Unveiling Circular Economy Pathways Among Small and Medium Hotels Through a Hybrid Analytical Framework

ABSTRACT Small and medium‐sized hotels (SME hotels), which constitute the majority of the global hospitality sector, face mounting pressure to align with sustainability goals. However, their transition to circular economy (CE) practices remains under‐theorised and poorly implemented, particularly in emerging economies where institutional fragility and resource constraints prevail. Existing literature predominantly emphasises large firms and linear modelling approaches, overlooking the configurational, capability‐driven processes that enable SMEs to adopt CE under complexity. This study addresses this gap by developing a tri‐theoretical framework—grounded in the Resource‐Based View, Dynamic Capabilities Theory and Configurational Theory—to examine how internal resources and capabilities interact to shape CE adoption in SME hotels. Empirical insights were drawn from 300 executive respondents across Indian SME hotels. The study employs a hybrid analytical design integrating Partial Least Squares Structural Equation Modelling (PLS‐SEM) to capture net effects, and Fuzzy‐Set Qualitative Comparative Analysis (fsQCA) to explore causal asymmetries and equifinal pathways to CE implementation. Findings reveal Green Absorptive Capacity (GAC) as a consistent enabler and Green Dynamic Capabilities (GDC) as essential for adaptive CE strategies. While Green Human Capital (GHC) does not appear in dominant configurations, its role is found to be context‐dependent rather than absent. The study contributes theoretically by advancing an integrated model that explains CE adoption beyond linear assumptions and practically by offering strategic guidance for SME hoteliers navigating environmental transformation. It advocates for investment in organisational learning, dynamic capability‐building and targeted policy engagement to support sustainable transitions under constraint.