Leveraging eco-innovation and market knowledge for a circular economy transition: Insights from Spanish manufacturing firms

In this study, we used a panel of Spanish manufacturing companies to explore the influence of external knowledge from market sources in the context of the circular economy. We distinguished among the three groups of innovative firms by their explicit intention to achieve integrated environmental benefits from their innovations (sustainability orientation). This allowed us to classify firms into pro-circular, transition-circular and non-circular economy innovators. Our findings reveal three key contributions to the literature. First, we show that while external knowledge is crucial for driving any type of innovation, pro-circular firms prioritize external partners vertically integrated into their production chain, such as suppliers and customers. Second, we find that the breadth of external knowledge for pro-circular innovators, compared to firms with lower circularity, is less important than explicit cooperation agreements and internal R&D efforts. Third, we expand the understanding of open innovation strategies to increase the adoption of eco-innovations congruent with the circular economy. These insights contribute to the literature by highlighting that not all information sources hold the same level of importance for circular economy innovations. For managers, the results underscore the importance of fostering strong relationships with vertical partners and investing in internal R&D to drive eco-innovation and sustainability.