Digital technology and circular economy practices: future of supply chains

Abstract

Conversations on digital technologies and their use in a circular economy (CE) have proliferated in recent years. The ability to fully use circular resources has become possible with the development of advanced and digital manufacturing technologies. However, there is currently only a limited amount of research that looks at the impact of digital technology on the establishment of a circular economy in a supply-chain context. This study seeks to examine the effect of technological innovation on CE practises, intending to assess their relationship to environmental and economic performance. The authors developed a conceptual framework based on the comprehensive literature review and employed a quantitative method to evaluate the theoretical framework. This research uses survey data of 290 respondents from the small and medium enterprises (SMEs) located in China and Pakistan to explore a model that explains the link between technological innovation, CE practices and performance. The SMART PLS 3.3.3 version was utilized for data analysis. The test findings reveal that technological innovation is positively associated with CE practices and that leads to economic and environmental performance. The findings may assist policymakers and business professionals in taking the appropriate steps to successfully implement and operate circular economy practices. With this connection, this research emphasized that SMEs should integrate their CE practices with digital technology solutions to attain long-term financial and environmental goals.

Full text

Vol.:(0123456789)
1 3
Operations Management Research
https://doi.org/10.1007/s12063-021-00247-3
Digital technology andcircular economy practices: future ofsupply
chains
Syed Abdul RehmanKhan1,2· ArsalanZahidPiprani3· ZhangYu4,5
Received: 19 August 2021 / Revised: 14 November 2021 / Accepted: 5 December 2021
© The Author(s), under exclusive licence to Springer Science+Business Media, LLC, part of Springer Nature 2021
Abstract
Conversations on digital technologies and their use in a circular economy (CE) have proliferated in recent years. The ability
to fully use circular resources has become possible with the development of advanced and digital manufacturing technologies.
However, there is currently only a limited amount of research that looks at the impact of digital technology on the establish-
ment of a circular economy in a supply-chain context. This study seeks to examine the effect of technological innovation
on CE practises, intending to assess their relationship to environmental and economic performance. The authors developed
a conceptual framework based on the comprehensive literature review and employed a quantitative method to evaluate the
theoretical framework. This research uses survey data of 290 respondents from the small and medium enterprises (SMEs)
located in China and Pakistan to explore a model that explains the link between technological innovation, CE practices and
performance. The SMART PLS 3.3.3 version was utilized for data analysis. The test findings reveal that technological inno-
vation is positively associated with CE practices and that leads to economic and environmental performance. The findings
may assist policymakers and business professionals in taking the appropriate steps to successfully implement and operate
circular economy practices. With this connection, this research emphasized that SMEs should integrate their CE practices
with digital technology solutions to attain long-term financial and environmental goals.
Keywords Digital technology· Circular economy practices· Ecological design· Green purchasing· Sustainable
performance
1 Introduction
It is becoming more difficult to control the detrimental con-
sequences of unsustainable and environmentally damaging
consumption and production practices in a competitive and
global business environment (Korhonen etal. 2018; Rajput
and Singh 2019). In response to the growing need to decouple
economic development from resource use and environmental
effects, the circular economy (CE) idea arose and has gained
traction in recent years (Mendoza etal. 2017; Demestichas
and Daskalakis 2020; Min etal. 2021). This idea is believed
to provide a vast commercial potential that, if well-executed,
may generate a total economic value of €1800 billion in
Europe alone (Bressanelli etal. 2018). Furthermore, accord-
ing to Gavrilescu etal. (2018) and Yang etal. (2019) esti-
mated that the global economy would gain US$ 4.5 trillion by
the end of 2030. To take advantage of this opportunity, busi-
nesses will have to reorient themselves around the principles
of CE in their supply chains, abandoning the traditional meth-
ods of thinking (linear and product-centrism) and embrac-
ing the model of service-oriented value generations in their
customer interactions (Urbinati etal. 2017). As in the linear
economy (take-make-use-dispose), manufacturers produce the
goods and eventually sell the product to the end consumers,
who then discard it at the end of product life or when it is
no longer necessary (Kouhizadeh etal. 2020). CE is thought
* Syed Abdul Rehman Khan
Sarehman_cscp@yahoo.com
Arsalan Zahid Piprani
arsalan.zahid@fuuast.edu.pk
Zhang Yu
Zhangyu19@foxmail.com
1 School ofManagement andEngineering, Xuzhou University
ofTechnology, Xuzhou, China
2 Beijing Key Laboratory ofUrban Spatial Information
Engineering, Beijing, China
3 Department ofBusiness Administration, Federal Urdu
University ofArts, Science & Technology, Karachi, Pakistan
4 School ofEconomics andManagement, Chang’an University,
Xi’an, China
5 Department ofBusiness Administration, ILMA University,
Karachi, Pakistan

S.Khan et al.
1 3
to repurpose materials or product components and reduce
waste by extending the life of goods, thus benefiting both
the environment and the economy (Govindan and Hasanagic
2018). The circular economy is often termed a closed-loop
supply chain that focuses on restorative and regenerative ele-
ments. The explicit application of circular practices like eco-
product design and circular procurement allows the indus-
trial system to adopt the idea of 'end-of-life' with restoration,
remove hazardous materials, and reduce waste all across the
supply chain (Moktadir etal. 2020). Thus the CE's main goal
is to make better use of resources and help achieve better
environmental outcomes at every step of the supply chain
(Heyes etal. 2018). Further, it aims to ensure our present
way of life continues to be technically viable for the foresee-
able future. This is accomplished by using a closed system,
or loop, in which firms reuse materials through a process of
decomposition, recovery, and restoration (Demestichas and
Daskalakis 2020). Hence, on its most basic level, the circu-
lar economy identifies and solves the issue of poor use of
resources.
Circular economy practices have been successful at affect-
ing three levels of interventions, including macro (the whole
city), meso (at the supply chain level) and micro or company
(intra-firm) level (Murray etal. 2017). For instance, H&M,
a Swedish fast-fashion business, has built its supply chain in
a circular manner (SC). First, H&M selected organic cotton
as a raw material for manufacturing garments, thus reducing
its adverse environmental effect. The downstream end adds
value to the product by instituting a Garment Collecting Pro-
gram that gathers and repurposes old clothing in three ways:
re-wear, reuse, and recycling. Similarly, Dell also aggres-
sively applies CE thinking to their product and service life
cycles (Yang etal. 2019). These companies employ eco-
friendly materials, efficient designs that use fewer resources,
and integrate energy efficiency in their processes (Gavrilescu
etal. 2018).
Many studies have identified the necessity and opportu-
nity for uncovering a new route for sustainable development,
which includes handling the waste generated by society by
employing a circular business model, where this waste is
recycled and reused to generate higher-valued products to
meet society's current demands (Lieder and Rashid 2016).
Industry 4.0 is becoming an increasingly significant facilita-
tor of CE business models, and particularly in this regard,
digital technologies are vital (Nascimento etal. 2019; Rosa
etal. 2020). In this regard, the CE business models that
rely on digital technology have lately been an active study
topic (de Sousa Jabbour etal. 2018). Theoretically, sustain-
ability may be accomplished by fusing CE with Industry
4.0. A flurry of new review papers has surfaced on digital
technologies' contributions to CE development. In particu-
lar, some academics analyse the impact of Industry 4.0 and/
or CE at the business and national level. Several studies
have examined the factors that influence and/or impede the
adoption of Industry 4.0 technologies and the transition to
CE (Moktadir etal. 2020; Cantú etal. 2021; Kumar etal.
2021). Some studies are based on systematic review and
have attempted to clarify the meaning and connotation of
Industry 4.0 or CE (Rosa etal. 2020; Romero etal. 2021),
while Kouhizadeh etal. (2020), Khan etal. (2021a, b) and
Shojaei etal. (2021) worked on block chain technology to
investigate its role in establishing CE. It's worth noting that
a growing number of publications are looking into the con-
nections between Industry 4.0 and sustainability (Dev etal.
2020; Luthra etal. 2020; Ranta etal. 2021). However, there
is a dearth of empirical research on how adopting digital
technologies and various embracing technological innova-
tions may help businesses build a circular economy para-
digm across the value chain.
Sustainability based on Industry 4.0 involves protect-
ing the environment while using smarter and more flexible
processes and using contemporary technology to advance
industrial models and the ways of life (Luthra and Mangla
2018; Luthra etal. 2020). Every country now tries to adjust
and become "Industry 4.0-ready," while most economies
grapple with digital change. Technological innovation in
the era of Industry 4.0 helps businesses keep track of goods
and resources and distribute and identify them across their
supply chains, making it easier to keep value (Jabbour etal.
2019; Chege and Wang 2020). Several nations, including
China, Germany, and Japan, have adapted the CE concepts
to their legislation and national development plans with
this connection (Rajput and Singh 2019). In 2008, China
became the world's first country to put forward laws that
supported a circular economy (Nascimento etal. 2019).
The Chinese government recently put CE at the heart of
its policies, enforcing legislation established in 2008 (Wu
etal. 2015; Korhonen etal. 2018). Furthermore, "Made in
China 2025", a locally driven initiative to foster the devel-
opment and implementation of Industry 4.0 technologies,
has been put in place to help China achieve its objective
of achieving self-sustainability. Hence, it is imperative to
study technological innovation under Industry 4.0 and CE
practices together and how they influence business sustain-
able performance. Further, it is important to understand how
businesses utilize digital technologies in innovating business
processes to help implement circular economy since it is the
biggest obstacle in achieving those goals (Geissdoerfer etal.
2018). Therefore, the current study fills the gap to investigate
the impact of technological innovation on circular economy
practices and consequently on economic and environmental
performances in SMEs in China and Pakistan.
While earlier researches have mainly focused on techno-
logical innovations in achieving sustainability on large-scale
manufacturing organizations located in developed countries
(Nascimento etal. 2019; Rajput and Singh 2019), small and

Digital technology andcircular economy practices: future ofsupply chains
1 3
medium businesses (SMEs) and developing economies have
been underrepresented in empirical research. Generally,
SMEs are frequently labelled as failing to include environ-
mental sustainability in their business operations since they
have less involvement in sustainable business practices when
compared to standards applied by big corporations. Never-
theless, it's beyond dispute that SMEs play a crucial role
in the national economy. Their presence significantly influ-
ences the rise of personal income, job creation, and export
growth. This research investigates how various technological
innovations under the Industry 4.0 paradigm are expected
to be used to circular economy practices and performance
concerning China Pakistan Economic Corridor (CPEC)' s
wide range of manufacturing industries involved. CPEC is a
$62 billion worth of multi-dimensional and multi-spectrum
project that Pakistan and China collaborated on to create
economic synergies and geopolitical benefits for both coun-
tries (Abid and Ashfaq 2015; Ali etal. 2018). With the con-
tinuous development in the CPEC corridor and growth of
manufacturing sectors, there has recently emerged a greater
need for circular processes because of the rising reliance on
global supply networks that demand facilities for the dis-
posal of products after the end of their useful lives. Hence,
it is critical for SMEs in emerging economies like China
and Pakistan to take advantage of circular economy prac-
tices with technologically advanced solutions because even
a small step towards circular thinking in the right direction
would majorly affect the future the whole market.
The rest of our paper is structured as follows. First, we
conduct a literature review to establish the basis for the theo-
retical model, with a particular emphasis on the assumptions
relating to technological innovation, circular practices, and
environmental and economic performance. Next, a descrip-
tion of the methodology and then results are reported.
Finally, we analyze and discuss our findings and draw theo-
retical and managerial conclusions.
2 Literature review andhypotheses
development
2.1 Industry 4.0 – technological revolution
I4.0 also known as the fourth industrial revolution, which
encompasses a wide range of new technologies aimed at
making things better indefinitely (Romero etal. 2021). These
include big data analytics, simulations and integration sys-
tems, the use of internet of things (IoT) in industrial pro-
cesses, block chain technology and cloud computing. I4.0
is a concept that integrates information and communication
technology (ICTs) with production and manufacturing pro-
cesses (de Sousa Jabbour etal. 2018). It's no longer a secret
that technology is a key factor in the success of sustainable
businesses (Dubey etal. 2017). Emerging technologies must
be used by organisations in order to make operations both
ecologically and economically viable. Industry 4.0-based
technologies may help businesses become more sustaina-
ble. Cyber-Physical Systems, IoT, Cloud Manufacturing, and
Additive Manufacturing are a few examples (Luthra etal.
2020; Romero etal. 2021). Operations management can ben-
efit from I4.0 technologies in a variety of ways, including
speeding up production processes, lowering manufacturing
costs, improving value chain coordination and increasing
process flexibility. They can also improve customer service
and enhance product customization (Fettermann etal. 2018;
Dev etal. 2020). The use of Industry 4.0-based technolo-
gies such as Internet of Things (IoT), machine learning, and
blockchain by many Indian companies has been found to
enhance the efficiency of business processes. Using real-
time data, Tata Power Ltd developed a digital platform to
help its clients enhance the efficiency of their power plants
and better control their electricity usage. Voltas Ltd uses
Internet-of-Things (IoT)-based technologies to provide its
customers with better chiller maintenance services (Kumar
etal. 2021). Similarly, Imran etal. (2018) investigated Paki-
stan's textile sector and discovered that big data, smart facto-
ries, cyber physical systems and the Internet of things (IoT)
are the most important elements for improving performance.
2.2 Circular economy
Circular Economy (CE) is a zero-waste regeneration
system founded on the idea that trash generated inside a
company may be recycled and used as a useful resource
by another company. CE, according to Geng etal. (2016),
is the creation of closed-loop material flow through-
out the whole economic system. According to Webster
(2015), CE is one that is restorative in nature and strives
to maintain goods, components, and materials at their
maximum usefulness and value at all times. CE defines a
paradigm change in the way materials and resources are
used and disposed of. It is in direct opposition to our soci-
ety's long-standing patterns of production and consump-
tion (EMAF 2015). Global industrial growth has been
maintained for decades under the present system, which
is based on a linear system thinking (Moktadir etal.
2020). Many intergenerational and international prob-
lems, such as trash disposal in natural areas, resource
shortages, and climate change, are rooted in this style of
thinking (Korhonen etal. 2018). This unsustainable sys-
tem calls for a new approach to resource management, and
CE offers an innovative route to sustainable development
that introduces a fresh perspective on value generation
(Dantas etal. 2021).
The circular economy reduces the extraction of raw
materials from nature and the heap of waste in landfills by

S.Khan et al.
1 3
extending the useful life of materials and goods already
in circulation. Since the CE strategy is founded on claims
of saving the environment and increasing GDP, it has gar-
nered a lot of interest from industry and policy-makers alike
(Ghisellini etal. 2016). Firms must embrace CE principles
and make linear models circular and resource-efficient. To
be more effective, they must revisit their existing business
model. That is, they must reassess their value-creation,
delivery, and capture methods (Ranta etal. 2021).
2.3 Circular economy andtechnological
innovations
With the emergence of Industry 4.0, digitalization is gener-
ally acknowledged as a vital component in CE expansion.
With the increased usage of digital technology and linked
devices, resources consumption may be reduced, and cir-
cular systems may be easier to implement. The technologi-
cal advancements in the industry enable fewer resources,
thereby reducing the need for materials. Firms can use
smarter and advance technological solutions that help reduce
energy usage, save on logistical routes, and free up capacity
(Antikainen etal. 2018). Technological innovation promotes
transparency, which allows the firm to access the informa-
tion related to the consumption of resources used for the
product, helping companies increase product life cycles and
advance to CE practices (Kagermann 2015).
Although CE and I4.0 were developed separately, they
are now merging into industrial paradigms that emphases a
restorative industrial production model. Researchers believe
that CE models aim to design and create waste-reducing
products and services aided by digital technologies that may
assist their sustainable development (Romero etal. 2021).
The implementation of these digital technologies is thus
aligned with the concept of the circular economy. The extant
literature has demonstrated that CE practices and innovation
are increasingly affected by the current state of digital tech-
nology (Stock etal. 2018; Gligoric etal. 2019). Further, an
effort to bring digital technology to the manufacturing sec-
tor is simultaneously underway with CE development (Kiel
etal. 2020). Pagoropoulos etal. (2017) classify digital tech-
nologies used in Industry 4.0 into three functional catego-
ries: data collection, data integration, and data analysis. Sen-
sors (e.g., RFID) and gadgets that link products and people
to the Internet (e.g., the Internet of things) are data-gathering
technologies. Data integration technologies collect and cat-
egorize data, while data analysis tools use this information
to generate and create new information (Ranta etal. 2021).
Cloud and blockchain technologies are mentioned the most
for data integration (Khan etal. 2021a). In addition, both big
data analytics and artificial intelligence (AI) have come to
prominence in the extant literature as critical data analysis
tools (O’Leary 2013; Soroka etal. 2017).
Further to this, it has been reported that emerging digi-
tal technologies like the Internet of things (IoT), such as
RFID, Internet of Services (IoS), and cyber-physical systems
(CPS) are quickly gaining root in industrial transformation
(Dantas etal. 2021). Information gathered by technologies
such as RFID is critical in the retailing and back end of the
upstream supply chain. Using this data, companies can eval-
uate the quality of returned goods and optimize the return
flows throughout the product life cycle (Antikainen etal.
2018). Similarly, the IoT can prolong the life cycle of goods
and allow return at the supply chain by better monitoring,
analyzing, and controlling product data (Centobelli etal.
2020). They also demonstrated how cyber-physical systems
might help optimize production and maintenance by provid-
ing real-time data for decision-making. In addition to this,
incorporating those as mentioned above, technological solu-
tions into material processes helps the firm collect, organize,
and consume waste as a resource (Wilts and Berg 2017). The
fact that digital solutions can implement circular business
models by automating resource management, control, and
optimization, which also aids in helping businesses to drive
cost out of the supply chain.
Meanwhile, Industry 4.0 research has shown that digital
technologies help organizations to become more competi-
tive by offering more innovative solutions, lowering costs,
increasing equipment effectiveness, and reducing resource
consumption (Kiel etal. 2020). Digital technologies help
businesses increase value creation and capture, but they also
play a role in stimulating resource flow strategies. This is
suggested by the recent findings of Rajput and Singh (2019),
who found that companies that adopt circular economic
principles see significantly increased value creation from
Industry 4.0 technologies. Hence based on the arguments
mentioned above, it can be inferred that.
H1: Technological innovation significantly influences
circular procurement practice.
H2: Technological innovation significantly influences
circular design practice.
2.4 Circular economy practices andenvironmental
performance
Environmental initiatives, such as circular design (CD) and
circular procurement (CP), are often regarded as excellent
ways to dramatically decrease waste generation and reduce
the total ecological footprint (Al-Sheyadi etal. 2019). Green
products are said to have incremental and positive effects
on businesses' long-term survival and have a part to play in
the overall effort to develop sustainable competitive advan-
tages in the market. It has been reported that effective green
practices through green design and purchasing may decrease
the environmental impact of products and processes by 80%
(Khan and Qianli 2017). Geffen and Rothenberg (2000)

Digital technology andcircular economy practices: future ofsupply chains
1 3
argue that the implementation of CD is an essential first step
in implementing a complete green supply chain process. The
design and operational methods that favour the environment
result in substantial reductions in negative environmental
impacts and may contribute to the company's sustainability.
With the ecological design, products are more easily disas-
sembled and recycled, which will help the firm cut down on
the use of hazardous chemicals and lower its consumption
of manufacturing materials. Khan etal. (2020b) examined
different elements of environmental performance and found
that Eco design is directly and significantly related to socio-
environmental sustainability.
The researchers also argue that it is equally important
for companies to adopt sustainable green management to
choose the right suppliers (Su etal. 2016). In a complex,
competitive market, having an exceptionally broad range of
environmentally friendly suppliers is essential, influencing
manufacturing decisions on both a basic and psychological
level. Cousins etal. (2019) studied UK firms and reported
a strong and favourable connection between eco-practices
and environmental performance. Green practices adopt-
ing at different levels of the supply chain may help reduce
waste while also boosting processing efficiency, enabling
companies to generate more revenue. A company's GSCM
procedures include all efforts to minimize the negative envi-
ronmental impacts of its goods and services. These efforts
facilitate decreasing material and water consumption and
waste generation to the lowest possible level, as reported
by Yildiz Çankaya and Sezen (2019). Hence, based on the
explanations mentioned above, it can be inferred that.
H3: Circular procurement practice is positively connected
with the environmental performance of SMEs.
H4: Circular design practice is positively connected with
the environmental performance of SMEs.
2.5 Circular economy practices andeconomic
performance
On the economic side, incorporating technological solutions
to enhance the circular economy helps organizations and
their SCs in many business aspects. The increasing research
on circular economy indicates that proactive GSCM poli-
cies may reduce long-term economic expenses connected
with environmental hazards linked with business activi-
ties (Al-Sheyadi etal. 2019). CE-accredited processes save
unnecessary expenditures and keep money in circulation,
while also helping to conserve natural resources and cut
down on unnecessary expenses (Khan etal. 2021a). Eco-
friendly methods help eliminate waste in whole processes,
boosting revenues (Menhas etal. 2019). As reported in the
literature, green practices are linked with firm performance.
They discovered a strong and favourable link between green
approaches and the financial stability of organisations
(Zhang etal. 2020). GSCM may help economic performance
in two ways: First, firms can get economic advantage by
minimizing the use of materials and energy. Second, compa-
nies may indirectly receive economic advantages by enhanc-
ing their company image and loyalty by using sustainable
methods (Schmidt etal. 2017).
These research results show that using GSCM techniques
favourably influences overall company productivity (Tang
etal. 2012; Yildiz Çankaya and Sezen 2019). Moreover,
market-oriented environmental efforts like designing more
ecologically friendly goods may open new sales channels
and boost profitability (Zhu etal. 2008). It is later confirmed
by Zailani etal. (2012), who viewed that eco-design prod-
ucts had a beneficial impact on companies' financial and
environmental performance, leading to increased business
competitiveness and improved public image. The enhanced
public image and reputation via green management practices
may also result in a higher demand for goods (Korhonen
etal. 2018; García-Sánchez etal. 2021). Meanwhile, it is
often believed that an increase in environmental perfor-
mance via waste reduction would improve operational effi-
ciency, which eventually results in improved financial per-
formance (Feng etal. 2018). Hence based on the arguments
above and justification, it is inferred that.
H5: Circular procurement practice is positively connected
with the economic performance of SMEs.
H6: Circular design practice is positively connected with
the economic performance of SMEs.
3 Research methodology
This section demonstrates the research methodology
opted for assessing the relationship that has been framed
in the theorized model. We have employed quantitative
methodology with a survey tool as a research instrument.
The study has been contextualized in China and Pakistan,
focusing on Small and medium enterprises (SMEs) manu-
facturing concerns of these two countries. SMEs are con-
sidered to be the backbone and engine of growth in any
country's economic development. About 99.8% of com-
panies in China are SMEs and offer a whopping 79.4%
of employment opportunities to the workforce countrywide
(Khan etal. 2021a;Shah etal. 2021). Additionally, they account
for 60% of GDP and almost half of the taxes (Min etal. 2021).
The same is the case with Pakistan, in which SMEs offer
a massive 78% of the country's employment and con-
tribute 30% to the country's GDP (Shah and Syed 2018).
These two countries have had a longstanding relationship
since the mid-twentieth century. Furthermore, in recent
years, China and Pakistan have taken a concerted effort
to rekindle the ancient Silk Road from Kashgar (China)
to Gwadar (Pakistan) via a project called the Economic

S.Khan et al.
1 3
Corridor of China Pakistan (CPEC). CPEC is a multi-
billion-dollar endeavour involving capital investment,
infrastructure structuring, trade promotion, government-
to-government geopolitical support, and people-to-
people interaction programs (Menhas etal. 2019; Shah
etal. 2021). Not only would the CPEC upgrade Pakistan's
insufficient and outdated infrastructure, but it will also
generate close to 3 million jobs and contribute an addi-
tional 2–3% to Pakistan's GDP growth rate (Abid and
Ashfaq 2015). CPEC is also vital for China's geopolitical
interests. It offers a safer path to South Asian, African,
and Middle Eastern markets. This route poses security
concerns due to Malacca Strait's passage and its consid-
erably longer distance of 12,900km (Shaikh etal. 2016;
Ali etal. 2020). In addition to this, China's and Pakistan's
economic growth and development have traditionally
been concentrated in their eastern regions; CPEC would
enable both countries to develop their western provinces.
This would escalate the growth of manufacturing sectors
in both countries. Hence, with rising manufacturing sec-
tors, incorporating technological innovation to facilitate
the circular economic model is the vital component of
firm strategy in China and Pakistan.
3.1 Instrument development
We begin by developing a questionnaire and presented to
experts (five academicians and five supply chain profession-
als) to pre-test the instrument. This led to some changes to
the measurements to ensure the questions were posed in
the context of our study and the language used was clear
and accurate. It is then followed by the development of a
short covering letter explaining our study aim and ensuring
anonymity and confidentiality of their answers to our sur-
vey questions. We developed a questionnaire based on
the seven-point Likert scale, representing the degree to
which respondents agree or disagree with the statement
where 1– represents strongly disagree and 7– represents
strongly agree. The questionnaire primarily includes two
sections–the first section comprises a list of questions from
five different constructs which are reflective in nature.
The construct of technological innovation is measured
through four items are adopted from Kim and Shin (2019);
Kouhizadeh and Sarkis (2018) Kim and Shin (2019),
Kouhizadeh and Sarkis (2018).
Similarly, we incorporated three-item scales for both
circular procurement (Yook etal. 2018; Galeazzo etal.
2021) and circular design practices (Zhu etal. 2008; Liu
etal. 2018). Likewise, the three-item scale for both environ-
mental performance was adapted from Seman etal. (2019)
and Wong etal. (2020), while economic performance was
adapted from Wong etal. (2020). The construction definition
is presented in Table1.
3.2 Sample anddata collection
As mentioned earlier, we collected data from SMEs
located in both China and Pakistan. Due to the target
population size, the number of questions, and the expense
involved in contacting respondents. To alleviate privacy
concerns, respondents' answers were kept anonymous.
Respondents were handed the questionnaires, together
with a statement explaining the aim of this study, and were
given enough time to finish reading it. A pre-condition for
the responses was adequate and relevant knowledge on
technological innovations and circular economy practices.
Table 1 Definition of constructs
Constructs Definitions
Technological innovation (TI) Technological innovation contains high-technology, including blockchain technology, big data, and artificial
intelligence. These smart technologies help firms to reengineer their processes to adopt circular economy
practices (Kouhizadeh and Sarkis 2018; Kim and Shin 2019)
Circular procurement (CP) CP stress on cooperating with suppliers to purchase green materials, which have zero consequences for the
environment and can easily be recycling and remanufacture (Yook etal. 2018; Galeazzo etal. 2021)
Circular design (CD) The circular design of products helps firms minimize their waste and facilitate recycling and remanufactur-
ing processes, which not only improves environmental performance but also increases the firms' economic
performance (Zhu etal. 2008; Liu etal. 2018)
Environmental performance (ENP) It relates to the ability of firms to protect the environment by reducing waste, energy consumption, and toxic
materials in the end-to-end supply chain (Seman etal. 2019; Wong etal. 2020)
Economic performance (ECO) ECO relates to the capacity of the production facility to reduce the costs of supply of materials and compo-
nents, processes of recycling and remanufacturing, waste disposal, energy and water usage (Wong etal.
2020)

Digital technology andcircular economy practices: future ofsupply chains
1 3
Initially, we sorted the list of contacts, and the final online
questionnaire link was sent on multiple platforms, includ-
ing WhatsApp, WeChat, and Emails. Initially, we have
contacted 450 potential respondents, and in the first
round, 178 responses were obtained. To reach out to the
remaining 272 non-respondents, we sent them a follow-
up notification. After the second round, we got another
112 responses. In total, we obtained 290 questionnaires
from the two rounds, with a response rate of 64.4%, which
is suitable for testing hypotheses. These responses were
incorporated for data analysis. Table2 presents the demo-
graphic characteristics of the study participants (Table3).
3.3 Data analysis tool
In this study, SEM (Structural Equation Modelling) tech-
nique with the partial least squared (PLS) method was used
to examine the inter-relationship among various variables.
It has been widely recognized and accepted in green sup-
ply chain and sustainability literature to confirm theorized
relationships. The literature had reported all of the numerous
preliminary factors one should consider while choosing the
PLS-SEM approach. It is believed that the PLS-SEM han-
dles many indicator variables effectively, and they assert that
it can cope with the problem of non-normal data because of
the PLS- SEM's capacity to accept complex models. Fur-
ther to this, PLS-SEM helps with small sample size and can
analyze formative variables. This study utilized the PLS-
SEM since the main aim of this research was to predict or
analyze the connection between the exogenous and endog-
enous variables (Hair Jr etal. 2017; Hair etal. 2019), and the
rationale to utilize the PLS-SEM technique is the ability to
develop composite structures while maintaining predictive
accuracy. The SEM assessment using PLS was conducted
in two phases: first, using the measurement model, and then
the structural model.
4 Results anddiscussion
4.1 Common method bias assessment
For the research, we collected data for both independent
and dependent variables from the same person. Using this
technique may lead to the common method bias (CMB).
We carried out traditional Harman's one-factor test appli-
cation on all five constructs (i.e. TI, CPP, CDP, ECO and
ENP) with fifteen items and all these items are loaded on
a single factor without any rotation The maximum vari-
ance found to be 34.2% on a single factor, thus confirming
no issues related to CMB in the dataset. In addition to
this, we used Smart PLS 3 to conduct a collinearity test
on all five constructs. The test results confirm that a CMB
problem was found to be non-significant in this research
since VIFs for all the latent variables produced showed
variance inflation factors (VIFs) being less than 3.3.
(Khan etal. 2021a).
4.2 Measurement model analysis
For SEM analysis, we begin with confirmatory factor analy-
sis (CFA) on all the first-order constructs in the research to
ensure the measurement model was correct. To gauge the
reliability of the measurements, we test for composite reli-
ability and Cronbach's α to check for internal consistency.
The coefficients of all the constructs had alphas between
0.7 and 1, indicating that the constructs have met reliability
criteria.
The indicator reliability is examined through load-
ings of each item, which has to be a minimum of 0.6 to
Table 2 Demographic Profile
Characteristics N %
Job title
Vice President 13 4.5
Operation manager 56 19.3
General manager 21 7.2
Logistics manager 59 20.3
Procurement manager 72 24.8
Information system manager 69 23.8
Job Experience
Less than 5 37 12.8
5 to 10 96 33.1
10 to 15 126 43.4
Over 15years 31 10.7
Industry
Chemical manufacturer 87 30.0
Metal product manufacturer 28 9.7
Electronic products 33 11.4
Tobacco-related products 16 5.5
Paper manufacturer 39 13.4
Textile and clothing 68 23.4
Plastic and rubber manufacturer 19 6.6
Table 3 Reliability and Validity assessment
Cronbach's
Alpha Composite
Reliability Average Variance
Extracted (AVE)
ECO 0.725 0.843 0.567
CD 0.798 0.825 0.549
ENP 0.765 0.808 0.734
CP 0.809 0.749 0.639
TI 0.742 0.821 0.661

S.Khan et al.
1 3
establish convergent validity (Hair etal. 2014), and results
confirmed that all the items have greater than 0.6 as pre-
sented in Table4. For the validity assessment, construct
validity is measured using AVE. AVE values were between
0.549 and 0.734 (more than 0.5), therefore demonstrat-
ing construct validity. To examine discriminant validity,
we examined the square root of AVE for each construct
against all other related constructs' bivariate correlations.
The results demonstrated in Table5 shows that each
Square Root of AVE was greater than all the related cor-
relations, thus establishing discriminant validity (Fornell
and Larcker1981). In addition to this, discriminant valid-
ity is also examined using contemporary hetro trait mono
triat (HTMT) criteria, and the results indicate that all the
constructs have HTMT values of less than 0.9, therefore
offers confirmation for discriminant validity (Table6).
4.3 Structural model analysis
Table7 shows the findings of the PLS analysis of the
research model. To calculate the standard errors and t-values
of the path coefficients, a sample of 5000 subsamples was
utilized using bootstrapping technique (Hair etal. 2014).
The findings show that technological innovation has a sta-
tistically significant, direct, and positive connection with
SMEs' circular procurement practice (β = 0.198, P < 0.001)
and circular design practice (β = 0.221, P < 0.001). There-
fore, the findings corroborate H1 and H2, which lends cre-
dence to the idea that TI is crucial to enhancing CP and CD
for SMEs. In addition to this, the hypothesized connection
between circular procurement practices and environmen-
tal performance (H4, β = 0.283, P < 0.001), CD and ECO
(H5, β = 0.141, P < 0.001), and between CD and ENP (H6,
β = 0.289, P < 0.001) are supported, demonstrating that CP
helps the firm to achieve sustainable business performance
in terms of both reducing cost and flourishing environmental
sustainability. However, there is no statistically significant
relationship found between CP and ECO, thus rejecting H3.
The path results between CP and performance indicate that
CP only contributes significantly to ENP alone.
5 Discussion
Technological innovation has a substantial impact on CE
practices, as shown by the present research findings. The
extant literature found that technological innovation is
required for establishing a circular economy model, which
thus leads to dramatic improvements in value generation
and capture (Ranta etal. 2021). This elucidates how busi-
nesses' capacity to enhance circularity in their company
enables them to get value from new digital technologies
while generating and reaping profit. Our study results are
congruent with the reasoning presented in the literature.
Table 4 Cross Loadings
ENP ECO CP CD TI
ENP 1 0.841 0.520 0.544 0.395 0.664
ENP 2 0.872 0.574 0.532 0.366 0.644
ECO 1 0.282 0.711 0.421 0.551 0.416
ECO 2 0.579 0.813 0.535 0.486 0.694
ECO 3 0.412 0.732 0.549 0.354 0.441
CP 1 0.214 0.324 0.628 0.328 0.292
CP 2 0.578 0.587 0.884 0.483 0.592
CP 3 0.605 0.554 0.861 0.460 0.604
CD 1 0.229 0.422 0.330 0.693 0.390
CD 2 0.409 0.603 0.503 0.852 0.574
CD 3 0.304 0.416 0.323 0.663 0.419
TI 1 0.555 0.454 0.454 0.428 0.793
TI 2 0.757 0.692 0.590 0.490 0.871
TI 3 0.558 0.613 0.504 0.547 0.823
TI 4 0.476 0.593 0.461 0.525 0.762
Table 5 Fornell and Larcker (1981) Method
ENP CD ECO CP TI
ENP 0.857
CD 0.556 0.741
ECO 0.663 0.678 0.753
CP 0.589 0.661 0.612 0.799
TI 0.732 0.687 0.723 0.684 0.813
Table 6 Discriminant validity using HTMT Criteria
EP CD ECO CP TI
EP
CD 0.819
ECO 0.821 0.795
CP 0.858 0.857 0.712
TI 0.754 0.887 0.768 0.787
Table 7 Path model results
***P < 0.001; **P < 0.05
Hypothesis Effect Coefficient T Statistics p -values
H1 TI > CP 0.198 6.543 ***
H2 TI > CD 0.221 7.251 ***
H3 CP > ECO 0.041 1.830 Insignificant
H4 CP > ENP 0.283 6.112 **
H5 CD > ECO 0.141 5.644 ***
H6 CD > ENP 0.289 6.138 ***

Digital technology andcircular economy practices: future ofsupply chains
1 3
For instance, Bianchi etal. (2019) stated that technological
innovations like Artificial intelligence (AI) and robots in a
wide range of industries (supply chain, distribution) might
have a major effect on the natural environment and reduce
pollution, reduce greenhouse gas emissions and energy con-
sumption while increasing profitability at the same time.
Likewise, Ranta etal. (2021) conducted a study based on
multiple cases and found IoT technologies and AI the great-
est driver in enabling CE business model. IoT technologies
allow the use of machine data in product creation, produc-
ing information that can be used to improve the machine's
fuel consumption in order to reduce resource flows while
simultaneously making the product more desired and cost-
effective for the consumer to purchase. Meanwhile, AI tech-
nologies enable the business to better predict the availabil-
ity of waste materials and the demand for refined goods in
the marketplace. It will allow the business to optimise the
value chain by eliminating needless storage and possible
shortages, thus lowering costs and boosting revenues while
closing resource flows. Similarly, Kouhizadeh etal. (2020)
linked blockchain technology (BCT) and circular economy
and proposed a significant connection between these emer-
gent factors. Likewise, Shojaei etal. (2021) conducted
a case study and believe that the use of BCT is the most
viable strategy for embracing CE practices. It was later
empirically examined by Khan etal. (2021a, b) and found
a significant relationship between BCT and circular econ-
omy practices. Meanwhile, additional benefits of these
technological solutions include increasing the operational
capability of the information system and boosting CE per-
formance. The latest industrial revolution has facilitated
more integration, automation, and digitalization. Hence,
with the advanced technological solutions, firms have the
opportunity to implement more advanced CE practices. The
incorporation of these practices elevates the sustainability
performance.
Furthermore, the results demonstrate that adopting envi-
ronmental design techniques is a significant contributing
factor to organizational success. The outcome of this study
effort is contemporaneous with the results of Khan and
Qianli (2017), who discovered that the eco-design proce-
dures had a substantial effect on the overall financial suc-
cess of a company (Khan and Qianli 2017). Furthermore,
Feng etal. (2018) and Carter etal. (2000) discovered
that CE/Green practises improve firm performance.
The implementation of CE standards not only enhances
a company's environmental performance, but it also
offers the company with economic advantages (Khan
etal.2021a, b). By using green design principles, sus-
tainable company performance is more likely to be real-
ised. Similarly, the concept of environmental sustain-
ability is supported by eco-design, since companies who
practice eco-design can efficiently recycle and remanu-
facture the products after the end of product life (Ali
etal. 2020). Another advantage of eco-design is that
it encourages environmental sustainability while also
helping businesses succeed in their environmental per-
formance, and it will eventually benefit their financial
performance (Cousins etal. 2019).
In addition, governments and regulatory bodies were also
highlighted as having critical roles. As their role is to advo-
cate and promote eco-design, however, extremely stringent
and rigorous regulations are likely to discourage industrial-
ists and business professionals to implement and promote
eco-design practices effectively (Wang etal. 2019).
The results also depicted the significant effect of CP on
environmental performance but insignificant to economic
performance. This suggests that initiatives related to pur-
chasing green goods cannot lead to a company's financial
success. The result has been consistent with earlier studies
that found green purchasing does not substantially affect
economic performance directly (Feng etal. 2018; Yildiz
Çankaya and Sezen 2019; Pinto 2020). Likewise, it has been
reported that green purchasing may raise the system's total
cost, which may sometimes cause performance issues for
the business (Younis etal. 2016; Galeazzo etal. 2021). It is
Fig. 1 Conceptual Framework

S.Khan et al.
1 3
also of the view that buying green products is more expen-
sive than purchasing non-green items, which may negatively
impact an enterprise's financial results (Yang etal. 2021).
In the context of emerging countries, customers in countries
like China and Pakistan are far more conscious and aware of
the effect of manufacturing firms on the environment, which
presents significant challenges to industrial firms. With this
notion in mind, customers impose pressure on industrial
companies, which compels them to implement green prac-
tices. Despite this, government and regulatory agencies,
especially in Pakistan, fail to compensate green companies
in any meaningful way, offering them no financial assistance,
subsidies, or tax breaks, resulting the probability of increas-
ing the cost of green goods. In emerging economies, con-
sumers are unlikely to pay more for environmentally-friendly
goods, resulting in missing financial advantages connected
with using green procurement practices.
6 Conclusion, implications andlimitations
This research aims to assess various technological innova-
tions' roles in adopting CE practices to improve sustainable
business performance. A quantitative survey using a ques-
tionnaire was administered to 290 Chinese and Pakistani
SMEs. A software application known as SMART PLS was
used to analyze data and to help us make predictions about
technological innovations, CE practices, environmental and
economic performance. The measurement model analysis
depicted that the constructs used in this study were reliable
and valid. The structural model showed that technological
innovations have a substantial and favourable impact on CE
practices. Specifically, technological innovations are associ-
ated with both aspects of CE practices, and specifically, CDP
is found to be more significant than CPP. Also, environmen-
tal performance is shown to improve from CDP and CPP.
However, economic performance is only achieved through
CDP. In summary, conforming to what had been predicted,
technological innovation may serve as a vital component in
promoting CE efforts, resulting in additional increases in
sustainable performance.
6.1 Policy implications
Several policy implications were derived from this research
for both government and organizations. First, policies and
regulations should be centred on indigenization of Industrial
4.0 and CE to match individual country’s capabilities and
goals. Due to the fact that every country has varying capac-
ity to prepare and embrace embrace Industry 4.0 and CE, the
central government should grasp these concepts and align
them with the national and local economic growth targets.
As a result, with a clear direction and standard in place,
policies may be developed and implemented with more flex-
ibility, increasing the likelihood of a successful implementa-
tion of Industry 4.0 and the transition to the country’s CE
Framework. Second, at the same time, to fully utilize the
benefits associated with technological innovation in achiev-
ing sustainability targets, the government should focus on
all stakeholders' acceptance and involvement in Industry 4.0
and CE. China has developed national plans for Industry 4.0
adoption and establishing circular economy, and has backed
them up with relevant regulations to encourage their imple-
mentation. Firms play a significant role in the adoption of
Industry 4.0 and CE, since they are responsible for assimilat-
ing and driving innovation as well as establishing an appro-
priate business model under the direction of government
policies. The synchronisation of innovation and industry
policy with the interests and activities of other stakeholders
should be prioritised. Thus, with appropriate government-
market connections, advancement in technological solutions
and structural transformation induced by Industry 4.0 and
CE may positively impact sustainable development.
Further, it has become more important to establish cir-
cular practices due to the planned transfer of businesses
from China to Pakistan and anticipated industrial expan-
sion. Environmental issues arising from CPEC projects are
becoming more problematic for Pakistan. The environmental
effect of CPEC projects in Pakistan is also a major issue. As
Pakistan's manufacturing sector grows, it will increasingly
become a part of global supply chains that need facilities
for disposing of goods at the end of their useful lives. Con-
sequently, Pakistan may avoid many of the difficulties that
other emerging nations experience. Through the incorpora-
tion of green techniques backed by advance technological
solutions into CPEC projects, Pakistan will be better pre-
pared for environmental challenges in the future.
The benefits of advanced technological solutions and
their impact on green ecosystem, policymakers should focus
on developing innovative technologies so as to accelerate
the adoption of Industry 4.0 and CE. Industry policy should
focus more on driving the transition to a green economy
by using state of art technological innovations. Also, the
incorporation of sophisticated technology alternatives allows
the company to better comprehend circular procurement and
circular structure, all-important to long-term success. CE
practices backed by technological interventions assist com-
panies in tracking a product throughout its full lifecycle.
Furthermore, with the use of advanced technology, CE prac-
tices are also beneficial in other regards, such as enhancing
resource and waste re-utilization rates. This would enable
them to use their resources more effectively and thereby
enhances company performance. Finally, the adoption of
CE systems may benefit a company by helping it accom-
plish both environmental and economic goals in the long
term. Hence, it is highly suggested that policymakers and

Digital technology andcircular economy practices: future ofsupply chains
1 3
regulatory authorities actively encourage business organi-
zations to incorporate technological solutions to assist with
implementing a sustainable CE system. It is imperative that
firms must seek out all possibilities to pursue the goals of the
climate and circular economy. Businesses will only be able
to thrive in the long term if they focus on sustainability. The
circular economy may help companies succeed financially,
as well as meet their environmental goals. Hence, the circu-
lar economy model driven through advanced technological
means is an increasingly valuable means of achieving enter-
prise sustainability.
6.2 Limitations andfuture research directions
This research has several shortcomings, but on the other
hand, several unexplored avenues await investigation. To
begin with, the study sample was selected from SMEs that
operated in China and Pakistan. Future studies may under-
take a worldwide comparison to extend the results' appli-
cability. This study yielded preliminary findings that only
serve as a starting point for further investigating the rela-
tionship between technological innovations and the circu-
lar economy. However, this study has neglected to include
many additional factors that could be classified as circular
economy practices which include, remanufacturing, reverse
logistics, circular packaging, as previously stated. Further-
more, future researchers are required to conduct empirical
research to get a better grasp of how various technological
options can optimize these circular economy practices. Last,
this study used cross-sectional data to reduce causal infer-
ence. Panel data may be used in the future to examine how
perceptions of technological innovation with CE practices
and performance vary over time (Fig.1).
Acknowledgements This research is supported by Beijing Key Labora-
tory of Urban Spatial Information Engineering (NO. 20210218).
Funding Beijing Key Laboratory of Urban Spatial Information
Engineering,20210218,Syed Abdul Rehman Khan
Declarations
Conflict of interest statement The authors have no relevant financial
or non-financial interests to disclose.
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