Driving forces for industry 4.0 readiness, sustainable manufacturing practices and circular economy capabilities: does firm size matter?

Purpose: Despite just eight years remaining to meet the sustainable development goals (SDG, 2030), the manufacturing industry faces numerous challenges for small and medium-sized enterprises (SMEs). Some notable challenges include integrating sustainability, circular economy (CE), and industry 4.0 (I4.0) technologies in a productive manner. However, there is a paucity of evidence available on the role of institutional pressures and organizational resources to promote I4.0 and sustainability. To fill this void, this study develops and tests a model based on institutional theory and resource-based view (RBV) theory while also taking company size into view as a moderating construct. Design/methodology/approach: To test the study hypotheses and validate the model, data were obtained through a survey from 228 randomly selected SMEs manufacturing in China. Structured equation modeling and multigroup analysis were used to analyze the data. Findings: The research findings indicate that institutional pressure has a positive effect on organizational resources (i.e., tangible and intangible), which are capable of orchestrating I4.0 readiness effectively. Also, I4.0 readiness has a positive effect on sustainable manufacturing practices and CE capabilities. Finally, firm size was revealed to be a significant moderator in driving overall integration. Practical implications: Based on the findings, practical implications and future research directions are discussed. Originality/value: Based on the institutional and RBV theories, this research shows how SMEs could be influenced by different stakeholders to acquire and develop their resources and capabilities to accelerate I4.0 readiness that further enhances sustainable practices. © 2023, Emerald Publishing Limited.