	-0.028
12	Age												1	-0.065**	0.001	0.198**
13	Sector														0.081**	-0.083**
14	Consumer type														1	0.049**
15	Size															1

Types of CE-related activities	% Adopters
(i) redesigning the way water is used to minimize usage and maximize re-usage	14.6%
(ii) using renewable energy	13.9%
(iii) redesigning energy usage to minimize consumption	29.6%
(iv) minimizing waste by recycling, reusing, or selling it to another firm	42.3%
(v) redesigning products and services to minimize the use of materials or use recycled material	23.2%

Relationship			Std Regression Weight	P	Hypothesis test
CE adoption	<---	Firm strategy	0.068	**	H2a supported
CE adoption	<---	Lack of technical skills	-0.038	**	H2b supported
CE adoption	<---	Financial capacity	0.230	**	H2c supported
CE adoption	<---	Age	0.010	0.493	-
CE adoption	<---	Sector	-0.066	**	-
CE adoption	<---	Consumer type	0.041	**	-
CE adoption	<---	Size	0.145	**	-
CE adoption	<---	Environmental performance	-0.048	**	-
CE adoption	<---	Economic performance	0.285	**	-
CE adoption	<---	Social performance	-0.092	**	-
Firm performance	<---	CE adoption	0.052	**	H1 supported
Firm performance	<---	Age	0.097	**	-
Firm performance	<---	Size	-0.087	^ p < 0.01 (2-tailed); *p < 0.05 (2-tailed).	-
Firm performance	<---	Consumer type	0.032	^*	-
Firm performance	<---	Sector	-0.084	**	-
Firm performance	<---	Environmental performance	0.073	**	-
Firm performance	<---	Economic performance	0.274	**	-
Firm performance	<---	Social performance	0.024	0.496	-
Firm performance	<---	CE * Economic performance	-0.075	*	H3a rejected
Firm performance	<---	CE * Social performance	0.013	0.723	H3b rejected
Firm performance	<---	CE * Environmental performance	0.043	**	H3c supported

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[1] Responsible editor:

Prof. Dr. Jorge Scarpin