Building Circular Economy Capabilities: A Systematic Review of Drivers, Practices, Digital Enablers, and Sustainable Outcomes

Abstract

This study aims to analyze the development of circular economy capabilities and explain the driving factors, organizational capabilities, circular practices, and sustainability outcomes that are relevant to Micro, Small, and Medium Enterprises (MSMEs). The research uses a Systematic Literature Review (SLR) combined with bibliometric analysis of Scopus-indexed publications for the 2010-2026 period. The initial search yielded 402,309 documents. After the process of checking and eliminating duplication in the selected dataset, 35 unique articles were obtained, with 20 articles explicitly discussing the circular economy, circularity, circular supply chain, or circular business model. The results show that circular economy capabilities are not formed as a single ability, but develop through the interaction between innovation capabilities, collaboration, digitalization, knowledge management, governance, and organizational capabilities. Digitalization plays an enabling role that strengthens the implementation of circular practices when supported by organizational readiness and strategic capabilities. Practices identified include resource use reduction, reuse, material recovery, recycling, circular design, backflow management, and circular business model development. The research synthesis resulted in an integrative framework driving → circular economy capabilities → circular practices → sustainable outcomes. Sustainable outcomes include improved resource efficiency, waste and emissions reduction, supply chain resilience, economic performance, and business resilience. This study expands the understanding of the circular economy from a practice-based approach to an organizational capability perspective and shows that empirical evidence specifically addressing MSMEs is still limited, opening up space for further research.