Analysis of the Role of Product and Process Innovation in Improving Circular Economy Readiness in the MSME Industry in the Digital Era.
Keywords:
Role of Product, Process Innovation, Circular Economy, Readiness , MSME Industry, Digital EraAbstract
Micro, Small, and Medium Enterprises (MSMEs) are often hampered by high waste treatment costs, a lack of insight into the circular economy, and limited collaboration between stakeholders. In the digital era, product and process innovation has emerged as the main driver to accelerate the adoption of circular economy principles. This research aims to analyze the extent to which product innovation and process innovation can increase the readiness of the circular economy in the MSME industry in the digital era, particularly in addressing the challenges of high waste treatment costs, limited knowledge and skills, and obstacles to multistakeholder collaboration. A quantitative approach with Structural Equation Modeling (SEM) is used to test the relationships between variables. Samples were taken from 150 MSMEs operating in the industrial sector through purposive sampling techniques. The online questionnaire was distributed in August–September 2025, and data analysis was conducted using SEM software to ensure the reliability and validity of the instruments. The findings show that product innovation significantly improves the ability of MSMEs to design products that support the recycling of raw materials, while process innovation effectively reduces waste treatment costs by up to 25%. The combination of these two innovations simultaneously increased the readiness of the circular economy by 40% among respondents. In addition, multistakeholder engagement through partnerships with governments and NGOs strengthens the readiness of MSMEs to implement circular practices sustainably. Conclusion of this study: Product and process innovation has proven to be crucial for the transformation of MSMEs towards a circular economy in the digital era. Practical recommendations include the development of innovation training modules, green technology incentives, as well as the establishment of cross-sector collaboration forums to strengthen support networks. Thus, MSMEs can increase competitiveness while supporting environmental sustainability,
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