THE CREATIVITY-BUREAUCRACY BALANCE MODEL FOR SMALL AND MEDIUM-SIZED ENTERPRISES IN GLOBAL VALUE CHAINS

Abstract

Small and Medium-sized Enterprises (SMEs) face significant challenges in balancing their creative capabilities with bureaucratic demands when participating in Global Value Chains (GVCs). While extensive research exists on SMEs' creative aspects and compliance challenges independently, limited attention has been paid to the interaction between these forces. This paper proposes a model, named Creativity-Bureaucracy Balance Model, to address this research gap by examining the dynamic interplay between SMEs' creative capabilities and bureaucratic pressures within GVCs. Drawing on theoretical foundations from creativity theories and institutional frameworks, the model identifies three key creative capability factors (innovation and product development, adaptive creativity, and dynamic capabilities) and four bureaucratic pressure factors (regulatory compliance, institutional pressures, power asymmetry, and regulatory fit). The model also incorporates mediating factors (resources, partnerships and networks, and market and institutional contexts), which influence how SMEs navigate these dual pressures. The Creativity-Bureaucracy Balance Model reveals that successful SMEs participation т GVCs depends on effectively managing these contradictory forces, leading to outcomes such as enhanced GVC positioning, improved growth potential, and increased resilience. Through empirical examples across various sectors, the paper illustrates how SMEs can strategically leverage creative capabilities to address compliance challenges while maintaining market competitiveness. The report calls for further empirical validation of the model to refine its applicability across different sectors and regions. Ultimately, it underscores the importance of balancing creativity and bureaucracy for the sustainable growth and competitiveness of SMEs in GVCs.

Headnote

ABSTRACT

Small and Medium-sized Enterprises (SMEs) face significant challenges in balancing their creative capabilities with bureaucratic demands when participating in Global Value Chains (GVCs). While extensive research exists on SMEs' creative aspects and compliance challenges independently, limited attention has been paid to the interaction between these forces. This paper proposes a model, named Creativity-Bureaucracy Balance Model, to address this research gap by examining the dynamic interplay between SMEs' creative capabilities and bureaucratic pressures within GVCs. Drawing on theoretical foundations from creativity theories and institutional frameworks, the model identifies three key creative capability factors (innovation and product development, adaptive creativity, and dynamic capabilities) and four bureaucratic pressure factors (regulatory compliance, institutional pressures, power asymmetry, and regulatory fit). The model also incorporates mediating factors (resources, partnerships and networks, and market and institutional contexts), which influence how SMEs navigate these dual pressures. The Creativity-Bureaucracy Balance Model reveals that successful SMEs participation т GVCs depends on effectively managing these contradictory forces, leading to outcomes such as enhanced GVC positioning, improved growth potential, and increased resilience. Through empirical examples across various sectors, the paper illustrates how SMEs can strategically leverage creative capabilities to address compliance challenges while maintaining market competitiveness. The report calls for further empirical validation of the model to refine its applicability across different sectors and regions. Ultimately, it underscores the importance of balancing creativity and bureaucracy for the sustainable growth and competitiveness of SMEs in GVCs.

Keywords: small and medium enterprises, global value chains, analytical model

1. INTRODUCTION

Small and medium-sized enterprises (SMEs) play an indispensable role in driving global economic growth, fostering innovation, and generating employment (WTO, 2023). Representing a significant proportion of businesses worldwide, they are often regarded as the backbone of regional economies and vital contributors to industrial dynamism (Bella, et al., 2023). The increasing participation in global value chains (GVCs) of these enterprises enables them to access international markets, advanced technologies, and strategic partnerships, all of which enhance their competitiveness and growth potential. However, this integration also brings challenges. Within GVCs, SMEs must balance their inherent flexibility and innovative capabilities with the structured compliance and governance demands imposed by larger firms and international regulatory frameworks (Wang, 2016; OECD, 2008). These enterprises are uniquely positioned to adapt rapidly and foster innovation, leveraging their agility to respond to market trends and customer demands. Yet, this adaptability often conflicts with the rigid governance structures of GVCs, which emphasize strict adherence to standards, protocols, and procedures, frequently placing significant strain on SMEs' limited resources (Khan, 2022). Consequently, navigating GVCs requires SMEs to develop strategies that balance the competing pressures of creativity and bureaucracy. Despite the centrality of this balance to SME success in GVCs, much of the existing research pays limited attention to the interaction between creativity and regulatory compliance. For instance, the GVC Governance Framework (Gereffi, Humphrey, & Sturgeon, 2005), sheds light on the power imbalances that SMEs face within GVCs, focusing on the influence of governance structures on value creation and capture. Yet, it largely neglects SMEs' internal capabilities for innovation and creative adaptation. Similarly, the SME Internationalization Framework (Ruzzier, Hisrich, & Antoncic, 2006; UNCTAD, 2013) highlights partnerships and collaborative strategies for overcoming resource constraints and accessing international markets. However, it inadequately addresses the complexities SMEs encounter during full GVC integration, particularly the tension between innovation and compliance. Likewise, the Value Chain Upgrading Framework (Humphrey & Schmitz, 2002; Gereffi, Humphrey, & Sturgeon, 2005) emphasizes the importance of enhancing competitiveness through process, product, and functional upgrades. While collaboration and knowledge transfer are critical components of this framework, it often overlooks how external regulatory pressures impede SMEs' capacity for creative problem-solving. The Innovation Systems Framework offers insights into how SMEs can utilize local innovation ecosystems to maintain competitiveness (Pietrobelli & Rabellotti, 2011). Yet, it fails to fully consider the impact of governance structures and compliance demands on SMEs' innovation potential. Finally, the Institutional Framework provides valuable perspectives on the external formal and informal institutions shaping SME participation in GVCs (Gereffi, 2014), but it offers limited guidance on managing the interplay between creativity and regulatory compliance. The examples above highlight a critical gap in prior research regarding how SMEs balance fostering creativity with adhering to bureaucratic requirements within global value chains. To address this gap this paper proposes a model, designed to deepen research on how SMEs manage the delicate balance within GVCs. Additionally, the model aims to offer actionable insights to assist SMEs, policymakers, and stakeholders in effectively navigating these competing demands.

2.THEORETICAL FOUNDATIONS OF THE MODEL

Understanding how SMEs navigate the complexities of global value chains requires a sophisticated theoretical framework that captures both their creative potential and the bureaucratic constraints they encounter. Our analisis draws on three distinct groups of theotries: creativity theories in entrepreneurship, institutional theories, and governance frameworks in GVCs. Creativity theories shed light on how SMEs innovate and adapt to maintain competitiveness, while institutional and governance frameworks explain the influence of external regulatory pressures, industry norms, and power dynamics within GVCs on SME behaviour and opportunities. Together, these theories allow us to capture both the internal creative capabilities of SMEs and the external constraints they must navigate to succeed in global value chains.

2.1. Key concepts from the creativity theories

Creativity is a vital factor in the competitiveness of SMEs, particularly in GVCs, where it fosters innovation and adaptability (Tian, 2021). This notion is emphasized by many theoretical perspectives in entrepreneurship, as summarized in Table 1.

Creative capabilities represent the innovation and adaptability that SMEs bring to the table, enabling them to compete effectively in global value chains (GVCs). Buiding on the above discussed theoretical perspectives, the following key concepts from creativity theory are particularly relevant to understanding SME behaviour in GVCs: innovation and product development, adaptive creativity, and dynamic capabilities. Innovation and product development are critical for differentiation, as SMEs leverage creativity to introduce new products, meet changing consumer demands, and respond to technological advances (Pietrobelli & Rabellotti, 2011). By continuously innovating, SMEs can meet global demands, respond to shifting consumer preferences, and differentiate themselves from larger, more rigid competitors (Anderson, Potočnik, & Zhou, 2014). Adaptive creativity highlights the ability of SMEs and entrepreneurs to flexibly respond to constraints, focusing on incremental solutions rather than breakthrough innovations (Kirton, 1976; Tian, 2021). In GVCs, this involves adjusting business models, operations, and strategies to meet shifting market demands, often with limited resources, allowing SMEs to adapt quickly where larger firms may struggle due to rigid structures and regulatory demands (Sarasvathy, 2008). Finally, firms must develop dynamic capabilities to sense opportunities, seize them, and transform their capabilities to stay competitive (Teece, 1997). For SMEs, dynamic capabilities often encompass creativity and flexibility, allowing them to swiftly adapt to changing market demands or technological advancements while maintaining agility in GVCs.

2.2. Key concepts from institutional and governence frameworks within GVCs.

Theoretical insights from creativity theories explain why SMEs prioritize innovation. However, as these firms strive to remain competitive through creativity and adaptability, they face significant external constraints such as regulatory compliance, standards, and institutional norms. These challenges are addressed by various theoretical frameworks within institutional and governance theories in GVCs. Table 2 outlines the key theories most relevant for understanding how external factors shape firm behaviour and influence innovation and integration within global value chains.

Based on these theoretical perspectives, we can identify the following key concepts that are particularly relevant to the bureaucratic pressures SMEs face in GVCs: regulatory compliance, instituional pressures, power assymetry and regulatory fit. SMEs participating in GVCs face significant bureaucratic pressures, with regulatory compliance being a primary challenge (OECD, 2018). These firms must adhere to stringent global standards, including certifications, environmental regulations, and labour practices to access global markets and maintain relationships (Kano, Tsang, & Yeung, 2020). Alongside compliance, institutional pressures - both formal and informal - demand that SMEs align their operations with the established norms and governance structures within GVCs, reinforcing the constraints SMEs face in adapting their operations (OECD, 2019).

The issue of power asymmetry further complicates their position, as larger firms and regulatory institutions often dictate rules, leaving SMEs with limited negotiating power (Magniani, Zucchella, & Strange, 2019). Furthermore, regulatory fit reflects how well SME operations align with global regulatory frameworks; a mismatch can significantly increase the burden of compliance (Higgins & Pinelli, 2020).

3. THE CREATIVITY-BUREAUCRACY BALANCE MODEL FOR SMES IN GVCS

Drawing upon the theoretical foundations discussed above we propose a comprehensive model that captures the complex dynamics SMEs face in global value chains. The Bureaucracy Balance depicted in Fugure 1, synthesizes the discussed theoretical views to explain how SMEs can effectively manage the tension between creative capabilities and bureaucratic demands. This synthesis is particularly important as existing frameworks have traditionally focused on either the creative aspects of SME operations or their compliance challenges, but rarely addressed how these forces interact and can be balanced. The

Creativity -Bureaucracy Balance Model for SMEs consists of four components that interact to explain how SMEs operate and succeed in global value chains: creative capabilities, bureaucratic pressures, mediating factors and outcomes. The two key groups of core components, namely creative capabilities and bureaucratic pressures - encapsulate the dual challenges SMEs must navigate to thrive in the highly structured yet competitive landscape of GVCs. Building on the above discussion of SME dynamics within GVCs, the model includes three creative capability factors: innovation and product development, adaptive creativity and dynamic capabilities and four bureaucratic pressure factots: regulatory compliance, institutional pressures, power assymentry and regulatory fit. The elements that influence how SMEs navigate the dual pressures of innovation and compliance within GVCs, or in other words, the key mediating factors in the proposed model are: resources, partnerships and networks, and market and institutional contexts. SMEs in GVCs face significant challenges in balancing innovation with regulatory compliance, primarily due to resource constraints. These constraints encompass financial, human, and technological resources, all of which are critical for meeting compliance requirements while sustaining innovative efforts. Financial resources are crucial for investing in infrastructure, certifications, and R&D (Lu, Shi, Luo, & Lui, 2018). Human resources, including skilled personnel, are necessary for both compliance and innovation, though SMEs often face difficulty attracting and retaining such talent (Zahariev & Zaharieva, 2003). Technological resources like digital tools, ERP systems, and e-commerce platforms help SMEs streamline operations and improve both creative and compliance Bureaucratic

activities. These tools allow SMEs to make informed decisions, innovate, and tailor products to market demands, enhancing their competitiveness in global markets (Romero & Mammadov, 2024). Partnerships and networks also play a vital role. Collaborations with larger firms in GVCs can provide resources, technology, and compliance knowledge (Kang & Kim, 2023) but may constrain creativity due to rigid demands. SMEs can be helped to overcome entry barriers through incentives, grants, and regulatory guidance provided by government agencies and industry associations, while participation in collaborative networks fosters innovation through shared resources and knowledge exchange (OECD, 2019). Additionally, SMEs must navigate complex market and institutional contexts. The difference between local and international regulatory landscapes affects how SMEs manage compliance, with international standards often being more complex. Institutional frameworks and governance structures influence SMEs' ability to compete, with strong institutions facilitating compliance and innovation. Finally, the market demand and competition within a GVC determine whether SMEs prioritize innovation or compliance, as competitive pressure may force innovation even in highly regulated environments. In the CBBM, outcomes are the results or consequences that SMEs experience as they balance the dual pressures of innovation and compliance within global value chains (GVCs). These outcomes reflect the overall success and sustainability of SMEs as they navigate GVC integration, manage their position in the value chain, and leverage both creative capabilities and bureaucratic compliance. The key outcomes of this model include the SME's position in the GVC, its growth potential and competitive advantage, and its resilience and sustainability in global markets. Structured in this way, the model recognizes that successful participation of SMEs in global value chains requires not just managing but also actively balancing these seemingly contradictory forces.

4. PRACTICAL APPLICATIONS AND IMPLICATIONS OF THE MODEL

The Creativity-Bureaucracy Balance Model can be effectively applied to SMEs across a wide range of sectors, such as technology, textiles, food exports, manufacturing, and more, offering valuable insights into how these businesses navigate the delicate balance between innovation and regulatory compliance. In these industries, the interplay between creative capabilities and bureaucratic pressures manifests in different ways, depending on the specific challenges each sector faces. For instance, SMEs in the technology sector often rely on digital platforms, automation, and cutting-edge business models to address regulatory challenges, particularly those related to intellectual property rights, data privacy, and cybersecurity. As regulations around data protection (e.g., GDPR in the European Union) become more stringent, technology SMEs must adopt innovative solutions to stay compliant while safeguarding their intellectual assets and leveraging data for business growth (Hojnik & Hudek, 2023). The adoption of blockchain for secure data management or АТ tools for compliance monitoring could be examples of how these firms use creativity to overcome regulatory obstacles (Kumar, Phani, Chilamkurti, Saurabh, & Ratten, 2023). On the other hand, SMEs in the textile industry face increasingly stringent environmental and social standards, especially when exporting to markets such as Europe. To comply with regulations on sustainability and fair labour practices, textile SMEs often focus on process innovations that reduce waste, improve energy efficiency, and utilize sustainable materials. This allows these firms not only to meet regulatory requirements but also to differentiate themselves in the market as environmentally responsible businesses (Zahariev, et al., 2024). Similarly, in the food export sector, SMEs must navigate food safety regulations, health standards, and certification requirements that vary across markets. Innovation in packaging, food preservation, and traceability technologies can help SMEs ensure compliance with these standards while maintaining product quality and appeal (D'Almeida & Albuquerque, 2024). In each of these cases, the The Creativity-Bureaucracy Balance Model highlights how SMEs leverage their creative capabilities to develop innovative solutions that address the pressures of compliance while maintaining competitiveness in their respective industries. These examples demonstrate that regulatory compliance need not be a hindrance to innovation, but rather an opportunity for businesses to differentiate themselves, expand market access, and build long-term sustainability. The model can also offer valuable comparative insights across different industries and regions. In areas with supportive institutional frameworks, such as government incentives for research and development, SMEs are better equipped to harness their creative capabilities. These regions provide the necessary resources and environment for innovation, helping SMEs to remain competitive in global value chains. However, in regions with more rigid regulatory environments, SMEs face heightened bureaucratic pressures that can stifle their ability to innovate without external support, such as government subsidies or partnerships with larger firms. The Creativity-Bureaucracy Balance Model provides valuable insights for policymakers, SMEs, and researchers. Implications for policymakers include the need to streamline trade regulations, simplify compliance requirements, and create more predictable institutional frameworks. This would reduce barriers to GVCs integration and support SMEs in managing regulatory demands. Additionally, policymakers should provide financial and infrastructural support, such as grants, tax incentives, and access to digital tools, to foster innovation and help SMEs develop creative solutions while meeting global regulatory standards. Recommendations for SMEs emphasize leveraging their innovative capabilities as a strategic advantage to tackle compliance challenges. By thinking creatively, SMEs can turn regulatory hurdles into opportunities for differentiation and growth. Furthermore, forming strategic partnerships with larger firms, industry networks, and government agencies will allow SMEs to share resources, reduce costs, and improve market access, particularly in regions with complex regulatory environments. Recommendations for researchers suggest that future empirical studies should test the Creativity-Bureaucracy Balance Model across various industries and regions. Researchers should focus on refining the model's applicability to emerging trends, such as digital transformation and sustainability challenges, which are becoming increasingly important for SMEs in global value chains.

5. CONCLUSION

This paper aims to fill the critical gap in prior research on how SMEs balance fostering creativity with adhering to bureaucratic requirements within GVCs. Drawing on theoretical foundations from creativity theories and institutional and regulatory frameworks, it proposes a model that incorporates theoretical concepts derived from these three theoretical groups and consists of four interacting components: creative capabilities, bureaucratic pressures, mediating factors and outcomes. The key contribution of the proposed model is that it introduces a comprehensive framework that integrates both the creative capacities of SMEs and the bureaucratic pressures they face, offering a holistic understanding of the dynamics SMEs encounter in global value chains. However, in this paper it is presented as an initial framework that can be further extended by incorporating additional factors and exploring new areas of research. For example, while the current model emphasizes key concepts like innovation, adaptive creativity, and dynamic capabilities, additional concepts could enrich its application. Integrating absorptive capacity could shed light on how SMEs absorb and apply external knowledge within GVCs. Open innovation and collaborative innovation could underscore the importance of partnerships and external collaborations in driving creativity and innovation. Entrepreneurial orientation (EO) could enhance our understanding of the mindset and behaviors that enable SMEs to thrive in competitive global environments. While not central to the current model, these concepts could provide deeper insights into the dynamics SMEs face in GVCs. Moreover, additional bureaucratic pressures on SMEs in GVCs could be considered. These include compliance and certification requirements, contractual and governance complexities such as reporting obligations, auditing requirements, and supply chain transparency; market access and trade barriers like tariffs and customs procedures; and more. There are also other mediating factors, which, though not initially considered, can play a significant role in helping SMEs navigate GVC challenges. These factors include leadership and organizational capabilities (e.g., leadership style, entrepreneurial orientation, and organizational culture), technological and knowledge resources, and external support and strategic environment (e.g., government policies, institutional support, and the broader market and policy context in which SMEs operate). The inclusion of additional creativity and bureaucracy factors, along with key mediating factors, may lead to different or expanded outcomes in the Creativity-Bureaucracy Balance Model. By considering these factors, the model could uncover new insights and alternative outcomes regarding how SMEs balance innovation and regulatory pressures within GVCs. As the model's applicability and impact depend on various factors, including industryspecific challenges, regional regulatory environments, and the capacity for digital and sustainable innovation, future research can further enrich the model by exploring these key areas. Industry-specific case studies can provide insights into how different sectors adapt to compliance pressures while fostering creativity. Comparative studies across regions with varying institutional support and regulatory frameworks would tailor the model to diverse global contexts. As digital transformation reshapes industries, examining how SMEs leverage digital tools for both compliance and innovation could yield important findings. Additionally, exploring the sustainability challenges SMEs face, particularly in environmental compliance, would add a crucial dimension to the model. Research on the relationship between regulatory fit and SME performance could reveal how well-aligned regulatory frameworks impact growth and innovation. Longitudinal studies could examine how SMEs adapt over time to evolving regulatory landscapes, offering insights into resilience and strategic flexibility. The exploration of these opportunities for future research will refine the model and enhance its applicability, offering deeper insights into how SMEs navigate the complex interplay of creativity and bureaucracy within global value chains.

ACKNOWLEDGEMENT: This research was financially supported by the Academic Foundation "Prof. d-r Minko Roussenov", Svishtov, Bulgaria (Grant No. 2024001)

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Footnote

1 Note: Other key institutional and regulatory frameworks, such as Transaction Cost Economics, Dynamic Capabilities Theory, Resource-Based View (RBV), and Innovation Systems Theory, are not included in the table as they are less relevant, but may offer useful insights in certain aspects.