Joint innovation between large and small firms have become instrumental for creating new circular solutions. However, the pooling of complementary resources into such projects to create and capture value and generate relational rents is far from straightforward, and prior literature largely fails to illuminate and explain the dynamics in such partnerships because it largely focuses on formal alliances between partners of equal size. We address this need for revising theory by applying the relational view to asymmetric, informal relationships outside of formal alliances. Our empirical setting is an exploratory case study of eight projects where large and small firms sought to co-create circular solutions. Our theoretical contributions are twofold. First, relation-specific assets are not static but evolve progressively as co-creation deepens, adapting to each partner's shifting needs and contributions. Second, knowledge-sharing routines transition from ad-hoc, informal exchanges to structured processes that enhance trust, transparency, and mutual cross-learning. This evolution ensures that SMEs’ innovations align with the scalability needs of large firms, fostering sustained collaboration. We highlight how these findings challenge the traditional relational view, offering novel insights into how such partnerships drive circular solutions through dynamic asset co-creation and adaptive knowledge-sharing mechanisms.
