Boosting the Circular Transition in Manufacturing Firms: The Interplay Between Absorptive Capacity and Dynamic Capabilities

ABSTRACT A systemic transition toward a circular economy in manufacturing companies demands significant organizational and managerial changes. It requires companies to develop new knowledge and to adapt the organizational structure to seize circular innovation opportunities. While numerous studies have explored the roles of knowledge management and a firm's capacity to reconfigure resources in addressing circularity challenges, the integration of these aspects remains underexplored. This study employs a questionnaire‐based survey conducted on 1551 manufacturing firms to investigate the interplay between absorptive capacity and dynamic capabilities in facilitating the company's circular transition. Using covariance based structural equation modeling, we explore the interaction between potential and realized absorptive capacity, environmental insight capability and resource building and reconfiguration in supporting the circular transition of manufacturing firms. Our results highlight that knowledge acquisition and assimilation, coupled with environmental insight sensitivity, positively influence the firm's ability to transform and exploit circular‐based knowledge, fostering progress toward circular transition. Furthermore, the capacity to reconfigure resources acts as a mediator in the relationship between realized absorptive capacity and circularity transition. This study contributes to the academic debate on organizational management dynamics by establishing a link between the companies' learning mechanisms and their capacity to reconfigure organizational structure to implement the circular economy strategies. The findings offer insights for scholars, managers and policymakers involved in advancing the circular economy transition.