Linking green manufacturing and frugal innovation: resource optimization as a driver of sustainable advantage

Purpose In developing economies, manufacturing firms face mounting pressure to integrate sustainable practices through Green Technology (GT) while remaining competitive in price-sensitive markets via Frugal Innovation (FI). Despite their growing strategic importance, the interlinkages between GT adoption and FI remain largely underexplored. This study investigates how GT-driven practices, specifically raw material (RM), process treatment (PT), and government policy (PGP) mechanisms, affect firm profitability and subsequently foster FI. Design/methodology/approach Drawing upon the Natural Resource-Based View (NRBV) and Dynamic Capabilities Theory (DCT), this study employs a quantitative research design using survey data from manufacturing firms in Henan Province, China. The proposed model was empirically tested using Partial Least Squares Structural Equation Modeling (PLS-SEM) to examine both direct and mediating effects. Findings The results reveal that RM efficiency and green PT significantly enhance firm profitability, which in turn serves as a key enabler of FI. Conversely, government support mechanisms such as subsidies and tax incentives show no significant impact on profitability or innovation outcomes. These findings underscore that internally developed green capabilities are more potent drivers of sustainable and cost-effective innovation than externally imposed financial incentives. Originality/value This study advances the GT–FI discourse by identifying profitability as a strategic mediator that links environmental efficiency with innovation outcomes. It contributes to theory by integrating NRBV and DCT perspectives to explain how internal resource reconfiguration enables firms to achieve dual goals of sustainability and affordability. Practically, it challenges the effectiveness of generic government subsidies and calls for more targeted, capability-oriented policies that strengthen the green innovation ecosystem in emerging economies.