Building SME resilience in a circular economy transition: An integrated model of firm capabilities and institutional support in Vietnam

The shift from a linear to a circular economic (CE) model presents challenges and significant opportunities, demanding a new understanding of firm-level resilience. Based on an integrated theoretical framework drawn from resource-based and social capital theories, this study examines the relationships between financial innovation, technological adaptation, social capital, government support, and small and medium-sized enterprises (SMEs) resilience, with dynamic capabilities acting as a key mediating factor. Employing a quantitative approach, data from a survey of 350 SMEs in the Thai Nguyen province were analyzed using partial least squares structural equation modeling. The results reveal that financial innovation, technological adaptation, social capital, and government support are positively associated with resilience, and bootstrapped indirect effect estimates confirm that each of these relationships is partially (complementarily) mediated by the firm’s dynamic capabilities. A key finding is that government support acts as a negative moderator of the relationship between financial innovation and resilience: when government support is high, the positive association between financial innovation and resilience weakens and becomes insignificant. A plausible (though not definitive) interpretation is a potential "capability trap" in which excessive state aid may dampen the development of internal financial competencies. These findings extend established theories to the context of a national CE transition and provide a comprehensive model for SME resilience. This study offers valuable, evidence-based insights for business owners charting a course toward circularity and policymakers tasked with designing effective support ecosystems for sustainable economic futures.