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Article

Internal and External Drivers That Foster Sustainability—Integrated Innovation Management of Micro and SME Suppliers: A Focus on Corporate Entrepreneurship

by
Su-Yol Lee
1,* and
Seho Jung
2
1
College of Business Administration, Chonnam National University, Gwangju 61186, Republic of Korea
2
Department of Science and Technology Convergence, Chosun University, Gwangju 61452, Republic of Korea
*
Author to whom correspondence should be addressed.
Sustainability 2025, 17(18), 8458; https://doi.org/10.3390/su17188458
Submission received: 17 August 2025 / Revised: 11 September 2025 / Accepted: 18 September 2025 / Published: 20 September 2025
(This article belongs to the Special Issue Sustainable Strategy in Entrepreneurship and in Small and Medium-Sized Enterprises)
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Abstract

Environmental, social, and governance (ESG) has increasingly received attention for its expected capacity to simultaneously enhance sustainability performance and mitigate risks among micro, small, and medium-sized enterprises (MSMEs) in supply chains. This study examines how external drivers, particularly the influences of buying firms and governments, as well as corporate entrepreneurship as an internal driver, foster MSME suppliers’ sustainability innovation management. A survey of the automobile industry in a Republic of Korea context indicates that buying firms and corporate entrepreneurship play critical roles in enhancing MSME suppliers’ sustainability innovation management. This study also reveals that corporate entrepreneurship accentuates the effects of external drivers on MSME suppliers’ sustainability innovation. Although a relationship between sustainability innovation management and operational performance was unconfirmed, this study demonstrates that corporate entrepreneurship enhances operational performance. As one of the first to explore the topic of MSME suppliers’ sustainability innovation from a corporate entrepreneurship perspective, this study has significant implications for academics, practitioners, and policymakers.

1. Introduction

Over the past decade, the perspectives of academics and practitioners regarding ESG (environment, society, and governance) have changed dramatically. A long-standing, fragmented compliance issue at the middle management level has become a strategic agenda item for boards of directors [1,2]. Climate change, sustainable finance, and emerging uncertainty in global value chains provide the backdrop for the recent surge in ESG, which has evolved from corporate social responsibility (CSR) and corporate sustainability [3,4,5]. Climate change has become a key agenda for business, with 45% of Fortune 500 companies declaring net-zero goals as of 2024. The financial sector’s shift toward sustainability is driving ESG pressure across the industry, as it increasingly incorporates ESG ratings into investment portfolios [6]. In a global economy connected by global value chains, environmental and social risks are increasingly difficult to predict, and their adverse effects spill over across borders [7,8].
Sustainability management has mainly focused on large listed corporations, as ESG ratings and related disclosure systems target these firms. As a result, the core management question “Does it pay to be responsible?” has been explored mostly through the lens of large companies and their valuation in capital markets [9,10]. The situation differs for micro, small, and medium-sized enterprises (MSMEs). These businesses are not the primary focus of ESG ratings or global disclosure frameworks. Still, MSMEs face growing pressures from supply chains, regulations, and stakeholders to adopt sustainable practices; yet, they encounter unique challenges, such as limited resources, a lack of expertise, and difficulties in accessing relevant information or support. Despite the economic importance of MSMEs, their sustainability, innovation, and management practices are underexplored [11]. Over the past two decades, research has explored the factors, obstacles, and tools that impact the sustainability of MSMEs. However, previous studies have mainly examined sustainability from the perspective of stock market value, overlooking the unique challenges and opportunities faced by MSMEs. Because of this, we know little about how smaller, less-resourced firms handle sustainability innovation or why their responses vary even under similar pressures. This gap underscores the need to investigate the sustainability management of MSMEs, with a focus on entrepreneurship, thereby providing a clearer understanding of how external pressures, internal culture, and innovation intersect [11].
Recently, an interest in sustainability innovation management among MSMEs has received attention. First, new regulations are being introduced to raise ESG standards throughout the global value chain. For example, the EU’s Corporate Sustainability Due Diligence ensures that companies uphold sustainability standards throughout their global value chains. This implies that MSME suppliers in regions with weak domestic regulations will face higher levels of sustainability management pressure, both directly and indirectly [12,13]. Second, MSMEs are essential contributors to national economies. They generate employment and income, especially in developing countries. Yet they are disproportionately vulnerable to crises, uncertainties, and external shocks compared to large firms. Their limited financial and managerial resources, weak institutional support, and lack of risk management capacity also create significant barriers. These barriers hinder their ability to adopt sustainability practices and ensure long-term business continuity [14,15,16,17]. The sustainability risks imposed on MSEMs can jeopardize the competitiveness of firms, supply chains, and countries. For example, global supply chain disruptions and risks due to climate change have increased noticeably [18]. Third, MSMEs play a vital role in fostering healthy and prosperous business ecosystems because they form the economic backbone of many countries. For example, a recent review reveals that SMEs account for over 99% of enterprises and over 70% of employment in the EU and Republic of Korea [19]. As a result, the proliferation of sustainability throughout MSMEs is essential to achieving Sustainable Development Goals and national net-zero targets [20].
Given this situation, this study examines the drivers and consequences of MSME suppliers’ sustainability innovation management, making three contributions to the existing literature. First, it is among the first to explore this agenda from a corporate entrepreneurship perspective. It also presents a plausible explanation for why MSMEs respond differently to sustainability issues despite facing the same circumstances. The literature on MSMEs generally finds that they are constrained by a lack of resources [14,21]. However, even in the same condition and with significantly constrained resources, some MSMEs show a proactive stance toward sustainability while others adopt a wait-and-see attitude [22]. These varying positions can result from varying managerial perceptions and interpretations of the circumstances. While the entrepreneurship literature generally focuses on individual entrepreneurship, entrepreneurial orientation at the organizational level has continued to receive academic attention [23,24]. This study demonstrates that the entrepreneurial orientation and spirit of MSMEs will influence their stance toward sustainability issues, driven by the fundamentals of entrepreneurship, which include seeking, seizing, and executing new opportunities despite resource constraints [25].
Second, this study examines the dynamic interaction between external influences and internal characteristics of MSMEs related to the adoption of sustainable innovation management. It considers specific conditions that MSMEs encounter, including their limited resources and bargaining power in buyer–supplier relationships. For this reason, the sustainability of MSMEs can be initiated by external stakeholders, particularly their buyers and governments. This study presents how corporate entrepreneurship and external factors can interact in adopting and implementing sustainability innovation among MSME suppliers.
Third, this study provides empirical evidence on the antecedents and outcomes of sustainability innovation management in MSMEs. Using primary survey data, it presents reliable and validated measurements for its antecedent variables and findings that demonstrate that corporate entrepreneurship, buyer ESG pressure, and government support facilitate MSMEs’ sustainability innovation and consequently contribute to their operational performance.
The remainder of this study is organized as follows: Section 2 presents the study’s theoretical background, and Section 3 discusses its research model and hypotheses. Section 4 explains the research method and provides the results and discussion. Finally, Section 5 summarizes the research, describes its limitations, and proposes future research directions.

2. Theoretical Backgrounds

2.1. Sustainability Innovation Management

ESG, an acronym for environmental, social, and governance, refers to a category used to evaluate companies’ social responsibility and sustainability performance. Sustainability innovation management results in the non-financial performance of companies that measure social and environmental value creation in each field and their commitment and activities to address sustainable development goals [26]. Historically, several terms have been used, but they often have slightly different meanings and contexts. These include corporate sustainable development, the triple bottom line, corporate social responsibility, and corporate citizenship; however, those terms have begun to converge conceptually. As a result, corporate sustainability management can be understood as a term that operationalizes sustainability into business strategies and practices [27]. Accordingly, this study defines sustainability innovation management as conveying a firm’s commitment and activities related to incorporating environmental and social issues into its strategic and operational decision-making processes of innovations.
Sustainability innovation management involves aligning corporate goals and practices regarding innovation with sustainability principles as well as considering long-term effects on the environment and society. It aims to manage sustainability-related risks and opportunities while driving corporate financial performance and integrating sustainability into a company’s vision, strategy, culture, and daily operations. Sustainability innovation management includes identifying ESG issues relevant to a business, such as its customers, markets, products, operations, supply chains, and technologies, all indicating “materiality” [28]. When firms adopt sustainability innovation management, they should establish clear and long-term ESG goals that align with their overall strategies. These might include net zero, diversity, and community engagement initiatives.
MSEs are the economic backbone of many nations. However, their survival is threatened by limited resources, fragile infrastructure, and ongoing crises. Building resilience in MSEs requires strengthening adaptive capacity—a firm’s ability to sense, seize, and reconfigure resources during turbulence. Two mechanisms enhance adaptive capacity: crisis management preparedness, which enables firms to anticipate and respond to disruptions, and customer-centric adaptation, which tailors responses to evolving customer needs during crises. Both serve as dynamic capabilities—routines and processes that help firms adapt to changing environments. Strengthening these dynamic capabilities builds adaptive capacity and entrepreneurial resilience. This perspective extends dynamic capability theory by linking sustainability innovation management with micro-foundations of resilience in resource-constrained MSEs, especially in volatile environments [29].

2.2. Corporate Entrepreneurship

Corporate entrepreneurship, conceptualized as entrepreneurship at an organizational level, has received continuous attention from both business circles and academia and is considered a means to energize and transform existing organizations [30]. However, various perspectives compete in defining and explaining corporate entrepreneurship within the literature [31]. For example, several terms have been used, but often with different meanings and contexts. These include entrepreneurial posture [32], entrepreneurial orientation [33], corporate entrepreneurship [34,35], and intrapreneurship [36,37]. Three strands have been identified as addressing corporate entrepreneurship in the literature [38].
The first is the corporate orientation of employees expressed within an organization (e.g., intrapreneurship). The second concept extends entrepreneurial activity to an entire organization, defining corporate entrepreneurship in terms of management orientation or type (e.g., entrepreneurship orientation). The third is the trend of explaining corporate entrepreneurship as output-based, focusing on new outcomes created by the organization. For example, a new venture or innovation derived from a company functions as a proxy for the company’s entrepreneurial spirit. In organizational-level research, the second stream is the most common, and the mainstream involves identifying entrepreneurship as the orientation or attitude of a company [30]. This study applies the fundamental definition of entrepreneurial spirit to the corporate level based on existing literature [30,39] and defines corporate entrepreneurship as “the continuous orientation, attitude, and behavior of a company to detect, capture, and realize new opportunities as a business.”
Corporate entrepreneurship represents the entrepreneurial mode of strategic management [39]. Broadly, entrepreneurship is the process of identifying new opportunities, regardless of resource availability, and refers to an attitude and behavior. Therefore, opportunity exploration is emphasized irrespective of the company’s situation, resource constraints, and risk aversion. Organizations with a high entrepreneurial spirit are characterized by strategic orientation, opportunity seeking, growth orientation, and a risk-taking culture [25]. Additionally, highly entrepreneurially oriented organizations possess proactive and innovative attributes [40]. This reflects an enterprise’s proclivity to engage in innovative, proactive, and risky strategic activities, competitive aggressiveness, and independent, autonomous action. Corporate entrepreneurship can be identified by a tendency in an organization’s strategic decision-making process and is internalized into organizational culture, which includes management processes, organizational structure, methods, and management behavior. This tendency can be judged by an index within a spectrum ranging from the very conservative to the very entrepreneurial. Therefore, corporate entrepreneurship ranges from highly conservative to highly entrepreneurial [32].

3. Research Framework and Hypotheses Development

The present study investigates the relationships among buyer environmental, social, and governance (ESG) initiatives, government involvement, corporate entrepreneurship, sustainability innovation management, and operational performance. Buyer ESG initiatives are conceptualized as the strategic efforts of a buying firm to achieve social and environmental objectives through the systematic coordination of buyer–supplier relationships. Government involvement is defined as programs that facilitate the transfer and dissemination of sustainability-integrated management practices to micro and small enterprises. Corporate entrepreneurship is described as a firm’s capacity to pursue opportunities despite resource constraints. Sustainability innovation management refers to a firm’s commitment and actions to integrate environmental and social considerations into strategic and operational innovation decisions. Operational performance is measured by competitive priorities and outcomes at the operational level, including quality, cost, delivery, flexibility, and customer satisfaction.

3.1. Buyer Influence on the MSME Suppliers’ Sustainability Innovation Management

The main catalysts through which companies recognize sustainability’s importance are regulations, market demands (including customers), and pressure from the capital market [41,42]. MSMEs, particularly business-to-business suppliers, are relatively less exposed to regulations and have fewer demands from consumers and financial investors regarding environmental and social issues. However, these external pressures are transmitted to MSME suppliers through their customers along the supply chain [22,43]. Since the early 2000s, global brand companies have made efforts to reduce environmental and social risks in their supply chains. These efforts are referred to as green supply chain management, responsible supply chain management, and sustainable supply chain management [44,45,46]. Buying firms frequently employ two approaches to cultivate their suppliers’ environmental and social capabilities. First, they incorporate environmental and social requirements into procurement criteria and then ensure their suppliers’ compliance. Second, buyers can provide their suppliers with training and education programs, share information, and undertake collaborative research and development to address relevant environmental and social issues [47,48].
For MSMEs, buyers, particularly the supply chain’s end-product producer, are the most influential stakeholders [22]. Changes in the buyer’s purchasing policies are very sensitive issues for MSME suppliers. A buyer’s ESG initiatives can directly and substantially affect their suppliers, and can serve as a catalyst that triggers their environmental and social issues [12,13]. For example, Walmart’s sustainability strategy, including the “three strikes and out” green purchasing policy, has led to the diffusion of environmental management throughout its Chinese suppliers [49]. Unilever’s sustainable supply chain policy has played a role in promoting environmental regulatory systems in developing countries and improving living wages among suppliers [50]. The EU’s recently promulgated corporate sustainability due diligence legislation will provide further momentum for multinational global brands to address their supply chain sustainability-related risks proactively. Additionally, a buyer’s technical support of its MSME suppliers in addressing environmental and social challenges helps them overcome their resource constraints when they adopt sustainability innovation management [12]. By participating in a buyer’s ESG initiatives, MSME suppliers can be perceived positively, improve their operational efficiency, and build deeper relationships [51]. For example, Apple requested its suppliers to join the RE100 initiative, raising their awareness of carbon neutrality and increasing renewable energy use.
This reasoning leads to the following hypothesis.
Hypothesis 1.
A buying firm’s ESG initiatives within its supply chain promote the sustainability innovation management of MSME suppliers.

3.2. Government’s Involvement in MSME Suppliers’ Sustainability

Over the past 20 years, the role of governments in enabling SMEs to respond proactively to environmental and social issues has received steadily increasing attention [52,53]. SMEs with resource limitations have difficulty considering sustainability. They can engender risks within a country’s entire value chain. For instance, in the early 2000s, when the EU’s new environmental regulations, including RoHS and WEEE, impacted global supply chains, export-intensive countries, such as Republic of Korea, supported SME suppliers in responding to the regulations by leveraging their relationships with large purchasing firms [54]. Recently, some governments have extended their support for SMEs to sustainability issues. For example, the UK government launched a national initiative, the UK Business Climate Hub, designed to help SMEs transition to net-zero emissions. This initiative aims to simplify sustainability compliance for SMEs by providing tools, data, and case studies that demonstrate how businesses can effectively implement sustainable practices, including green energy usage and waste reduction.
Government involvement in these initiatives encompasses a diverse range of categories, from direct technical, financial, educational, and training support to tax incentives for the development of environmentally friendly technologies and products. They also include process efficiency improvements and infrastructure developments such as an eco-industrial park [15,55]. Yet, there is controversy regarding whether such government-led sustainability initiatives can induce substantial changes in SME behavior [56,57]. For example, SMEs’ commitment can diminish when such government support ends. Nevertheless, the government is seen to play a vital role in triggering MSMEs’ sustainability innovation initiatives. Thus, this argument suggests the following hypothesis.
Hypothesis 2.
Government involvement in ESG initiatives positively affects the promotion of sustainability innovation management among MSME suppliers.

3.3. Corporate Entrepreneurship and MSME Suppliers’ Sustainability

Embedding environmental and social issues into management decisions requires substantial changes and becomes a considerable challenge for MSMEs. Although MSMEs tend to be reluctant to address sustainability issues because of their limited resources and knowledge, they still respond differently [56]. Prior studies argue that firms’ varying strategies to address climate change result from differences in managerial interpretation of their competitive environment and capabilities [58,59]. Similarly, their internal attributes can affect MSMEs’ willingness to engage in sustainability innovation initiatives. Among these potential attributes, this study focuses on the corporate entrepreneurial aspect of MSMEs.
Corporate entrepreneurship is a firm’s characteristic that emphasizes seeking opportunities regardless of the extent of resources possessed. First, when a firm is small, senior managers, founders, and owners influence its organizational orientation and culture [60]. Managers are responsible for sensing changes in external competitive environments and deploying organizational resources in response to the changes. Since MSMEs are entrepreneurial-oriented, managers are more likely to be alert to potential opportunities engendered by emerging sustainability issues, which can lead to strategic decisions to adopt and implement sustainability innovation management earlier compared to their less entrepreneurial competitors [22,23].
Second, corporate entrepreneurship can be understood as one of various organizational capabilities because it represents a firm’s characteristics of being active and innovative, which are embedded in management processes, systems, and culture [61]. Integrating environmental and social issues into overall management requires changes to products, processes, technologies, and management systems and procedures [62]. For example, transitioning from end-of-pipe treatment to pollution prevention and a circular economic orientation requires radical and structural innovations in product design, supply chain collaboration, and quality assurance [63]. Employees of MSMEs may be resistant to organizational changes because they do not want to face emerging risks associated with sustainability issues. In this situation, corporate entrepreneurship can play a vital role in mitigating organizational inertia [56,64], thereby enabling MSME employees to adapt to sustainability innovation management. Third, MSME senior management, particularly those in entrepreneurial companies, plays various roles in monitoring the external environment, seeking new opportunities, stimulating innovation in their organizations, and acquiring required resources from outside organizations [65]. As MSMEs’ decisions rely on their CEOs more than those of large firms, sustainability issues can quickly disseminate throughout an entire organization when it is more entrepreneurial.
Thus, for MSMEs, corporate entrepreneurship will be more significant than any other internal attributes when emerging issues such as sustainability are discussed, adopted, and embedded within an organization. Based on this reasoning, the following hypothesis is presented.
Hypothesis 3.
Corporate entrepreneurship positively affects the sustainability innovation management of MSME suppliers.

3.4. Sustainability Innovation Management and Operational Performance

MSME suppliers’ response to sustainability issues, visualized as adopting sustainability innovation management, can positively affect operational performance. This argument aligns with numerous prior studies that validate the positive relationship between sustainability and firm performance [11]. Notably, several mechanism categories relate to how sustainability innovation management leads to operational performance and are described in the following section.
First, cost-saving logic posits that sustainability innovation can lower manufacturing costs by reducing waste, avoiding potential environmental and social fines and liabilities, and improving product quality. In operations, quality management, lean production, and environmental management are fundamentally parallel because they all emphasize waste reduction, efficient and effective resource usage, and the control of internal processes. The literature supports this notion by presenting empirical evidence that sustainability innovation can enhance delivery performance and reduce overall costs [66,67]. The second is the market gains logic, which argues that sustainability innovation can help firms differentiate themselves from competitors and thus gain customers [68]. Large brand companies have increasingly demanded higher environmental and social standards from their suppliers, including environmental and safety-related quality. In this regard, MSME suppliers can demonstrate their capabilities to adequately address sustainability issues within their supply chains, which can then lead to winning contracts [11,69]. The third is the organizational learning logic, which indicates that sustainability enhances firms’ organizational and technological learning capability [70]. Notably, sustainability issues usually require high levels of technical expertise in production and product design. For example, low-carbon footprint products involve high technology and require green design skills built on solid conventional capabilities such as engineering skills, design expertise, and product knowledge [71]. Efforts to reduce carbon footprints can foster organizational and technological learning, leading to improved operational performance.
This reasoning results in the following hypothesis.
Hypothesis 4.
MSME suppliers’ sustainability innovation management can increase their operational performance.
Figure 1 presents the research model and hypotheses and depicts the relationships between a buyer’s ESG initiatives, a government’s involvement, corporate entrepreneurship, MSME suppliers’ sustainability innovation management, and operational performance.

4. Research Methodology

4.1. Variables and Measurement

The major variables used in this study are the buyer’s ESG initiatives within a supply chain (BUYER), government involvement (GOV), corporate entrepreneurship (ENT), sustainability innovation management (SUSTAIN), and operational performance (PERF). First, BUYER is conceptualized as a buying firm’s strategic efforts to achieve social and environmental objectives through systematic coordination of buyer–supplier relationships. This study developed six items for BUYER by modifying the relevant items from prior studies [51,72]. These include environmental and social criteria for supplier evaluation, green product development, sustainability auditing, sharing sustainability information, and providing educational and technical assistance. Second, GOV is defined as programs that facilitate the transfer and dissemination of sustainability-integrated management practices to micro and small enterprises. Four items were developed to measure GOV based on relevant literature [54,55]. These reflect the perception of MSMEs regarding a government’s sustainability-related support programs. Third, ENT is described as a firm’s capacity to pursue opportunities despite resource constraints. Six items were identified for corporate entrepreneurship (ENT) by synthesizing measurements suggested in the previous studies [39,73]. Fourth, SUSTAIN is defined as a firm’s commitment and actions to integrate environmental and social considerations into strategic and operational innovation decisions. It was measured using five items, reflecting the levels of a firm’s adoption and implementation of sustainability into its general innovation strategies and management [74]. Fifth, PERF is described as competitive priorities and outcomes at the operational level. It was measured using a five-item scale. Prior studies on operations management have reached a consensus on a list of competitive priorities that can serve suppliers’ primary performance goals, including quality, cost, delivery, and flexibility [45]. This study added perceived customer satisfaction to this measure.
This study controls firm age (AGE) and firm size (SIZE), which is measured using the natural logarithm of firm revenues. Previously validated scales were used when possible to increase measurement reliability and validity. All the questions are perceptual measures using a seven-point Likert scale. The Appendix A presents the questionnaire used in this study.

4.2. Sample

This study employs a convenience sampling method and utilizes survey data to conduct an empirical investigation, providing context-specific insights into the sustainability of MSMEs. This study empirically analyzed sustainability innovation management from the perspective of MSME suppliers. Consistent with this purpose, a survey was conducted of micro, small, and medium-sized suppliers in the automobile industry in the Gwangju metropolitan region of Republic of Korea for the following reasons. First, this study focused on a single industry, the Korean automobile industry, to control for potentially confounding factors such as variations in economic conditions, regulations, and industry-wide sustainability conventions. Second, this target industry has faced several critical ESG challenges, including carbon reductions, human rights concerns, and occupational health and safety challenges within the supply chain. It continues to rely heavily on overseas markets, where new ESG regulations, such as the EU’s Sustainability Due Diligence, impose multifaceted implications on suppliers. Third, as of 2023, MSMEs account for more than 56.7% of the first-tier suppliers in this industry. Fourth, the automobile industry is the most significant sector in the Gwangju metropolitan region, as it accounted for 36.3% of the region’s total manufacturing added value as of 2021. Notably, the local government has increasingly focused on emerging sustainability issues that are relevant to the MSME suppliers in the automobile industry.
This study obtained a sample of 384 B2B automobile industry suppliers that were registered in this region. The questionnaires were e-mailed to the potential respondents. As a result, a total of 119 responses (31.0% response rate) were collected in 2023. This study targeted single, well-informed respondents because a possible bias engendered by a single respondent might be minimized in MSME cases.

5. Results and Discussion

5.1. Descriptive Analysis

Table 1 lists the descriptive statistics and variable correlations in this study. BUYER, GOV, and ENT are positively correlated with SUSTAIN at a 0.01 cut-off level, indicating that the buyer’s ESG initiatives, government involvement, and corporate entrepreneurship are associated with MSME suppliers’ sustainability innovation management. This result meets our expectations. Additionally, BUYER, GOV, ENT, and SUSTAIN are positively correlated with PERF, which implies that MSME suppliers’ operational performance can be compatible with external stakeholders’ ESG pressure and support, as well as corporate entrepreneurship and sustainability innovation management. Regarding the control variables, firm size and firm age are not correlated with BUYER, GOV, ENT, SUSTAIN, or PERF.
In Table 1, the diagonal values (in brackets) represent the square roots of AVE. Discriminant validity is established, as each AVE value exceeds the correlations with other constructs. As this condition is met for all variables, adequate discriminant validity is confirmed.

5.2. Main Test

This study analyzed the data using hierarchical regression to examine the marginal predictive contributions of the theoretical variables (i.e., BUYER, GOV, and EMT) over those of the control variables. Table 2 presents the test results for Hypotheses 1–3.
First, with 72.1% explanatory power, the Model 2 equation is statistically significant. BUYER is positively associated with SUSTAIN at a 1% cut-off level, indicating that the buyer’s ESG initiatives in its supply chain contribute to facilitating MSME suppliers’ sustainability innovation management. Prior studies provide evidence of a positive relationship between a buyer’s sustainable supply chain initiatives and suppliers’ awareness of environmental and social issues [12,13,22,45], which aligns with this current result. Thus, hypothesis H1 is confirmed. Second, the Model 2 result does not demonstrate a positive effect of GOV on SUSTAIN. However, the equation of Model 4 presents a positive link between GOV and SUSTAIN, indicating that the effect of GOV might not appear because the effect of BUYEY might prevail. Therefore, the buyer’s ESG initiatives within a supply chain, including activities such as incorporating environmental and social criteria into procurement and supporting suppliers, can play a vital role in facilitating sustainability innovation management, as they may be perceived as de facto regulation of MSME suppliers [12,13,43]. Third, the Model 2 result reveals that ENT has a significant and positive relationship with SUSTAIN. Thus, corporate entrepreneurship can foster MSME suppliers’ sustainability innovation management, which supports hypothesis H3. Regarding the control variables, firm size and firm age are not associated with SUSTAIN.
Hypothesis 4 postulates the positive effect of sustainability innovation management on operational performance. Table 3 presents the results of hierarchical regression analysis. First, control variables, such as firm size and age, are found not to be associated with operational performance. Second, while BUYER and GOV do not significantly affect PERF, ENT is positively associated with PERF. Third, the result does not demonstrate a significant relationship between SUSTAIN and PERF. Therefore, this result does not support hypothesis H4. As a result, MSME suppliers’ operational performance is strong and only associated with corporate entrepreneurship.
Although Hypothesis 4 anticipated that MSME suppliers’ sustainability innovation management would directly improve operational performance, the empirical evidence did not support this assumption. One possible interpretation is that the strong influence of corporate entrepreneurship on operational outcomes dominates the variance, thereby diminishing the observable contribution of sustainability practices. Entrepreneurial orientation provides firms with agility, proactiveness, and risk-taking behaviors that immediately shape efficiency, quality, and competitiveness, whereas sustainability innovation tends to exert a slower, indirect effect. Another explanation is that sustainability management within MSMEs remains underdeveloped, with limited resources and technical capacities preventing it from translating directly into measurable operational gains. Recent studies have highlighted that sustainability-oriented innovations often yield benefits through intermediate processes, such as organizational learning, capability building, and long-term stakeholder trust, rather than short-term performance [75,76]. These findings suggest that sustainability innovation in MSMEs may function more as a mediating mechanism or future-oriented investment, while entrepreneurial orientation remains the dominant driver of operational performance in the short run. This highlights the need for future research to investigate temporal effects and indirect pathways, potentially through longitudinal designs, to capture the delayed yet strategic contribution of sustainability management to firm performance.

6. Implications

6.1. Academic and Theoretical Implications

This study makes several contributions to the literature by examining the antecedents and consequences of sustainability innovation management among MSME suppliers. First, this study is among the first to explore sustainability innovation management from a corporate entrepreneurship perspective. Notably, sustainability issues among MSME suppliers have emerged as a global phenomenon, raising environmental and social risk concerns along the entire supply chain [12,13]. As these have become part of the economic agendas and sustainability issues pursued by many countries, several academic strands have involved this topic, including green, responsible, and sustainable supply chain management. However, corporate entrepreneurship, as one of the most substantial internal drivers of MSME suppliers integrating sustainability issues into their businesses, was not previously fully acknowledged or examined. This study demonstrates how corporate entrepreneurship can serve as a plausible theoretical lens within the literature on sustainability in the supply chain.
Second, this study’s research framework provides a better understanding of how MSME suppliers’ sustainability innovation management can be enhanced through the interplay of external stakeholders’ influence and corporate entrepreneurship. Although many studies have examined the enablers of environmental and social performance within the supply chain, they have been limited to buying firms’ and governmental roles. The present study depicts how external drivers and corporate entrepreneurship interact to enhance the sustainability innovation management of MSME suppliers, thereby elucidating the dynamic nature of sustainability in the supply chain.
Third, this research provides empirical evidence that combinations of factors and independent effects can drive sustainability innovation activities among MSME suppliers. The existing literature on sustainable supply chain management and SMEs’ sustainability has concentrated on identifying the effects of individual factors that can improve outcomes. The empirical evidence for the relationships between external drivers (buyers and governments) and internal drivers (corporate entrepreneurship) and the sustainability innovation of MSME suppliers can provide theoretical and practical foundations for further research.
Fourth, this study can serve as a foundation for rigorous empirical research on sustainability innovation in the supply chain from an entrepreneurial perspective. Researchers of entrepreneurship at a corporate level may encounter the problem of measurements, so we propose several measures for MSME suppliers’ sustainability innovation management and its internal and external drivers. These include corporate entrepreneurship, which can be utilized when designing and conducting empirical research.

6.2. Policy and Practical Implications

This research has several implications for MSME suppliers, large buying firms, and public policy institutions that wish to foster more substantial sustainability-addressing capabilities throughout the supply chain. First, large buying firms, particularly those interested in integrating sustainability, competitiveness, and risk management into their global supply chains, should enhance their ESG initiatives within these supply chains. MSME suppliers who are under greater ESG pressures and who are provided with support from their buyers are likely to adopt sustainability innovation management. This implies that large buying firms that intend to mitigate the environmental risks associated with their supply chains should incorporate ESG considerations into their procurement and supplier support systems, particularly for their MSME suppliers. Buying firms’ ESG initiatives within their supply chain effectively develop sustainability-addressing capabilities, which leads to mitigating risks engendered by emerging sustainability regulations, such as the EU’s Sustainability Due Diligence.
Second, MSME suppliers should maintain and cultivate corporate entrepreneurship to address environmental and social issues and promptly integrate those into their innovation practices. Emerging environmental and social issues and initiatives, including net zero, circular economy, and social inclusion, are shaping the current business landscape, posing enormous challenges for MSMEs that frequently suffer from limited resources [11,55]. Incorporating sustainability issues into existing management may encounter organizational resistance, which necessitates innovation to overcome. MSMEs that wish to shift their business toward sustainability-integrated ways should cultivate corporate entrepreneurship as an organization’s most significant internal driver. Additionally, MSME suppliers should better understand the interplay between external stakeholders’ ESG initiatives (i.e., buyers and governments) and corporate entrepreneurship in adopting sustainability-integrated innovation management. By activating corporate entrepreneurship, MSME suppliers can explicitly recognize their gaps and limitations, which can then be partially addressed through efforts to search for and utilize external resources, including support programs from their buyers and the government. Through such mechanisms, corporate entrepreneurship will finally enhance operational performance.
Third, the empirical finding that government involvement did not significantly influence MSME suppliers’ sustainability innovation management provides meaningful insight into the structural characteristics of the Korean automobile supply chain. Many MSME suppliers in this sector are highly dependent on large buyers, who exert intense ESG-related pressures through procurement policies and technical support. As a result, government programs may be perceived as secondary or less binding compared to buyer requirements, limiting their effectiveness in driving immediate behavioral change. This outcome suggests that the current form of government support—often fragmented, generic, or temporary—may not adequately address the specific needs and constraints of resource-limited MSMEs. For policymakers, this highlights the importance of designing targeted, industry-specific measures that complement buyer-driven initiatives, such as co-financing the adoption of green technology, facilitating joint buyer–supplier sustainability programs, and institutionalizing long-term support mechanisms. By aligning public policy with the realities of buyer-dominated supply chains, governments can play a more effective role in enhancing the sustainability capabilities and resilience of MSMEs within global markets.

7. Conclusions

ESG issues within supply chains, particularly among MSME suppliers, have increasingly received attention, with expectations for their role in simultaneously achieving sustainable development goals and mitigating risks across entire supply chains. However, research on fostering sustainability-integrated innovation management among MSME suppliers remains at an early stage. This study examines how external drivers, ranging from purchasing firms to governments, and corporate entrepreneurship as an internal driver, foster sustainability innovation management among MSME suppliers. Using a survey focused on MSME suppliers in the automobile industry in a Republic of Korea context, this study presents the buyer’s ESG initiatives and MSME suppliers’ corporate entrepreneurship as factors involved in fostering their sustainability-integrated innovation management. Although a relationship between sustainability-integrated innovation management and operational performance was unconfirmed, this study demonstrates that corporate entrepreneurship enhances operational performance.
We next clarify some study limitations and suggest future research directions. First, the sample used in this study was extracted from a specific industry within a region. Thus, it may not comprehensively represent all MSME suppliers. Moreover, a relatively small sample size might have allowed bias. We used a convenience sampling method in a cross-sectional survey. This provides empirical insights but does not capture changes over time. Future research should use longitudinal designs to improve robustness and validity. Second, this study focused on the sustainability innovation management of MSME suppliers and was investigated in a Republic of Korea context. By extending this work to other national settings, future research should explicitly examine institutional differences, including the stringency of regulation, policies, and social awareness related to sustainability issues. Third, this study emphasized that external stakeholders and corporate entrepreneurship should provide theoretical contributions to the literature related to environmental and social issues in the context of MSME suppliers. However, it may lack an in-depth theoretical background and thus not fully elaborate on the antecedents and consequences of sustainability-integrated innovation management among MSME suppliers. Such links could be conceptualized via various organizational theories, including institutional theory, stakeholder theory, the resource-based view, and social capital theory.

Author Contributions

Conceptualization, S.-Y.L. and S.J.; methodology, S.-Y.L. and S.J.; formal analysis, S.-Y.L.; investigation, S.J.; resources, S.-Y.L. and S.J.; data curation, S.J.; writing—original draft preparation, S.-Y.L.; writing—review and editing, S.-Y.L.; visualization, S.-Y.L.; supervision, S.-Y.L.; funding acquisition, S.-Y.L. and S.J. All authors have read and agreed to the published version of the manuscript.

Funding

This research was funded by the Research Foundation, Graduate School of Business, Chonnam National University (2023), Republic of Korea, and the Project for Practical Use of Regional Science and Technology Performance, Chosun University (No.1711198118), the Commercialization Promotion Agency for R&D Outcomes (COMPA) funded by the Ministry of Science & ICT (Chosun University).

Institutional Review Board Statement

This study is waived for ethical review as it involved minimal-risk, non-interventional survey research by Institutional Review Board of Republic of Korea, reference number [Article 15(2) of the Bioethics and Safety Act].

Informed Consent Statement

Informed consent was obtained from all subjects involved in the study.

Data Availability Statement

The data presented in this study are available on request from the corresponding author.

Conflicts of Interest

The authors declare no conflicts of interest.

Appendix A

Table A1. Survey questions and the reliability and validity of the measurement tools.
Table A1. Survey questions and the reliability and validity of the measurement tools.
VariablesLoadingAVEComposite ReliabilityCronbach’s Alpha
To what extent do you agree or disagree with each of the following statements (1 = not at all, 4 = moderately, and 7 = very much)?
Buyer’s ESG initiatives in a supply chain (BUYER) 0.850.970.97
For the last two years, our major customers have…
1. assessed our environmental and social performance through a formal procurement process0.89
2. demanded us to address relevant sustainability issues 0.90
3. conducted audits regarding environmental and social issues on a regular basis0.91
4. required us to invest in green and low-carbon technologies and product development0.92
5. provided us with relevant information, technical, managerial and financial assistance to address sustainability issues0.93
6. provided us with relevant information to improve sustainability performance0.94
Government involvement in MSMEs’ sustainability issues (GOV) 0.840.950.96
Over the last two years, the government has…
1. provided MSMEs with relevant and useful sustainability information 0.89
2. provided MSMEs with training and educational programs regarding sustainability issues 0.92
3. provided MSMEs with financial assistance to address environmental and social issues 0.96
4. satisfied us with its support programs regarding sustainability issues0.93
Corporate entrepreneurship (ENT) 0.800.960.95
Our company is sensitive to changes in the competitive environment.0.83
Our company is constantly looking for new and unique solutions.0.91
Our company is proactive in seeking new business opportunities.0.89
Our company is proactive in taking action before our competitors (preferring to lead rather than follow).0.89
Our company is bold and aggressive in making decisions by the management team to explore potential opportunities. 0.83
Our company’s strategy is more proactive than passive.0.86
Sustainability innovation management (SUSTAIN) 0.820.960.96
1. Our company considers environmental and social issues in general R&D decisions.0.89
2. Our company incorporates sustainability strategies into general R&D strategies.0.94
3. Our company sets sustainability goals (e.g., carbon emission reduction, energy efficiency, bio-diversity, and customer safety) aligned with general management goals and objectives.0.93
4. Our company deploys human resources dedicated to sustainability innovation management, such as planning, implementing, and monitoring.0.90
5. Our company incorporates sustainability performance criteria into the general performance systems of employees and departments.0.90
Operational performance (PERF) 0.750.940.90
For each of the items listed below, how does your firm compare with primary competitors? (1 = far worse than competitors, 4 = about the same as competitors, and 7 = far better than competitors)
1. Product quality0.78
2. On-time delivery0.82
3. Production costs0.70
4. Ability to change output volume0.91
5. Perceived customer satisfaction 0.80

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Sustainability 17 08458 g001
Figure 1. Research model and hypotheses.
Figure 1. Research model and hypotheses.
Sustainability 17 08458 g001
Table 1. Descriptive statistics and correlations.
Table 1. Descriptive statistics and correlations.
VariableMeanSDFirm SizeFirm AgeBUYERGOVENTESGPERF
1. Firm size8.862.38-
2. Firm age19.3114.820.363 **-
3. BUYER3.360.910.1610.101(0.921)
4. GOV3.170.970.042−0.0340.713 **(0.917)
5. ENT3.730.79−0.19−0.0430.588 **0.651 **(0.894)
6. SUSTAIN3.170.980.090.0840.749 **0.741 **0.657 **(0.905)
7. PERF4.000.660.100.0480.341 **0.358 **0.691 **0.421 **(0.866)
Note: **, p < 0.01.
Table 2. Results of the regression analysis: Sustainability innovation management.
Table 2. Results of the regression analysis: Sustainability innovation management.
Model 1Model 2Hypothesis Testing
Firm size0.069−0.001
Firm age0.0980.062
BUYER 0.283 **H1 accepted
GOV 0.161H2 rejected
ENT 0.198 **H3 accepted
InterceptIncludedIncluded
VIF 1.158
Adj. R-Square0.0000.721
F-value0.65149.928 **
Note: **, p < 0.01.
Table 3. Regression analysis results: Operational performance.
Table 3. Regression analysis results: Operational performance.
Model 3Model 4Model 5Hypothesis Test
Firm size0.0910.1210.121
Firm age0.1380.0430.042
BUYER −0.054−0.071
GOV −0.112−0.121
ENT 0.821 **0.813 **
SUSTAIN 0.04H4 rejected
InterceptIncludedIncludedIncluded
VIF 1.1581.162
Adj. R-Square0.0000.4880.482
F-value0.57319.542 **16.643 **
Note: **, p < 0.01.
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Lee, S.-Y.; Jung, S. Internal and External Drivers That Foster Sustainability—Integrated Innovation Management of Micro and SME Suppliers: A Focus on Corporate Entrepreneurship. Sustainability 2025, 17, 8458. https://doi.org/10.3390/su17188458

AMA Style

Lee S-Y, Jung S. Internal and External Drivers That Foster Sustainability—Integrated Innovation Management of Micro and SME Suppliers: A Focus on Corporate Entrepreneurship. Sustainability. 2025; 17(18):8458. https://doi.org/10.3390/su17188458

Chicago/Turabian Style

Lee, Su-Yol, and Seho Jung. 2025. "Internal and External Drivers That Foster Sustainability—Integrated Innovation Management of Micro and SME Suppliers: A Focus on Corporate Entrepreneurship" Sustainability 17, no. 18: 8458. https://doi.org/10.3390/su17188458

APA Style

Lee, S.-Y., & Jung, S. (2025). Internal and External Drivers That Foster Sustainability—Integrated Innovation Management of Micro and SME Suppliers: A Focus on Corporate Entrepreneurship. Sustainability, 17(18), 8458. https://doi.org/10.3390/su17188458

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