The Role of Green Adaptability and Circular Economy in Encouraging Green Innovation in Batik SMEs in Pekalongan

This study examines the relationship between Green Supply Chain Management (GSCM), Green Adaptability, Circular Economy, and Green Innovation in the context of batik small and medium enterprises (SMEs) in Pekalongan, Indonesia, a traditional cultural industry facing significant environmental challenges. Although GSCM is often considered important in sustainable business transformation, this study empirically tests the integration of these three constructs through Structural Equation Modeling (SEM) and finds that Green Adaptability significantly influences Circular Economy (β = 0.149, p < 0.001) and Green Innovation (β = 0.396, p < 0.001), while Circular Economy also positively contributes to Green Innovation (β = 0.119, p < 0.001). In contrast, GSCM does not significantly influence these three variables (p > 0.5). These findings indicate that in the context of batik SMEs, the implementation of GSCM practices tends to be operational in nature and has not yet developed into a strategic capability capable of supporting sustainable innovation. Theoretically, this study extends the application of Dynamic Capability Theory and the Resource-Based View by emphasizing that organizational adaptive capabilities are the primary drivers of green innovation compared to fragmented green supply chain practices. Its empirical contribution is also significant because it fills a research gap in traditional cultural industries that has received little attention in the sustainability and innovation literature. These findings provide practical implications for policymakers and business actors to focus on developing adaptive capabilities and circular production systems to strengthen green innovation and the sustainable competitiveness of batik SMEs.