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 different 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 SPSS and fsQCA. The findings demonstrate a significant impact of institutional forces. Among the three pressures, mimetic pressure (competitive pressure) is the strongest driving force of eco-innovation, whereas normative pressure (stakeholder pressure) most strongly promotes environmental performance. Coercive Pressure (environmental regulations) is comparatively weak. Eco-innovation mediates one-third of competitive effects but less than 10% of stakeholder and regulatory effects, demonstrating that institutional factors operate via a distinct framework. The fsQCA results complement these findings by providing interchangeable pathways to achieve EP. This study, by considering all pressures together, establishes a hierarchy of influence wherein competition stimulates eco-innovation, and stakeholders stimulate performance. By quantifying the magnitude of each pressure’s mediation, this study shows that each pressure has its unique processes rather than substitutable ones. This study further shows that, under fragmented enforcement, non-regulatory pressures may be more significant than regulatory ones.