Entrepreneurial Orientation and Circular Economy Adoption: A Pathway Toward Sustainable Competitive Advantage

Abstract

This study investigates the relationship between entrepreneurial orientation, circular economy adoption, and sustainable competitive advantage among small and medium enterprises (SMEs) in Semarang. A quantitative approach was employed using Structural Equation Modeling–Partial Least Squares (SEM-PLS) with a sample of 385 SME owners and managers. Data were collected through structured questionnaires measuring entrepreneurial orientation (innovativeness, proactiveness, and risk-taking), circular economy adoption, and sustainable competitive advantage. The results indicate that entrepreneurial orientation has a significant positive effect on circular economy adoption, suggesting that firms with strong entrepreneurial capabilities are more likely to implement sustainable practices. Furthermore, circular economy adoption significantly enhances sustainable competitive advantage, demonstrating its role as a strategic driver of business performance. The direct effect of entrepreneurial orientation on competitive advantage is also significant but weaker compared to its indirect effect through circular economy adoption, confirming a partial mediation effect. This study contributes theoretically by integrating entrepreneurial orientation and circular economy adoption into a unified framework, highlighting the mediating role of sustainability practices in achieving competitive advantage. Practically, the findings suggest that SMEs should align entrepreneurial strategies with circular economy principles to enhance long-term competitiveness. The study is limited by its regional focus and cross-sectional design; future research is recommended to expand the scope and incorporate additional variables. Overall, this research emphasizes the importance of sustainability-driven entrepreneurship in fostering resilient and competitive SMEs.