Green Value Co‐Creation and Circular Economy Performance: When Does Sustainability Orientation Pay Off in SMEs?

ABSTRACT Although existing scholarship recognizes environmental sustainability orientation as an important driver of circular economy outcomes, limited research has examined the contingent mechanisms through which this orientation translates into circular economy target performance (CCTP), particularly in resource‐constrained contexts. We adopted a knowledge‐based perspective to investigate how green value co‐creation moderates the relationship between environmental sustainability orientation and CCTP under varying conditions of green knowledge‐processing capability. Our study advances theory by conceptualizing environmental sustainability orientation as a multidimensional construct comprising chief executive officer (CEO) and supplier sustainability orientations, and by identifying the boundary conditions that determine when each dimension translates into circular economy outcomes. We validated our model using two‐wave survey data from 300 small‐ and medium‐sized manufacturing enterprises (SMEs) and their key suppliers in Ghana. The data supported our hypotheses by showing that supplier sustainability orientation exerts a stronger direct effect on CCTP than CEO sustainability orientation and that the effects of CEO and supplier sustainability orientation on CCTP are amplified under high levels of green value co‐creation. Additionally, we uncovered that green value co‐creation and green knowledge‐processing capability jointly moderate these relationships, with maximum circular economy benefits occurring when both contingencies are high, particularly for supplier sustainability orientation. These findings advance the knowledge‐based view by demonstrating how collaborative knowledge mechanisms and internal knowledge‐processing capabilities work synergistically to enable strategic orientation leverage. Our study offers fresh insights for managers in resource‐constrained environments, such as the Sub‐Saharan African context, and contributes to business strategy literature by revealing how firms can achieve competitive advantage through strategic orchestration of external collaboration and internal capabilities.