Abstract

Among the extensive research into various environmental strategies and their effects on competitive advantage, a gap remains regarding whether small and medium-sized enterprises (SMEs) can benefit from adopting a circular economy and what kinds of internal knowledge they need to embrace it effectively. Based on survey data from 205 SME managers, this study examines how intrinsic and extrinsic learning orientations influence circular economy adoption and competitive advantage. Using structural equation modeling, we validate that both learning orientations are important in fostering the adoption of circular economy within organizations, leading to an increased competitive advantage. Our findings highlight the need for formal knowledge-building mechanisms and internal ecosystems to support sustainable change. Overall, our study offers a guide for learning process development for practitioners, consumers, and policymakers in SME contexts. © 2025 The Author(s). Business Strategy and the Environment published by ERP Environment and John Wiley & Sons Ltd.