The Determinants and Economic Outcomes of Trust in Supplier-Buyer Relations

Abstract

In this paper we examine the antecedents and outcomes of supplier trust in 453 supplier-automaker relationships in the U.S., Japan and Korea. Our findings indicate that high supplier trust emerges when (1) automakers have developed assistance-giving routines to help suppliers improve, and (2) automakers maintain a continuing (repeated) exchange relationship with the supplier. We also found that trust reduces transaction costs and increases information sharing in supplier-buyer relationships. Moreover, the findings suggest that the economic value created for tmnsactors may be substantial as evidenced by the fact that the automaker with the least trusting supplier relations had five times the procurement costs and spent tice as much of its face-to-face interaction time with suppliers on ex ante contracting and ex post haggling when compared to the most trusted automakers. Thus, our findings suggest that trust in supplier-buyer relations can create economic value and may be an important source of competitive advantage.