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

Purpose This 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/approach The 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. Findings The 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/value The 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.