What Drives Sustainable Business Models? A Hierarchy of Pathways for SMEs

Institutional theory assumes that coercive, normative, and mimetic pressures operate as parallel forces driving organizational isomorphism. This study tests this assumption by exploring the impact of pressures on eco-innovation and environmental performance in manufacturing SMEs. A two-wave, time-lagged survey of 271 manufacturing SMEs in China was analyzed using structural equation modeling (SEM) using IBM SPSS Statistics 27 and AMOS 21.0. The findings demonstrate a significant impact of institutional forces. Specifically, mimetic pressure (competitive pressure) most strongly influences eco-innovation, while normative pressure (stakeholder pressure) most strongly influences environmental performance. Coercive pressure (environmental regulations) is relatively weak. This research advances institutional theory by measuring the mediation magnitudes, revealing that these pressures affect both direct and innovation-mediated pathways. Mimetic pressure is most dependent on eco-innovation for performance (32.5% mediated), while normative pressure mostly uses direct channels (10% mediated). The fsQCA results complement these findings by providing interchangeable pathways to achieve Environmental Performance. By considering all pressures together, this study establishes a hierarchy of influence where competition stimulates eco-innovation, and stakeholders stimulate performance. This study provides evidence that these pressures are not substitutes because they affect different degrees of reliance on eco-innovation. This study shows that, under fragmented enforcement, non-regulatory pressures may be more significant than regulatory ones.