Determinants of circular economy performance: Empirical evidence from agrifood small and medium-sized enterprises in Vietnam

Abstract

The circular economy has become crucial, especially for developing countries whose sustainable development process has been confronted with resource scarcity, growing environmental pressures, and rapid urbanization. This study develops a circular economy index (CEI) to evaluate circular economy (CE) performance at the firm level and investigates its determinants for small and medium-sized enterprises (SMEs) in Vietnam’s agrifood sector. The study employs a Principal Component Analysis approach for the CEI construction and an Ordinary Least Squares regression for examining significant drivers of CE performance with a focus on firms’ human capital, business strategies, infrastructure, institutional incentives, and the engagement of consumers and communities. The empirical outcomes highlight the importance of human capital development and demand-side mechanisms in advancing the CE transition in the agrifood sector. Most influentially, managerial awareness and technical competence of employees are significant predictors of higher CEI among agrifood SMEs. Consumer concerns and engagement exert a positive influence, underscoring the critical role of societal pressure in fostering CE performance in the agrifood industry. Government support and business strategy show positive effects, while firm size, location, and infrastructure variables are not statistically significant. Advancing CE practices among SMEs in Vietnam’s agrifood sector necessitates a multifaceted strategy encompassing investment in human capital development at both managerial and operational levels, the enhancement of governmental incentives and regulatory frameworks, and the incorporation of corporate social responsibility and community engagement within business strategies.