Digital transformation and circular economy practices in SMEs: Green transition and technological uncertainty

Small and medium-sized enterprises (SMEs) in emerging economies face increasing pressure to adopt circular economy practices, yet they often lack the resources to do so. This study examines whether, how, and under what technological conditions digital transformation enables such practices. Drawing on the dynamic capabilities view, we propose that digital transformation fosters a green transition, defined as the reorientation of technologies, routines, and commitments toward environmental sustainability, which in turn supports circular economy practices, and that technological uncertainty conditions these relationships. Survey data from 286 Vietnamese SMEs were analyzed with regression-based conditional process analysis, and the results were verified with partial least squares structural equation modeling. Three findings emerge. First, digital transformation is associated with circular economy practices both directly and indirectly through green transition, which accounts for approximately one-third of the total effect. Second, technological uncertainty weakens the relationship between digital transformation and green transition, indicating that digital resources are converted into greener operations less readily when technology changes rapidly. Third, technological uncertainty does not significantly alter the direct or the indirect effect of digital transformation on circular economy practices, which suggests that established green and circular routines are largely insulated from technological turbulence. The study clarifies the mechanisms and boundary conditions through which digitalization contributes to circularity and offers guidance to managers and policymakers on the sequencing of digital and green investments in SMEs.