Understanding circular economy adoption by SMEs: a case study on organizational legitimacy and Industry 4.0

PurposeThis paper explores how Industry 4.0 facilitates small and medium-sized enterprises (SMEs) in emerging markets to gain and maintain organizational legitimacy from the government and market and capture value from circular economy (CE) adoption in their businesses.Design/methodology/approachThe authors conduct an in-depth, multistakeholder case study in an SME in China’s hazardous waste recycling and re-utilization industry and apply a qualitative analysis.FindingsThe findings show that Industry 4.0 could facilitate SMEs to gain organizational legitimacy through two mechanisms, namely conforming and transcending. Conforming results in baseline-level outcomes to obtain legitimacy while transcending leads to ecosystem value-cocreation, which goes beyond government expectations and reinforces SMEs' legitimacy.Originality/valueThe authors validated the enabling role of Industry 4.0 in CE adoption in SMEs and have generated legitimation processes and strategies that facilitate SMEs to capture value from CE adoption.