Manufacturing SMEs Leveraging a Progressive Model for Circular Economy Capability Development to Catalyse Sustainable Commitment

Abstract This study theorizes the developmental process of circular economy (CE) capabilities in manufacturing small‐ and medium‐sized enterprises (SMEs), with a particular emphasis on aligning these efforts with the pursuit of net‐zero targets. Drawing on dynamic capability theory (DCT) and employing a comparative longitudinal case study approach, we propose a progressive, three‐stage model that encompasses cognitive realignment, structural reconfiguration and institutionalized evolution. Our findings reveal that, rather than representing linear or static transitions, each stage constitutes a dynamic, iterative process through which SMEs continuously adapt and refine their CE capabilities in response to changing environmental, market and regulatory demands. Furthermore, the findings demonstrate a strong alignment with the core dimensions of DCT, sensing, seizing and transforming, offering a robust theoretical lens to understand how SMEs systematically develop and operationalize CE capabilities to support their net‐zero ambitions. This integration provides new insights into the interplay between dynamic capabilities and sustainability, advancing both theoretical and practical understanding of CE capability development within the manufacturing sector.