Digital Transformation and Environmental Sustainability in SMES: A Contingency Analysis of Organisational Capabilities and Market Demand

Abstract

ABSTRACT This study examines how Industry 4.0 adoption breadth and organisational capabilities are associated with environmental sustainability in manufacturing SMEs. Drawing on a capability‐based perspective, it develops and tests a contingency model linking Industry 4.0 adoption, managerial commitment, market demand for sustainable products, and social sustainability. Using cross‐sectional survey data from manufacturing SMEs and a generalized ordered logit model, the analysis captures threshold‐specific associations across levels of environmental sustainability. The findings show that Industry 4.0 adoption is positively associated with environmental sustainability, whereas managerial commitment is associated with higher performance only at more advanced levels. By contrast, market demand shows a negative direct association at low and intermediate thresholds, suggesting that external demand may create resource‐diversion pressures when internal capabilities are insufficient. Social sustainability emerges as a key enabling capability, strengthening the associations between managerial commitment, market demand, and environmental sustainability. Overall, the study advances a contingency‐based understanding of the twin transition by showing that broader Industry 4.0 adoption is associated with environmental gains mainly when supported by adequate internal organisational capabilities.