From Linear to Circular: Capabilities, Defensive Reasoning and Supply Chain Collaborations in Manufacturers’ Circular Economy Transition

Abstract Manufacturers in developing countries face challenges during their transition to the circular economy (CE) due to rapid industrialization, resource constraints and the need to balance economic development with sustainability. These conditions provide valuable context for understanding the complexities of CE adoption. This study investigates the critical capabilities required, the impact of defensive reasoning, and the role of supply chain collaboration in overcoming challenges to CE adoption. Using a multiple‐case research design and insights from 38 interviews with six manufacturers, the study examines their transition through organizational learning theory. Initially, manufacturers engage in ‘single‐loop learning’, focusing on circular design, risk monitoring, and resource optimization strategies. However, defensive reasoning – stemming from concerns over costs and disruptions – emerges as a major obstacle. In response, manufacturers shift to ‘double‐loop learning’, which re‐evaluates their value propositions and business models. This shift is essential in overcoming resistance and enabling sustainable practices. The research highlights the pivotal role of supply chain collaboration, illustrating how it catalyses overcoming challenges to CE adoption. By emphasizing organizational learning, this study contributes to the broader discourse on CE adoption in developing countries, showcasing how learning processes enable sustainable practices that align with global goals despite local challenges.