The Determinants of Interfirm Trust: Evidence from Supplier Automaker Relationships in the U.S., Japan and Korea

Abstract

The determinants of interfirm trust are examined in 453 supplier automaker relationships in the U.S., Japan, and Korea. The findings indicate high supplier trust emerges when (1) suppliers receive assistance from the automaker, (2) the automaker has a track record of maintaining a continuing (repeated) exchange relationship with the supplier. Although there were some differences across institutional environments, notably higher trust in Japan, the findings are robust across the three institutional environments. Indeed, in a sample of U.S. suppliers that worked with both U.S. and Japanese automakers in the United States, we found that Japanese automakers were more effective than U.S. automakers at building trusting relations with U.S. suppliers. Thus, firm level practices appear to be more important than the institutional environment in the development of interfirm trust. A central issue in the literature on strategic alliances and interfirm cooperation is how firms create trust and control opportunism, particularly when the transactors have made investments in transaction specific assets. Under these conditions, trust has been described as an important antecedent to interorganizational cooperation and economic efficiency (Sako, 1991; Smith, Carroll, and Ashford, 1995). In fact, recent research suggests that trust in supplier buyer relations may be an important source of competitive advantage because it: (1) lowers transaction costs and allows for greater flexibility to respond to changing market conditions (Dore, 1983; Sako, 1991; Barney & Hansen, 1995; Dyer, forthcoming), (2) facilitates investments in special purpose assets and technologies which enhance productivity (Asanuma, 1989; Lorenz, 1988; Dyer, 1994), and (3) leads to superior information sharing routines which improve coordination and joint efforts to minimize inefficiencies (Fruin, 1992; Clark & Fujimoto, 1991; Nishiguchi, 1994). Moreover, some scholars claim that national economic efficiency is highly correlated with the existence of a high trust institutional environment (North, 1990; Casson, 1991; Hill, 1995; Fukuyama, 1995). For example, Fukuyama (1995:7) argues that the economic success of a nation, "as well as its ability to compete, is conditioned by the level of trust inherent in the society." The findings from these, and other, studies have increased our attention on the important role of trust in economic exchanges. A natural response to these studies has been to exhort companies to build trust with their trading partners (Business Week, 1986, 1992) and to call for increased research on the role of trust in coordinating economic activity (Smith, Carroll, and Ashford, 1995). However, before an explicit strategy for developing trust can be developed, or considered feasible, the determinants of trust must be identified. Despite considerable academic and managerial interest in trust between trading partners, to date there has been little empirical research on the antecedents or determinants of interorganizational trust (i.e. between supplier buyer). Further, there has been little research on whether the determinants of trust differ in different institutional (i.e. country) environments. The purpose of this paper is to examine the determinants of supplier trust in a sample of supplier/automaker relationships in the United States, Japan, and Korea. Given the recent attention on the importance of trust in exchange relationships, an examination of the determinants of trust is, by itself, a valuable undertaking. However, due to the globalization of industries and a dramatic increase in international joint ventures, a study of the determinants of trust in different institutional environments is particularly valuable. Such a study is useful because it allows for an examination of those factors that are important determinants of trust both within, as well as across, countries.