Cong Doanh Duong
Despite growing attention to sustainability in SMEs, limited research explains the capability-building mechanism through which digital and AI capabilities enable green transition and circular economy outcomes under resource constraints. Drawing on Dynamic Capability Theory, this study examines how digital platform capability and AI capability foster green transition and ambidextrous green innovation, thereby enhancing circular economy practices and sustainable performance. Using survey data from 286 Vietnamese SMEs and applying hierarchical regression and polynomial regression with response surface analysis, the findings show that digital capability exerts a stronger effect on green transition than AI capability. Both exploratory and exploitative green innovation significantly improve sustainability outcomes, though through distinct pathways. Balanced innovation maximizes circular economy practices, whereas imbalance may weaken circularity but improve performance. The study advances dynamic capability theory by clarifying the innovation-mediated pathway linking digital transformation to sustainability in emerging-economy SMEs.