The Circular Economy in Global Manufacturing: Linking Technological Innovation, Environmental Performance and Business Competitiveness

Abstract

The transition from linear production to circular manufacturing requires coordinated integration of technological innovation, environmental management, and competitive strategy. Despite growing interest in digitalisation and circular economy practices, limited empirical evidence explains their combined influence on environmental performance and business competitiveness within a single manufacturing framework. This study examined the relationships among circular economy implementation, technological innovation, environmental performance, and business competitiveness, with environmental performance tested as a mediating mechanism. A quantitative cross-sectional survey was conducted among 438 manufacturing firms representing multiple regions, sectors, and organisational sizes. Construct reliability and validity were assessed through confirmatory factor analysis, and the hypothesised relationships were tested using structural equation modelling with 5,000 bias-corrected bootstrap resamples. Circular economy implementation and technological innovation were positively associated with environmental performance and jointly explained 51% of its variance. Environmental performance showed the strongest association with business competitiveness, while both circular economy implementation and technological innovation retained significant direct relationships with competitiveness. The full model explained 58% of the variance in business competitiveness. Environmental performance partially mediated both relationships, indicating that ecological improvements are a major pathway through which circular and technological capabilities generate business value. Larger firms reported higher scores across all constructs. The findings show that sustainable competitiveness depends on integrating digital capability, circular production, and environmental performance rather than pursuing these initiatives separately.