ALLIANCE CITIZENSHIP BEHAVIOR: BEHAVIORAL AND
CONTRACTUAL TRUST AS PROXIES FOR ECONOMIC HOSTAGES
College of Business and Public Administration
University of Louisville
Louisville, KY 40207
Phone: (502) 852-4847
Fax: (502) 852-4875
K. Mark Weaver
Department of Management and Marketing
College of Commerce and Business Administration
University of Alabama
Tuscaloosa, AL 35487
Phone: (205) 348-8947
Fax: (205) 348-6695
Presented at the
Strategic Management Society
20th Annual International Conference
ALLIANCE CITIZENSHIP BEHAVIOR: BEHAVIORAL AND
This research develops and tests a model of alliance relationships that takes into account economic, contractual and social controls and explores the differential impact of each of these control mechanisms on the overall confidence of alliance participants in the cooperative behavior of the alliance partner firms. In specific the focus of this study is trust and its origins within the alliance relationships reported by 782 entrepreneurially oriented firms located in Mexico, Indonesia and the Netherlands. The results of the study have implications for firm decision leaders who when faced with great environmental uncertainty must decide between more economically and contractually secured relationships and those that are more socially bounded and flexible and must make these decisions often under great resource constraints.
The authors would like to acknowledge the funding and logistic support provided for the Mexico data collection by the Center for Western Hemispheric Trade, the University of Texas-El Paso and Frank Hoy; for the Netherlands data collection by the University of Twente and W.E. During; and for the Indonesia data collection by the TAF Asia Foundation. Additional support for the research and reporting provided by CIBER, Georgia Institute of Technology.
The rapid emergence of radically new governance forms in recent years has been facilitated in part by the growing acceptance and use of strategic alliances. An often-used term for these types of firm governance involving two or more firms with some common goal or goals is inter-firm cooperative relationships. Unfortunately, to refer to all alliance relationships as cooperative is not completely accurate since strife and distrust mark many such relationships. The role of trust and the attributes of trust in alliance relationships have been important topics of study for some time (Ghoshal and Moran, 1996; Gulati, 1993; Larson, 1992). Proponents of the transaction cost perspective of firm governance have persuasively argued that the most effective control mechanism for alliance relationships is the presence of economic hostages (Hennart, 1991; Williamson, 1975, 1985, 1991). It is assumed that the greater the non-recoverable investment the firm must make in an alliance relationship the more likely the firm is to behave in a trustworthy manner. A natural extension of this argument is the role of contracts in insuring trustworthy behavior, particularly contracts that insure economic loss to any alliance participant behaving in an untrustworthy fashion (William, 1993). More recently proponents of social control theory have argued that while the transaction cost perspective is valuable in understanding alliance behavior, the theory fails to account for critical social controls inherent in any human organization, in particular social controls that generate trustworthy behavior (Ghoshal and Moran, 1996; Ouchi, 1979).
A number of researchers have proposed that we should move beyond our traditional definitions of trust in alliance relationships to consider each of these control mechanisms, economic, contractual and social constraints, as components of trust (Hesterly, Jones and Madhok 1998; Moorman, Deshpand¾ and Zaltman, 1993). Although this is an intuitively compelling manner of viewing these aspects of alliance governance, questions still remain. Das and Teng (1998) suggest two important questions. First, although each of these control mechanisms as well as trust may be related to the confidence that alliance participants have in the well-meaning behavior of their partners, no study has as of yet systematically viewed all three of these concepts—trust, control and partner confidence—in an integrated manner (Das and Teng, 1998; Moorman, Deshpand¾ and Zaltman, 1993). Second, past researchers have in general treated both control and trust as substitutes and as being complementary. Das and Teng (1998) argue that in fact the relationship between trust and control may be supplementary.
The purpose of this research is the development and testing of a model of alliance relationships that takes into account each of these control mechanisms and explores the differential impact of each on the overall confidence or trust that alliance participants have in the cooperative behavior of their partners.
Many definitions of trust have been presented. A definition that strongly reflects the role of trust in exchange relationships such as alliances is one proposed by Barney and Hansen (1994) and drawn from Sabel (1993). They define trust as the “mutual confidence that no party to an exchange will exploit another’s vulnerabilities” and a trustworthy exchange partner is defined as “one that will not exploit other’s exchange vulnerabilities” (Barney and Hansen, 1994, p. 176).
This form of trust, or as described by Das and Teng (1998) confidence in partner cooperation, is most closely aligned with the traditional definitions of cognitive trust
(Morrow, Hansen and Batista, 1999). Firm leaders enter into alliance relationships with expectations regarding the appropriate behaviors that should be displayed within the relationships. These expectations are often solidified by the exchange of non-recoverable, or at least not easily recoverable, assets of economic value or codified within the language of a formal contract with economic and other costs for opportunistic behavior. The assumption of appropriate behavior may also reside in unwritten and taken-for-granted expectations emerging from social and behavioral considerations (Macaulay, 1963; Parkhe, 1993). This form of trust or confidence in partner cooperation is more closely associated with affective trust (Blau, 1986).
Each of these control mechanisms or forms of trust (Hesterly, Jones and Madhok, 1998; Morrow, Hansen and Batista, 1999) have been suggested as important attributes of the confidence that alliance participants have in the cooperative behavior of their partners. Das and Teng (1998) argue persuasively that the three concepts should be disentangled. They suggest a definition of “confidence in partner cooperation” that involves the perceive certainty that an alliance partner will behave responsibly in the relationship. Control mechanisms such as equity involvement and contracts and the components of trust, which are related to expectations about partner motives are hypothesized as being the primary determinants of confidence in partner cooperation (Moorman, Deshpand¾ and Zaltman, 1993). It is this conceptualization that is utilized in this research.
Confidence in the cooperative behavior of alliance partners, following the logic of transaction cost economics, is primarily an attribute of alliance relationships marked by the extent of firm assets that are specific to the relationship. Williamson (1983) argues that the greater the level of contributed assets or economic hostages each participant to the alliance has at stake, the less likely the firm will be to behave opportunistically and consequentially the higher the level of trust in the relationship. This form of confidence evolves from the presence of credible commitments. Figure 1 presents the proposed relationship of the economic components of partner confidence, as well as each of the other model parameters, with the overall level of confidence in cooperative behavior expressed in alliance relationships. Drawing on a wealth of transaction cost theory regarding expectations in exchange relationships (Gulati, 1995; Hill, 1990) hypothesis 1 is suggested.
H1: Equity contributions to alliance relationships will be positively related to higher levels of confidence in the cooperative behavior of alliance partners.
Similar logic leads to the assumption of contractual trust or trust that evolves from the existence of contractual safeguards. Contractual trust is the assumption that an alliance partner will not behave in an opportunistic fashion (Hill 1990) but rather in a trustworthy manner as dictated by the terms of the alliance contract. Contractual trust grows out of the belief an alliance partner will assess the cost of contract non-compliance to be greater than compliance (Williamson, 1985). Similarly to equity commitments, contractual commitments suggest a potential loss for those alliance participants that fail to behave in a cooperative fashion. Drawing on transaction cost logic and supported by past research (Gulati, 1995) hypothesis 2 is suggested.
H2: Contractual agreements governing alliance relationships will be positively related to higher levels of confidence in the cooperative behavior of alliance partners.
Larson (1992) concludes that social control and governance mechanisms such as reputation, personal relationships and reciprocity norms are critical in understanding how firms respond to their environments, form cooperative relationships and conduct those relationships. He defines social control, and the trust it engenders, as encompassing “both self-regulation with a moral dimension” and a “feedback process that is jointly determined by and diffused across multiple participants” (Larson, 1992, p. 77). Social control theory specifies that a norm of reciprocity exists which promises punishment for opportunistic behavior, and thus promotes trustworthy behavior, because such punishment is meted out not only by the injured party but by all members of the social network (Ouchi, 1979). Although alliance participants may initially, due to social considerations, enter into relationships with a high level of confidence in the cooperative behavior of others, some theorists have suggested that over time and with experience this confidence may erode in the absence of credible commitments since trust in and of itself may not be a sufficient control mechanism (Leifer and Mills, 1996). Drawing on this consideration and with an understanding of the role of affective trust in interpersonal relationships
hypothesis 3 is suggested.
H3: Informal handshake agreements, in the absence of credible commitments, will be associated with lower levels of confidence in the cooperative behavior of alliance partners.
of confidence in alliance relationships. The first is the size of the firm and the second is the environmental uncertainty perceived by key decision leaders in the alliance relationship. The size of the firm, as indicative of firm resources, intuitively would seem be positively related to the ability of the firm to defend its assets that are committed to an alliance relationship or to defend the conditions of the contract governing the alliance relationship (Meznar and Nigh, 1995). In assessing their relative power position with alliance partners, firm leader judgements are greatly influenced by the relative resources of the firms. Strength in terms of financial and managerial resources are often equated with more powerful positions requiring fewer economic and contractual safeguards against opportunistic behavior and thus a greater perception of trust in the firm’s alliance relationships.
In a seemingly contrary fashion, intuition would also suggest that the belief that a partner’s behavior is such as to necessity the defense of a contract or equity position would be indicative of a complete or near-complete breakdown in confidence in cooperative behavior. It would therefore seem that the size-confidence relationship rather than being driven by resource considerations relating to the defense of contracts or equity might more accurately be driven by resources to monitor partner behavior. As presented earlier in this discussion, research has suggested that a key control component in alliances may be the relationship between individuals within the alliance firms and their ability to have face-to-face contact in the management of the relationship (Dyer and Chu, 2000). Unfortunately as firms grow in the size so too does the distance between the key decision leaders within those firms and the day-to-day maintenance of the alliance relationship. Drawing on these understandings hypothesis 4 is proposed.
H4: The size of the firm will be significantly related to the level of confidence in the cooperative behavior of alliance partners. The larger the firm the lower will be the confidence in cooperative behavior.
The level of uncertainty in the firm’s environment moderates the impact of each of these forms of control in the alliance relationship (Folta, 1998). In highly uncertain environments the firm will tend to demand greater levels of control to offset potential opportunistic behavior. This would lead to a greater contribution being made by both economic and contractual forms of trust as opposed to social controls (Williamson 1985, 1991). A contrasting argument is that in conditions of high uncertainty, trust arising from social controls will be more effective since such controls have greater flexibility and deal better with ambiguity (Hesterly, Jones and Madhok, 1998). Bhide and Stevenson (1992) argue that most theories of how trust or confidence develops focus on the development of trust and confidence under conditions of defined risk. They argue that under conditions of uncertainty the theorized mechanisms of trust may be of limited utility. In specific, they suggest that as uncertainty increases the composition of the mix of control mechanisms maintaining the level of confidence in cooperative behavior may change significantly. In general it has been suggested that as uncertainty increases the level of confidence in cooperative behavior will decrease since alliance participants are unable to judge the level of credible commitments or contractual safeguards necessary to motivate cooperation (Moorman, Deshpand¾ and Zaltman, 1993). From these arguments hypothesis 5 is drawn.
H5. The level of perceived environmental uncertainty will be inversely related to the level of confidence in the cooperative behavior of alliance partners.
Although each of these types of control mechanisms or trust have been linked to the ultimate level of confidence that alliance participants have in their alliance partners, no research to our knowledge has explored the differential impact of each on overall judgements of confidence in cooperative behavior in alliance relationships. Also missing is an exploration of this differential impact in consideration of the environmental and alliance attributes that may moderate such impacts. In specific, it has been argued that the firm’s environment and certain specific attributes of the alliance relationship may moderate the role of each of these forms of trust in determining the overall level of trust in an alliance relationship.
The industry segment characteristic of the firm’s primary focus has been argued as having an impact on the uncertainty of the firm’s environment and therefore the level of confidence that the key decision leaders may have in alliance partner cooperation (Dickson and Weaver, 1997). Likewise it has been argued that any number of nation-specific factors may have an influence on the uncertainty of the firm’s environment and therefore the level of confidence in alliance partner cooperation (Steensma, Marino, Weaver and Dickson, in press).
Internal to the firm, it has been suggested that the form of the alliance may also impact confidence in partner cooperation. In particular the level of confidence has been linked to the level of technological involvement in the alliance relationship (Osborn and Baughn, 1990). In those relationships involving high levels of technology exchange, firm leaders often consider the stakes to be higher. Transaction cost logic would dictate that such relationships, to generate trust, would require high levels of economic and contractual controls. Interestingly, some research findings have suggested that in reality more flexible and socially derived controls are preferred since these types of relationships are more easily exited and may require lower levels of disclosure regarding the firm’s technology. It also seems prudent to control for the total number of alliance relationships held by the firm since this has an impact on both the firm’s resources and ability to monitor alliance relationships.
Because the primary focus for this research is the role of control and trust mechanisms in determining partner confidence, the possible impact of these environmental and alliance specific forces is controlled. Taken collectively these propositions and assumptions regarding the attributes of partner confidence in cooperative behavior build a model that explores not only the impact, but the differential impact of control and trust on partner confidence.
Testing of this proposed model of confidence in cooperative behavior in alliance relationships was begun with the collection of survey data from small- to medium-sized entrepreneurially oriented enterprises (SMEs) in Mexico, Indonesia and the Netherlands. Completed surveys from 366 firms in Mexico, 285 Indonesian firms and 131 firms from the Netherlands were received. Of the firms responding, 227 provided in-depth reports of alliance relationships. Because a number of the model attributes had the potential of varying across national cultures, these three very different settings in terms of culture and socio-economic development were chosen for the study. Countries representing both emerging and developed markets were chosen specifically for the survey. It was expected, for example, that the levels of environmental uncertainty would be much higher in emerging markets suggesting a greater dependence on economic and contractual controls. Since these market control mechanisms may not be as effective as in developed economies the reverse may in fact be true, the social and behavioral may take on a greater in role in the generation of confidence and trust.
A key informant design was used. The strategic decisions regarding alliance relationships for firms of the size surveyed in this study are generally assumed to be determined by the key decision leader within the firm. This is the primary reason that firms with 500 or less employees were utilized in the study. There is strong theoretical support that firms of this size are extensions of the individuals that are in charge (Lumpkin & Dess, 1996). Since the study focus was both firm and individual level attributes of partner confidence and since it was assumed that clearly identifying the key decision leaders in larger firms might not be possible the use of smaller firms seemed a reasonable approach—although it does limited the ability to generalize to larger firms. In accordance with these assumptions, the survey was addressed to the owner or general manager of each firm surveyed. While every attempt was made to make the survey process equivalent in each country, the methodologies did vary due to differing constraints. Utilizing data base listings and organizational affiliation roles of commercial firms in each country, SMEs from 13 different manufacturing industry classifications and one inclusive classification for service firms were randomly selected to be included in the survey. The total number of SMEs selected for inclusion in each country was based on available resources and the judgement of research associates assisting in each country.
Survey items, developed originally in English, were translated with care and a back-translation process was utilized (Brislin, 1980). Teams of experts reviewed the final survey translations for meaning and consensus was reached prior to the development of a final survey.
The surveys were mailed in two separate waves to allow for an early/late response assessment as well as an assessment of non-respondents. The first wave consisted of surveys mailed to all SMEs selected. The second wave mailing went to all SMEs that had not responded within 30 days. Bad-address and out-of-business returns were also excluded from the second mailing. One additional step was taken in the survey process. Prior to the first mailing firms were contacted by phone and asked to cooperate in the research. This approach has proven effective in increasing response rates.
The representative nature of the final samples was assessed in two ways. First, a series of analysis of variance procedures were used to test for significant differences across all study variables when wave was considered as a main effect. No significant differences were found. A second assessment was completed through a random telephone survey of a select group, 50 in each country, of non-respondent SMEs. The results of this telephone survey indicated that there were no significant differences between the responding and non-responding SMEs in terms of alliance participation or industry classification.
Each model parameter was measured utilizing measurement items drawn from existing research on each attribute of interest as well as a series of objective-type measures. These items were statistically checked for both validity and reliability and each had been used previously in cross-national research.
The survey items assessing partner confidence in cooperative behavior were drawn from Provan and Skinner (1989) and John (1984). The items measure the respondent’s confidence in whether their alliance partner will behave in an appropriate manner. In order to purify the measures, a confirmatory factor analysis was conducted. Any items that cross-loaded were dropped from the analysis. This process resulted in a 5-item measure of confidence with a reliability estimate of a=. 82. The retained items are provided in the Appendix. Since the original items tapped the respondent’s lack of confidence in partner cooperation, item scoring was reversed.
All of the predictor variables, with the exception of the level of perceived uncertainty, were assessed utilizing objective measures. The firm’s industry and country of origin as well as whether there was equity, contractual or handshake only controls in place in the alliances was recorded. The type of alliance relationship was also coded to indicate whether the purpose of the alliance was primarily technology-based—process or product research and development, etc.—or other-based. Respondents were also asked to record the total number of alliance relationships held as well. The size of the firm was assessed based on the total number of employees since past experience has shown that firms of this size are reluctant to report sales or earnings (Dickson and Weaver, 1997).
Perceived general uncertainty was measured utilizing items drawn from Coven and Slevin (1989). These particular items and their role in relationship to alliance formation and their use cross-culturally have been verified by Dickson and Weaver 1997. The measures utilized are provided in the Appendix. The reliability estimates for this measure across national settings has ranged from .61 to .69. In order to ascertain that the uncertainty items and the confidence items were in fact measuring different constructs a factor analysis was completed. Two factors emerged with no cross loading of items.
The model was tested utilizing hierarchical regression analysis (Cohen and Cohen, 1983). A dummy coding scheme was used for the inclusion of the objective measures. For the industry measures an “other” category was the comparison group. The country measures contrasted the Netherlands and Indonesia with Mexico. Alliance relationships that included equity were contrasted with those relationships with no equity. Alliance relationships with contracts were contrasted with those relationships with no contracts. Finally, relationships governed by handshake agreements were contrasted with those relationships that had both equity and contractual controls. The control variables were entered first, followed by the sequential entry of firm size, perceived uncertainty, equity involvement, contractual controls and informal handshake agreements.
Although this study utilized a perceptually measured outcome all but one of the predictor variables were objective in nature. This along with the relatively low intercorrelations among independent variables (correlation matrix is available from the authors upon request) suggests that common method variance is not a problem.
Table 1 provides the sample statistics. Of the 752 firms responding, 227 provided in-depth reports of their alliance relationships. These 227 firms were utilized in this study. Table 1 also provides a breakdown of the number of alliances reported by country and the number of alliances with equity, contracts, or handshake only agreements.
Place Table 1 About Here
The results of the hierarchical linear regression analysis were in some ways both surprising and counter intuitive. Table 2 provides the complete results of the analysis.
Neither the equity involvement variable nor the contractual control variable was significant in predicting the level of confidence that the respondent had in the cooperative behavior of the firm’s alliance partner. Therefore Hypotheses 1 and 2 were not supported. Relationships based on the presence of handshake only agreements, when compared to alliances that had both equity and contracts was significantly associated with the level of confidence. These types of informal controls were more likely to be associated with lower levels of confidence—supporting Hypothesis 3. Firm size was a significant predictor of confidence with an inverse relationship—the larger the firm the lower the level of confidence. The relationship between the key decision leader’s perceptions of uncertainty and confidence in cooperative behavior was also significant. In general, the greater the perceived environmental uncertainty the lower the level of confidence. Therefore Hypotheses 4 and 5 were supported.
Place Table 2 About Here
None of the control variables included in the study had a significant impact on confidence with the exception of the country variable. The country of origin for the responded firm was strongly associated with the level of confidence in partner cooperation. Both the firms from Indonesia and from the Netherlands, when compared to those from Mexico were much more likely to express higher levels of confidence in partner cooperation.
Equity, Contracts and Handshakes
The lack of significance between the presence of equity and contractual controls in these relationships and the level of confidence in cooperative behavior is surprising and seemingly counter intuitive, but there is an emerging view of alliance relationships that would seem to suggest a reasonable explanation. This explanation seems reasonable particularly in light of the cross-sectional collection of alliances from an age perspective that was utilized in this study. Gulati (1995) has persuasively argued that over time equity and contracts become less important as control mechanisms in alliance relationships. He suggests that what emerges from his research is an “…image of alliance formation in which cautious contracting gives way to looser practices as partner firms build confidence in each other” (Gulait, 1995, p. 105). At the initial formation of the alliance relationship, when there is a lack of behavioral experience, contracts and equity serve as substitutes for trust. As the relationship progresses contracts and equity give way to other forms of control to include trust. This is supported by McKnight, Cummings and Chervany (1998) who take a sociological perspective to argue that as alliance relationships age control is more a factor of interpersonal relationships than contractual and equity controls. This is also strongly supported by Das and Teng’s (1998) arguments that trust and control should be considered as supplementary factors influencing confidence. Finally, this view seems also to be supported by the size finding—as the daily alliance interactions move farther away from the key decision leaders, interpersonal interactions and relationships are hindered.
Although the presence of equity or contracts do not significantly impact confidence, the presence of handshake only agreements in the absence of either of these control mechanisms does lower the level of confidence. This is not surprising, but requires some explanation. Additional data analysis indicates that these firms are located in Mexico and Indonesia only. The average size of the firms utilizing handshake only controls is 52 employees compared to 89 employees in the full sample. Drawing on earlier reasoning it would seem that over time as these relationships develop, if trust does not grow, as assumed in the reasoning related to contracts and equity, and in the absence of other control mechanisms to fall back on, then confidence levels would appear to go down.
As the firm grows in size the level of confidence in partner cooperation is less.
Drawing on our earlier reasoning, this finding would seem to suggest that as the firm grows in size the daily interactions of the alliance relationship are move farther away from the key decision leaders in the firm. This movement hinders the development of trust as a product of the interaction between key individuals in the firms (Moorman, Deshpand¾ and Zaltman, 1993; Dyer, Chu, 2000). It must be noted that due to our experimental design the size of firms included in this study were small. For larger firms the size-confidence relationship seen in these results may not hold. Barney and Hansen (1994) have argued that larger firms, due to their superior resource capabilities, do not fear opportunist behavior of partners. If this is the case then the size-confidence relationship may prove to be curvilinear as the firms grow well beyond the 500-employee limit in this study.
The findings regarding the relationship of uncertainty to confidence in cooperative behavior of alliance partners supports the conclusions of prior research. As the level of perceived environmental uncertainty increases the expressed confidence in cooperative behavior decreases. This finding suggests that the rational present earlier may be correct. As uncertainty increases the ability of the key decision leaders to predict the actions and thereby control for the actions of alliance partners is diminished (Moorman, et al., 1993).
The significant difference in confidence levels that appeared when the three countries were contrasted in this study is interesting. For this study the country of origin was utilized as a control variable in order to set in clear relief the impact of the control mechanisms of interest. The finding that there was a significant difference across suggests that there may be a number of additional factors influencing confidence levels that vary across countries. Both environmental and cultural factors have been suggested by current research as having a potential impact on alliance relationships. The level of uncertainty in an industry and marketplace have been strongly associated with a wide range of factors influencing the alliance process (Dickson and Weaver, 1997; Milliken, 1987; Steensma, et al., in press). Differences in corporate systems utilized by industrialized nations has also been suggested as a factor influence organizational systems (Moerland, 1995). Cultural variables potentially influencing the exchange process have been suggested as including value systems (Hampden-Turner and Trompenaars, 1993) and those dimensions originally proposed by Hofstede (1980, 1991) to include uncertainty avoidance, masculinity and individualism (Steensma, et al., in press).
The primary focus of this research was the relationship between those control mechanisms, often labeled by past research as forms of trust, and the confidence that alliance participants have in the cooperative behavior of partners. The results suggest that for ongoing alliance relationship in firms of the size included in this analysis these traditionally considered control mechanisms—equity and contracts—do not significantly impact the level of confidence. These findings would seem to support the arguments of Das and Teng (1998) that there needs to be an unbundling of the concepts of confidence, control and trust. If we accept their conclusions, that the various components of both cognitive and affective trust are in fact factors in determining confidence levels, then future research needs to include not only an assessment of the control mechanisms included in this study but also a wide range of measures tapping the various components of cognitive and affective trust. Doney, Cannon and Mullen (1998) have suggested the efficacy when assessing trust across cultures of viewing trust from a process perspective to include the calculative, predictive, intentional, capability and transference processes.
The significant relationship between the country of origin for the responding firm and the key decision leader’s confidence in partner cooperation is an area that also needs additional exploration. Any number of factors differentiating firms and environments across national boundaries have been explored in recent cross-national research. Which cultural and environmental factors might have an impact on partner confidence is an important area of enquiry and one that should provide fruitful information for both academic researchers and firms interested in forming alliances that stretch across national boundaries.
It must be noted that there are several important limitations in this research. First, the size of the firms included make it difficult if not impossible to generalize to larger firms. In particular the relationship between the control mechanisms, equity and contracts, included in this study and confidence levels may be very different for larger firms. Intuitively it would seem reasonable that for much larger firms the relationship might prove to be curvilinear in nature (Barney and Hansen, 1994). As the firm becomes very large the importance of interpersonal relationships may become less and the role of contracts and equity in providing confidence in cooperative behavior may become greater—similarly to new alliance relationships in which these control mechanisms serve as substitutes for behavioral experience.
It is also important to note that although the results of this research clearly indicated significant differences across countries in the level of partner confidence the limits of this research did not allow for the exploration of the factors that might be creating this difference.
Summary and Conclusions
This research proposes and tests utilizing survey responses from entrepreneurial firms in three countries, a model of the attributes of confidence in cooperative behavior in alliance relationships. Drawing on both transaction cost and social control logic the model proposes that the overall level of confidence be determined by the assumption of appropriate behavior evolving from economic and contractual controls. More specifically the model tests the impact that these three factors have on the overall level of confidence under conditions of differing environmental conditions and alliance attributes.
The results of this study have important implications for strategic decisions regarding alliance structure and performance. For firm decision leaders, it is important to understand the tradeoffs made between more economically and contractually secured relationships and more socially bound yet flexible controls when faced with high environmental uncertainty. Firms in weak financial conditions should understand the tradeoffs presented by alliance relationships that require low equity involvement and the greater dependence that such relationships will necessitate in the way of social or contractual controls against opportunistic behavior.
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In general our strategic alliance partner…
1. seems to believe that complete honesty does not pay when dealing with alliance partners.
2. has sometimes promised to do things without actually doing them later.
3. sometimes present facts to us in such a way as to make them look good.
4. on occasion I believe they have lied in order to protect their interests.
5. have sometimes exaggerated their needs in order to get what they want.
1For the regression analysis survey item scoring was reversed in order to indicate the level of trust versus distrust. A 5-point Likert-type scale was utilized.
1. With respect to our industry…
Our company must 1 2 3 4 5 Our company must change its
rarely change its marketing marketing practices
practices to keep up with the extremely frequently (e.g.,
market and competitors semi-annually)
2. How would you characterize the external environment within which your company
Very safe, little threat 1 2 3 4 5 Very risky, one false step
to the survival and well- can mean my company’s
being of my company undoing
Rich in investment and 1 2 3 4 5 Very stressful, exacting, hostile;
marketing opportunities very hard to keep afloat
An environment that my 1 2 3 4 5 A dominating environment
company can control and in which my company’s
manipulate to its own initiatives count for very
advantage, such as a dominant little against the tremendous
firm has in an industry with little political, technological or
competition and few hindrances competitive forces
3. The competitive intensity within your industry is…
Minimally competitive 1 2 3 4 5 Extremely competitive
Total surveys delivered
Number of surveys returned
Number reporting alliance experience
Number of firms with equity investments
Number of firms with alliance contracts
Number of firms with informal handshake only
1. Industry type1
3. Total number of alliances
4. Technology based alliances
5. Firm size
6. Perceived general uncertainty
7. Equity investments
8. Contracts governing alliances
9. Informal, handshake only agreements
*p < .10, ** p < .05, ***p < .01
1Industry comparison group was “other”
2Country comparison group was “Mexico”