Linking digitalization to circular economy practices and MSME performance: A mixed-methods study in Indonesia

This study aims to identify whether micro-, small, and medium-sized enterprises (MSMEs)’s digitalization increases circular economy (CE) practices and improves business performance (BP), and whether CE practices contribute to BP across local contexts. A sequential explanatory mixed‑methods design was applied. The quantitative phase collected 219 valid respondents, analyzed through partial least squares structural equation modeling. The qualitative data were collected through focus group discussions and analyzed using narrative analysis. The results show that digitalization has a consistent and significant association with BP, both directly and indirectly through CE practices, indicating partial mediation. Multigroup analysis confirms that the CE and BP relationship differs significantly across cities, while digitalization effects remain stable. Qualitative findings suggest that CE practices in MSMEs are largely driven by operational and cost-saving considerations, whereas digitalization functions as a capability-enhancing tool. The findings suggest a potential asymmetry in the twin transition, where digitalization operates as a more consistent firm-level capability, while the performance implications of CE practices are more context-sensitive.