Balancing relational and contractual governance to foster innovation: Evidence from smes in morocco’s textile Sector

This study investigates the innovation behaviors of subcontracting small and medium-sized enterprises (SMEs) in Morocco’s textile industry, focusing on the governance mechanisms influencing these behaviors. SMEs significantly contribute to Morocco’s economy but face intensified global competition and complexities within multinational supply networks. Subcontracting emerges as a strategic response, providing SMEs with avenues for growth and innovation. Yet, the specific governance conditions enabling or constraining subcontractor innovation remain inadequately explored. Adopting an exploratory qualitative approach, this multi-case study examines three Moroccan textile SMEs engaged in international subcontracting. Employing thematic analysis of interview data, observations, and secondary sources, the research identifies critical factors influencing innovation behaviors. Findings reveal a nuanced interplay between contractual and relational governance mechanisms. While formal contracts provide structural clarity, relational governance, grounded in trust, proactive communication, and mutual commitment, proves essential for sustained innovative activities. Internal innovation capacities, particularly dedicated funding and skilled personnel, significantly enhance innovation potential but are constrained by limited resources. Moreover, cooperative relationships characterized by mutual learning, risk-sharing, and transparent communication foster innovation more effectively than transactional subcontracting approaches. This research underscores the necessity of balancing relational trust with contractual protection to optimize SMEs' innovative performance. Practical implications include recommendations for SME managers to cultivate long-term, trust-based relationships complemented by strategic contractual agreements. Policymakers are advised to encourage relational governance practices through targeted support programs. Future studies should extend these insights across different sectors and larger samples to validate the findings' broader applicability.